10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2007

OR

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

For the transition period from              to             

Commission file number 0-27570

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.

(Exact name of registrant as specified in its charter)

North Carolina	56-1640186
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

929 North Front Street Wilmington, North Carolina	28401
(Address of principal executive offices)	(Zip Code)

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

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

Common Stock, par value $0.05 per share	Nasdaq Global Select Market
(Title of each class)	(Name of each exchange on which registered)

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

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

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

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

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

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

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨
(Do not check if a smaller reporting company)

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

The aggregate market value of the common stock held by non-affiliates of the registrant was approximately $4.1 billion as of June 30, 2007, based on the closing price of the Common Stock on that date on the Nasdaq Global Select Market. Shares of common stock held by each executive officer and director and by each person who owns 10% or more of the outstanding common stock have been excluded in that such person might be deemed to be an affiliate. This determination of affiliate status might not be conclusive for other purposes.

As of February 15, 2008, there were 119,342,146 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The Company’s definitive Proxy Statement for its 2008 Annual Meeting of Stockholders (certain parts, as indicated in Part III).

TABLE OF CONTENTS

	Page
Part I.
Item 1. Business	1
Item 1A. Risk Factors	20
Item 1B. Unresolved Staff Comments	29
Item 2. Properties	30
Item 3. Legal Proceedings	31
Item 4. Submission of Matters to a Vote of Security Holders	31
Executive Officers	32
Part II.
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	33
Item 6. Selected Financial Data	34
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 7A. Quantitative and Qualitative Disclosures about Market Risk	55
Item 8. Financial Statements and Supplementary Data	56
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	56
Item 9A. Controls and Procedures	56
Item 9B. Other Information	58
Part III.
Item 10. Directors and Executive Officers of the Registrant	59
Item 11. Executive Compensation	59
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	60
Item 13. Certain Relationships and Related Transactions	60
Item 14. Principal Accountant Fees and Services	60
Part IV.
Item 15. Exhibits and Financial Statement Schedules	61

PART I

Statements in this Report that are not descriptions of historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management’s current view with respect to future events and financial performance, but are subject to risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including those set forth herein and in our other SEC filings, and including, in particular, the factors discussed in Item 1A, “Risk Factors.”

Item 1. Business

Overview

We are a leading global contract research organization providing drug discovery and development services, post-approval expertise and compound partnering programs. Our clients and partners include pharmaceutical, biotechnology, medical device, academic and government organizations. Our corporate mission is to help clients and partners maximize returns on their research and development investments and accelerate the delivery of safe and effective therapeutics to patients.

We have been in the drug development business for more than 22 years. Our development services include preclinical programs and Phase I to Phase IV clinical development services as well as bioanalytical product testing and clinical laboratory services. We have extensive clinical trial experience, including regional, national and global studies across a multitude of therapeutic areas and in various parts of the world. In addition, for marketed drugs, biologics and devices, we offer support such as product launch services, medical information, patient compliance programs, patient and disease registry programs, product safety and pharmacovigilance, Phase IV monitored studies and prescription-to-over-the-counter, or Rx to OTC, programs.

With offices in 30 countries, operations in 40 countries and more than 10,000 professionals worldwide, we have provided services to 45 of the top 50 pharmaceutical companies in the world as ranked by 2006 healthcare research and development spending. We also work with leading biotechnology and medical device companies and government organizations that sponsor clinical research. We are one of the world’s largest providers of drug development services to pharmaceutical, biotechnology and medical device companies and government organizations based on 2007 annual net revenue generated from contract research organizations.

Building on our outsourcing relationship with pharmaceutical and biotechnology clients, we established our discovery sciences business in 1997. This business primarily focuses on preclinical evaluations of anticancer therapies, biomarker discovery and patient sample analysis services, and compound development and commercialization collaborations. We have developed a risk-sharing research and development model to help pharmaceutical and biotechnology clients develop compounds. Through collaborative arrangements based on this model, we assist our clients by sharing the risks and potential rewards of the development and commercialization of drugs at various stages of development.

Our integrated drug discovery and development services offer our clients a way to identify and develop drug candidates more quickly and cost-effectively. In addition, with global infrastructure, we are able to accommodate the multinational drug discovery and development needs of our clients. As a result of having core areas of expertise in discovery and development, we provide integrated services across the drug development spectrum. We use our proprietary informatics technology to support these services.

Industry Overview

Discovering and developing new drugs is an extremely expensive, high-risk and time-consuming process. Multiple industry sources estimate the fully capitalized cost of developing and commercializing a new pharmaceutical product ranges from $800 million to over $1 billion. In addition, it generally takes between 10 and 15 years to develop a new prescription drug and obtain approval to market it in the United States.

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The drug development services industry provides independent product development services to pharmaceutical, biotechnology and medical device companies, and government organizations. This industry has evolved from providing limited clinical trial services in the 1970s to a full-service industry today characterized by broader relationships with clients and by service offerings that encompass the entire drug development process, including preclinical evaluations, study design, clinical trial management, data collection, biostatistical analyses, regulatory consulting, clinical laboratory and diagnostic services, pre- and post-approval safety analysis, product registration and post-approval support.

Over the past 22 years, technological advances, as well as the emergence of the biotechnology industry, have dramatically changed the drug discovery process. New and improved technologies have evolved such as ultra high-throughput screening, new in vitro and in vivo preclinical profiling techniques, biomarker research and the gene-based drug research commonly referred to as genomics. The objective of these innovations is to find more drug targets and to screen against targets much more quickly, with literally millions of chemical compounds possible. This process is expected to produce many more molecules having the ability to affect biological activity. These molecules then need to be tested quickly and economically to determine their viability as potentially safe and effective drug candidates. Moreover, many industry participants, including pharmaceutical, biotechnology and contract research companies, have broadened their efforts to collaborate technically and financially to optimize their drug pipelines.

The Drug Discovery and Development Process

Drug discovery and development is the process of creating drugs for the treatment of human disease. The drug discovery process aims to generate safe and effective drug candidates, while the drug development process involves the testing of these drug candidates for safety and efficacy in animals and humans and to meet regulatory requirements.

The Drug Discovery Process

Targets. Historically, scientists have used classical cellular and molecular biology techniques to map biological pathways in cells to provide a cellular basis for understanding disease processes. Based on this information, scientists are now using genomics to pinpoint genes responsible for cellular disease functions. Once genes are identified, they are tested in cellular assays or animals to identify which genes seem to have a causal link between cellular function and occurrence of disease. The preferred genes encode proteins that are used as drug targets in chemical screens.

Screening. After identifying a potential drug target, researchers develop tests, or assays, to screen chemicals for their ability to alter the functional activity of the target. Ones that do so are called “hits.” Thousands of chemicals can be quickly evaluated when these assays are incorporated into high-throughput screening processes. Hits that have good potency and selectivity are called “leads” and are then tested for their potential as drug candidates.

Lead Generation. Scientists now also design compound libraries to provide a starting point to identify leads in the drug discovery process and to better understand the biochemistry and therapeutic relevance of targets. High quality libraries contain compounds of known purity, structure and weight, and also have diverse structural variations. Once a hit is identified in a functional assay, the compound is profiled for drug characteristics such as solubility, metabolism, stability and feasibility for commercial production.

Lead Optimization. The process of “lead optimization” involves refining the chemical structure of a lead to improve its drug characteristics, with the goal of producing a preclinical drug candidate. Lead optimization typically combines empirical and rational drug design. In empirical design procedures, large numbers of related compounds are screened for selected chemical characteristics. In rational drug design, chemicals are optimized based on the three-dimensional structure of the target. A lead that has been optimized to meet particular drug candidate criteria and is ready for toxicity testing is called a preclinical candidate.

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Process Research and Development. Compounds created for screening in lead generation and lead optimization are made in relatively small, milligram quantities. Before a drug candidate can be taken into preclinical and clinical trials, larger quantities must be produced. The goal of process research is to improve the ease with which compounds can be produced in these larger quantities, typically by minimizing the number of production steps, and to determine how to reduce the time and cost of production. Process development refers to the production scale-up and further refinement required for clinical trials and commercial manufacturing.

The Drug Development Process

The drug development process consists of two stages: preclinical and clinical. In the preclinical stage, the new drug is tested in vitro, or in a test tube, and in vivo, or in animals, generally over a one- to three-year period. After successful preclinical testing, the new drug can be advanced to the clinical development stage, which involves testing in humans. The following discussion describes the role of the Food and Drug Administration, or FDA, in the clinical drug development process in the United States. Similar regulatory processes exist in other countries.

Prior to commencing human clinical trials in the United States, a company must file with the FDA an investigational new drug application, or IND, containing details for at least one study protocol and outlines of other planned studies. The company must provide available manufacturing data, preclinical data, information about any use of the drug in humans for other purposes and a detailed plan for the proposed clinical trials. The design of these trials, also referred to as the study protocols, is essential to the success of the drug development effort. The protocols must correctly anticipate the nature of the data to be generated and results that the FDA will require before approving the drug. If the FDA does not comment within 30 days after an IND filing, human clinical trials may begin.

The clinical stage is the most time-consuming and expensive part of the drug development process. The drug undergoes a series of tests in humans, including healthy volunteers as well as patients with the targeted disease or condition. Human trials usually start on a small scale to assess safety and then expand to larger trials to test efficacy. These trials are usually grouped into the following three phases, with multiple trials generally conducted within each phase:

• Phase I trials involve testing the drug on a limited number of healthy individuals, typically 20 to 80 people, to determine the drug’s basic safety data, including tolerance, absorption, metabolism and excretion. This phase lasts an average of six months to one year.

• Phase II trials involve testing a small number of volunteer patients, typically 100 to 200 persons, who suffer from the targeted disease or condition, to determine the drug’s effectiveness and how different doses work. This phase lasts an average of one to two years.

• Phase III trials involve testing large numbers of patients, typically several hundred to several thousand people, to verify efficacy on a large scale, as well as long-term safety. These trials involve numerous sites and generally last two to three years.

After the successful completion of all clinical phases, a company submits to the FDA a new drug application, or NDA, for a drug, or a biologic license application, or BLA, for a biologic, requesting that the product be approved for marketing. The NDA/BLA is a comprehensive, multivolume filing that includes, among other things, the results of all preclinical and clinical studies. The FDA’s review can last from a few months to several years, depending on the drug and the disease state that is being treated. Drugs that successfully complete this review may be marketed in the United States. As a condition to its approval of a drug, the FDA might require additional clinical trials following receipt of approval, in order to monitor long-term risks and benefits, to study different dosage levels or to evaluate different safety and efficacy parameters in target populations. In recent years, the FDA has increased its reliance on these trials, and with the passage of the Food and Drug Administration Amendments Act, or FDA Act, in late 2007, the FDA is expected to require sponsors to run more post-approved trials in the future.

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Trends Affecting the Drug Discovery and Development Industry

The drug discovery and development services industry has been and will continue to be affected by, among others, the following trends:

Rapid Technological Change and Increased Data. Scientific and technological advancements are rapidly changing the drug discovery and development processes, requiring industry participants to make significant investments to keep pace with competition. The technology to understand gene function, known as functional genomics, is dramatically increasing the number of identified potential drug targets within the human body. Many pharmaceuticals on the market today have historically targeted no more than an estimated 500 human gene products. With an estimated 20,000 to 25,000 human protein-coding genes, an enormous number of targets for therapeutic intervention remain untapped. This number of targets increases the need for companies to use state-of-the-art technologies to effectively validate and optimize promising targets and lead candidates. Industry participants are also looking to applications such as biomarker technology to save development time and costs, as well as enable more precise diagnosis and personalized treatment of disease. These evolving technologies and the expertise to manage them are costly and involve significant investments in expertise, capital, intellectual property and sophisticated instrumentation. Thus, drug discovery and development service firms that have the capability and expertise to provide early stage research and development services offer the potential to offset some of these investments and potentially reduce the financial risk of drug discovery efforts.

Changes in the Regulatory Environment. The drug discovery and development process is heavily regulated by the FDA and its Center for Drug Evaluation and Research, or CDER. The war on terror, the risk of global vaccine shortages and the threat of new potential pandemics have elevated the FDA’s focus on research in the areas of bioterrorism and vaccine development. In addition, recent product safety concerns, increases in drug and general healthcare costs and the emergence of importation issues have placed the FDA and other regulatory agencies under increased scrutiny. As a result of these and other events, drug safety, cost and availability are under intense monitoring and review by Congress, the FDA and other government agencies. In September 2007, primarily in response to the FDA’s handling of postmarket data and recent drug safety concerns, the FDA Act, was signed into law. In addition to reauthorizing and amending various provisions that were scheduled to expire, this Act provides the FDA with new regulatory authority to require drug sponsors to run postapproval clinical trials and develop and implement risk evaluation and mitigation strategies. The FDA Act and continued drug safety issues could have a lasting and pronounced impact on the drug discovery and development industry.

Government-Sponsored Drug Research and Development. Government agencies continue to be a significant source of funding for new drug and vaccine research and development. The total budget of the National Institutes of Health, or NIH, for the fiscal year 2007 and 2008 is approximately $29 billion and includes significant appropriations for drug research and development initiatives in the areas of cancer, vaccines, AIDS and chronic diseases such as diabetes. As a result, drug research and development service providers and contractors, including CROs, should continue to benefit from government-sponsored research and development initiatives.

Increase in Potential New Drug Candidates. The number of drug compounds in various stages of development has increased steadily over the past five years, with particularly strong growth in the number of compounds in early stages of development. While research and development spending and the number of drug candidates are increasing, the time and cost required to develop a new drug candidate also have increased. Many pharmaceutical and biotechnology companies do not have sufficient internal resources to pursue development of all of these new drug candidates on their own. Consequently, these companies are looking to the drug discovery and development services industry for cost-effective, innovative and rapid means of developing new drugs.

Research and Development Productivity. While the total number of compounds in clinical development has increased in the last several years, thereby increasing the aggregate spending on research and development programs associated with new drug candidates, the number of novel new drugs approved for marketing remained relatively flat or even declined in recent years. Pharmaceutical and biotechnology companies have responded by focusing on efforts to extend the value of existing products, improve clinical success rates, restructure and re-engineer business processes and business units and lower clinical study costs. Furthermore, many pharmaceutical and biotechnology companies have also responded to the productivity challenge by increasing their focus on licensing and collaborative arrangements to improve new drug pipelines and gain financing for future development and marketing programs.

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Biotechnology Industry Growth. The U.S. biotechnology industry has grown rapidly over the last decade and has emerged as a key client segment for the drug development services industry. While the biotechnology industry accounts for a smaller percentage of total industry R&D expenditure, the rate of biotechnology companies’ spending is higher than traditional pharmaceutical companies. This industry is generating significant numbers of new drug candidates that will require development and regulatory approval. Many of these new drug candidates are now moving into clinical development, with over 1,000 products in Phase II/III clinical development. Many biotechnology companies do not have the necessary staff, operating procedures, experience or expertise to conduct clinical trials on their own. Because of the time and cost involved, these companies rely heavily on contract research organizations to conduct clinical research for their drug candidates. The ability of small and mid-sized biotech companies to attract the funding needed to sustain operations and advance clinical candidates to subsequent stages in the development process can affect the growth of the development services industry. Over the past several years, venture capital funding for small and mid-sized biotech companies has continued to grow, averaging over $1 billion per quarter over the last several quarters.

Globalization of Clinical Trials. Clinical trials have become increasingly global as sponsors seek to accelerate patient recruitment, broaden access to trained investigators, reduce costs and gain access to new sources of market expertise. Moreover, pharmaceutical and biotechnology companies are increasingly seeking to file drug registration packages in multiple countries and regulatory jurisdictions to extend drug product markets. More clinical study work is being conducted in Eastern Europe, Asia and Latin America, as well as other geographic regions. The clinical studies to support these registration packages frequently include a combination of multinational and domestic trials. This trend puts an emphasis on global experience and coordination throughout the development process, including the collection, analysis, integration and reporting of clinical trial data. Among the major global drug development service providers, approximately 40% of the net revenue generated in 2007 was derived from outside of the United States.

Cost Pressures of Introducing New Drugs. Market forces and governmental safety initiatives place significant pressures on pharmaceutical and biotechnology companies to reduce drug prices. In addition, increased competition as a result of patent expiration, market acceptance of generic drugs, and governmental and private managed care organization efforts to reduce healthcare costs have added to drug pricing pressures. The industry is responding by consolidating, streamlining operations, decentralizing internal discovery and development processes, and minimizing fixed costs. In addition, increased pressures to differentiate products and justify drug pricing are resulting in an increased focus on healthcare economics, safety monitoring and commercialization services. Moreover, pharmaceutical and biotechnology companies are attempting to increase the speed and efficiency of internal new drug discovery and development processes.

PPD’s Solution

We address the needs of the pharmaceutical, biotechnology and medical device industries, as well as academic and government organizations, for drug discovery and development by providing integrated services to help our clients maximize the return on their research and development investments. Our application of innovative technologies, therapeutic expertise and commitment to quality throughout the drug discovery and development process offers our clients a way to identify and develop successful drugs and devices more quickly and cost-effectively. We have obtained significant drug development expertise from more than 22 years of operation, and in 2003 we expanded into the medical device industry. We use our proprietary informatics technology across our discovery and development services to support and help accelerate the process. Finally, with global infrastructure and expertise in key regions throughout the world, we are able to accommodate the multinational discovery and development needs of our clients.

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Our Strategy

Our corporate mission is to help clients maximize the return on their research and development investments and accelerate the delivery of safe and effective therapeutics to patients. The key parts of our strategy to accomplish this mission include the following:

• Continue to build our core competencies. We are an established company led by professionals with significant discovery and development experience helping bring successful products to market throughout the world. This experience and expertise constitute our core operational strengths. Our performance in development services has made us one of the largest providers of those services globally. We are continually building our competencies by seeking to hire top professionals in key markets around the world.

• Continue to provide a broad range of integrated drug discovery and development services and products. We offer a broad range of integrated services and products that are designed to address our clients’ needs from the preclinical through post-approval phase. By integrating extensive discovery and development services and products across our clients’ product life cycles, we can more effectively serve existing clients and attract new clients. We believe that our range of discovery and development services and products is one of the most extensive available from a single company.

• Continue to incorporate advanced technologies into our service offerings. We have broad experience in the use of technology to improve quality while creating cost efficiencies and accelerating the discovery and development processes. We offer our clients a wide range of technology-based services and products, using a mixture of commercially available third-party systems and internally developed software to help expedite the discovery and development processes for both drugs and devices. As new technologies develop, we equip and train our employees to make use of the innovations. We also plan to continue to leverage and build strategic technology relationships.

• Continue to pursue collaborative drug development relationships. We plan to continue to selectively seek opportunities to in-license and develop earlier stage compounds based on our risk-sharing model. These types of arrangements could provide us opportunities to receive upfront license fees, milestone payments and royalties on sales of drugs successfully developed and commercialized. We also intend to selectively pursue out-licensing arrangements, which might also involve us providing discovery and development services for the continued development of the potential drug candidate.

• Continue to develop intellectual property rights. One of the keys to our long-term performance is the development of our intellectual property rights in a variety of areas, including proprietary clinical development processes, tools and software, as well as rights to the compounds and methods of use developed from risk-sharing arrangements. The former protect our competitive advantage in our core services, and the latter provide revenue opportunities via upfront license fees, milestone payments and royalties on sales of drugs, if successfully developed and commercialized.

• Continue strategic global expansion to meet client needs. We currently have operations in the Americas, Europe, Africa, the Middle East, Asia and Australia, which position us to meet our clients’ multinational needs. We intend to further expand globally when we deem it appropriate to meet our existing and prospective clients’ demands.

• Continue to pursue strategic acquisitions and investments. We will continue to actively seek strategic acquisitions and investments, both within and complementary to our current service lines. Our criteria for acquisitions and investments include complementary client lists, ability to increase market share within and across clients, complementary therapeutic area and service segment strengths, strategic geographic capabilities, particular process expertise and complementary services, products or technologies.

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Our Services

We provide services designed to increase efficiency, reduce time and save costs through our global infrastructure, integrated research and development technologies experience, and client-focused communications. We operate in two segments: Discovery Sciences and Development. See our consolidated statements of operations included elsewhere in this report for segment information regarding revenue and see Note 16 in the Notes to Consolidated Financial Statements for segment information regarding total assets and a measure of profit or loss.

Our Discovery Sciences Group

Our Discovery Sciences Group focuses on the discovery research segment of the biopharmaceutical research and development outsourcing market.

Preclinical Service. Our preclinical biology group integrates pharmacology, metabolism, pharmacokinetic and toxicology expertise to provide preclinical program design and project management services. We provide a broad range of preclinical services including:

• preclinical program design;

• specialized preclinical oncology research models;

• toxicology consulting;

• laboratory services; and

• technical writing and regulatory submissions.

Once a potential drug candidate is identified, we offer services that enable our clients to make decisions about whether to advance the drug candidate into a preclinical program both faster and with a greater probability of success. Our experts can provide full preclinical development services and integrate other development services internally.

We offer preclinical consulting as well as a full range of preclinical efficacy, pharmacokinetic, pharmacodynamic and mechanism models for anticancer therapeutic candidates. Our experienced preclinical staff designs and manages the studies needed to identify, profile and optimize lead compounds across all therapeutic areas.

Supported by our board-certified toxicologists, we develop and implement preclinical toxicology programs. To support the clinical development program, we write the toxicology study protocols, identify qualified good laboratory practice, or GLP, testing facilities, manage the placement and conduct of studies, and prepare and review pharmacology, toxicology, absorption and metabolism data for regulatory submissions.

We provide non-GLP bioanalytical services in our laboratory located in Middleton, Wisconsin. Our bioanalytical laboratory analyzes biological fluid samples from preclinical animal studies and conducts in vitro discovery/early development experiments to test potential drug candidates.

Our technical writers, alongside our board-certified toxicologists, prepare pharmacology and toxicology summaries for regulatory submissions. They also work with regulatory authorities to develop preclinical plans. We offer a full range of regulatory support services, including document preparation, review and submission for all preclinical regulatory filings required by regulatory agencies, as well as facilitation of meetings with regulatory agencies to ensure successful outcomes.

Biomarker Discovery Sciences. We provide biomarker discovery and patient sample analysis at our Menlo Park, California, biomarker discovery sciences laboratory. Biomarkers are components of bodily fluids that indicate the progression or presence of a disease. Our laboratory is equipped with advanced technologies to carry out identification of the different types of proteins, naturally occurring peptides and metabolites, as well as of blood cell populations from a variety of biological samples. Our proprietary mass spectrometry platform that is used for proteomic, peptidomic and metabolomic quantification is at the center of our process. Our technology allows clients to analyze patient samples for novel or known biomarkers in the presence or absence of a drug. The changes in the

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biomarker profile of a patient can assist in the evaluation of the efficacy of a drug. We were issued a U.S. patent covering our proprietary MassView™ software in 2005. The MassView software helps scientists identify individual components of a biological sample and the amount of each component in the sample.

Compound Collaboration Programs. With increased capacity to screen and develop early lead compounds and candidates, pharmaceutical companies now find themselves lacking the capacity to develop all of these compounds and take them to market within a reasonable time. Many biotechnology companies have promising drug development candidates but lack the financial resources or the infrastructure to develop them further. These situations provide attractive opportunities for us to use our extensive experience in strategic, global drug development to selectively in-license and develop compounds or jointly develop drug candidates in collaborative arrangements. Our compound collaborative efforts have created a pipeline of products that leverages our resources, creates new opportunities for growth, and allows us to share the risks and rewards of drug development with our clients and partners.

We entered into our first compound partnering arrangement in 1998 when we acquired an exclusive license, as part of a development collaboration with Eli Lilly and Company, to develop and commercialize the compound dapoxetine for genitourinary indications, including premature ejaculation, or PE. We developed the compound through Phase II proof-of-concept and, in January 2001, out-licensed it to ALZA Corporation which was subsequently acquired by Johnson and Johnson. Under the terms of the agreement, we granted Johnson and Johnson worldwide rights to develop and commercialize dapoxetine and Johnson and Johnson is responsible for all clinical, regulatory, manufacturing, sales and marketing costs associated with the compound. In exchange, we received an upfront payment and are entitled to receive further payments if regulatory milestones are achieved. In addition, we are entitled to receive royalty payments based on sales of dapoxetine, as well as milestone payments when specified sales levels are reached. In December 2003, we acquired Lilly’s patents and remaining rights to develop and commercialize dapoxetine in the field of genitourinary disorders in return for a cash payment of $65.0 million. We also agreed to pay Lilly a royalty of 5% on annual sales of dapoxetine, if any, in excess of $800 million. In December 2004, Johnson and Johnson submitted an NDA to the FDA for dapoxetine. The FDA accepted the NDA for filing in February 2005, which triggered a $10.0 million milestone payment from ALZA to us. In October 2005, Johnson and Johnson received a “not approvable” letter from the FDA, but continued its global development program. In December 2007, Johnson and Johnson submitted a marketing authorization application for dapoxetine to regulatory authorities in seven countries in the European Union. Although these regulatory applications have been submitted, we do not know if or when Johnson and Johnson will submit applications for or obtain regulatory approval for dapoxetine in the United States or any other country.

In 2003, we made an equity investment in Syrrx, Inc., a privately held drug discovery company, and entered into a collaboration agreement to develop Syrrx’s orally active dipeptidyl peptidase IV, or DPP-4, inhibitors to treat type 2 diabetes and other major human diseases. In March 2005, Takeda Pharmaceutical Company Limited acquired Syrrx. In July 2005, Takeda acquired the development and commercialization rights to all DPP-4 inhibitors previously granted to us under the collaboration agreement between PPD and Syrrx. Under the new agreement, Takeda paid us a $15.0 million upfront payment in the third quarter of 2005. We will also be entitled to receive potential milestone payments and royalties associated with the future development and commercialization of specified DPP-4 inhibitors and will serve as the sole provider of clinical and bioanalytical services to Takeda for Phase II and Phase III trials of DPP-4 inhibitors conducted in the United States and Europe. As a result of this agreement, we will have no further material expense associated with the development and commercialization of these DPP-4 inhibitors. In January 2006, Takeda commenced Phase III trials for the lead DPP-4 inhibitor, alogliptin, and as a result, paid us a $15.0 million milestone payment. In December 2007, Takeda submitted an NDA for alogliptin to the FDA. If the FDA accepts the NDA for filing, we will earn a $15.0 million milestone payment from Takeda. In addition, if the FDA approves the NDA for alogliptin, we will earn a $25.0 million milestone payment from Takeda.

In 2004, we purchased shares of Accentia Biopharmaceuticals, Inc. Series E convertible preferred stock for $5.0 million. Accentia is a specialty biopharmaceutical company focused on the development and commercialization of late-stage clinical products in the areas of respiratory disease and oncology. In 2004, we also entered into a royalty stream purchase agreement with Accentia under which we purchased for $2.5 million a royalty stream equal to 7% of net sales of specified products. We subsequently amended that agreement and agreed to

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provide specified clinical development services, up to a maximum dollar limitation, to Accentia in connection with a Phase III trial for SinuNase^®, Accentia’s proprietary compound that it is developing for the treatment of chronic sinusitis. In exchange for providing these services, Accentia agreed to pay us an additional royalty equal to 7% of the net sales of specified SinuNase products if approved for sale by the FDA. Under the amended agreement, either party had the option to terminate the provisions of the agreement related to our obligation to provide clinical development services at any time on or before December 31, 2006. Accentia exercised this option and terminated these provisions of the agreement effective December 28, 2006. Accentia recently announced that it completed enrollment in the SinuNase Phase III program and expects to announce top-line results in the first quarter of 2008.

In early 2007, we exercised our option to acquire an exclusive worldwide license from Ranbaxy Laboratories, Ltd. to develop, manufacture and market its novel statin for the treatment of dyslipidemia. The preclinical toxicology, drug metabolism and pharmacokinetic data suggest that the statin has the potential to offer an improved safety profile over currently marketed statins. Under the terms of the agreement, Ranbaxy will be entitled to receive milestone payments upon the occurrence of specified clinical events. In the event of approval to market a drug product, Ranbaxy will be entitled to receive royalties on sales of the drug and sales-based milestones. We will be responsible for all costs and expenses associated with the development and commercialization of the compound, including preclinical and clinical studies. Ranbaxy has retained co-marketing rights to the compound in India. We filed an investigational new drug application with the U.S. FDA in March 2007 and completed a Phase I single dose study in humans in July 2007, and the compound was safe and well tolerated at all doses in this trial. We also completed a first-in-patient study, and a drug-drug interaction study to evaluate the interaction between our statin and gemfibrozil, a fibrate commonly used to lower triglycerides. We are currently conducting additional trials to further evaluate the safety and efficacy of this statin. We have preliminary results from the first part of a high dose comparator trial. These preliminary results suggest that our statin was well-tolerated in the first part of this trial based on adverse event and clinical laboratory data and compared favorably to the comparator statins with respect to lipid lowering. The second part of the study is in progress and final results could vary materially from the preliminary results. We anticipate having final results from this high dose comparator study in the first quarter of 2008 and plan to decide upon a course of action related to this statin program after evaluating the full and complete results from these trials.

Our Development Group

We have designed our various global services to be flexible and integrated in order to assist our clients in optimizing their research and development spending through the clinical stages of the development process. We provide a broad range of development services, either individually or as an integrated package, to meet clients’ needs.

Phase I Clinical Testing. Having conducted Phase I studies for more than 20 years, we are one of the industry’s most experienced Phase I trial providers. Our 300-bed Phase I clinic in Austin, Texas capitalizes on our strengths in conducting first-in-man studies, cardiac monitoring and large, complex, procedure-intensive Phase I trials. Our professional physician and nursing staff administer general Phase I safety tests, special population studies and bioavailability and bioequivalence testing. Bioavailability and bioequivalence testing involves administration of test compounds and obtaining biological fluids sequentially over time to measure absorption, distribution, metabolism and excretion of the drug. Our Phase I unit also includes a dental research clinic to evaluate the safety and effectiveness of new analgesic compounds in molar extraction models. Our Phase I services can also be integrated with other services that we provide, such as bioanalytical, data management, pharmacokinetic and biostatistical services.

Laboratory Services. We offer the following laboratory services:

Austin Central Laboratory. Our Austin central laboratory is located in our Phase I unit and primarily supports the Phase I operations there. This laboratory performs clinical chemistry assays on volunteer specimens to ensure each subject qualifies for the study and is not adversely affected by a drug. Having our laboratory in the same facility as the volunteers speeds our response time to assess unexpected outcomes. This laboratory also serves as a central laboratory for U.S. small to medium size Phase II through IV multicenter safety studies.

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Global Central Laboratories. Based in Highland Heights, Kentucky, and Brussels, Belgium, our global central laboratories provide highly standardized efficacy and safety testing services with customized results databases for pharmaceutical and biotechnology companies engaged in clinical drug development, as well as government-funded studies. We focus on providing long-term, large-scale studies where laboratory measurement of clinically relevant endpoints is critical. Our global central laboratories can provide these services worldwide within 24 to 48 hours from the time a patient’s blood is drawn. In addition, in the first quarter of 2008, we established a collaboration with Peking Union Lawke for central laboratory services in China.

Bioanalytical Laboratories. We provide bioanalytical services through GLP-compliant laboratories in Richmond, Virginia, and Middleton, Wisconsin. Our bioanalytical laboratories analyze biological fluid samples from animal and human clinical studies. The latter studies include those conducted by our Phase I unit as well as those conducted on behalf of our clients from Phase I to IV for drug and metabolite content and concentration. We currently have more than 2,250 validated assays available for our clients’ use in conducting laboratory analyses. Our laboratories also process fluid samples for preclinical studies. Our bioanalytical methods include liquid chromatography/mass spectrometry (LC/MS), high performance liquid chromatography (HPLC), radioimmunoassay (RIA) and enzyme-linked immunosorbent assay (ELISA). Support services include handling HIV-positive samples, managing data for pharmacokinetic studies from multicenter trials, and archiving samples and data. In early 2008, our service offerings expanded to include complex immunologic assays for the vaccine industry.

cGMP Laboratory. We provide product analysis laboratory services through our cGMP-compliant laboratory in Middleton, Wisconsin. Our product analysis services include inhalation, biopharmaceutics, dissolution, stability and microbiology studies. These studies are necessary to characterize dosage form release patterns and stability under various environmental conditions in the intended package for marketing. These evaluations must be carried out from preclinical testing through Phase IV and the resulting data maintained over the commercial life of a product. New formulations, as well as generics and prescription products going to over-the counter status such that they no longer require physician prescription for consumer use, all require the same set of studies as the original dosage form.

We are one of a few full service companies able to offer our clients the advantages of bioanalytical, biomarker, product analysis and global central laboratory services, as well as Phase I clinical testing.

Phases II – IV Clinical Trial Management. The core of our development business is a comprehensive package of services for Phases II – IV clinical trials which, in conjunction with our other services, allows us to offer our clients an integrated package of clinical management services. We have significant clinical trials experience in the areas of:

General Areas of Expertise	Specific Areas of Expertise
Analgesia	Acute and chronic pain, cancer break through pain
Cardiovascular disease	Hypertension, angina pectoris, stroke, peripheral arterial disease, congestive heart failure, atrial fibrillation, acute coronary syndrome, thromboembolic disorders
Central nervous system disease	Schizophrenia, depression, epilepsy, chronic pain, anxiety, obsessive-compulsive disorders, panic disorders, insomnia, multiple sclerosis, Alzheimer’s disease
Critical care	Sepsis, ARDS (acute respiratory distress syndrome), trauma
Dermatology	Wound healing, acne, hair loss, psoriasis
Gastroenterology	Duodenal ulcer, gastric ulcer, gastro-esophogeal reflux disease, H.pylori, nonsteroidal anti-inflammatory drug-induced ulcers, inflammatory bowel disease, irritable bowel disease
Genitourinary	Incontinence, sexual dysfunction, overactive bladder
Hematology	Leukemia, hemophilia, lymphoma, myeloma, anemia
HIV/AIDS	Primary disease, treatment/prophylaxis of opportunistic infections
Infectious disease	Pneumonia, sinusitis, ear infections, swimmer’s ear, chronic bronchitis, urinary tract infection, skin and soft tissue infection, vaginal infections, thrush, athlete’s foot, ringworm, fungal blood infections, childhood and adult vaccines

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General Areas of Expertise	Specific Areas of Expertise
Metabolic/endocrine disease	Diabetes, growth hormone, hyperlipidemia
Oncology	Prostate, colorectal, breast, lung, brain, gastric, pancreatic and other cancers
Pulmonary/allergy	Asthma, allergic rhinitis, chronic sinusitis, neonatal RSV treatment, prophylaxis
Rheumatology/immunology	Rheumatoid arthritis, osteoarthritis, lupus, gout, psoriasis
Urology	Sexual dysfunction, urinary incontinence, overactive bladder
Virology	Herpes simplex, chronic hepatitis B, chronic hepatitis C, genital herpes, respiratory syncytial virus, influenza
Women’s health	Osteoporosis, hormone replacement therapy

We provide our clients with one or more of the following Phase II – IV clinical trial management services:

Study Protocol and Case Report Form Design. The protocol defines the medical issue the study seeks to examine and the statistical methods that will be used. Accordingly, the protocol specifies the frequency and type of laboratory and clinical measures that are to be tracked and analyzed, the number of patients required to produce a statistically valid result, the period of time over which they must be tracked, and the frequency and dosage of drug administration. To be successful and for the product to make it to market, the protocol must fulfill requirements of regulatory authorities. Once the study protocol has been finalized, the case report form, or CRF, must be developed. The CRF is the critical document for investigative sites to record the necessary clinical data as dictated by the study protocol. If necessary, the protocol and CRF change at different stages of a trial. A CRF for one patient in a given study may consist of 100 or more pages. We serve our clients in the critical area of study design by applying our experience in the preparation of study protocols and case report forms and providing the associated study specific training.

Site and Investigator Recruitment. Third-party physicians, referred to as investigators, administer the compound under investigation to patients at hospitals, clinics or other locations, referred to as sites. Investigators implement or test medical devices in similar settings. A significant portion of a trial’s success depends on the successful identification and recruitment of experienced investigators with an adequate base of patients who satisfy the requirements of the study protocol. We recruit these investigators to participate in clinical trials and have access to several thousand investigators who have conducted clinical trials for us in the past. We work closely with clients to identify investigator sites with a proven record in managing and overseeing clinical studies. We are continually looking for new investigator sites around the world, with the ability to recruit patients in the therapeutic area of trial, complying with GCP’s and meeting our quality expectations.

Patient Enrollment. The investigators, with our assistance, find and enroll patients suitable for the study. The speed with which trials can be completed is significantly affected by the rate at which patients are enrolled. Prospective patients are required to review information about the drug or device and its possible side effects, and sign an informed consent form to record their knowledge and acceptance of potential side effects. Patients also undergo a medical examination to determine whether they meet the requirements of the study protocol. Patients then receive the compound and are examined by the investigator as specified by the study protocol.

Study Monitoring and Data Collection. As patients are examined and tests are conducted in accordance with the study protocol, data are recorded on CRFs. Specially trained persons known as monitors visit sites regularly to ensure that CRFs are completed correctly and to verify that the study has been conducted in compliance with the protocol and GCP. We offer electronic data capture, or EDC, technologies, which can significantly enhance both the quality and timeliness of clinical data collection while achieving real time data assessment of trial progress. Our study monitoring and data collection services are designed to comply with the FDA’s and other relevant regulatory agencies’ safety reporting guidelines as well as provide timely reviews for independent data monitoring safety committees. With significant experience conducting large global clinical trials, we have monitored thousands of clinical trials, including many large international trials with hundreds of sites and thousands of patients per trial. Our project management services are key to providing leadership and direction, across our global team, utilizing systems and processes to assure quality, effective delivery and accuracy throughout the project. Our global risk management process addresses potential obstacles, provides strategic intervention solutions and determines escalation pathways for further discussion, if needed.

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We monitor our clinical trials in compliance with government regulations and guidelines. We have adopted global standard operating procedures intended not only to satisfy regulatory requirements in the United States and in many foreign countries, but also to serve as a tool for controlling and enhancing the quality of our clinical trials. All of our standard operating procedures comply with good clinical practices, or GCP, requirements and the International Conference on Harmonisation, or ICH, standards. The FDA has adopted these standards in its guidance documents and the members of the European community and Japan have codified these standards into their clinical research regulations. We compile, analyze, interpret and submit data generated during clinical trials to the FDA or other relevant regulatory agencies for purposes of assisting our clients in obtaining regulatory approval. We also provide consulting on the conduct of clinical trials for simultaneous regulatory submissions to multiple countries.

Government Services. We have an extensive history of working with the National Institutes of Health, particularly with the National Institute of Allergy and Infectious Diseases, or NIAID. We have more than 15 years experience working as the clinical site monitoring group for the Division of AIDS, or DAIDS, at NIAID. The initial contract requirements were for monitoring services at domestic sites; however, this has been expanded to include both domestic and international sites as well as GCP training for the sites, laboratory audits and GLP training and quality management. Approximately 80 full-time professional and administrative staff, including registered nurses with experience in monitoring HIV/AIDS therapeutic trials, provide training, quality management and clinical monitoring services to the NIAID, Division of AIDS. Currently this program provides services through more than 700 sites in 43 countries. In connection with our work with NIAID, since 2000, we have conducted nearly 12,500 interim site visits, which involved chart review, pharmacy assessments, site operation assessments, laboratory audits and regulatory file reviews for approximately 900 protocols.

Data Management and Biostatistical Analysis. We provide clients with design input from product development plans, protocol design, CRF design and database development. In addition, we have in-depth experience with EDC systems and our database structures comply with industry established standards and government regulations. We prepare statistical and safety summaries for interim and final analyses, data safety monitoring committees, endpoint adjudication committees and regulatory submissions (including NDAs, BLAs and PMAs).

Medical Writing and Regulatory Services. We provide planning services for product development including preclinical review, consulting and clinical protocol development. These activities are complemented by report writing, program management and other regulatory services designed to reduce overall development time.

Safety/Pharmacovigilance. We provide both pre-approval and post-approval pharmacovigilance services to the pharmaceutical and biotechnology industry. For example, we are now processing an average of more than 3,500 reports per month globally on adverse events that are serious or non-serious events of special interest. We specialize in the real-time processing of event reports necessary for non-biased, independent third-party adjudication, and have managed adjudicated safety studies of up to 25,000 patients.

Post-Approval Services and Market Development Support. We provide custom-designed post-approval services as well as programs to help develop markets for products still under development for pharmaceutical, biotechnology and medical device clients. In 2003, we created a dedicated team of clinical, marketing and health outcomes experts to help companies with pre-launch (Phase II through IIIb) and post-approval (Phase IV) programs to develop products as well as the markets for new products and to extend the market value of existing products. The portfolio of services we offer in this area includes health outcomes, large-volume Phase IV monitored studies, registries and observational studies, medical information, professional contact center services, writing and editorial services, risk management services, Rx-to-OTC switch programs, and online marketing and education.

PPD GlobalView, our proprietary web-based EDC system, has provided our post approval studies with a customizable, intuitive system for investigators to fulfill their trial objectives. Applying advanced technologies and

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experience, we combine health outcomes such as epidemiology, psychometrics and economics with clinical research to measure and compare risks, benefits and economic and quality-of-life impacts of drug therapies. Our Phase IV monitoring studies can produce valuable safety and efficacy data analyses as well as provide information for patient education programs. Our registries and observational studies collect real-world data on how a product is used in a non-controlled setting. Data can be used to determine actual prescriber use or treatment patterns, to collect potential safety signals for further investigation, and to evaluate effectiveness and patient quality of life. Our patient adherence programs can optimize real-world outcomes and indicate ways to help enhance proper use of a drug by the physician and patient. We also provide Rx-to-OTC switch programs, transitioning prescription products to OTC programs.

Medical Device Market. We support both pre- and post-approval trials for medical device products in a variety of therapeutic areas with particular focus on interventional cardiovascular trials. We provide expert regulatory consulting along with clinical trial execution, project management, monitoring, data management, biostatistics and medical report writing.

eClinical Initiatives. Our eClinical initiatives offer efficiencies, enhanced quality and improved communications with our clients. We utilize a global project milestone and resource management tool that helps project managers provide efficient and cost-effective study management with quality deliverables. We use our clinical trial management system to provide web-based, real-time access to study data from anywhere in the world, across our Phase II-IV studies. The CTMS system has been enhanced to provide ad hoc reporting capabilities and integration with our internal Interactive Voice/Web Response System, or IVRS/IWRS system. We are continuing to develop system interfaces with internal applications, such as remote data capture, or RDC, and client systems for seamless data transfer. We also provide RDC services using Oracle^® Clinical’s RDC platform, as well as offer our in-house PPD GlobalView EDC system for post approval trials. We also support use of third party EDC vendors in all phases of clinical trial work. Coupled with PPD Patient Profiles and our biostatistical “real time analysis”, we offer our clients graphical display of real-time study data and blinded statistical tables and listings on an ongoing basis.

Our PPD DirectConnect^™ web portals are now supporting more than 490 client studies across approximately 136 pharmaceutical, biotechnology, clinical laboratory and government clients. We have more than 8,300 external users of PPD DirectConnect^™ and we should complete our 1,000^th DirectConnect^™ site in the first half of 2008. This technology has become a core part of how we provide secure, timely access to key study information to our clients. We continue to expand our use of a web-based document management system across the enterprise. This system enables us to utilize resources across disparate locations through the use of workflow automation, electronic signatures and content sharing for global project and departmental teams.

During 2007, we continued enhancing our post-approval EDC system, PPD GlobalView and our event tracking and electronic adjudication system, PPD GlobalView EventNet™. Our focus has been on providing new features that allow immediate access to on-line datasets and interactive safety reports, as well as automating our CRF generation tools. PPD Global View systems provide our registries and observational studies group with key study metrics and tracking functionality while providing research investigators a reliable, easy to use data collection system for large post-approval global studies.

Informatics. Our informatics division, known as CSS Informatics, delivers specialized software products and technical consulting services to support many aspects of the pharmaceutical research and development process, including drug discovery, clinical trials, regulatory review and pharmacovigilance. Our informatics clients include international and domestic pharmaceutical and biotechnology companies and government agencies, including the FDA. Our current informatics software products include:

• PPD Patient Profiles, which streamlines patient data review and provides graphical displays of complex research data;

• TableTrans^®, which automates data transformation and integration;

• eLoader™, which streamlines and automates loading of external data into Oracle Clinical;

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• CAVS (Computer Aided Validation System), which streamlines the test development and execution process;

• E2B ICSR Browser, which allows companies to configure and create individual case study reports, or ICSRs, for any drug safety software system, transmit them to regulators and partners, and monitor the transmission status, all with real-time e-mail alerts.

• PPD MedDRA (Medical Dictionary for Regulatory Activities) Browser, which allows for browsing the MedDRA dictionary via a web-based interface;

• PPD WhoDD (Who Drug Dictionary) Browser, which allows for browsing the WhoDD dictionary via a web-based interface;

• PPD MedDRA Query Manager, which allows companies to develop and maintain Standardized MedDRA Queries; and

• MedDRA Upgrade and Impact Analysis, which allows for the analysis and comparison of assessing the impact of changes between versions of the MedDRA dictionary.

A primary focus of our informatics division is to provide consulting services to help pharmaceutical, biotechnology and medical device companies assess and resolve clinical data management and safety system challenges, such as integrating and customizing systems, migrating clinical and safety data, providing computer systems validation services that include compliance evaluation, and updating or replacing legacy systems to meet regulatory guidance. We provide expertise on the Oracle Life Sciences suite of products with a full range of support services including installation, training, validation, technical support and custom development. Also, leveraging the PPD technical infrastructure, we provide application service provider, or ASP, hosting services for the entire Oracle Life Sciences suite of products.

Clients and Marketing

We provide a broad range of discovery and development services and products to help pharmaceutical, biotechnology and medical device companies as well as academic and government organizations develop compounds, drugs and devices, and gain regulatory approval in the markets in which they plan to sell these products. We believe PPD is recognized among our clients as a leading global contract research organization.

Client Identification and Mix

Our Development Group provides Phase I through Phase IV clinical development and post-approval services. We market these services in the Americas, Europe, Middle East, Africa, and Asia Pacific. The key differentiators that help us win development business from pharmaceutical and biotechnology companies and academic and government organizations include our global infrastructure, quality-driven execution based on ongoing training, quality assurance and control practices, and cross-functional groups with dedicated therapeutic expertise. Through our medical device development group, we offer clinical trial services and regulatory expertise to device companies, including a number of the leading cardiovascular device manufacturers and pharmaceutical companies developing adjunct therapies. In addition, our post-approval services combine clinical, marketing and health outcomes expertise to help pharmaceutical, biotechnology and device companies implement a wide range of strategies to capitalize on the strengths of products and maximize their life cycle.

From a geographic perspective, 63.0% of our Development Group’s net revenue in 2007 was derived from the United States, with the balance primarily coming from Europe. For additional information on the geographic distribution of our net revenue, see Note 17 in the Notes to Consolidated Financial Statements included elsewhere in this report.

Our Discovery Sciences Group offers services and technologies to select drug candidates for clinical evaluation. This group primarily targets clients in the pharmaceutical and biotechnology industries. In addition, we perform research on compounds that we own or license through our compound partnering relationships. For the year ended December 31, 2007, all of our Discovery Sciences Group revenue was generated in the United States.

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For the year ended December 31, 2007, total net revenue for all of our services was derived from various industries approximately as follows:

Source	Percentage of Net Revenue
Pharmaceutical	58.7	%
Biotechnology	29.1	%
Government and other	12.2	%

For purposes of classifying net revenue, we define pharmaceutical to include companies with the majority of their research and development related to chemical entities, and biotechnology to include companies with the majority of their research and development related to biologically engineered compounds. Other includes companies primarily focused upon medical devices, diagnostics and generic formulations. We refer to the Standard Industry Classification, or SIC, codes for publicly traded companies to determine their classification.

Concentration of business among large clients is not uncommon in our industry. Our diverse client mix, in which no single client in 2007 accounted for more than 10% of our net revenue, limits our exposure to significant risks associated with industry consolidation and major product cancellations. However, we have experienced higher concentration in the past and might experience it in the future. Approximately 39.7% of our 2007 net revenue was derived from clients headquartered outside the United States, in particular in Europe and Japan. Approximately 36.5% of our 2007 net revenue was generated from services provided by our employees located in countries outside the United States. See Note 17 in the Notes to Consolidated Financial Statements included elsewhere in this report for the breakdown of this revenue.

Marketing Strategy

With a primary focus on large pharmaceutical and biotechnology companies, we promote our preclinical services through concentrated business development efforts, scientist-to-scientist communications and centralized corporate marketing programs. In addition, we believe our reputation assists in securing repeat business and new clients for our specialized preclinical oncology lab.

For our development services and products, we use corporate marketing to support the efforts of our centralized business development staff calling on pharmaceutical, biotechnology and device companies. Our sales teams focus on client segments and service areas. In addition, while service area representatives call on particular functional groups within a given biopharmaceutical or device client, our general account managers are responsible for coordinating our provision of services to the client across our portfolio of services.

The top 25 publicly traded pharmaceutical companies ranked by research and development expenses in 2006 accounted for 97% of pharmaceutical research and development spending in 2006 so we concentrate on these companies. The top 50 publicly traded biotechnology companies accounted for nearly 51% of the biotechnology research and development expenditures in 2006. To appropriately focus our sales and marketing efforts among biotechnology companies, we consider additional factors such as the stage of a drug’s development and the financial stability of a potential client’s business.

Our business development personnel consult with potential pharmaceutical and biotechnology clients early in the project consideration stage in order to determine their requirements. Along with the appropriate operational, technical or scientific personnel, our business development representatives invest significant time to determine the optimal means to design and execute the potential client’s program requirements. As an example, recommendations we make to a potential client with respect to a drug development study design and implementation are an integral part of our bid proposal process and an important aspect of the integrated services we offer. Our preliminary efforts relating to the evaluation of a proposed clinical protocol and implementation plan enhance the opportunity for accelerated initiation and overall success of the trial.

Our global marketing initiatives include a mix of advertising, direct response, online promotion, trade events and scientific outreach programs. We integrate client representations and sales materials, a global speakers’

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bureau, media relations, marketing at professional trade shows and corporate materials to reinforce key messages and selling points. Web-based activities include online advertising, interactive education and information programs delivered by web cast, direct e-mail campaigns and electronic newsletters. In 2007, we enhanced our corporate website, www.ppdi.com, to include an updated design and navigation for our services area, enabling visitors to quickly understand the full spectrum of our offerings. The implementation of a robust, user-friendly video portal allows visitors to hear from us and industry experts, take a virtual tour of a PPD facility and hear the latest in financial webcasts. In addition, we encourage and sponsor the participation of our scientific and technical personnel in a variety of professional endeavors, including the presentation of papers at national and international professional trade meetings and the publication of scientific articles in medical and pharmaceutical journals. Through these presentations and publications, we seek to further our reputation for professional excellence.

Backlog

Our backlog consists of anticipated net revenue from contracts, letters of intent and verbal commitments that either have not started but are anticipated to begin in the near future, or are in process and have not been completed. Amounts included in backlog represent anticipated future net revenue and exclude net revenue that has been recognized previously in our statement of operations. Net revenue is defined as gross revenue, less fees and associated reimbursements. Once contracted work begins, net revenue is recognized over the life of the contract. Our backlog was $2.7 billion in anticipated net revenue at December 31, 2007, compared to $2.2 billion at December 31, 2006.

Our backlog as of any date is not necessarily a meaningful predictor of future results because backlog can be affected by a number of factors, including the size and duration of contracts, many of which are performed over several years, and the changes in labor utilization that typically occur during a study. Additionally, contracts relating to our clinical development business are subject to early termination by the client and clinical trials can be delayed or canceled for many reasons, including unexpected test results, safety concerns or regulatory developments. Also, the scope of a contract can change significantly during the course of a study. If the scope of a contract is revised, the adjustment to backlog occurs when the revised scope is approved by the client. For these and other reasons, we might not fully realize our entire backlog as net revenue.

Intellectual Property

Patents, trademarks, copyrights and other proprietary rights are important to our business. We also rely on trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position.

We actively seek patent protection both in the United States and abroad. As of December 31, 2007, we owned or co-owned 29 issued U.S. patents and 25 pending U.S. patent applications. Our issued U.S. patents primarily relate to our proprietary antitumor compounds, dapoxetine and methods of its use, and our biomarkers and methods of their use. Our pending U.S. patent applications primarily relate to proprietary biomarker discovery information, chemical compounds, clinical development business methods and software. We have filed or plan to file applications in other countries corresponding to most of our U.S. applications. As of December 31, 2007, we had 53 granted and 40 pending foreign filings.

We also have obtained licenses to other patents from academic institutions and pharmaceutical companies. As of December 31, 2007, we had exclusive license rights to 2 issued U.S. patents and 10 granted foreign filings, as well as 3 pending U.S. patents and 61 pending foreign filing.

Pursuant to the terms of the Uruguay Round Agreements Act, patents issued from applications filed on or after June 8, 1995, have a term of 20 years from the date of filing, no matter how long it takes for the patent to issue. Because patent applications in the pharmaceutical industry often take a long time to issue, this method of patent term calculation can result in a shorter period of patent protection afforded to us compared to the prior method of term calculation, which was 17 years from the date of issue. Under the Drug Price Competition and Patent Term Restoration Act of 1984 and the Generic Animal Drug and Patent Term Restoration Act of 1988, a patent that claims

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a product, use or method of manufacture covering drugs may be extended for up to five years to compensate the patent holder for a portion of the time required for FDA review. However, we might not be able to take advantage of the patent term extension provisions of this law.

In addition, we rely on trade secrets and continuing technological innovation, which we try to protect with reasonable business procedures for maintaining trade secrets, including confidentiality agreements with our collaborators, employees and consultants. We also have numerous trademark registration applications pending in the United States and other jurisdictions throughout the world.

Competition

The drug and medical device development outsourcing industry is highly competitive and fragmented, consisting of hundreds of smaller, limited-service providers and a number of full-service global development companies. In the past, the industry experienced some consolidation and a group of large, full-service competitors emerged, and consolidations and acquisitions have continued. For example, in 2006, Covance acquired Radiant Research, a multi-site domestic Phase I/IIA business, and PRA International, Inc. acquired Pharma Bio-Research (PBR), a Phase I/IIA clinical development company based in the Netherlands. Also in 2006, Kendle International, Inc. acquired the Phase II-IV clinical business of Charles River Laboratories International, Inc., and PAREXEL International Corporation acquired California Clinical Trials Medical Group, Inc. and Behavioral and Medical Research, adding a broad range of Phase I-IV clinical research services. These consolidations and other transactions, such as the acquisition of PRA International by Genstar Capital, a private equity firm, could potentially increase competition in our industry for clients, experienced clinical personnel, geographic markets and acquisition candidates. Additional business combinations by competitors or clients are possible and could have a significant impact on the competitive landscape of the drug development outsourcing industry.

In addition to competing with a number of other global, full-service companies, our Development Group and Discovery Sciences Group also compete against some medium-sized companies, in-house research and development departments of pharmaceutical and biotechnology companies, universities and teaching hospitals. Newer, smaller entities with specialty focuses, such as those aligned to a specific disease or therapeutic area, compete aggressively against larger companies for clients. Increased competition might lead to price and other forms of competition that could adversely affect our operating results.

Providers of outsourced drug and medical device development services compete on the basis of a number of factors. These factors include:

• the reputation for on-time quality performance;

• expertise and experience in specific therapeutic areas;

• scope of service offerings;

• staff expertise and qualifications;

• price;

• strengths in various geographic markets;

• technological expertise and systems;

• data management capabilities;

• ability to acquire, process, analyze and report data in a time-saving, accurate manner; and

• ability to manage large-scale clinical trials both domestically and internationally.

Over the past few years, our clients have increasingly pursued preferred provider agreements under which development services providers compete for selection as a vendor, with only a limited number of providers being chosen and therefore eligible to win future business from the client. While selection under such agreements is no guarantee of business, larger, established service providers have benefited significantly from these arrangements. In addition, providing clinical development services can be labor-intensive and we compete for a limited pool of professionals to provide these services. Although there can be no assurance that we will continue to do so, we believe we compete favorably in these areas.

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Despite recent consolidation, this industry remains highly fragmented, with several hundred smaller, limited-service providers and a small number of full-service companies with global capabilities. Although there are few barriers to entry for smaller, limited-service providers, there are significant barriers to becoming a global provider offering a broad range of services. These barriers include:

• the cost and experience necessary to develop broad therapeutic expertise;

• the ability to manage large, global, complex clinical trials;

• the ability to deliver high quality services consistently for large drug development projects;

• the experience to prepare regulatory submissions throughout the world; and

• the infrastructure and knowledge to respond to the global needs of clients.

For specialty areas such as drug information and post-marketing services, informatics and analytical laboratory services, our Development Group competes in a market that has a myriad of niche providers as well as larger, established firms. For the most part, these niche providers offer specialty services with a focus on a specific geographic region, a particular service or function and/or a specific stage or phase of drug development. By contrast, we provide our services on a global basis across functional areas.

The outsourced preclinical research industry consists of a number of large providers and numerous smaller niche companies. Our Discovery Sciences Group faces significant competition from these companies, as well as competition from research teams funded internally by pharmaceutical and biotechnology companies. Our compound risk-sharing initiatives seek to help our clients increase the return on their research and development investments by sharing development costs and risks as well as potential future revenue streams from successful product launches. Many of these clients search for a collaborative partner through a competitive bidding process, which can include pharmaceutical, biotechnology and discovery platform and services companies, as well as venture capital and private equity firms and financial institutions. As such, there is significant competition for these opportunities and our success will depend on our ability to identify and competitively bid for risk-sharing programs that are likely to be productive.

Government Regulation

Our clients are subject to extensive regulations by government agencies. Consequently, the services we provide for these clients must comply with relevant laws and regulations.

Prior to commencing human clinical trials in the United States, a company developing a new drug must file an IND with the FDA. The IND must include information about animal toxicity and distribution studies, manufacturing and control data, stability data and a clinical development plan for the product, and a study protocol for the initial proposed clinical trial of the drug or biologic in humans. If the FDA does not object within 30 days after the IND is filed, human clinical trials may begin. The study protocol must be reviewed and approved by the institutional review board, or IRB, in each institution in which a study is conducted and each IRB may impose additional requirements on the way in which the study is conducted in its institution.

Human trials usually start on a small scale to assess safety and then expand to larger trials to test both efficacy and safety in the target population. The trials are generally conducted in three phases, which sometimes overlap, although the FDA may require a fourth phase as a condition of approval. After the successful completion of the first three clinical phases, a company requests approval for marketing its product by submitting an NDA for a drug or a BLA for a biologic. The NDA/BLA is a comprehensive, multivolume filing that includes, among other things, the results of all preclinical and clinical studies, information about how the product will be manufactured and tested, additional stability data and proposed labeling. The FDA’s review can last from several months to multiple years, with the median approval time lasting approximately 13 months. Once the NDA/BLA is approved, the product may be marketed in the United States subject to any conditions imposed by the FDA as part of its approval. In addition, pursuant to the FDA Act that was signed into law in September 2007, the FDA can require drug companies to conduct post-approval clinical trials and implement risk evaluation and mitigation strategies.

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Laboratories such as ours that provide information included in IND applications and NDAs must conform to regulatory requirements that are designed to ensure the quality and integrity of the testing process. For example, our bioanalytical laboratories in Richmond, Virginia, and Middleton, Wisconsin, follow the FDA’s GLPs. These GLPs have also been adopted by the Ministry of Health in the United Kingdom and by similar regulatory authorities in other countries. Our product analysis lab in Middleton, Wisconsin, also follows the FDA’s cGMPs. Both GLPs and cGMPs require standardization procedures for all equipment, processes and analytical tests, for recording and reporting data, and for retaining appropriate records. To help ensure compliance with GLPs and cGMPs, we have established quality assurance at our laboratory facilities to audit test data and we conduct regular inspections of testing procedures and our laboratory facilities.

In addition, laboratories that analyze human blood or other biological samples for the diagnosis and treatment of study subjects must comply with the Clinical Laboratory Improvement Act, or CLIA. CLIA requires laboratories to meet staffing, proficiency and quality standards. The laboratory in our Austin, Texas, facility and our central laboratory located in Kentucky are CLIA-certified. Both of these laboratories and our central laboratory in Europe are accredited by the College of American Pathologists.

The industry standard for the conduct of clinical research is embodied in the FDA’s regulations for IRBs, investigators and sponsor/monitors, which collectively are termed good clinical practices, or GCPs, by industry and the GCP guidelines issued by ICH, which have been agreed upon by industry and regulatory representatives from the United States, EU and Japan. Our global standard operating procedures are written in accordance with all FDA and ICH requirements. This enables our work to be conducted locally, regionally and globally to standards that meet all currently applicable regulatory requirements.

In the past several years, both the U.S. and foreign governments have become more concerned about the disclosure of confidential personal data. The EU prohibits the disclosure of personal confidential information, including medical information, to any entity that does not comply with certain security safeguards. Companies in the United States can satisfy these requirements by filing for safe harbor status according to a self-certification procedure agreed to by the EU and the United States. We registered for and have obtained this safe harbor status.

The Department of Health and Human Services has promulgated final regulations under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, which governs the disclosure of confidential medical information in the United States. Since January 2001, we have had a global privacy policy in place that includes a designated privacy officer, and we comply with the current EU and HIPAA requirements. We will continue to monitor our compliance with these regulations and will take necessary steps to ensure continued compliance with these and other privacy regulations.

We are also subject to regulations enforced by the following agencies, among others:

• Occupational Safety and Health Administration;

• Nuclear Regulatory Commission;

• Environmental Protection Agency;

• Department of Transportation;

• International Civil Aviation Organization; and

• Drug Enforcement Administration.

We also must comply with other related international, federal, state and local regulations that govern the use, handling, disposal, packaging, shipment and receipt of certain drugs or unknown compounds, chemicals and chemical waste, toxic substances, bloodborne pathogens and bloodborne pathogen waste, and radioactive materials and radioactive waste. In order to comply with these regulations, we have provided procedures, necessary equipment and ongoing training for our employees involved in these activities. To date, we have had no citations or fines from the above agencies.

The failure on our part to comply with applicable regulations could result in the termination of ongoing research or the disqualification of data for submission to regulatory authorities. Furthermore, the issuance of a notice of finding by a governmental authority against either us or our clients, based upon a material violation by us of any applicable regulation, could materially and adversely affect our business.

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Employees

At December 31, 2007, we employed approximately 10,200 professionals, of whom approximately 9,950 were in the Development Group, approximately 100 were in the Discovery Sciences Group and the remainder served in corporate operations functions. Of our staff, approximately 630 hold Ph.D., M.D., Pharm.D. or D.V.M. degrees and approximately 1,510 hold other master’s or other postgraduate degrees. None of our employees are subject to a collective bargaining agreement. We believe that our relations with our employees are good.

We believe that our success is based on the quality and dedication of our employees. We strive to hire the best available people in terms of ability, experience, attitude and fit with our performance philosophy and standard operating procedures. We train new employees extensively and we believe we are an industry leader in the thoroughness of our training programs. In addition, we encourage our employees to continually grow and broaden their skills through internal and external training programs.

Available Information

Our web site address is www.ppdi.com. Information on our web site is not incorporated by reference herein. We make available free of charge through our web site our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission.

Item 1A. Risk Factors

Risks Related to Our Discovery and Development Businesses

Changes in trends in the pharmaceutical and biotechnology industries could adversely affect our operating results.

Industry trends and economic and political factors that affect pharmaceutical, biotechnology and medical device companies and academic and government entities that sponsor clinical research, also affect our business. For example, the practice of many companies in these industries and government organizations has been to hire companies like us to conduct large development projects. If these industries reduce their tendency to outsource those projects, our operations, financial condition and growth rate could be materially and adversely affected. In the past, mergers, product withdrawal and liability lawsuits, and other factors in the pharmaceutical industry appear to have slowed decision-making by pharmaceutical companies and delayed drug development projects. Continuation or increases in these trends could have an adverse effect on our business. In addition, numerous governments have undertaken efforts to control growing healthcare costs through legislation, regulation and voluntary agreements with medical care providers and pharmaceutical companies. If future cost-containment efforts limit the profits that can be derived on new drugs, our clients might reduce their drug discovery and development spending, which could reduce our revenue and have a material adverse effect on our results of operations.

Our revenue depends on a small number of industries and clients.

We provide services to the pharmaceutical, biotechnology and medical device industries and academic and government organizations that sponsor clinical trials, and our revenue is highly dependent on expenditures by these clients. Accordingly, our operations could be materially adversely affected by consolidation in these industries or other factors resulting in a decrease in the number of our potential clients. For example, we experienced longer payment terms in 2007, which increased our days’ sales outstanding, or DSO, in accounts receivable and unbilled services, net of unearned income. If the number of our potential clients declines even further, they might be able to negotiate price discounts or other terms for our services that are less favorable to us than has historically been the case. We have experienced client concentration in the past and could again in the future. The loss of business from a significant client could have a material adverse effect on our results of operations.

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The majority of our clients’ contracts can be terminated upon short notice.

Most of our contracts for discovery and development services are terminable by the client upon 30 to 90 days’ notice. Clients terminate or delay their contracts for a variety of reasons, including but not limited to:

• products being tested fail to satisfy safety requirements;

• products have undesired clinical results;

• the client decides to forego a particular study;

• inability to enroll enough patients in the study;

• inability to recruit enough investigators;

• production problems cause shortages of the drug; and

• actions by regulatory authorities.

The loss or delay of a large contract or multiple smaller contracts could adversely affect our operating results.

We might not be able to recruit and retain the experienced personnel we need to compete in the drug discovery and development industry.

Our future success depends on our ability to attract, retain and motivate highly skilled personnel.

Management

Our future success depends on the personal efforts and abilities of the principal members of our senior management and scientific staff to provide strategic direction, develop business, manage our operations, and maintain a cohesive and stable work environment. For example, we rely on the services of Fredric N. Eshelman, Pharm.D., our chief executive officer. In addition, we hired a number of new senior employees during 2007, including Chief Operating Officer, William Sharbaugh, and Chief Financial Officer, Daniel Darazsdi, so their integration into our company has been and will continue to be critical to our success. Although we have employment agreements with most of our executives, they are generally only for one or two years and do not assure that Dr. Eshelman or any other executive with whom we have an employment agreement will remain with us. We do not have employment agreements with all of our key personnel.

Healthcare Providers

Our ability to maintain, expand or renew existing business with our clients and to get business from new clients, particularly in the drug development sector, depends on our ability to subcontract and retain healthcare providers with the skills necessary to keep pace with continuing changes in drug development technologies. Competition for experienced healthcare providers is intense. We compete with pharmaceutical and biotechnology companies, including our clients and collaborators, other contract research companies, and academic and research institutions, to recruit healthcare providers.

Scientists and Other Technical Professionals

Our ability to maintain, expand or renew existing business with our clients and to get business from new clients in both the drug development and the drug discovery areas also depends on our ability to hire and retain scientists with the skills necessary to keep pace with continuing changes in drug discovery and development technologies. We face the same risks, challenges and competition in attracting and retaining experienced scientists as we do with healthcare providers.

Our inability to hire additional qualified personnel might also require an increase in the workload for both existing and new personnel. We might not be successful in attracting new healthcare providers, scientists or management, or in retaining or motivating our existing personnel. The shortage of experienced healthcare providers and scientists, or other factors, might lead to increased recruiting, relocation and compensation costs for these professionals, which might exceed our forecasts. These increased costs might reduce our profit margins or make hiring new healthcare providers or scientists impracticable. If we are unable to attract and retain any of these personnel, our ability to execute our business plan will be adversely affected.

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Our future success depends on our ability to keep pace with rapid technological changes that could make our services less competitive or obsolete.

The biotechnology, pharmaceutical and medical device industries generally and drug discovery and development more specifically are subject to increasingly rapid technological changes. Our competitors or others might develop technologies, services or products that are more effective or commercially attractive than our current or future technologies, services or products, or that render our technologies, services or products less competitive or obsolete. If competitors introduce superior technologies, services or products and we cannot make enhancements to ours to remain competitive, our competitive position, and in turn our business, revenue and financial condition, would be materially and adversely affected.

Any failure by us to comply with existing regulations could harm our reputation and operating results.

Any failure on our part to comply with existing regulations could result in the termination of ongoing research or the disqualification of data for submission to regulatory authorities. This would harm our reputation, our prospects for future work and our operating results. For example, if we were to fail to verify that informed consent is obtained from patient participants in connection with a particular clinical trial or grant deviations from the inclusion or exclusion criteria in a study protocol, the data collected from that trial could be disqualified and we might be required to conduct the trial again at no further cost to our client, but at a substantial reputational and financial cost to us. Furthermore, the issuance of a notice from the FDA based on a finding of a material violation by us of good clinical practice, good laboratory practice or good manufacturing practice requirements could similarly materially and adversely affect us.

Proposed and future legislation or regulations might increase the cost of our business or limit our service or product offerings.

Federal or state authorities might adopt healthcare legislation or regulations that are more burdensome than existing regulations. For example, recent product safety concerns and the creation of the Drug Safety Oversight Board could change the regulatory environment for drug products, including the process for FDA product approval and post-approval safety surveillance. These and other changes in regulation could increase our expenses or limit our ability to offer some of our services or products. For example, the confidentiality of patient-specific information and the circumstances under which it may be released for inclusion in our databases or used in other aspects of our business are subject to substantial government regulation. Additional legislation or regulation governing the possession, use and dissemination of medical record information and other personal health information might require us to implement new security measures that require substantial expenditures or limit our ability to offer some of our services. These regulations might also increase costs by creating new privacy requirements for our informatics business and mandating additional privacy procedures for our clinical research business.

We might lose business opportunities as a result of healthcare reform.

Numerous governments have undertaken efforts to control growing healthcare costs through legislation, regulation and voluntary agreements with healthcare providers and drug companies. Healthcare reform could reduce demand for our services, including potential drug candidates that are being developed by us or with others under our risk-sharing agreements, and, as a result, our revenue. In recent years, the U.S. Congress has reviewed several comprehensive health care reform proposals. The proposals are intended to expand healthcare coverage for the uninsured and reduce the growth of total healthcare expenditures. The U.S. Congress has also considered and may adopt legislation that could have the effect of putting downward pressure on the prices that pharmaceutical and biotechnology companies can charge for prescription drugs. The Democratic Party having taken control of Congress in 2006 and potentially of the White House in 2008, increases the possibility of healthcare reform. Any such legislation could cause our discovery and development clients to spend less on research and development. If this were to occur, we would have fewer business opportunities for our development and discovery service businesses, which could reduce our earnings, and the development of particular compounds might be discontinued. Similarly, pending or future healthcare reform proposals outside the United States could negatively impact our revenue from our international operations.

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The drug discovery and development services industry is highly competitive.

The drug discovery and development services industry is highly competitive. We often compete for business not only with other drug discovery and development companies, but also with internal discovery and development departments within our clients, some of which are large pharmaceutical and biotechnology companies with greater resources than we have. We also compete with universities and teaching hospitals. If we do not compete successfully, our business will suffer. The industry is highly fragmented, with numerous smaller specialized companies and a handful of full-service companies with global capabilities similar to ours. Increased competition might lead to price and other forms of competition that might adversely affect our operating results. As a result of competitive pressures, our industry experienced consolidation, including “going private” transactions, in recent years. This trend is likely to produce more competition from the resulting larger companies, and ones without the cost pressures of being public, for both clients and acquisition candidates. In addition, there are few barriers to entry for smaller specialized companies considering entering the industry. Because of their size and focus, these companies might compete effectively against larger companies such as us, which could have a material adverse impact on our business.

Our business has experienced substantial expansion in the past and we might not properly manage that expansion in the future.

Our business has expanded substantially in recent years. Rapid expansion could strain our operational, human and financial resources and facilities. If we fail to properly manage our expansion, our results of operations and financial condition might be negatively affected. In order to manage expansion, we must, among other things, do the following:

• continue to improve our operating, administrative and information systems;

• accurately predict our future personnel, resource and facility needs to meet our commitments;

• track the progress of ongoing projects; and

• attract and retain qualified management, sales, professional, scientific and technical operating personnel.

In addition, we have numerous business groups, subsidiaries and divisions. If we cannot properly manage these groups, subsidiaries or divisions, it will disrupt our operations. We also face additional risks in expanding our foreign operations. Specifically, we might find it difficult to:

• assimilate differences in foreign business practices and regulations;

• properly integrate systems and operating procedures;

• hire and retain qualified personnel; and

• overcome language and cultural barriers.

Future acquisitions or investments could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our business.

We anticipate that a portion of any future growth of our business might be accomplished by acquiring existing businesses, products or technologies. The success of any acquisition will depend upon, among other things, our ability to integrate acquired personnel, operations, products and technologies into our organization effectively, to retain and motivate key personnel of acquired businesses and to retain their clients. In addition, we might not be able to identify suitable acquisition opportunities or obtain any necessary financing on acceptable terms. We might also spend time and money investigating and negotiating with potential acquisition or investment targets, but not complete the transaction. Any future acquisition could involve other risks, including the assumption of additional liabilities and expenses, issuances of potentially dilutive equity securities or interest-bearing debt, transaction costs, reduction in our stock price as a result of any of these or because of market reaction to a transaction and diversion of management’s attention from other business concerns.

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We have made and plan to continue to make investments in other companies. In many cases, there is no public market for the securities of these companies and we might not be able to sell these securities on terms acceptable to us, if at all. In addition, if these companies encounter financial difficulties, we might lose all or part of our investment. For example, in 2007 we recorded an impairment of equity investment, totaling $0.7 million to write down the carrying value of our investments for other-than-temporary declines in value. See Note 6 in the Notes to Consolidated Financial Statements included elsewhere in this report for a more detailed discussion of these impairments.

The investment of our cash balance and our investments in marketable debt securities are subject to risks which may cause losses and affect the liquidity of these investments.

At December 31, 2007, we had $171.4 million in cash and cash equivalents and $331.0 million in investments in marketable debt securities. We have historically invested these amounts in U.S. government obligations, guaranteed student loans, municipal notes, corporate notes and bonds, commercial paper, certificates of deposit and money market funds meeting our investment criteria. These investments are subject to general credit, liquidity, market and interest rate risks, which may be exacerbated by the recent U.S. sub-prime mortgage defaults that have affected various sectors of the financial markets and caused credit and liquidity issues. During the year ended December 31, 2007, we determined that any declines in the fair value of our investments were temporary. There may be further declines in the value of these investments, which we may determine to be other-than-temporary. These market risks might have a material adverse effect on our liquidity and financial condition, which could harm our business or our ability to pay dividends or repurchase stock.

At February 22, 2008, we held approximately $238.0 million of municipal notes and student loans as investments. We classified these investments as current assets. These investments have an auction reset feature and are commonly referred to as auction rate securities. This year through February 22, auctions for approximately $123.3 million of our auction rate securities failed, which means that the parties wishing to sell securities were unable to do so. While auctions for some of our other auction rate securities were successful, future auctions might fail. If future auctions fail for any of our investments, our ability to liquidate these investments and fully recover their carrying value in the near term may be limited or non-existent. If the issuers are unable to successfully close future auctions and their credit ratings deteriorate, we may in the future be required to record an impairment charge on these investments. If auctions continue to fail, it could take until the final maturity of the underlying securities (up to 35 years) if we are ever to realize our investments’ recorded value. These factors might have a material adverse effect on our liquidity and financial condition, which could harm our business or our ability to pay dividends or repurchase stock.

The fixed price nature of our development contracts could hurt our operating results.

The majority of our contracts for the provision of development services are at fixed prices or fixed unit prices, and as such have set limits on the amounts we can charge for our services. As a result, variations in the timing and progress of large contracts can materially affect our operating results. In addition, we bear the risk of cost overruns unless the scope of activity is revised from the contract specifications and we are able to negotiate a contract modification with the client shifting the additional cost to the client. If we fail to adequately price our contracts in total or at the unit level, or if we experience significant cost overruns, our operating results could be materially adversely affected. From time to time, we have had to commit unanticipated resources to complete projects, resulting in lower gross margins on those projects. We might experience similar situations in the future, which could have a material adverse impact on our operating results.

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If we are unable to attract suitable willing investigators and volunteers for our clinical trials, our development business might suffer.

The clinical research studies we run in our Development Group rely upon the ready accessibility and willing participation of physician investigators and volunteer subjects. Investigators are typically located at hospitals, clinics or other sites and supervise administration of the study drug to patients during the course of a clinical trial. Volunteer subjects generally include people from the communities in which the studies are conducted, including our Phase I clinic in Austin, Texas, which to date has provided a substantial pool of potential subjects for research studies. Our clinical research development business could be adversely affected if we were unable to attract suitable and willing investigators or volunteers on a consistent basis.

Our business exposes us to potential liability for personal injury claims that could affect our financial condition.

Our business involves the testing of new drugs and medical devices on human volunteers and, if marketing approval is received for any of our drug candidates, their use by patients. This exposes us to the risk of liability for personal injury or death to patients resulting from, among other things, possible unforeseen adverse side effects or improper administration of a drug or device. Many of these volunteers and patients are already seriously ill and are at risk of further illness or death. For example, beginning in early 2007, we have been named as a co-defendant in various lawsuits alleging injuries to patients who took Sanofi-Avertis’ FDA-approved antibiotic Ketek, for which we provided certain clinical trial services. If we were required to pay damages or incur defense costs in connection with any personal injury claim that is outside the scope of indemnification agreements we have with clients and collaborative partners, if any indemnification agreement is not performed in accordance with its terms or if our liability exceeds the amount of any applicable indemnification limits or available insurance coverage, we could be materially and adversely affected both financially and reputationally. We might also not be able to get adequate insurance for these risks at reasonable rates in the future.

Our business uses biological and hazardous materials, which could injure people or violate laws, resulting in liability that could hurt our financial condition and business.

Our drug discovery and development activities involve the controlled use of potentially harmful biological materials, as well as hazardous materials, chemicals and various radioactive compounds. We cannot completely eliminate the risk of accidental contamination or injury from the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for damages that result, and any liability could exceed our ability to pay. Any contamination or injury could also damage our reputation, which is critical to getting new business. In addition, we are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. The cost of compliance with these laws and regulations is significant and if changes are made to impose additional requirements, these costs could increase and have an adverse impact on our financial condition and results of operations.

Our business is subject to international economic, currency, political and other risks that could negatively affect our revenue and results of operations.

Because we provide our discovery and development services worldwide, our business is subject to risks associated with doing business internationally. Our revenue from our non-U.S. operations represented approximately 36.5% of our total revenue for the year ended December 31, 2007. We anticipate that revenue from international operations will grow in the future. Accordingly, our future results could be harmed by a variety of factors, including:

• changes in foreign currency exchange rates, which could result in foreign currency losses;

• changes in a specific country or region’s political or economic conditions;

• potential negative consequences from changes in tax laws affecting our ability to expatriate profits;

• difficulty in staffing and managing widespread operations, including risks of violations of local laws or the U.S. Foreign Corrupt Practices Act by employees overseas; and

• unfavorable labor regulations, including specifically those applicable to our European operations.

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For example, in 2007 our income from operations was negatively impacted by approximately $10.9 million, net of hedging loss, due to the effect of the weakening of the U.S. dollar relative to the euro, British pound and Brazilian real. Although we attempt to manage this risk through provisions in our contracts with our clients and other methods, including foreign currency hedging contracts, we might not be able to eliminate or manage these risks in the future and our income from operations could be materially and adversely affected by a significant decline in the value of the U.S. dollar.

Our inability to adequately protect our intellectual property rights could hurt our business.

Our success will depend in part on our ability to protect the proprietary software, compositions, processes and other technologies we develop during the drug development process. In addition, one of our business strategies is to in-license and/or out-license rights to drug candidates and enter into collaborations with pharmaceutical and biotechnology companies for the development of proprietary drug candidates. Any inability to protect our intellectual property rights could materially and adversely affect our business.

Any patents that we own or license might not provide valuable protection in the future for the covered technology or products. Our patent applications might never result in the issuance of a patent. Competitors might develop similar products or methods that are not covered by our issued patent claims. In addition, an issued patent might be narrowed or invalidated by a court challenge. The value of an issued patent could also be diminished if a patent is issued to a competitor that blocks our ability to use our patented technology. If blocked, we might be forced to stop using some or all of the technology or to license technology from third parties on unfavorable terms.

In addition to patent protection, we also rely on copyright, trademark and trade secret protection. In an effort to maintain the confidentiality and ownership of our intellectual property, we require our employees, consultants and advisors to execute confidentiality and proprietary information agreements. These agreements and other procedures, however, might not provide us with adequate protection against improper use or disclosure of confidential information. Also, there might not be adequate remedies in the event of unauthorized use or disclosure. Furthermore, from time to time we hire scientific personnel formerly employed by other companies involved in one or more areas similar to the activities we conduct. In some situations, our confidentiality and proprietary information agreements might conflict with, or be subject to, the rights of third parties with whom our employees, consultants or advisors have prior employment or consulting relationships. Although we require our employees and consultants to maintain the confidentiality of all confidential information of previous employers, both the company and these individuals might be subject to allegations of trade secret misappropriation or other similar claims as a result of their prior affiliations. Finally, others might independently develop substantially equivalent proprietary information or otherwise gain access to our trade secrets. Our failure to protect our proprietary information and techniques might inhibit or limit our ability to exclude competitors from the market and to execute our business strategies.

The drug discovery and development industry has a history of patent and other intellectual property litigation, and we might be involved in costly intellectual property lawsuits.

The drug discovery and development industry has a history of patent and other intellectual property litigation and these lawsuits will likely continue. Because we provide many different services in this industry and have rights to compounds, we face potential patent infringement suits by companies that have patents for similar products and methods used in business or other suits alleging infringement of their intellectual property rights. In addition to the possibility of having to defend an infringement claim asserted against us, in order to protect or enforce our intellectual property rights, we might have to initiate legal proceedings against third parties. Legal proceedings relating to intellectual property could be expensive, take significant time and divert management’s attention from other business concerns, whether we win or lose. The cost of this kind of litigation could affect our profitability. Further, if we do not prevail in an infringement lawsuit brought against us, we might have to pay substantial damages, including treble damages, and we could be required to stop the infringing activity or obtain a license to use technology on unfavorable terms.

We have relatively limited experience in the drug discovery business, and our prospects for success in this business remain uncertain and are dependent on third parties with whom we collaborate.

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It takes many years for a drug discovery business like ours to generate revenue and income. We established our drug discovery group in 1997 and have relatively limited experience with these activities and might not be successful in our drug discovery efforts. Generating revenue and income from our drug discovery business and compound partnering activities will depend on our ability to:

• develop products internally or obtain rights to them from others on favorable terms;

• successfully complete laboratory testing and human studies;

• obtain clinical trial materials of sufficient quality or quantity;

• obtain and maintain intellectual property rights to these products;

• obtain and maintain regulatory approvals related to the efficacy and safety of these products;

• enter into agreements with third parties to continue the development and commercialization of drug candidates; and

• enter into arrangements with third parties to manufacture products on our behalf and to provide sales and marketing functions.

Since 1997, we have entered into collaborative agreements to develop and commercialize drugs with others. Our ability to succeed in our drug discovery business will depend on successfully executing existing and new arrangements we enter into for the development and commercialization of drug candidates. The third parties that we collaborate with might not perform their obligations as expected or they might breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities successfully and in a timely manner. Further, parties collaborating with us might elect not to develop the product candidates or not to devote sufficient resources to the development, manufacture, regulatory strategy and approvals, marketing or sale of these product candidates. If the parties to our collaborative agreements do not fulfill their obligations, elect not to develop a candidate or fail to devote sufficient resources to it, we could be materially and adversely affected.

We are dependent on third parties for essential business functions for our risk-sharing arrangements and failures of these third party providers could materially adversely affect our business, financial condition and results of operations.

We and some of our collaborative partners are dependent on third parties for functions associated with the development and commercialization of our potential drug candidates, including manufacturing and marketing and sales. Our dependence on third parties for these services might adversely affect us and our ability to develop and commercialize a drug candidate on a timely and competitive basis. If we or our collaborative partners are unable to retain or replace third-party providers of required services on commercially acceptable terms, our potential drug candidates might be delayed and might not be developed and commercialized as planned, if at all. If we encounter delays or failures by these third parties to perform, we might have to seek alternative sources of supply, lose sales or abandon a drug candidate, and our business, financial condition and results of operations could be materially and adversely affected.

We might not be able to obtain government approval for our product candidates.

The development and commercialization of pharmaceutical products are subject to extensive governmental regulation in the United States and foreign countries. Government approvals are required to develop, market and sell the potential drug candidates we are developing alone or with others under our risk-sharing arrangements. Obtaining government approval to develop, market and sell drug candidates is time-consuming and expensive, and the clinical trial results for a particular drug candidate might not satisfy requirements to obtain government approvals. For example, in late 2005, ALZA Corporation, our collaborator on dapoxetine, received a “not approvable” letter from the FDA. In addition, governmental approvals might not be received in a timely manner, if at all, and we and our collaborative partners might not be able to meet other regulatory requirements for our products. Even if we are successful in obtaining all required approvals to market and sell a drug candidate, post-approval requirements and the failure to comply with other regulations could result in suspension or limitation of government approvals.

In connection with drug discovery activities outside the United States, we and our collaborators will be subject to foreign regulatory requirements governing the testing, approval, manufacture, labeling, marketing and sale

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of pharmaceutical products. These requirements vary from country to country. Even if approval has been obtained for a product in the United States, approvals in foreign countries must be obtained prior to marketing the product in those countries. The approval process in foreign countries may be more or less rigorous and the time required for approval may be longer or shorter than that required in the United States. Clinical studies conducted outside of any particular country may not be accepted by that country, and the approval of a pharmaceutical product in one country does not assure that the product will be approved in another country.

We might incur substantial expense to develop products that are never successfully developed and commercialized.

We have incurred and expect to continue to incur substantial research and development and other expenses in connection with our compound partnering agreements. The potential drug candidates to which we devote resources might never be successfully developed or commercialized by us or our collaborative partners for numerous reasons, including:

• preclinical and clinical trial results;

• delays in manufacturing, or the inability to manufacture product for use in clinical trials or for sale following regulatory approval, if any;

• competitive products with superior safety and efficacy profiles;

• patent conflicts or unenforceable intellectual property rights;

• failures or delays in obtaining regulatory approvals;

• demand for the particular product; and

• other factors that could make the product uneconomical.

For example, we terminated the implitapide program for various reasons, including the risks associated with continued development and limited market potential. Incurring significant expenses for a potential drug candidate that is not successfully developed and/or commercialized could have a material adverse effect on our business, financial condition, prospects and stock price.

Our operations might be affected by the occurrence of a natural disaster or other catastrophic event.

We depend on our clients, investigators, collaboration partners, our own laboratories and other facilities for the continued operation of our business. Although we have contingency plans in effect for natural disasters or other catastrophic events, these events, including terrorist attacks, pandemic flu, hurricanes and ice storms, could still disrupt our operations or those of our clients, investigators and collaboration partners, which could also affect us. Even though we carry business interruption insurance policies and typically have provisions in our contracts that protect us in certain events, we might suffer losses as a result of business interruptions that exceed the coverage available under our insurance policies or for which we do not have coverage. Any natural disaster or catastrophic event affecting us or our clients, investigators or collaboration partners could have a significant negative impact on our operations and financial performance.

Our development operations might be affected if there was a disruption to the air travel system.

Our global central laboratories and some of our other discovery and development services rely heavily on air travel for transport of clinical trial kits, other materials and people, and disruption to the air travel system could have a material adverse effect on our business. While we have developed contingency plans for a variety of events that could disrupt or limit available air transportation, these plans might not be effective or sufficient to avert such a material adverse effect.

Risks Related to Owning Our Stock

You might not receive any dividends, and the reduction or elimination of dividends might negatively affect the market price of our common stock.

We only began paying dividends as a public company in late 2005. Future dividend payments are not guaranteed and are within the absolute discretion of our Board of Directors. You might not receive any dividends as a result of any of the following factors:

• we are not obligated to pay dividends;

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• while our dividend policy contemplates the distribution of a portion of the excess cash generated by our business each fiscal quarter, our Board of Directors could modify or revoke the policy at any time and for any reason;

• even if the dividend policy is not modified or revoked, our Board of Directors could decide to reduce dividends or not to pay any dividends at all, at any time and for any reason;

• the amount of dividends distributed is subject to state law restrictions;

• new credit facilities or other agreements could limit the amount of dividends we are permitted to pay; and

• our stockholders have no contractual or other legal right to dividends.

Our dividend policy is based upon our current assessment of the cash needs of our business and the environment in which it operates. That assessment could change due to, among other things, changes in our results of operations, cash requirements, financial condition, contractual restrictions, growth opportunities, acquisitions, competitive or technological developments, provisions of applicable law and other factors that our Board of Directors might deem relevant. The reduction or elimination of dividends might negatively affect the market price of our common stock.

Our dividend policy and stock repurchase plan might limit our ability to pursue other growth opportunities.

Our Board of Directors has adopted an annual cash dividend policy which reflects an intention to distribute to our shareholders via regular quarterly dividends a portion of the cash generated by our business that exceeds our operating needs and capital expenditures. In addition, our Board of Directors authorized the Company to repurchase up to $350 million of its common stock from time to time in the open market. In developing the dividend policy and the stock repurchase plan, we have made assumptions for and judgments about our expected results of operations, anticipated levels of capital expenditures, income taxes and working capital. Payment of dividends or stock repurchases could limit our ability to finance any material expansion of our business, including through acquisitions, investments or increased capital spending, or to fund our operations.

Because our stock price is volatile, our stock price could experience substantial declines.

The market price of our common stock has historically experienced and might continue to experience volatility. Our quarterly operating results, changes in general conditions in the economy or the financial markets, both of which have been experiencing uncertainty in early 2008, and other developments affecting us or our competitors could cause the market price of our common stock to fluctuate substantially. In addition, in recent years, the stock market has experienced significant price and volume fluctuations. The stock market, and in particular the market for pharmaceutical and biotechnology company stocks, has also experienced significant decreases in value in the past. This volatility and valuation decline have affected the market prices of securities issued by many companies, often for reasons unrelated to their operating performance, and might adversely affect the price of our common stock.

Item 1B. Unresolved Staff Comments

None.

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Item 2. Properties

As of February 15, 2008, we had 69 offices located in 30 countries on six continents. All locations relate to our Development services, and the Morrisville, North Carolina, Wilmington, North Carolina and Menlo Park, California locations also house Discovery Sciences services. Our principal executive offices are located in Wilmington, North Carolina. We own and operate four facilities, including a building in Wilmington, North Carolina, a building in Bellshill, Scotland, a laboratory building in Brussels, Belgium and a building in Durham, North Carolina. We lease all of our other facilities. We believe that our facilities are adequate for our operations and that suitable additional space will be available when needed. The locations, approximate square footage and lease expiration dates of our operating facilities comprising more than 20,000 square feet as of February 15, 2008 were as follows:

Location	Approximate Square Footage	Lease Expiration Dates
Austin, Texas	452,000	11/30/10 - 2/28/17
Morrisville, North Carolina	446,000	8/31/09 - 6/30/17
Middleton, Wisconsin	193,000	7/31/10 - 11/30/16
Richmond, Virginia	86,000	8/31/09 - 6/30/15
Highland Heights, Kentucky	72,000	12/31/14
Cambridge, England	65,000	7/10/09 - 7/31/19
Wilmington, North Carolina	65,000	8/31/09 - 10/31/11
Menlo Park, California	60,000	6/1/12
Sao Paulo, Brazil	55,000	6/30/08 - 12/31/10
Blue Bell, Pennsylvania	43,000	8/31/10
Paris, France	39,000	6/30/15
Brussels, Belgium	33,000	9/30/08
Madrid, Spain	28,000	1/31/09
San Diego, California	28,000	3/31/10
Buenos Aires, Argentina	22,000	8/31/10
Mexico City, Mexico	22,000	4/30/13
Winchester, England	22,000	7/2/21
Johannesburg, South Africa	21,000	9/30/09
Milan, Italy	21,000	4/28/12

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Item 3. Legal Proceedings

Beginning early 2007, we were named as a co-defendant in lawsuits alleging injuries to patients who took Sanofi-Aventis’ FDA-approved antibiotic Ketek, for which we provided certain clinical trial services. These lawsuits include: Campbell v. Sanofi-Aventis, et al. in the United States District Court for the Northern District of Alabama; Gregg and Gregg v. Sanofi-Aventis, et al., Manley and Manley v. Sanofi-Aventis, et al., Bennett v. Sanofi-Aventis et al., Henry v. Sanofi-Aventis et al., and Hamm v. Sanofi-Aventis, et al., each filed in Superior Court of New Jersey, Middlesex County; and Carpenter v. Sanofi-Aventis, et al. filed in the Superior Court in Mecklenburg County, North Carolina. Additional suits have been filed in New Jersey and Wisconsin and more similar suits are possible. These suits allege multiple causes of action, including negligence, misrepresentation, breach of warranty, conspiracy, wrongful death and violations of various state and federal statutes, including unfair and deceptive trade practices acts. Generally, the plaintiffs are seeking unspecified damages from alleged injuries from the ingestion of Ketek, and in some of the cases claim damages of at least $20.0 million. While there can be no assurance of a successful outcome and litigation costs can be material, we do not believe that these claims against us have merit and intend to vigorously defend ourself in these matters.

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

No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2007.

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Executive Officers

The following table contains information concerning our executive officers as of February 15, 2008:

Name	Age	Position(s)
Fredric N. Eshelman., Pharm.D.	59	Vice Chairman, Chief Executive Officer
Paul S. Covington, M.D.	51	Executive Vice President – Development
Daniel G. Darazsdi	47	Chief Financial Officer, Treasurer, Assistant Secretary
William W. Richardson	55	Senior Vice President – Global Business Development
William J. Sharbaugh	45	Chief Operating Officer

Fredric N. Eshelman, Pharm.D. has served as Chief Executive Officer and as a director since July 1990, and as Vice Chairman of the Board of Directors since 1993. Dr. Eshelman founded our company’s predecessor in 1985 and served as its Chief Executive Officer until 1989. Prior to rejoining us in 1990, Dr. Eshelman served as Senior Vice President, Development and as a director of Glaxo Inc., a subsidiary of Glaxo Holdings plc.

Paul S. Covington, M.D. is our Executive Vice President – Development. Dr. Covington joined us in September 1991 as a Medical Director. He was promoted from Senior Vice President to his current position in January 2002. He is board certified in internal medicine and licensed in North Carolina and Alabama. Prior to joining us, Dr. Covington was in private practice in Clanton, Alabama from 1985 to 1990 where he served as Chief of Staff and Director of Critical Care and Cardiopulmonary Disease for the local hospital. From 1991 to 1992, he was Medical Director for the Birmingham site of Future Healthcare Research Centers.

Daniel G. Darazsdi is our Chief Financial Officer, Treasurer and Assistant Secretary. Mr. Darazsdi joined us in October 2007. Prior to his employment by us, Mr. Darazsdi spent 25 years with Honeywell International where he most recently served as vice president and Chief Financial Officer of finance transformation and operations. Over the years at Honeywell, he was Chief Financial Officer of the company’s global specialty materials business segment, VP of finance for Asia Pacific and held a variety of leadership roles in finance including, business analysis and planning and technology and business development leadership. Mr. Darazsdi is a Certified Management Accountant.

William W. Richardson is our Senior Vice President – Global Business Development. Prior to joining us in November 2005, Mr. Richardson served as Executive Vice President of Sales for Mylan Bertek Pharmaceuticals Inc. from 2000 to 2005. He was President and Chief Executive Officer of Bertek Pharmaceuticals Inc. from 1996 to 2000. He began his career as Sales Manager for Dow Hickam Pharmaceuticals and rose through its ranks to serve as President and CEO from 1992 to 1996.

William J. Sharbaugh is our Chief Operating Officer. Before Mr. Sharbaugh joined PPD in May 2007, he spent six years at Bristol-Myers Squibb where he most recently served as Vice President, Global Development Operations from 2005 to 2007 in which he was responsible for strategic direction for clinical operations located in 55 countries. From 2001 to 2005, Mr. Sharbaugh served as Executive Director of Global Clinical Supply Operations where he was responsible for planning, manufacturing, packaging and distributing investigational products worldwide. Prior to his tenure with Bristol-Meyers Squibb, he spent 10 years at Merck and Co. in a variety of assignments in clinical supply operations, sales and manufacturing.

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PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is traded under the symbol “PPDI” and is quoted on the Nasdaq Global Select Market. The following table sets forth the high and low sales prices, adjusted to give effect to our two-for-one stock split in February 2006, for shares of our common stock, as reported by Nasdaq for the periods indicated.

	2006				2007
	High		Low		High		Low
First Quarter	$	36.20	$	30.70	$	35.63	$	30.52
Second Quarter	$	41.17	$	31.71	$	38.91	$	33.02
Third Quarter	$	40.80	$	34.86	$	40.07	$	32.76
Fourth Quarter	$	37.35	$	29.55	$	43.14	$	35.17

Holders

As of February 15, 2008, there were approximately 67,300 holders of our common stock.

Dividends

In October 2005, our Board of Directors adopted an annual cash dividend policy to pay an aggregate annual cash dividend of $0.10 on each outstanding share of common stock, payable quarterly at a rate of $0.025 per share, as adjusted to give effect to our February 2006 two-for-one stock split. Effective beginning in the fourth quarter of 2006, our Board of Directors amended the annual cash dividend policy to increase the annual dividend rate by 20%, from $0.10 to $0.12 per share, or $0.03 per share quarterly. In the fourth quarter of 2007, our Board of Directors further amended the annual cash dividend policy to increase the annual dividend rate from $0.12 to $0.40 per year, payable quarterly at a rate of $0.10 per share. The annual cash dividend policy and the payment of future quarterly cash dividends under that policy are not guaranteed and are subject to the discretion of and continuing determination by our Board of Directors that the policy remains in the best interests of our shareholders and in compliance with applicable laws and agreements.

Stock Repurchase Plan

On February 20, 2008, the Board of Directors authorized the Company to repurchase up to $350 million of its common stock from time to time in the open market. The manner and timing of repurchases, the amount the Company spends and the number of shares repurchased, if any, will depend on a variety of factors, including the Company’s stock price and blackout periods in which the Company is restricted from repurchasing shares.

Equity Compensation Plans

The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”.

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Item 6. Selected Financial Data

The following table represents selected historical consolidated financial data. The statement of operations data for the years ended December 31, 2005, 2006 and 2007 and balance sheet data at December 31, 2006 and 2007 are derived from our audited consolidated financial statements included elsewhere in this report. The statement of operations data for the years ended December 31, 2003 and 2004, and the balance sheet data at December 31, 2003, 2004 and 2005 are derived from audited consolidated financial statements not included in this report. The historical results are not necessarily indicative of the operating results to be expected in the future. The selected financial data should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes to the financial statements included elsewhere in this report.

Consolidated Statement of Operations Data (in thousands, except per share data):

	Year Ended December 31,
	2003 (1)(2)			2004 (1)			2005 (1)(2)			2006		2007
Net revenue	$	726,983		$	841,256		$	1,037,090		$	1,247,682	$	1,414,465
Operating expenses (3)		659,501			701,878			865,538			1,027,705		1,184,484
Gain on sale/exchange of assets (4)		(5,738	)		—			(5,144	)		—		—
Restructuring charges (5)		1,917			2,619			—			—		—
Total operating expenses		655,680			704,497			860,394			1,027,705		1,184,484
Income from operations		71,303			136,759			176,696			219,977		229,981
Impairment of equity investments (6)		(10,078	)		(2,000	)		(5,928	)		—		(690	)
Other income, net		2,482			3,830			9,035			15,528		18,662
Income before provision for income taxes		63,707			138,589			179,803			235,505		247,953
Provision for income taxes		22,297			46,905			59,906			78,853		84,552
Net income	$	41,410		$	91,684		$	119,897		$	156,652	$	163,401
Net income per common share:
Basic	$	0.37		$	0.81		$	1.05		$	1.34	$	1.38
Diluted	$	0.37		$	0.81		$	1.03		$	1.32	$	1.36
Dividends declared per common share	$	—		$	—		$	0.525		$	0.105	$	0.19
Weighted average number of common shares outstanding:
Basic		111,548			112,696			114,664			116,780		118,459
Dilutive effect of stock options		1,024			1,112			1,770			1,755		1,494
Diluted		112,572			113,808			116,434			118,535		119,953
Consolidated Balance Sheet Data (in thousands):
	As of December 31,
	2003			2004			2005			2006		2007
Cash, cash equivalents and short-term investments	$	110,102		$	249,368		$	319,820		$	435,671	$	502,384
Working capital (7)		156,602			257,103			327,638			412,711		599,980
Total assets		786,055			983,681			1,159,600			1,481,565		1,684,375
Long-term debt and capital lease obligations, including current portion (8)		7,662			6,970			24,302			75,159		—
Shareholders’ equity		519,390			643,788			750,676			952,900		1,150,096
Cash dividends declared per common share (9)		—			—			60,684			12,305		22,590

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(1) Effective January 1, 2006, we adopted SFAS No. 123 (revised) using the modified retrospective application method. In accordance with the modified retrospective application method, we have adjusted our financial statements for all periods prior to January 1, 2006 to give effect to the fair-value based method of accounting for all awards granted in fiscal years beginning after December 15, 1994.

(2) For 2003 and 2005, results of operations for acquisitions that occurred during the year are included in our consolidated results of operations as of and since the effective date of the acquisitions. For further details, see Note 2 in Notes to Consolidated Financial Statements.

(3) For 2003, operating expenses include a $65.0 million cash payment to Eli Lilly and Company to acquire Lilly’s patents to dapoxetine.

(4) For 2003, gain on sale of assets related to the restructuring of our Discovery Sciences segment. For 2005, gain on exchange of assets related to the acquisition of substantially all the assets of SurroMed, Inc.’s biomarker business. For further details regarding the 2005 transaction, see “Restructuring Charges” in Note 1 in Notes to Consolidated Financial Statements.

(5) For 2003 and 2004, restructuring charges related to the restructuring of our Discovery Sciences segment.

(6) For 2003, 2004, 2005 and 2007, impairment of equity investments includes charges to earnings for other-than-temporary declines in the fair market value of our investments. For further details, see Note 6 in Notes to Consolidated Financial Statements.

(7) Working capital equals current assets minus current liabilities.

(8) For 2005 and 2006, long-term debt includes $17.1 million and $74.8 million, respectively, which we borrowed to finance the construction of our new headquarters building and related parking facility in Wilmington, North Carolina.

(9) The Board of Directors declared a special one-time cash dividend in the amount of $0.50, as adjusted to give effect to our February 2006 two-for-one stock split, on each outstanding share of common stock in the fourth quarter of 2005. The Board of Directors also adopted an annual dividend policy in the fourth quarter of 2005 and paid the first quarterly cash dividend in that quarter.

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

The following discussion and analysis is provided to increase understanding of, and should be read in conjunction with, our consolidated financial statements and accompanying notes. In this discussion, the words “PPD”, “we”, “our” and “us” refer to Pharmaceutical Product Development, Inc., together with its subsidiaries where appropriate.

Forward-looking Statements

This Form 10-K contains forward-looking statements within the meaning of the federal securities laws. These statements relate to future events or our future financial performance. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, expectations, predictions, assumptions and other statements that are not statements of historical facts. In some cases, you can identify forward-looking statements by terminology such as “might”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “intend”, “potential” or “continue”, or the negative of these terms, or other comparable terminology. These statements are only predictions. These statements rely on a number of assumptions and estimates that could be inaccurate and that are subject to risks and uncertainties. Actual events or results might differ materially due to a number of factors, including those listed in “Potential Volatility of Quarterly Operating Results and Stock Price” and in “Item 1A. Risk Factors”. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Executive Overview

Our revenues are dependent on a relatively small number of industries and clients. As a result, we closely monitor the market for our services. For a discussion of the trends affecting the market for our services, see “Item 1. Business – Trends Affecting the Drug Discovery and Development Industry”. Although we cannot predict the demand for CRO services for 2008, particularly in light of current general economic uncertainties, we continue to believe that the overall market for these services is strong. The volume of requests for proposals for our Phase II-IV clinical development services continues to grow, reflecting strong demand for outsourcing services generally and evidencing that the market for these services remains intact. For 2008, we plan to continue to focus on execution in our core development business and on our business development efforts to improve our sales hit rate.

We believe there are specific opportunities for continued growth in certain areas of our core development business. Our Global Phase II-IV units had solid operating and financial performance in 2007, and we expect to see continued revenue growth in 2008. We continue to add headcount within Phase II-IV global operations and added new offices in several countries in 2007 and are planning expansions in others in 2008. In

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February 2008, we announced that we had entered into an agreement to acquire InnoPharm Ltd., an independent contract research organization. InnoPharm employs more than 300 professionals and has offices in Smolensk, Moscow and St. Petersburg in Russia and Kiev, Ukraine. In addition to our Phase II-IV business, during 2007 our bioanalytical laboratory completed construction of a new immunochemistry laboratory to support growth in large molecule testing services. Our cGMP laboratory increased capacity, added customized laboratories and added new technologies during 2007. While the revenue in our central laboratory in 2007 was below our expectations, new central laboratory authorizations for this business were well above expectations and should provide a solid basis for growth in 2008. Finally, with the passage of the Food and Drug Administration Amendments Act in late 2007, we believe there are opportunities for significant growth in the post-approval services arena.

We review various metrics to evaluate our financial performance, including period-to-period changes in backlog, new authorizations, cancellation rates, revenue, margins and earnings. In 2007, we had new authorizations of $2.2 billion, an increase of 11.5% over 2006. The cancellation rate for 2007 was 22.1%, which is higher than the 19.4% cancellation rate for 2006, but lower than our projected cancellation rate for 2007. Despite the increase in cancellations in 2007, backlog grew to $2.7 billion as of December 31, 2007, up 18.6% over December 31, 2006. The average length of our contracts increased to 34.2 months as of December 31, 2007 from 32.8 months as of December 31, 2006.

Backlog by client type as of December 31, 2007 was 48.8% pharmaceutical, 38.9% biotech and 12.3% government/other, as compared to 54.5% pharmaceutical, 32.3% biotech and 13.2% government/other as of December 31, 2006. The change in the composition of our backlog from 2006 to 2007 is primarily the result of an increase in authorizations from biotech companies in 2007. Net revenue by client type for the year ended December 31, 2007 was 58.7% pharmaceutical, 29.1% biotech and 12.2% government/other, compared to 58.5% pharmaceutical, 29.5% biotech and 12.0% government/other as of December 31, 2006.

For 2007, net revenue contribution by service area was 81.0% for Phase II-IV services, 14.1% for laboratory services, 3.3% for the Phase I clinic and 1.6% for discovery sciences, compared to net revenue contribution for the year ended December 31, 2006 of 78.0% for Phase II-IV services, 15.3% for laboratory services, 3.8% for Phase I clinic and 2.9% for discovery sciences. Top therapeutic areas by net revenue for the year ended December 31, 2007 were oncology, anti-infective/anti-viral, endocrine/metabolic, circulatory/cardiovascular and central nervous system. For a detailed discussion of our revenue, margins, earnings and other financial results for the year ended December 31, 2007, see “Results of Operations - Year Ended December 31, 2006 versus Year Ended December 31, 2007” below.

Capital expenditures for the year ended December 31, 2007 totaled $95.0 million. These capital expenditures were primarily for construction in progress for our new headquarters building in Wilmington, North Carolina, computer software and hardware, scientific equipment for our laboratory units and various building improvements. We made these investments to support our growing businesses and to improve the efficiencies of our operations. For 2008, we expect to spend between $80 million and $90 million for capital expenditures, primarily associated with facility expansions and improvements, as well as investments in information technology and new laboratory equipment.

As of December 31, 2007, we had $502.4 million of cash, cash equivalents and short-term investments. In 2007, we generated $226.7 million in cash from operations. The number of days’ revenue outstanding in accounts receivable and unbilled services, net of unearned income, also known as DSO, was 50.8 and 44.0 days as of December 31, 2007 and 2006, respectively. DSO rose in 2007 due to longer payment terms with some clients and delayed billing milestones and a decrease in unearned income as a percentage of accounts receivable and unbilled services at December 31, 2007 compared to December 31, 2006. Collection efficiency remains solid, demonstrated by our aged accounts receivable less than 90 days which remain over 90% at December 31, 2007. We plan to continue to monitor DSO and the various factors that affect it. However, we expect DSO and unbilled services will continue to fluctuate in the future depending on contract terms, the mix of contracts performed within a quarter, the levels of investigator advances and unearned income, and our success in collecting receivables.

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In October 2007, we announced our board of directors has amended the annual cash dividend policy to increase the annual dividend rate from $0.12 to $0.40 per year, payable quarterly at a rate of $0.10 per share. The new dividend rate was effective beginning in the fourth quarter 2007.

With regard to our compound partnering arrangements, we saw significant progress in 2007. First, Johnson and Johnson announced in early December that it filed a marketing authorization application to regulatory authorities in seven European countries under the decentralized filing procedure and that additional filings should follow in other regions. Second, Accentia advanced the SinuNase Phase III program and announced that it completed enrollment in the Phase III program and expects to announce top-line results in the first quarter of 2008. Finally, the dipeptidyl peptidase, or DPP-4, program in type 2 diabetes with Takeda Pharmaceuticals continues to progress. Takeda completed the Phase III trials for its lead DPP-4 inhibitor, alogliptin, and submitted the NDA for this compound in late December 2007. Takeda also continues to advance the development for a second DPP-4 inhibitor and a combination product with DPP-4 and Actos, Takeda’s leading diabetes drug.

In early 2007, we exercised an option to license a statin compound from Ranbaxy Laboratories Ltd. that we are developing as a potential treatment for dyslipidemia, a metabolic disorder often characterized by high cholesterol levels. We are solely responsible, and will bear all costs and expenses, for the development, manufacture, marketing and commercialization of the compound and licensed products. We filed the investigational new drug application, or IND, for the statin compound in late March 2007. We completed a single ascending dose, first-in-human study for this statin in June 2007, and the compound was safe and well tolerated at all doses in this trial. We also completed a first-in-patient study, and a drug-drug interaction study to evaluate the interaction between our statin and gemfibrozil, a fibrate commonly used to lower triglycerides. We are currently conducting additional trials to further evaluate the safety and efficacy of this statin. We have preliminary results from the first part of a high dose comparator trial. These preliminary results suggest that our statin was well-tolerated in the first part of this trial based on adverse event and clinical lab oratory data and compared favorably to the comparator statins with respect to lipid lowering. The second part of the study is in progress and final results could vary materially from the preliminary results. We anticipate having final results from this high dose comparator study in the first quarter of 2008 and plan to decide upon a course of action related to this statin program after evaluating the full and complete results from these trials.

These drug development collaborations allow us to leverage our resources and global drug development expertise to create new opportunities for growth and to share the risks and potential rewards of drug development with our collabrators. For a background discussion of our compound partnering arrangements, see “Item 1. Business – Our Services – Our Discovery Sciences Group – Compound Collaboration Programs”. We believe our compound partnering strategy uses our cash resources and drug development expertise to drive mid- to long-term shareholder value. In 2008, we plan to continue advancing our existing collaborations and evaluate new potential strategies and opportunities in this area.

New Business Authorizations and Backlog

New business authorizations, which are sales of our services, are added to backlog when we enter into a contract or letter of intent or receive a verbal commitment. Authorizations can vary significantly from quarter to quarter and contracts generally have terms ranging from several months to several years. We recognize revenue on these authorizations as services are performed. Our new authorizations for the years ended December 31, 2005, 2006 and 2007 were $1.8 billion, $2.0 billion and $2.2 billion, respectively.

Our backlog consists of new business authorizations for which the work has not started but is anticipated to begin in the future and contracts in process that have not been completed. As of December 31, 2007, the remaining duration of the contracts in our backlog ranged from one to 106 months, with an average duration of 34.2 months. We expect the average duration of the contracts in our backlog to fluctuate from year to year in the future, based on the contracts constituting our backlog at any given time. Amounts included in backlog represent future revenue and exclude revenue that we have recognized. We adjust backlog on a monthly basis to account for fluctuations in exchange rates. Our backlog as of December 31, 2005, 2006 and 2007 was $1.8 billion, $2.2 billion and $2.7 billion, respectively. For various reasons discussed in “Item 1. Business – Backlog”, our backlog might never be recognized as revenue and is not necessarily a meaningful predictor of future performance.

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Results of Operations

Revenue Recognition

We record revenue from contracts, other than time-and-material contracts, on a proportional performance basis in our Development and Discovery Sciences segments. To measure performance on a given date, we compare direct costs through that date to estimated total direct costs to complete the contract. Direct costs relate primarily to the amount of labor and labor related overhead costs for the delivery of services. We believe this is the best indicator of the performance of the contractual obligations. Changes in the estimated total direct costs to complete a contract without a corresponding proportional change to the contract value result in a cumulative adjustment to the amount of revenue recognized in the period the change in estimate is determined. For time-and-material contracts in both our Development and Discovery Sciences segments, we recognize revenue as hours are worked, multiplied by the applicable hourly rate. For our Phase I, laboratory and biomarker businesses, we recognize revenue from unitized contracts as subjects or samples are tested, multiplied by the applicable unit price. We offer volume discounts to our large customers based on annual volume thresholds. We record an estimate of the annual volume rebate as a reduction of revenue throughout the period based on the estimated total rebate to be earned for the period.

In connection with the management of clinical trials, we pay, on behalf of our clients, fees to investigators and test subjects as well as other out-of-pocket costs for items such as travel, printing, meetings and couriers. Our clients reimburse us for these costs. As required by Emerging Issues Task Force 01-14, amounts paid by us as a principal for out-of-pocket costs are included in direct costs as reimbursable out-of-pocket expenses and the reimbursements we receive as a principal are reported as reimbursed out-of-pocket revenue. In our statements of operations, we combine amounts paid by us as an agent for out-of-pocket costs with the corresponding reimbursements, or revenue, we receive as an agent. During the years ended December 31, 2005, 2006 and 2007, fees paid to investigators and other fees we paid as an agent and the associated reimbursements were approximately $279.8 million, $292.6 million and $335.7 million, respectively.

Most of our contracts can be terminated by our clients either immediately or after a specified period following notice. These contracts typically require the client to pay us the fees earned to date, the fees and expenses to wind down the study and, in some cases, a termination fee or some portion of the fees or profit that we could have earned under the contract if it had not been terminated early. Therefore, revenue recognized prior to cancellation generally does not require a significant adjustment upon cancellation. If we determine that a loss will result from the performance of a contract, the entire amount of the estimated loss is charged against income in the period in which such determination is made.

The Discovery Sciences segment also generates revenue from time to time in the form of milestone payments in connection with licensing of compounds. We only recognize milestone payments as revenue if the specified milestone is achieved and accepted by the client, and continued performance of future research and development services related to that milestone is not required.

Recording of Expenses

We generally record our operating expenses among the following categories:

• direct costs;

• research and development;

• selling, general and administrative;

• depreciation and amortization.

Direct costs consist of amounts necessary to carry out the revenue and earnings process, and include direct labor and related benefit charges, other costs directly related to contracts, an allocation of facility and information technology costs, and reimbursable out-of-pocket expenses. Direct costs, as a percentage of net revenue, tend to and are expected to fluctuate from one period to another as a result of changes in labor utilization and the mix of service offerings involved in the hundreds of studies being conducted during any period of time.

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Research and development, or R&D, expenses consist primarily of patent expenses, labor and related benefit charges associated with personnel performing internal research and development work, supplies associated with this work, consulting services and an allocation of facility and information technology costs.

Selling, general and administrative, or SG&A, expenses consist primarily of administrative payroll and related benefit charges, sales, advertising and promotional expenses, recruiting and relocation expenses, training costs, administrative travel, an allocation of facility and information technology costs, and costs related to operational employees performing administrative tasks.

We record depreciation expenses on a straight-line method, based on estimated useful lives of 40 years for buildings, five years for laboratory equipment, two to five years for software, computers and related equipment, and five to ten years for furniture and equipment, except for aircrafts, which we depreciate over 30 years. We depreciate leasehold improvements over the shorter of the life of the relevant lease or the useful life of the improvement. We depreciate property under capital leases over the life of the lease or the service life, whichever is shorter. We record amortization expenses on intangible assets on a straight-line method over the life of the intangible assets.

Year Ended December 31, 2006 versus Year Ended December 31, 2007

The following table sets forth amounts from our consolidated financial statements along with the dollar and percentage change for the full year of 2006 compared to the full year of 2007.

(in thousands, except per share data)	Year Ended December 31,
	2006		2007			$ Inc (Dec)			% Inc (Dec)
Net revenue:
Development	$	1,113,106	$	1,275,399		$	162,293		14.6	%
Discovery Sciences		33,193		19,979			(13,214	)	(39.8	)
Reimbursed out-of-pockets		101,383		119,087			17,704		17.5
Total net revenue		1,247,682		1,414,465			166,783		13.4
Direct costs:
Development		559,819		641,902			82,083		14.7
Discovery Sciences		9,324		10,610			1,286		13.8
Reimbursable out-of-pocket expenses		101,383		119,087			17,704		17.5
Total direct costs		670,526		771,599			101,073		15.1
Research and development expenses		5,406		19,238			13,832		255.9
Selling, general and administrative expenses		304,035		338,055			34,020		11.2
Depreciation and amortization		47,738		55,592			7,854		16.5
Income from operations		219,977		229,981			10,004		4.5
Impairment of equity investment		—		(690	)		(690	)	(100.0	)
Interest and other income, net		15,528		18,662			3,134		20.2
Income before provision for income taxes		235,505		247,953			12,448		5.3
Provision for income taxes		78,853		84,552			5,699		7.2
Net income	$	156,652	$	163,401		$	6,749		4.3
Net income per diluted share	$	1.32	$	1.36		$	0.04		3.0

Total net revenue increased $166.8 million to $1.4 billion in 2007. The increase in total net revenue resulted primarily from an increase in our Development segment revenue. The Development segment generated net revenue of $1.3 billion, which accounted for 90.2% of total net revenue for 2007. The 14.6% increase in Development net revenue was primarily attributable to an increase in the level of Phase II-IV services we provided in 2007 as compared to 2006.

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The Discovery Sciences segment generated net revenue of $20.0 million in 2007, a decrease of $13.2 million from 2006. The higher 2006 Discovery Sciences net revenue was mainly attributable to the $15.0 million milestone payment we earned from Takeda in March 2006 as a result of the dosing of the twentieth patient in the Phase III trial for Takeda’s lead DPP-4 inhibitor, alogliptin. Takeda completed the Phase III studies and submitted the alogliptin NDA to the FDA in late December 2007.

Total direct costs increased $101.1 million to $771.6 million in 2007 primarily as the result of an increase in the Development segment direct costs. Development segment direct costs increased $82.1 million to $641.9 million in 2007. The primary reason for this was an increase in personnel costs of $63.6 million due to the addition of approximately 800 new employees in our global Phase II-IV division. The remaining increase in the development direct costs was primarily due to increased facility costs of $9.0 million as a result of our headcount growth and an increase in contract labor for clinical personnel of $10.2 million. These increases in direct costs were also attributable to foreign currency fluctuation, as discussed below.

R&D expenses increased $13.8 million to $19.2 million in 2007. The increase in R&D expense was primarily due to development costs associated with Ranbaxy statin we are developing as a potential treatment for dyslipidemia. We are solely responsible for all costs and expenses for the development, manufacture, marketing and commercialization of the compound and licensed products. As a result, we expect to incur additional R&D expenses in future periods as we continue to advance the development of this compound. We also plan to continue evaluating other compound partnering strategies and opportunities to drive mid- and long-term shareholder value.

SG&A expenses increased $34.0 million to $338.1 million in 2007. As a percentage of total net revenue, SG&A expenses decreased to 23.9% in 2007 as compared to 24.4% in 2006. The increase in SG&A expenses in absolute terms includes additional personnel costs of $32.2 million due to hiring additional operations infrastructure and administrative personnel to support expanding operations and revenue growth. These increases in SG&A expenses in 2007 were also attributable to foreign currency fluctuations, as discussed below.

Depreciation and amortization expenses increased $7.9 million to $55.6 million in 2007. The increase was related to property and equipment we acquired to accommodate our growth. Capital expenditures were $95.0 million in 2007. Capital expenditures included $32.2 million for our new corporate headquarters building and related parking facility in Wilmington, North Carolina, $26.3 million for computer software and hardware, $13.1 million for additional scientific equipment for our laboratory units and $10.4 million related to leasehold improvements at various sites. We expect depreciation to increase in 2008 as a result of substantial investments over the past couple years in information technology systems to support our global Phase II-IV business.

Income from operations increased $10.0 million to $230.0 million in 2007. Income from operations in 2007 was negatively impacted by approximately $10.9 million due to foreign currency fluctuation, primarily the weakening of the U.S. dollar relative to the pound sterling, euro and Brazilian real. Although these currency movements increased net revenue in the aggregate, the negative impact on income from operations is attributable to dollar-denominated contracts for services rendered in countries other than the United States. In these cases, revenue is not impacted by the weakening of the U.S. dollar, but the costs associated with performing these contracts and maintaining the foreign infrastructure, which are paid in local currency, increase when translated to U.S. dollars, resulting in lower operating profits. In addition, it is important to note that income from operations in 2006 included a $15.0 million milestone payment from Takeda under the DPP-4 collaboration agreement.

Interest and other income, net increased $3.1 million to $18.7 million in 2007. This was due primarily to increased interest income due to a 20.6% increase in our average cash, cash equivalents and short-term investment balance in 2007 compared to 2006.

Our provision for income taxes increased $5.7 million to $84.6 million in 2007. Our effective income tax rate for 2006 was 33.5% compared to 34.1% for 2007. The effective tax rate for 2007 was positively impacted by the settlement of tax audits and closing of certain statutory limitations. The effective tax rate for 2006 was positively impacted by 1.8% as a result of the recognition of benefit for state economic development tax credits as well as a decrease in liabilities for tax contingencies and a decrease in the valuation allowance due to the closing of certain state tax statutes and audits. The remaining difference in our effective tax rates for 2007 compared to 2006 is due to an increase in nontaxable income from cash investments and the change in the geographic distribution of our pretax earnings among locations with varying tax rates.

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Net income of $163.4 million in 2007 represents an increase of 4.3% from $156.7 million in 2006. Net income per diluted share of $1.36 in 2007 represents a 3.0% increase from $1.32 net income per diluted share in 2006. Earnings per diluted share for 2006 included $0.08 per diluted share related to the $15.0 million milestone payment from Takeda under our DPP-4 collaboration agreement.

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Year Ended December 31, 2005 versus Year Ended December 31, 2006

The following table sets forth amounts from our consolidated financial statements along with the dollar and percentage change for the full year of 2005 compared to the full year of 2006.

(in thousands, except per share data)	Year Ended December 31,
	2005			2006		$ Inc (Dec)			% Inc (Dec)
Net revenue:
Development	$	921,802		$	1,113,106	$	191,304		20.8	%
Discovery Sciences		40,214			33,193		(7,021	)	(17.5	)
Reimbursed out-of-pockets		75,074			101,383		26,309		35.0
Total net revenue		1,037,090			1,247,682		210,592		20.3
Direct costs:
Development		467,001			559,819		92,818		19.9
Discovery Sciences		8,428			9,324		896		10.6
Reimbursable out-of-pocket expenses		75,074			101,383		26,309		35.0
Total direct costs		550,503			670,526		120,023		21.8
Research and development expenses		23,370			5,406		(17,964	)	(76.9	)
Selling, general and administrative expenses		251,415			304,035		52,620		20.9
Depreciation and amortization		40,250			47,738		7,488		18.6
Gain on exchange of assets		(5,144	)		—		5,144		100.0
Income from operations		176,696			219,977		43,281		24.5
Impairment of equity investments		(5,928	)		—		5,928		100.0
Interest and other income, net		9,035			15,528		6,493		71.9
Income before provision for income taxes		179,803			235,505		55,702		31.0
Provision for income taxes		59,906			78,853		18,947		31.6
Net income	$	119,897		$	156,652	$	36,755		30.7
Net income per diluted share	$	1.03		$	1.32	$	0.29		28.2

Total net revenue increased $210.6 million to $1.2 billion in 2006. The increase in total net revenue resulted primarily from an increase in our Development segment revenue. The Development segment generated net revenue of $1.1 billion, which accounted for 89.2% of total net revenue for 2006. The 20.8% increase in Development net revenue was primarily attributable to an increase in the level of global CRO Phase II-IV services we provided in 2006 as compared to 2005.

The Discovery Sciences segment generated net revenue of $33.2 million in 2006, a decrease of $7.0 million from 2005. The higher 2005 Discovery Sciences net revenue was mainly attributable to the $10.0 million milestone payment from ALZA Corporation we received in 2005 for the filing of the dapoxetine NDA. This was partially offset by increased revenue generated by our preclinical oncology division in 2006 as compared to 2005. We received a $15.0 million milestone payment from Takeda in connection with the DPP-4 collaboration in both 2005 and 2006.

Total direct costs increased $120.0 million to $670.5 million in 2006 primarily as the result of an increase in the Development segment direct costs. Development direct costs increased $92.8 million to $559.8 million in 2006. The primary reason for this was an increase in personnel costs of $80.8 million due to over 1,000 additional employees in our global Phase II-IV division. The remaining increase in the Development direct costs is primarily due to increased facility costs of $11.2 million related to the increase in personnel.

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R&D expenses decreased $18.0 million to $5.4 million in 2006. R&D expenses decreased primarily as a result of decreased spending in connection with the DPP-4 program, which was transferred to Takeda. Under the DPP-4 agreement with Takeda that we entered into in July 2005, Takeda assumed the obligation to fund all future development and commercialization costs of the DPP-4 inhibitor program. In February 2007, we exercised an option to license a statin compound from Ranbaxy Laboratories Ltd. which we intend to develop as a treatment for dyslipidemia.

SG&A expenses increased $52.6 million to $304.0 million in 2006. As a percentage of total net revenue, SG&A expenses increased slightly to 24.4% in 2006 as compared to 24.2% in 2005. The increase in SG&A expenses includes additional personnel costs of $40.7 million. The increase in personnel costs related mainly to an increased level of new hires of both operations infrastructure and administrative personnel to support expanding operations and revenue growth. The increase in SG&A costs also includes an additional $3.2 million related to additional provisions for bad debt expense. In addition, SG&A costs include an increase of $2.0 million in accounting and legal fees.

Depreciation expense increased $8.0 million to $47.2 million in 2006. The increase was related to property and equipment we acquired to accommodate our growth, a significant portion of which related to information technology investments we made in 2005. Capital expenditures were $148.0 million in 2006. Capital expenditures included $73.5 million for our new corporate headquarters building and related parking facility in Wilmington, North Carolina, $23.4 million for computer software and hardware, $16.1 million related to leasehold improvements at various sites, $8.9 million for additional scientific equipment for our Phase I and laboratory units and $8.7 million for our new building in Scotland.

Income from operations increased $43.3 million to $220.0 million in 2006. As a percentage of net revenue, income from operations increased from 17.0% in 2005 to 17.6% in 2006. Income from operations in 2006 included a significant decrease in R&D expenses as discussed above. Income from operations in 2006 was negatively impacted by approximately $3.3 million due to foreign currency fluctuation, primarily the weakening of the U.S. dollar relative to the pound sterling, euro and Brazilian real. Income from operations in 2005 included a $5.1 million gain on exchange of assets associated with the acquisition of SurroMed’s biomarker business. Income from operations in 2005 also included a $10.0 million milestone payment related to the filing of the dapoxetine NDA.

During 2005, we recorded charges to earnings for other-than-temporary declines in the fair market value of our cost basis investments of $5.9 million, which included $1.6 million related to the outstanding balance of a revolving line of credit that was guaranteed by us, and our marketable equity securities of $0.3 million. The write-downs were due to a business failure, current fair market values, historical and projected performance and liquidity needs of the investees.

Interest and other income, net increased $6.5 million to $15.5 million in 2006. This was due primarily to increased interest income due to higher interest rates and a 28.2% increase in our average cash, cash equivalents and short-term investment balance.

Our provision for income taxes increased $18.9 million to $78.9 million in 2006. Our effective income tax rate for 2005 was 33.3% compared to 33.5% for 2006. The effective tax rate for 2006 was positively impacted by 1.8% by the recognition of benefit for state economic development tax credits as well as a decrease in liabilities for tax contingencies and a decrease in the valuation allowance due to the closing of certain state tax statutes and audits. The effective tax rate for 2005 was positively impacted by a $6.9 million reduction in our valuation allowance provided for the deferred tax asset relating to capital loss carryforwards. The reduction was a result of the utilization of capital loss carryforwards that previously had a valuation allowance recorded against them as well as recognition of capital gains for dapoxetine NDA milestone payment received in the first quarter of 2005 and the $15.0 million up-front payment received from Takeda during the third quarter of 2005 with respect to the DPP-4 program. This reduction in the valuation allowance decreased the effective tax rate in 2005 by 3.5%. The remaining difference in our effective tax rates for 2006 compared to 2005 is due to the tax on the repatriation of foreign earnings in 2005 and the change in the geographic distribution of our pretax earnings among locations with varying tax rates.

Net income of $156.7 million in 2006 represents an increase of 30.7% from $119.9 million in 2005. Net income per diluted share of $1.32 in 2006 represents a 28.2% increase from $1.03 net income per diluted share in

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2005. Net income per diluted share for 2005 included $0.03 per diluted share for the gain on exchange of assets associated with the acquisition of SurroMed’s biomarker business which was offset by $0.03 per diluted share for impairment of equity investments.

Liquidity and Capital Resources

As of December 31, 2007, we had $171.4 million of cash and cash equivalents and $331.0 million of short-term investments. Our cash and cash equivalents and short-term investments are invested in financial instruments that are rated A or better by Standard and Poor’s or Moody’s and earn interest at market rates. Our expected primary cash needs on both a short- and long-term basis are for capital expenditures, expansion of services, possible acquisitions, investments and compound partnering collaborations, geographic expansion, dividends, working capital and other general corporate purposes. We have historically funded our operations, dividends and growth, including acquisitions, primarily with cash flow from operations.

We held approximately $209.5 million in tax-exempt auction rate securities at December 31, 2007. We do not believe that these investments have been impaired as a result of the recent sub-prime mortgage market crisis. Our investments in auction rate securities consist principally of interests in government guaranteed student loans and insured and uninsured municipal debt obligations. None of the auction rate securities in our portfolio were asset or mortgage-backed, and as of December 31, 2007 there had been no failed auctions for securities we held. During February 2008, a significant number of auction rate securities auctions began to fail, including auctions for approximately $123.3 million of securities held by us as of February 22, 2008. As a result of these failed auctions or future failed auctions, we may not be able to liquidate these securities until a future auction is successful, the issuer redeems the outstanding securities or the securities mature. If we determine that an issuer of the securities is unable to successfully close future auctions or redeem or refinance the obligations, we might have to reclassify the investments from a current asset to a non-current asset. If an issuer’s financial stability or credit rating deteriorates or adverse developments occur in the bond insurance market, we might be required to adjust the carrying value of our action rate securities through a future impairment charge. We have evaluated the market conditions and credit worthiness of the issuers of our action rate securities and have determined that there have been no decreases in market value. We will continue to monitor the market and take actions to limit our exposure to auction rate securities.

In 2007, our operating activities provided $226.7 million in cash as compared to $187.4 million for the same period last year. The change in cash flow was due primarily to a $6.7 million increase in net income and adjustments to remove the effects of (i) noncash items whose cash effects are investing or financing activities totaling $8.1 million (most significantly, depreciation and amortization) and (ii) deferrals of past, and accruals of expected future, operating cash receipts and payments totaling $24.5 million. The change in adjustments for accruals of expected future operating cash receipts and payments include: accounts receivable and unbilled services of $29.4 million; accrued and deferred income taxes of $2.8 million; payables to investigators of $17.0 million; and accounts payable, other accrued expenses and deferred rent of $7.9 million. The change in adjustments for deferrals of past operating cash receipts and payments include: prepaid expenses and investigator advances of $(10.6) million; other assets of $(3.3) million; and unearned income of $(18.6) million. Fluctuations in receivables and unearned income occur on a regular basis as we perform services, achieve milestones or other billing criteria, send invoices to clients and collect outstanding accounts receivable. Such activity varies by individual client and contract. We attempt to negotiate payment terms which provide for payment of services prior to or within close proximity to the provision of services, but the levels of unbilled services and unearned revenue can vary significantly.

In 2007, we used $171.9 million in cash related to investing activities. We used cash to purchase available-for-sale investments of $550.0 million, make capital expenditures of $95.0 million and purchase other investments of $2.8 million. These amounts were partially offset by maturities and sales of available-for-sale investments of $473.3 million, proceeds from our investments of $1.0 million and proceeds from the sale of property and equipment of $1.6 million primarily related to the sale of our building in Scotland. Our capital expenditures in 2007 primarily consisted of $32.2 million for our new corporate headquarters building, $26.3 million for computer software and hardware, $13.1 million for additional scientific equipment for our laboratory units, $10.4 million related to leasehold improvements at various sites. We expect our capital expenditures in 2008 will be approximately $80.0 million to $90.0 million, primarily associated with facility expansions and improvements, as well as investments in information technology and new laboratory equipment.

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In 2007, we used $64.9 million of cash in financing activities. We paid $74.8 million to retire the construction loan for our new headquarters building and paid dividends of $22.6 million. These amounts were partially offset by $27.9 million in proceeds from stock option exercises and purchases under our employee stock purchase plan and $4.9 million in income tax benefits from the exercise of stock options and disqualifying dispositions of stock. In addition, we borrowed and subsequently repaid $25.0 million under our revolving credit facility in connection with the construction of our new headquarters building.

The following table sets forth amounts from our consolidated balance sheet affecting our working capital along with the dollar amount of the change from 2006 to 2007.

(in thousands)	Year Ended December 31,
	2006		2007		$ Inc (Dec)
Current assets
Cash and cash equivalents	$	179,795	$	171,427	$	(8,368	)
Short-term investments		255,876		330,957		75,081
Accounts receivable and unbilled services, net		408,917		481,477		72,560
Income tax receivable		510		517		7
Investigator advances		13,490		15,318		1,828
Prepaid expenses and other current assets		36,495		49,835		13,340
Deferred tax assets		13,119		23,682		10,563
Total current assets	$	908,202	$	1,073,213	$	165,011
Current liabilities
Accounts payable	$	15,235	$	24,984	$	9,749
Payables to investigators		43,717		58,952		15,235
Accrued income taxes		16,560		16,182		(378	)
Other accrued expenses		149,027		167,235		18,208
Deferred tax liabilities		86		101		15
Unearned income		195,707		205,779		10,072
Current maturities of long-term debt and capital lease obligations		75,159		—		(75,159	)
Total current liabilities	$	495,491	$	473,233	$	(22,258	)
Working capital	$	412,711	$	599,980	$	187,269

Working capital as of December 31, 2007 was $600.0 million, compared to $412.7 million at December 31, 2006. The increase in working capital was due primarily to the increase in short-term investments and accounts receivable and unbilled services and decreases in current maturities of debt as a result of the repayment of the loan for the construction of our new corporate headquarters building. These increases in working capital were partially offset by increases in accounts payable, payables to investigators, other accrued expenses and unearned income.

The number of days’ revenue outstanding in accounts receivable and unbilled services, net of unearned income, also known as DSO, increased to 50.8 days for the year ended December 31, 2007 from 44.0 days for the year ended December 31, 2006. We calculate DSO by dividing accounts receivable and unbilled services less unearned income by average daily gross revenue for the applicable period. Accounts receivable, net of allowance for doubtful accounts, as of December 31, 2007 were $295.4 million. While DSO increased in part due to the increase in accounts receivable, 87.8% of our accounts receivable balance as of December 31, 2007 was less than 60 days old. Unearned income as of December 31, 2007 was $205.8 million, which represented 42.7% of our accounts receivable and unbilled services balance. This percentage has decreased from December 31, 2006 when our unearned income of $195.7 million represented 47.9% of our accounts receivable and unbilled services balance. This decrease in unearned income as a percentage of receivables and unbilled services caused DSO to increase. DSO also rose in 2007 due to longer payment terms with some clients and delayed billing milestones. We expect DSO will continue to fluctuate in the future depending on contract terms, the mix of contracts performed within a quarter, the levels of investigator advances and unearned income, and our success in collecting receivables.

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We maintain a defined benefit pension plan for certain employees and former employees in the United Kingdom. This pension plan was closed to new participants as of December 31, 2002. The projected benefit obligation for the benefit plan at December 31, 2006 and December 31, 2007, as determined in accordance with SFAS No. 87, “Employers Accounting for Pensions”, was $51.8 million and $57.1 million, respectively, and the value of the plan assets was $40.9 million and $47.3 million, respectively. As a result, the plan was under-funded by $10.8 million in 2006 and by $9.8 million in 2007, respectively. The amount of contributions to the plan for the years ended December 31, 2006 and 2007 were $3.2 million and $2.5 million, respectively. It is likely that the amount of our contributions to the plan could increase in future years. We expect the pension cost to be recognized in our financial statements will increase slightly from the $2.0 million in 2007 to approximately $2.1 million in 2008. The expense to be recognized in future periods could increase or decrease depending upon the change in the fair market value of the plan assets and changes in the projected benefit obligation.

A decrease in the market value of plan assets and/or declines in interest rates, both of which seem possible in light of general economic conditions in early 2008, are likely to cause the amount of the under-funded status to increase. After completion of the actuarial valuations in 2008, we could be required to record an additional reduction to shareholders’ equity. In connection with the plan, we recorded an increase to shareholders’ equity in 2006 of $2.8 million, offset by a decrease of $3.3 million due to the adoption of SFAS No. 158 in 2006 and an increase to shareholders’ equity in 2007 of $0.5 million. Given the impact that the discount rate and stock market performance have on the projected benefit obligation and market value of plan assets, future changes in either one of these factors could significantly reduce or increase the amount of our pension plan under-funding.

Effective July 1, 2007, we renewed our $50.0 million revolving credit facility with Bank of America, N.A. Indebtedness under the facility is unsecured and subject to covenants relating to financial ratios and restrictions on certain types of transactions. This revolving credit facility does not expressly restrict or limit the payment of dividends. We were in compliance with all loan covenants as of December 31, 2007. Outstanding borrowings under the facility bear interest at an annual fluctuating rate equal to the one-month London Interbank Offered Rate, or LIBOR, plus a margin of 0.6%. Borrowings under this credit facility are available to provide working capital and for general corporate purposes. This credit facility is currently scheduled to expire in June 2008, at which time any outstanding balance will be due. As of December 31, 2007, no borrowings were outstanding under this credit facility, although the aggregate amount available for borrowing had been reduced by $1.8 million due to outstanding letters of credit issued under this facility.

In February 2006, we entered into an $80.0 million construction loan facility with Bank of America, N.A. Borrowings under this credit facility were used to finance the construction of our new corporate headquarters building and related parking facility in Wilmington, North Carolina, and bore interest at an annual fluctuating rate equal to the one-month LIBOR plus a margin of 0.6%. This credit facility was scheduled to mature in February 2008, but in May 2007 we repaid all outstanding borrowings under this facility totaling $74.8 million.

On October 3, 2005, our Board of Directors adopted a cash dividend policy. We paid the first quarterly cash dividend under our dividend policy in the fourth quarter of 2005, and in each of the first three quarters of 2006, we paid a similar dividend of $0.025 per share. In October 2006, our Board of Directors amended the annual cash dividend policy to increase the annual dividend rate by 20%, from $0.10 to $0.12 per share, payable quarterly at a rate of $0.03 per share. This dividend rate was effective beginning in the fourth quarter of 2006. In October 2007, our Board of Directors further amended the annual cash dividend policy to increase the annual dividend rate from $0.12 to $0.40 per share, payable quarterly at a rate of $0.10 per share. The new dividend rate was effective beginning in the fourth quarter of 2007. The cash dividend policy and the payment of future quarterly cash dividends under that policy are not guaranteed and are subject to the discretion of and continuing determination by our Board of Directors that the policy remains in the best interests of our shareholders and in compliance with applicable laws and agreements.

In February 2008, we announced our plan to begin a stock repurchase program whereby up to $350 million of our common stock may be purchased from time to time in the open market. We decided to initiate a share repurchase program in view of the current price at which stock is trading, the strength of our balance sheet and our ability to generate cash, as well as to minimize earnings dilution from future equity compensation awards. We expect to finance the share repurchases from existing cash on hand and cash generated from future operations.

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We have commitments to invest up to an aggregate additional $23.8 million in four venture capital funds. For further details, see Note 6 in the Notes to Consolidated Financial Statements.

We adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”, or FIN 48, as of January 1, 2007. As of December 31, 2006, we had recorded a contingent tax liability of $9.1 million. As a result of the implementation of FIN 48, we reclassified $8.2 million of this liability to non-current liabilities and recognized an increase in this non-current liability of $22.7 million. This increase was accounted for as a $5.5 million decrease in retained earnings, a $15.9 million increase in deferred tax assets, and a $1.3 million increase in long-term assets as of January 1, 2007.

We had gross unrecognized tax benefits of approximately $28.0 million as of January 1, 2007. Of this total, $11.6 million, net of the federal benefit on state taxes, is the amount that, if recognized, would result in a reduction of our effective tax rate. As of December 31, 2007, the total gross unrecognized tax benefits were $23.8 million and of this total, $9.3 million is the amount that, if recognized, would reduce our effective tax rate. We do not anticipate a significant change in total unrecognized tax benefits or our effective tax rate due to the settlement of audits and the expiration of statute of limitations within the next 12 months.

Our policy for recording interest and penalties associated with tax audits is to record such items as a component of provision for income taxes. In conjunction with the adoption of FIN 48, we recognized approximately $4.0 million for the payment of interest and penalties at January 1, 2007. As of December 31, 2007, $4.1 million of interest was accrued and $1.3 million was recognized for penalties. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.

We analyzed filing positions in all of the significant federal, state and foreign jurisdictions where we are required to file income tax returns, as well as open tax years in these jurisdictions. The only periods subject to examination by the major tax jurisdictions where we do business are the 2004 through 2007 tax years. Various foreign and state income tax returns are under examination by taxing authorities. We do not believe that the outcome of any examination will have a material impact on our financial condition or results of operations.

We have been involved in compound development and commercialization collaborations since 1997. We developed a risk-sharing research and development model to help pharmaceutical and biotechnology clients develop compounds. Through collaborative arrangements based on this model, we assist our clients by sharing the risks and potential rewards associated with the development and commercialization of drugs at various stages of development. We currently have four such arrangements that involve the potential future receipt of one or more of the following forms of revenue: payments upon the achievement of specified development and regulatory milestones; royalty payments if the compound is approved for sale; sales-based milestone payments; and a share of net sales up to a specified dollar limit. The compounds that are the subject of these collaborations are either still in development or are awaiting regulatory approvals in certain countries. None of the compounds have been approved for sale in any country in the world. As a result of the risks associated with drug development, including poor or unexpected clinical trial results and obtaining regulatory approval to sell in any country, the receipt of any further milestone payments, royalties or other payments with respect to any of our drug development collaborations is uncertain.

As of December 31, 2007, we had two collaborations that involved future expenditures. The first is the collaboration with ALZA Corporation, subsequently acquired by Johnson and Johnson, for dapoxetine. In connection with this collaboration, we have an obligation to pay a royalty to Eli Lilly and Company of 5% on annual net sales of the compound in excess of $800 million. Johnson and Johnson received a “not approvable” letter from the FDA in October 2005, but continued its global development program. In December 2007, Johnson and Johnson submitted a marketing authorization application for dapoxetine to regulatory authorities in seven countries in the European Union. Although this regulatory application has been submitted, we do not know if or when Johnson and Johnson will obtain regulatory approval for dapoxetine in these countries. We also do not know if or when Johnson and Johnson will submit an application for or obtain regulatory approval for dapoxetine in the United States or any other country.

The second collaboration involving future expenditures is with Ranbaxy Laboratories Ltd. In February 2007, we exercised an option to license from Ranbaxy a statin compound that we are developing as a potential

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treatment for dyslipidemia, a metabolic disorder often characterized by high cholesterol levels. Upon exercise of the option, we paid a one-time license fee of $0.25 million. Under the agreement, we have an exclusive license to make, use, sell, import and sublicense the compound and any licensed product anywhere in the world for any human use. Ranbaxy retained a non-exclusive right to co-market licensed products in India and generic equivalents in any country in the world in which a third party has sold the generic equivalent of a licensed product. We are solely responsible, and will bear all costs and expenses, for the development, manufacture, marketing and commercialization of the compound and licensed products. In addition to the one-time license fee, we are obligated to pay Ranbaxy milestone payments upon the occurrence of specified clinical development events. If a licensed product is approved for sale, we must also pay Ranbaxy royalties based on sales of the product, as well as commercial milestone payments based on the achievement of specified worldwide sales targets. If all criteria are met, the total amount of potential clinical and sales-based milestones would be $44.0 million. We filed the investigational new drug application, or IND, for the statin compound in late March 2007. We completed a single ascending dose, first-in-human study for this statin in July 2007, and the compound was safe and well tolerated at all doses in this trial. We also completed a first-in-patient study, and a drug-drug interaction study to evaluate the interaction between our statin and gemfibrozil, a fibrate commonly used to lower triglycerides. We are currently conducting additional trials to further evaluate the safety and efficacy of this statin. We have preliminary results from the first part of a high dose comparator trial. These preliminary results suggest that our statin was well-tolerated in the first part of this trial based on adverse event and clinical laboratory data and compared favorably to the comparator statins with respect to lipid lowering. The second part of the study is in progress and final results could vary materially from the preliminary results. We anticipate having final results from this high dose comparator study in the first quarter of 2008 and plan to decide upon a course of action related to this statin program after evaluating the full and complete results from these trials.

In September 2007, we entered into a contract with a client to construct a laboratory within a leased building, to supply laboratory equipment and to provide specified laboratory services. The client has agreed to reimburse us for the costs of construction of the laboratory and related equipment. We expect these costs will be approximately $5.5 million and that construction will be completed in mid-2008.

Under most of our agreements for Development services, we typically agree to indemnify and defend the sponsor against third-party claims based on our negligence or willful misconduct. Any successful claims could have a material adverse effect on our financial condition, results of operations and future prospects.

We expect to continue expanding our operations through internal growth, strategic acquisitions and investments. For example, we announced in February 2008, that we had entered into an agreement to acquire InnoPharm Ltd., an independent contract research organization. We expect to fund these activities and the payment of future cash dividends from existing cash, cash flows from operations and, if necessary or appropriate, borrowings under our existing or future credit facilities. We believe that these sources of liquidity will be sufficient to fund our operations and dividends for the foreseeable future. From time to time, we evaluate potential acquisitions, investments and other growth and strategic opportunities that might require additional external financing, and we might seek funds from public or private issuances of equity or debt securities. While we believe we have sufficient liquidity to fund our operations for the foreseeable future, our sources of liquidity and ability to pay dividends could be affected by our dependence on a small number of industries and clients; compliance with regulations; reliance on key personnel; breach of contract, personal injury or other tort claims; international risks; environmental or intellectual property claims; or other factors described under “Item 1A. Risk Factors”, in this Item 7 under the subheadings “Contractual Obligations”, “Critical Accounting Policies and Estimates”, “Potential Liability and Insurance”, “Potential Volatility of Quarterly Operating Results and Stock Price” and under “Item 7A. Quantitative and Qualitative Disclosures about Market Risk”.

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Contractual Obligations

As of December 31, 2007, future minimum payments for all contractual obligations for years subsequent to December 31, 2007 are as follows:

(in thousands)				2009 -			2011 -			2013 and
	2008			2010			2012			thereafter			Total
Operating leases	$	47,813		$	77,145		$	53,667		$	65,516		$	244,141
Less: sublease income		(2,350	)		(4,793	)		(3,537	)		(3,575	)		(14,255	)
Total	$	45,463		$	72,352		$	50,130		$	61,941		$	229,886

We are a limited partner in four venture capital funds and have committed to invest up to an aggregate additional $23.8 million in these funds. We anticipate that our aggregate investment in these funds will be made through a series of future capital calls over the next several years. We also have a long-term liability on our balance sheet regarding the underfunding of our U.K. pension plan in the amount of $9.8 million. We do not know if or when this will be funded because this liability will change based on the performance of the investments of the plan and changes in the benefit obligations. Also, in February 2007, we exercised an option to license a statin compound from Ranbaxy Laboratories Ltd. which we intend to develop as a treatment for dyslipidemia. We are solely responsible, and will bear all costs and expenses, for the development, manufacture, marketing and commercialization of the compound and licensed products. We are also obligated to pay Ranbaxy milestone payments upon the occurrence of specified clinical development events. If a licensed product is approved for sale, we must also pay Ranbaxy royalties based on sales of such product and commercial milestone payments based on the achievement of specified worldwide sales targets. If all criteria are met, the total amount of potential clinical and sales-based milestones over the development and commercialization period would be $44.0 million. Lastly, we have a liability of unrecognized tax benefits of approximately $23.8 million. We estimate that less than $0.1 million will be paid in the next 12 months. We are unable to reasonably estimate the amount or timing of payments for the remainder of the liability.

Off-balance Sheet Arrangements

From time to time, we cause letters of credit to be issued to provide credit support for guarantees, contractual commitments and insurance policies. The fair values of the letters of credit reflect the amount of the underlying obligation and are subject to fees competitively determined in the marketplace. As of December 31, 2007, we had four letters of credit outstanding for a total of $1.8 million.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. We believe that the following are the primary areas in which management must make significant judgments in applying our accounting policies to determine our financial condition and results of operations. We have discussed the application of these critical accounting policies with the Finance and Audit Committee of our Board of Directors.

Revenue Recognition

The majority of our Development segment revenues are recorded on a proportional performance basis. To measure performance on a given date, we compare direct costs through that date to estimated total direct costs to complete the contract. Direct costs relate primarily to the amount of labor and labor related overhead costs related to the delivery of services. We believe this is the best indicator of the performance of the contractual obligations.

Our contracts are generally based on a fixed fee or unitized pricing model and have a duration of a few months to ten years. The contract value for a fixed fee contract equals the agreed upon aggregate amount of the fixed fees. We measure the contract value for unitized pricing models using the estimated units (number of patients to be dosed or study sites to be initiated, for example) to be completed and the agreed upon unit prices. As part of

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the client proposal and contract negotiation process, we develop a detailed project budget for the direct costs to be expended based on the scope of the work, the complexity of the study, the geographic locations involved and our historical experience. We then establish the individual contract pricing based on our internal pricing guidelines, discount agreements, if any, and negotiations with the client.

Contracts with the same customer generally are not linked, although some large customers enter into annual or multi-year pricing agreements, which generally provide for specified discounts with periodic rate increases or other price adjustment mechanisms. We negotiate pricing for each project individually, based on the scope of the work, and any discounts and rate increases are reflected within the contract for the project. Other large customers negotiate rebates based on the volume of services purchased. These agreements are generally negotiated at the beginning of each year and require a one-time rebate in the following year based upon the volume of services purchased or recognized during the relevant year. We record an estimate of the annual volume rebate as a reduction of revenues throughout the period based on the estimated total rebate to be earned for the period.

Generally, payment terms are based on the passage of time, the monthly completion of units or non-contingent project milestones that represent progression of the project plan, such as contract signing, site initiation and database lock. The timing of payments can vary significantly. We attempt to negotiate payment terms which provide for payment of services prior to or within close proximity to the provision of services, but the levels of unbilled services and unearned revenue can vary significantly.

Most of our contracts can be terminated by the client either immediately or after a specified period following notice. These contracts typically require the client to pay us the expenses to wind down the study, fees earned to date and, in some cases, a termination fee or some portion of the fees or profit that we could have earned under the contract if it had not been terminated early. Therefore, revenue recognized prior to cancellation generally does not require a significant adjustment upon cancellation.

Each month we accumulate direct costs on each project and compare them to the total current estimated direct costs to complete the project in order to determine the percentage-of-completion. We then multiply this percentage by the contract value to determine the amount of revenue that can be recognized. This process includes a review of, among other things:

• a comparison of direct costs incurred in the current month against the budgeted direct costs for the month;

• detailed discussions with the operational project teams relating to the status of the project, including the rate of enrollment, the ability to complete individual tasks in the time-frame allotted, the anticipated total units to be achieved and potential changes to the project scope;

• a comparison of the fees invoiced and collected compared to revenue recognized;

• experience on projects recently completed or currently running; and

• specific client and industry changes.

As a result of this review, we might determine that our previous estimates of contract value or direct costs need to be revised based upon the new information. Changes in the scope of work generally results in the negotiation of contract modifications to increase or decrease the contract value along with an associated increase or decrease in the estimated total direct costs to complete. If a contract modification is not agreed to, we could bear the risk of cost overruns. Contract values and modifications to contract values are only included in the calculation of revenue when we believe that realization is reasonably assured and we have appropriate evidence of arrangement.

If we determine that a loss will result from the performance of a contract, the entire amount of the estimated loss is charged against income in the period in which such determination is made. The payment terms for our contracts do not necessarily coincide with the recognition of revenue. We record unbilled services for revenue recognized to date that are not then billable under the relevant customer agreement. Conversely, we record unearned income for cash received from customers for which revenue has not been recognized at the balance sheet date.

In 2007 and prior years, we had to commit unanticipated resources to complete projects, resulting in lower gross margins on those projects. We might experience similar situations in the future. Increases in the estimated

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total direct costs to complete a contract without a corresponding proportional increase to the contract value result in a cumulative adjustment to the amount of revenue recognized in the period the change in estimate is determined. Should our estimated direct costs to complete a fixed price contract prove to be low, gross margins could be materially adversely affected, absent our ability to negotiate a contract modification. Historically, the majority of our estimates and assumptions have been materially correct, but these estimates might not continue to be accurate in the future. A hypothetical increase of 1% in the total estimated remaining project direct costs to complete, without a corresponding proportional increase in the contract value, for open projects accounted for under the proportional performance method as of December 31, 2005, 2006 and 2007 would have resulted in a cumulative reduction in revenue and gross margin of approximately $2.5 million, $3.3 million, and $3.5 million, respectively.

In our Discovery Sciences segment, we generate revenue from time to time in the form of milestone payments in connection with licensing of compounds. We only recognize milestone payments as revenue if the specified milestone is achieved and accepted by the client, and continued performance of future research and development services related to that milestone is not required. Future potential milestone payments under various discovery contracts might never be received if the milestones are not achieved.

Allowance for Doubtful Accounts

Included in “Accounts receivable and unbilled services, net” on our consolidated balance sheets is an allowance for doubtful accounts. Generally, before we do business with a new client, we perform a credit check. We also review our accounts receivable aging on a monthly basis to determine if any receivables will potentially be uncollectible. The allowance for doubtful accounts includes specific accounts and an estimate of other losses based on historical loss experience. After all attempts to collect the receivable have failed, the receivable is written off against the allowance. Based on the information available to us, we believe our allowance for doubtful accounts as of December 31, 2007 was adequate to cover uncollectible balances. However, actual invoice write-offs might exceed the recorded reserve.

Investments

Our investments consist of equity and debt investments in publicly traded and privately held entities. Our investments in publicly traded securities are classified as available-for-sale securities and recorded at their current quoted market price. Our investments in privately held entities do not have readily determinable fair values and are, therefore, recorded using the cost method of accounting. Most of our investments are in relatively early stage life sciences and biotechnology companies or investment funds that invest in similar companies. These early stage life sciences and biotechnology companies generally do not have established products or proven technologies or material revenue, if any. The fair value of these investments might from time to time be less than their recorded value. We assess our investment portfolio on a quarterly basis for other-than-temporary impairments. For our investments in privately held entities, we must identify events or circumstances that would likely have a significant adverse effect on the fair value of the investment. In addition, any decline in the fair value of publicly traded or privately held investments must be evaluated to determine the extent and timing of recovery, if any. If we deem the impairment to be other-than-temporary, the impairment of the investment must be recorded in the income statement. This quarterly review includes an evaluation of, among other things, the market condition of the overall industry, historical and projected financial performance, expected cash needs and recent funding events, as well as our expected holding period and the length of time and the extent to which the fair value of the investment has been less than cost. This analysis of the fair values and the extent and timing of recoveries of decreases in fair value requires significant judgment.

Tax Valuation Allowances and Tax Liabilities

We adopted FIN 48 as of January 1, 2007. FIN 48 requires significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of each tax position. Changes in judgment as to recognition or measurement of tax positions can materially affect the estimate of our effective tax rate and, consequently, our operating results. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.

Estimates and judgments are required in the calculation of certain tax liabilities and in the determination of the recoverability of certain deferred tax assets, which arise from net operating losses, tax credit carryforwards and

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temporary differences between the tax and financial statement recognition of revenue and expense. SFAS No. 109, “Accounting for Income Taxes”, also requires that the deferred tax assets be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods.

In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence including our past operating results, the existence of cumulative losses in the most recent fiscal years and our forecast of future taxable income on a jurisdiction-by-jurisdiction basis. In determining future taxable income, assumptions include the amount of state, federal and international pre-tax income from operations, international transfer pricing policies, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we use to manage the underlying businesses. Based on our analysis of the above factors, we determined that a valuation allowance of $5.9 million was required as of December 31, 2007 for carryforwards of foreign and state tax losses and credits. Changes in our assumptions could result in an adjustment to the valuation allowance, up or down, in the future.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions. We determine our liability for uncertain tax positions globally under the provisions in FIN 48. As of December 31, 2007, we had recorded a gross FIN 48 liability of $23.8 million. If events occur and the payment of these amounts ultimately proves to be unnecessary, the reversal of liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If our calculation of liability related to uncertain tax positions proves to be more or less than the ultimate assessment, a tax expense or benefit to expense, respectively, would result. The total liability reversal that could effect the tax rate is $9.3 million.

Long-Lived Assets

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. If indicators of impairment are present, we evaluate the carrying value of property and equipment in relation to estimates of future undiscounted cash flows. These undiscounted cash flows and fair values are based on judgments and assumptions. Additionally, we test goodwill for impairment on at least an annual basis by comparing the underlying reporting units’ goodwill to their estimated fair value. These tests for impairment of goodwill involve the use of estimates related to the fair market value of the reporting unit with which the goodwill is associated, and are inherently subjective.

Stock-Based Compensation

We account for our share-based compensation plan using the provisions of SFAS No. 123 (revised), “Share-Based Payment”. Accordingly, we measure stock-based compensation cost at grant date, based on the fair value of the award, and recognize it as expense over the employee’s requisite service period. The fair value of each option award is estimated on the grant date using the Black-Scholes option-pricing model. The model requires the use of the following assumptions: an expected dividend yield; expected volatility; risk-free interest rate; and expected term. Based on our assumptions for these factors, the weighted-average fair value of options granted during the year ended December 31, 2007 was $10.93 per option. A change in these assumptions could have a significant impact on the weighted-average fair value of options. For example, if we changed our assumption for the expected term to increase expected life by a half of a year, the weighted average fair value of options granted during 2007 would have increased by $0.71 or 6.5% from $10.93 to $11.64, and the resulting stock-based employee compensation expense determined under the fair value based method for stock option awards, net of related tax effect, would have increased by $0.6 million. Diluted earnings per share under this example would not have been impacted. See Note 10 in the Notes to our Consolidated Financial Statements for details regarding the assumptions used in estimating fair value for the years ended December 31, 2005, 2006 and 2007 regarding our equity compensation plan and our employee stock purchase plan.

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Recent Accounting Pronouncements

Recently issued accounting standards relevant to our financial statements, which are described in “Recent Accounting Pronouncements” in Note 1 in the Notes to our Consolidated Financial Statements are:

Date	Title	Effective Date
July 2006	Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”	Fiscal years beginning after December 15, 2006
September 2006	SFAS No. 157, “Fair Value Measurements”	Fiscal years beginning after November 15, 2007 and interim periods within those years
September 2006	SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)”	Recognition of asset and liability of funded status – fiscal years ending after December 15, 2006. Measurement date provision – fiscal years ending after December 15, 2008
February 2007	SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115”	Fiscal years beginning after November 15, 2007
June 2007	EITF Issue 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards”	Fiscal years beginning after December 15, 2007
June 2007	EITF Issue 07-03, “Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities”	Fiscal years beginning after December 15, 2007
December 2007	EITF Issue 07-01, “Accounting for Collaborative Arrangements”	Fiscal years beginning after December 15, 2008.
December 2007	SFAS No. 141 (revised 2007), “Business Combinations”	Fiscal years beginning after December 15, 2008
December 2007	SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an Amendment of ARB No. 51”	Fiscal years beginning after December 15, 2008

Income Taxes

Because we conduct operations on a global basis, our effective tax rate has and will continue to depend upon the geographic distribution of our pretax earnings among locations with varying tax rates. Our profits are also impacted by changes in the tax rates of the various tax jurisdictions. In particular, as the geographic mix of our pretax earnings among various tax jurisdictions changes, our effective tax rate might vary from period to period. The effective rate will also change due to the discrete recognition of tax benefits when tax positions are effectively settled.

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Inflation

Our long-term contracts, those in excess of one year, generally include an inflation or cost of living adjustment for the portion of the services to be performed beyond one year from the contract date. In the event that actual inflation rates are greater than our contractual inflation rates or cost of living adjustments, inflation could have a material adverse effect on our operations or financial condition.

Potential Liability and Insurance

Drug development services involve the testing of potential drug candidates on human volunteers pursuant to a study protocol. This testing exposes us to the risk of liability for personal injury or death to volunteers and patients resulting from, among other things, possible unforeseen adverse side effects or improper administration of the study drug or use of the drug following regulatory approval. For example, we have been named as a defendant in a number of lawsuits relating to the antibiotic Ketek, as described in Part I, Item 3 – “Legal Proceedings”. We attempt to manage our risk of liability for personal injury or death to volunteers and patients from administration of study products through standard operating procedures, patient informed consent, contractual indemnification provisions with clients and insurance. We monitor clinical trials in compliance with government regulations and guidelines. We have established global standard operating procedures intended to satisfy regulatory requirements in all countries in which we have operations and to serve as a tool for controlling and enhancing the quality of drug development services. The contractual indemnifications generally do not protect us against all our own actions, such as gross negligence. We currently maintain professional liability insurance coverage with limits we believe are adequate and appropriate.

Potential Volatility of Quarterly Operating Results and Stock Price

Our quarterly and annual operating results have fluctuated in the past, and we expect that they will continue to fluctuate in the future. Factors that could cause these fluctuations to occur include:

• the timing and level of new business authorizations;

• our ability to recruit and retain experienced personnel;

• the timing of the initiation, progress or cancellation of significant projects;

• the timing and amount of costs associated with R&D and compound partnering collaborations;

• the timing of our Discovery Sciences segment milestone payments or other revenue, if any;

• our ability to properly manage our growth;

• litigation costs;

• the timing of the opening of new offices;

• the timing of other internal expansion costs;

• exchange rate fluctuations between periods;

• our dependence on a small number of industries and clients;

• the mix of products and services sold in a particular period;

• pricing pressure in the market for our services;

• rapid technological change;

• the timing and amount of start-up costs incurred in connection with the introduction of new products and services;

• the timing and extent of new government regulations;

• intellectual property risks;

• impairment of investments or intangible assets; and

• the timing and amount of costs associated with integrating acquisitions.

Delays and terminations of trials are often the result of actions taken by our clients or regulatory authorities, and are not typically controllable by us. Because a large percentage of our operating costs are relatively fixed while revenue is subject to fluctuation, variations in the timing and progress of large contracts can materially affect our quarterly operating results. For these reasons, we believe that comparisons of our quarterly financial results are not necessarily meaningful and should not be relied upon as an indication of future performance.

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Recent consolidations and other transactions involving competitors could increase the competition within our industry for clients, experienced personnel and acquisition candidates. These consolidations and other potential future transactions, such as the acquisition of PRA International by Genstar Capital, a private equity firm, could increase competition in our industry.

Fluctuations in quarterly results, actual or anticipated changes in our dividend policy, stock repurchase plan or other factors could affect the market price of our common stock. These factors include ones beyond our control, such as changes in revenue and earnings estimates by analysts, market conditions in our industry, disclosures by product development partners and actions by regulatory authorities with respect to potential drug candidates, changes in pharmaceutical, biotechnology and medical device industries and the government sponsored clinical research sector and general economic conditions. Any effect on our common stock could be unrelated to our longer-term operating performance. For further details, see “Item 1A. Risk Factors”.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to foreign currency risk by virtue of our international operations. We derived approximately 29.2%, 32.3% and 36.5% of our net revenues for the years ended December 31, 2005, 2006 and 2007, respectively, from operations outside the United States. We generally reinvest funds generated by each subsidiary in the country where they are earned. Our operations in the United Kingdom generated 28.0% of our net revenue from international operations during 2007. Accordingly, we are exposed to adverse movements in foreign currencies, predominately in the pound sterling.

The vast majority of our contracts are entered into by our U.S. or U.K. subsidiaries. The contracts entered into by the U.S. subsidiaries are almost always denominated in U.S. dollars. Contracts entered into by our U.K. subsidiaries are generally denominated in U.S. dollars, pounds sterling or euros, with the majority in U.S. dollars. Although an increase in exchange rates for the pound sterling or euro relative to the U.S. dollar would increase net revenue from contracts denominated in these currencies, a negative impact on income from operations results from dollar-denominated contracts for services rendered in countries other than the United States. In these cases, revenue is not impacted by the weakening of the U.S. dollar, but the costs associated with performing these contracts, which are paid in local currency, are negatively impacted when translated into U.S. dollars.

We also have currency risk resulting from the passage of time between the invoicing of clients under contracts and the collection of client payments against those invoices. If a contract is denominated in a currency other than the subsidiary’s local currency, we recognize a receivable at the time of invoicing for the local currency equivalent of the foreign currency invoice amount. Changes in exchange rates from the time the invoice is prepared until payment from the client will result in our receiving either more or less in local currency than the local currency equivalent of the receivable. We recognize this difference as a foreign currency transaction gain or loss, as applicable, and report it in other income, net. If the exchange rate on accounts receivable balances denominated in pounds sterling and euros had increased by 10%, our foreign currency transaction loss would have increased by $3.0 million in the year ended December 31, 2007.

Our strategy for managing foreign currency risk relies primarily on receiving payment in the same currency used to pay expenses. If the U.S. dollar had weakened an additional 10% relative to the pound sterling, euro and Brazilian real in 2007, net income would have been approximately $7.3 million lower for the year based on revenues and the costs related to our foreign operations. From time to time, we also enter into foreign currency hedging activities in an effort to manage our potential foreign exchange exposure. As of December 31, 2007, the face value of foreign exchange contracts was $60.0 million.

Changes in exchange rates between the applicable foreign currency and the U.S. dollar will affect the translation of foreign subsidiaries’ financial results into U.S. dollars for purposes of reporting our consolidated financial results. The process by which we translate each foreign subsidiary’s financial results to U.S. dollars is as follows:

• we translate income statement accounts at average exchange rates for the period;

• we translate balance sheet assets and liability accounts at end of period exchange rates; and

• we translate equity accounts at historical exchange rates.

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Translation of the balance sheet in this manner affects shareholders’ equity through the cumulative translation adjustment account. This account exists only in the foreign subsidiary’s U.S. dollar balance sheet and is necessary to keep the foreign balance sheet, stated in U.S. dollars, in balance. We report translation adjustments with accumulated other comprehensive income (loss) as a separate component of shareholders’ equity. To date, cumulative translation adjustments have not been material to our consolidated financial position. However, future translation adjustments could materially and adversely affect us.

Currently, there are no material exchange controls on the payment of dividends or otherwise prohibiting the transfer of funds out of any country in which we conduct operations. Although we perform services for clients located in a number of jurisdictions, we have not experienced any material difficulties in receiving funds remitted from foreign countries. However, new or modified exchange control restrictions could have an adverse effect on our financial condition. If the Company were to repatriate dividends from the cumulative amount of undistributed earnings in foreign entities, the Company would incur a tax liability which is not currently provided for in the Company’s balance sheet.

We are exposed to changes in interest rates on our cash, cash equivalents and short-term investments and amounts outstanding under notes payable and lines of credit. We invest our cash and cash equivalents in financial instruments with interest rates based on market conditions. If the interest rates on cash, cash equivalents and short-term investments decreased by 10%, our interest income would have decreased by approximately $1.8 million in the year ended December 31, 2007.

We are also exposed to market risk related to our investments in auction rate securities. For further details, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations “–Liquidity and Capital Resources.””

Item 8. Financial Statements and Supplementary Data

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

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

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) are designed only to provide reasonable assurance that information to be disclosed in our Exchange Act Reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to provide the reasonable assurance discussed above.

Internal Control Over Financial Reporting

No change to our internal control over financial reporting occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting

56

principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and our Board of Directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

A control system, no matter how well designed and operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met and must reflect the fact that there are resource constraints that require management to consider the benefits of internal controls relative to their costs. Because of these inherent limitations, management does not expect that our internal controls over financial reporting will prevent all errors and all fraud. Also, internal controls might become inadequate because of changes in business conditions or a decline in the degree of compliance with our policies or procedures.

Management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2007. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on our assessment, we believe that, as of December 31, 2007, our internal control over financial reporting was effective based on those criteria.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Pharmaceutical Product Development, Inc. and Subsidiaries

Wilmington, North Carolina

We have audited the internal control over financial reporting of Pharmaceutical Product Development, Inc. and subsidiaries (the “Company”) as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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

57

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

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2007 of the Company and our report dated February 26, 2008 expressed an unqualified opinion on those financial statements and includes explanatory paragraphs relating to the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109, in 2007 and the adoption of FASB Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R), in 2006.

/s/ DELOITTE & TOUCHE LLP

Raleigh, North Carolina

February 26, 2008

Item 9B. Other information

None.

58

PART III

Certain information required by Part III is omitted from this report because the Registrant intends to file a definitive proxy statement for its 2008 Annual Meeting of Shareholders to be held on May 21, 2008 (the “Proxy Statement”) within 120 days after the end of its fiscal year pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, and the information included therein is incorporated herein by reference to the extent provided below.

Item 10. Directors and Executive Officers of the Registrant

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

The Board of Directors has determined that Frederick Frank, Stuart Bondurant, Terry Magnuson and John A. McNeill, Jr., the members of the Finance and Audit Committee, are independent as defined in Rule 4200(a) (15) of the Nasdaq listing standards and Rule 10A-3 under the Securities Exchange Act of 1934. The Board of Directors has also determined that at least one committee member, namely Mr. Frank, is an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K.

Our Board of Directors has adopted a code of conduct that applies to all of our directors and employees. Our board has also adopted a separate code of ethics for our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Controller, or persons performing similar functions. We will provide copies of our code of conduct and code of ethics without charge upon request. To obtain a copy of the code of ethics or code of conduct, please send your written request to Pharmaceutical Product Development, Inc., 929 North Front Street, Wilmington, NC 28401, Attn: General Counsel.

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

Item 11. Executive Compensation

The information required by Item 11 of Form 10-K is incorporated by reference to the information under the heading “Other Information —Compensation of Non-Employee Directors”, “—Director Compensation in Fiscal 2007,” “—Executive Compensation”,” and “—Compensation Committee Interlocks and Insider Participation” in the Proxy Statement.

59

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Equity Compensation Plans

The following table sets forth the indicated information with respect to our equity compensation plans as of December 31, 2007:

Plan Category	(a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	(b) Weighted Average Exercise Price Of Outstanding Options, Warrants and Rights		(c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Equity compensation plans approved by security holders	6,025,834	$	26.01	7,432,679	(1)
Equity compensation plans not approved by security holders	0		0	0
Total	6,025,834	$	26.01	7,432,679	(1)

(1) This includes 5,417,718 shares of stock available for issuance under our amended and restated Equity Compensation Plan and 2,014,961 shares available for issuance under our Employee Stock Purchase Plan.

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

Item 13. Certain Relationships and Related Transactions

The information required by Item 13 of Form 10-K is incorporated by reference to the information under the headings “Proposal No. 1—Election of Directors - Nominees” and “Information About the Board of Directors and its Committees”, and “Other Information—Related Party Transactions” in the Proxy Statement.

Item 14. Principal Accountant Fees and Services

The information required by Item 14 of Form 10-K is incorporated by reference to the information under the heading “Other Information – Report of the Finance & Audit Committee” and “– Fees Paid to the Independent Registered Public Accounting Firm” in the Proxy Statement.

60

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Financial Statements

Our consolidated financial statements filed as part of this report are listed in the attached Index to Consolidated Financial Statements. There are no schedules to our consolidated financial statements.

(b) Exhibits

Exhibit Number	Description	Registrant’s Form	Dated	Exhibit Number	Filed Herewith
2.10	—Asset Purchase Agreement dated January 14, 2005 relating to the purchase of the biomarker business from SurroMed, Inc.	8-K	2/7/05	99.1
3.1	—Restated Articles of Incorporation.	8-K	2/9/06	3.1
3.2	—Amended and Restated Bylaws.	S-4	7/16/96	3.2
10.35	—Lease, dated January 26, 1994, by and between Michael James Lawton, Jeffrey William Ware, Prudential Nominees Limited and Gabbay Group Limited.	S-1	1/24/96	10.35
10.39	—Lease Agreement, dated as of October 25, 1995, by and between PPD-CRU and Perimeter Park West Associates Limited Partnership.	S-1	1/24/96	10.39
10.55	—Lease made January 23, 1996 between PPD-CRU and Western Center Properties, Inc.	S-1	1/24/96	10.55
10.59	—First Amendment dated May 20, 1999 to Lease Agreement, dated October 25, 1995, between PPD Development and Perimeter Park West Associates Limited Partnership.	S-4	7/16/96	10.59
10.60	—First, Second and Third Amendments to Lease Agreement, dated March 25, 1996, between PPD and BBC Family Limited Partnership.	S-4	7/16/96	10.60
10.61	—Lease Agreement, dated March 25, 1996, between PPD and BBC Family Limited Partnership.	S-4/A	8/20/96	10.61
10.86	—Pharmaceutical Product Development, Inc. Employee Stock Purchase Plan.	8-K	5/18/05	10.86
10.87	—Amendment to Employee Stock Purchase Plan, dated June 21, 1997.	10-Q	8/14/97	10.87
10.88	—Amendment to Stock Option Plan for Non-Employee Directors, dated May 15, 1997.	10-Q	8/14/97	10.88
10.90	—Employment Agreement, effective July 1, 1997, between Pharmaceutical Product Development, Inc. and Fredric N. Eshelman.	10-Q	11/13/97	10.90
10.93	—Lease Agreement dated July 9, 1997, between Weeks Realty, Inc. and PPD Pharmaco, Inc.	10-Q	11/13/97	10.93
10.110	—Amendment to Employee Stock Purchase Plan, dated March 2, 1998.	10-K	3/27/98	10.110
10.114	—Lease Agreement dated June 26, 1998 between Weeks Realty Limited Partnership and PPD Pharmaco, Inc.	10-Q	8/13/98	10.114
10.116	—First Amendment to Lease Agreement dated September 28, 1998, between PPD Pharmaco, Inc. and Weeks Realty, Inc.	10-Q	11/13/98	10.116
10.117	—Lease Agreement dated September 15, 1998 between PPD Pharmaco, Inc. and BBC Family Limited Partnership.	10-Q	11/13/98	10.117

61

Exhibit Number	Description	Registrant’s Form	Dated	Exhibit Number	Filed Herewith
10.118	—Lease Agreement dated December 16, 1998 between PPD Pharmaco, Inc. and Weeks Realty Limited Partnership.	10-K	3/4/99	10.118
10.131	—Amendment, dated April 14, 1999, to Lease Agreement dated September 15, 1998 between PPD Pharmaco, Inc. and BBC Family Limited Partnership.	10-Q	8/13/99	10.131
10.132	—Amendment, dated April 14, 1999, to Lease Agreement dated March 25, 1996 between PPD and BBC Family Limited Partnership.	10-Q	8/13/99	10.132
10.133	—Fourth Amendment, dated July 6, 1999, to Lease Agreement dated July 9, 1997 between PPD Development, Inc. (formerly known as PPD Pharmaco, Inc.) and Weeks Realty, L.P.	10-Q	11/15/99	10.133
10.145	—Third Amendment to Employee Stock Purchase Plan, dated June 21, 1997.	10-Q	8/11/00	10.145
10.158	—Deferred Compensation Plan dated February 1, 2001.	10-K	3/13/01	10.158
10.162	—Severance Agreement dated January 1, 2001, between Pharmaceutical Product Development, Inc. and various individuals.			10.162	X
10.164	—First Amendment, dated January 28, 1998, to Lease Agreement dated July 9, 1997 between PPD Development, Inc. (formerly known as PPD Pharmaco, Inc.) and Weeks Realty, L.P.	10-K	3/13/01	10.164
10.165	—Second Amendment, dated June 26, 1998, to Lease Agreement dated July 9, 1997 between PPD Development, Inc. (formerly known as PPD Pharmaco, Inc.) and Weeks Realty, L.P.	10-K	3/13/01	10.165
10.166	—Third Amendment, dated February 18, 1999, to Lease Agreement dated July 9, 1997 between PPD Development, Inc. (formerly known as PPD Pharmaco, Inc.) and Weeks Realty, L.P.	10-K	3/13/01	10.166
10.167	—First Amendment, dated February 28, 2000, to Lease Agreement dated December 16, 1998 between PPD Development, Inc. and Duke-Weeks Realty, L.P.	10-K	3/13/01	10.167
10.170	—Employment Agreement dated July 9, 2001 between Pharmaceutical Product Development, Inc. and Brainard Judd Hartman.	10-Q	8/1/01	10.170
10.177	—Employment Agreement dated January 15, 2002, between Pharmaceutical Product Development, Inc. and Paul S. Covington.	10-K	2/20/02	10.177
10.186	—Loan Agreement dated July 25, 2002 between Pharmaceutical Product Development, Inc. and Bank of America, N.A.	10-Q	8/13/02	10.186
10.187	—Deferred Compensation Plan for Directors dated June 15, 2002.	10-Q	8/13/02	10.187
10.189	—Lease Agreement dated July 1, 2001 between Brandywine Grande C,L.P. and PPD Development, LLC.	10-Q	8/13/02	10.189
10.190	— Deferred Compensation Plan for Executives, as amended and restated on November 22, 2005.	8-K	11/22/05	10.190
10.191	—Second Amendment, dated October 1, 2002, to Lease Agreement dated June 26, 1998 between PPD Development, Inc. (formerly PPD Pharmaco, Inc.) and Duke Realty Limited Partnership (formerly Weeks Realty, L.P.).	10-Q	11/13/02	10.191

62

Exhibit Number	Description	Registrant’s Form	Dated	Exhibit Number	Filed Herewith
10.192	—Fifth Amendment, dated October 1, 2002, to Lease Agreement dated July 9, 1997 between PPD Development, Inc. and Duke Realty Limited Partnership (formerly Weeks Realty, L.P.).	10-Q	11/13/02	10.192
10.193	—Second Amendment, dated October 1, 2002, to Lease Agreement dated December 16, 1998 between PPD Development, Inc. and Duke Realty Limited Partnership (formerly Weeks Realty, L.P.).	10-Q	11/13/02	10.193
10.197	—First Amendment to Loan Agreement dated July 1, 2003, between Pharmaceutical Product Development, Inc. and Bank of America, N.A.	10-Q	8/6/03	10.197
10.200	—Pharmaceutical Product Development, Inc. Equity Compensation Plan as amended and restated effective May 14, 2003.	Proxy	3/28/03	10.200
10.201^	—Termination and License Agreement dated as of December 18, 2003 by and among Eli Lilly and Company, Pharmaceutical Product Development, Inc., GenuPro, Inc. and APBI Holdings, LLC.	10-K	2/19/04	10.201
10.202^	—License Agreement dated January 2, 2001 by and among Pharmaceutical Product Development, Inc., GenuPro, Inc. and ALZA Corporation.	10-K	2/19/04	10.202
10.203^	—Amendment No. 1 to License Agreement dated as of December 26, 2003 by and among Pharmaceutical Product Development, Inc., GenuPro, Inc. and ALZA Corporation.	10-K	2/19/04	10.203
10.205	—Termination Agreement dated June 25, 2004, between PPD Development, LP and W. Richard Staub.	10-Q	8/3/04	10.205
10.206	—Second Amendment to Loan Agreement dated July 1, 2004, between Pharmaceutical Product Development, Inc. and Bank of America, N.A.	10-Q	8/3/04	10.206
10.209	—Deferred Compensation Plan for Non-Employee Directors, as amended and restated on November 22, 2005.	8-K	11/22/05	10.209
10.211	—Aircraft Purchase Agreement dated February 2, 2005 relating to the purchase of an aircraft from Krispy Kreme Doughnut Corporation.	8-K	2/7/05	99.1
10.212	—Lease agreement dated June 18, 2004, between Met Center Partners-6, Ltd. And PPD Development, LP	10-K	3/4/05	10.212
10.213	—First Amendment dated March 16, 2005 to Lease Agreement between Met Center Partners-6, Ltd. And PPD Development, LP	10-Q	5/5/05	10.213
10.214	— Second Amendment dated March 16, 2005 to Lease Agreement between Met Center Partners-6, Ltd. And PPD Development, LP	10-Q	5/5/05	10.214
10.215	—Agreement dated July 13, 2005 among Pharmaceutical Product Development, Inc., Development Partners, LLC, Takeda Pharmaceutical Company Limited and Takeda San Diego, Inc.	8-K	7/13/05	10.215
10.217	—Third Amendment to Loan Agreement dated June 30, 2005, between Pharmaceutical Product Development, Inc. and Bank of America, N.A	10-Q	7/29/05	10.217

63

Exhibit Number	Description	Registrant’s Form	Dated	Exhibit Number	Filed Herewith
10.218	—Amendment No. 1, effective as of October 10, 2005, to the Agreement dated July 13, 2005, among Pharmaceutical Product Development, Inc., Development Partners, LLC, Takeda Pharmaceutical Company Limited and Takeda San Diego, Inc.	8-K	10/10/05	10.218
10.219	—Employment Agreement dated October 12, 2005, between PPD Development, LP and William W. Richardson.	8-K	10/12/05	10.219
10.220	—Lease Agreement dated August 31, 2004 by and between Evan A. Stein, M.D., Ph.D. and Medical Research Laboratories International LLC	10-Q	11/8/05	10.220
10.221	—Lease Agreement dated April 30, 2001 by and between Greenway Properties, Inc. and PPD Development, LP	10-Q	11/8/05	10.221
10.222	—First Amendment dated August 15, 2001, to Lease Agreement, dated April 30, 2001, by and between Greenway Properties, Inc. and PPD Development, LP	10-Q	11/8/05	10.222
10.223	—Second Amendment dated August 25, 2003, to Lease Agreement, dated April 30, 2001, by and between Greenway Properties, Inc. and PPD Development, LP	10-Q	11/8/05	10.223
10.224	—Third Amendment dated March 22, 2004, to Lease Agreement, dated April 30, 2001, by and between Greenway Properties, Inc. and PPD Development, LP	10-Q	11/8/05	10.224
10.225	—Fourth Amendment dated May 17, 2004, to Lease Agreement, dated April 30, 2001, by and between Greenway Properties, Inc. and PPD Development, LP	10-Q	11/8/05	10.225
10.226	—Fifth Amendment dated December 14, 2004, to Lease Agreement, dated April 30, 2001, by and between Greenway Properties, Inc. and PPD Development, LP	10-Q	11/8/05	10.226
10.227	—Sixth Amendment dated June 3, 2005, to Lease Agreement, dated April 30, 2001, by and between Greenway Properties, Inc. and PPD Development, LP	10-Q	11/8/05	10.227
10.228	—Seventh Amendment dated July 29, 2005, to Lease Agreement, dated April 30, 2001, by and between Greenway Properties, Inc. and PPD Development, LP	10-Q	11/8/05	10.228
10.229	—General Conditions of the Contract for Construction	8-K	12/12/05	10.210
10.230	—Standard Form of Agreement Between Owner and Construction Manager dated August 30, 2005 between River Ventures, LLC and Bovis Lend Lease, Inc. (foundation)	8-K	12/12/05	10.211
10.231	—Standard Form of Agreement Between Owner and Construction Manager dated August 30, 2005 between River Ventures, LLC and Bovis Lend Lease, Inc. (shell building)	8-K	12/12/05	10.212
10.232	— Standard Form of Agreement Between Owner and Construction Manager dated August 30, 2005 between River Ventures, LLC and Bovis Lend Lease, Inc. (building upfitting)	8-K	12/12/05	10.213
10.233	—Amendment No. 1 dated December 12, 2005 to Standard Form of Agreement Between Owner and Construction Manager dated August 30, 2005 between River Ventures, LLC and Bovis Lend Lease, Inc. (foundation)	8-K	12/12/05	10.214

64

Exhibit Number	Description	Registrant’s Form	Dated	Exhibit Number	Filed Herewith
10.234	—Amendment to Construction Contracts entered into by and between River Ventures, LLC and Bovis Lend Lease, Inc. dated as of February 15, 2006.	8-K	2/17/06	10.215
10.235	—Form of Restricted Stock Award Agreement under the Equity Compensation Plan for Directors	10-K	3/2/06	10.235
10.236	—Form of Restricted Stock Award Agreement under the Equity Compensation Plan for Executive Officers	10-K	3/2/06	10.236
10.237	—Form of Nonqualified Stock Option Award Agreement under the Equity Compensation Plan for Directors	10-K	3/2/06	10.237
10.238	—Form of Nonqualified Stock Option Award Agreement under the Equity Compensation Plan for all non-Director participants	10-K	3/2/06	10.238
10.239	—Amendment, dated December 16, 2005, to Lease Agreement dated March 25, 1996 between PPD and BBC Family Limited Partnership.	10-K	3/2/06	10.239
10.240	—Construction Loan Agreement entered into by and between Pharmaceutical Product Development, Inc., as borrower, River Ventures, LLC and PPD Development, Inc., as guarantors, and Bank of America, N.A. dated as of February 27, 2006	8-K	3/3/06	10.240
10.241	—Fourth Amendment dated July 1, 2006 to Loan Agreement, between Pharmaceutical Product Development, Inc. and Bank of America, N.A	10-Q	8/3/06	10.241
10.242^	—Option and License Agreement effective as of December 15, 2006 among Pharmaco Investments, Inc. and Ranbaxy Laboratories Ltd.	8-K	2/27/07	10.242
10.243	—Agreement dated April 27, 2007 between Pharmaceutical Product Development, Inc. and Linda Baddour.	8-K	4/30/07	10.243
10.244^	—Employment Agreement dated May 5, 2007, effective May 31, 2007, between Pharmaceutical Product Development, Inc. and William J. Sharbaugh.	8-K	5/17/07	10.244
10.245	—Fifth Amendment dated July 1, 2007 to Loan Agreement, between Pharmaceutical Product Development, Inc. and Bank of America, N.A.	8-K	8/6/07	10.245
10.246^	—Employment Agreement dated September 12, 2007, effective October 1, 2007, between Pharmaceutical Product Development, Inc. and Daniel G. Darazsdi.	8-K	9/12/07	10.246
10.247	—Third Amendment dated September 22, 2003, to Lease Agreement, dated June 26, 1998, by and between Duke Realty Limited Partnership and PPD Development, LP			10.247	X
10.248	—Fourth Amendment dated March 31, 2005, to Lease Agreement, dated June 26, 1998, by and between Duke Realty Limited Partnership and PPD Development, LP			10.248	X
10.249	—Fifth Amendment dated July 7, 2005, to Lease Agreement, dated June 26, 1998, by and between Duke Realty Limited Partnership and PPD Development, LP			10.249	X
10.250	—Sixth Amendment dated December 30, 2005, to Lease Agreement, dated June 26, 1998, by and between Duke Realty Limited Partnership and PPD Development, LP			10.250	X
10.251	—Seventh Amendment dated February 6, 2006, to Lease Agreement, dated June 26, 1998, by and between Duke Realty Limited Partnership and PPD Development, LP			10.251	X

65

Exhibit Number	Description	Registrant’s Form	Dated	Exhibit Number	Filed Herewith
10.252	—Eighth Amendment dated September 24, 2007, to Lease Agreement, dated June 26, 1998, by and between Duke Realty Limited Partnership and PPD Development, LP			10.252	X
10.253	—First Amendment dated March 9, 2007, to Lease Agreement, dated July 1, 2001, by and between Brandywine Grande C, LP and PPD Development, LP			10.253	X
10.254	— Eighth Amendment dated March 1, 2006, to Lease Agreement, dated April 30, 2001, by and between Greenway Office Center, LLC and PPD Development, LLP			10.254	X
10.255	— Ninth Amendment dated August 31, 2007, to Lease Agreement, dated April 30, 2001, by and between Greenway Office Center, LLC and PPD Development, LLP			10.255	X
10.256	— Tenth Amendment dated September 25, 2007, to Lease Agreement, dated April 30, 2001, by and between Greenway Office Center, LLC and PPD Development, LLP			10.256	X
21	—Subsidiaries of the Registrant.				X
23.1	—Consent of Deloitte & Touche LLP				X
31.1	—Certification of the Chief Executive Officer pursuant to Rule 13a-14(a).				X
31.2	—Certification of the Chief Financial Officer pursuant to Rule 13a-14(a).				X
32.1	—Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer.				X
32.2	—Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer.				X

^ Confidential treatment requested for portions of this exhibit.

66

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Statements of Operations for the Years Ended December 31, 2005, 2006 and 2007	F-3
Consolidated Balance Sheets as of December 31, 2006 and 2007	F-4
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2005, 2006 and 2007	F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2006 and 2007	F-6
Notes to Consolidated Financial Statements	F-7

F-1

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Pharmaceutical Product Development, Inc. and Subsidiaries

Wilmington, North Carolina

We have audited the accompanying consolidated balance sheets of Pharmaceutical Product Development, Inc. and subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Pharmaceutical Product Development, Inc. and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Notes 1 and 11 to the consolidated financial statements, in 2007 the Company changed its method of accounting for income tax contingencies to conform to FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109.”

As discussed in Notes 1 and 12 to the consolidated financial statements, in 2006 the Company changed its method of accounting for its defined benefit pension plan to conform to FASB Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R).”

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2008 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Raleigh, North Carolina

February 26, 2008

F-2

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(in thousands, except per share data)

	2005			2006			2007
Net Revenue:
Development	$	921,802		$	1,113,106		$	1,275,399
Discovery Sciences		40,214			33,193			19,979
Reimbursed out-of-pockets		75,074			101,383			119,087
Total net revenue		1,037,090			1,247,682			1,414,465
Direct Costs:
Development		467,001			559,819			641,902
Discovery Sciences		8,428			9,324			10,610
Reimbursable out-of-pocket expenses		75,074			101,383			119,087
Total direct costs		550,503			670,526			771,599
Research and development expenses		23,370			5,406			19,238
Selling, general and administrative expenses		251,415			304,035			338,055
Depreciation and amortization		40,250			47,738			55,592
Gain on exchange of assets		(5,144	)		—			—
Total operating expenses		860,394			1,027,705			1,184,484
Income from operations		176,696			219,977			229,981
Interest:
Income		8,845			15,070			18,330
Expense		(1,116	)		(469	)		(318	)
Interest income, net		7,729			14,601			18,012
Impairment of equity investments		(5,928	)		—			(690	)
Other income, net		1,306			927			650
Income before provision for income taxes		179,803			235,505			247,953
Provision for income taxes		59,906			78,853			84,552
Net income	$	119,897		$	156,652		$	163,401
Net income per common share:
Basic	$	1.05		$	1.34		$	1.38
Diluted	$	1.03		$	1.32		$	1.36
Dividends declared per common share	$	0.525		$	0.105		$	0.19
Weighted average number of common shares outstanding:
Basic		114,664			116,780			118,459
Dilutive effect of stock options and restricted stock		1,770			1,755			1,494
Diluted		116,434			118,535			119,953

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

F-3

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2006 AND 2007

(in thousands, except share data)

	2006		2007
Assets
Current assets:
Cash and cash equivalents	$	179,795	$	171,427
Short-term investments		255,876		330,957
Accounts receivable and unbilled services, net		408,917		481,477
Income tax receivable		510		517
Investigator advances		13,490		15,318
Prepaid expenses and other current assets		36,495		49,835
Deferred tax assets		13,119		23,682
Total current assets		908,202		1,073,213
Property and equipment, net		323,539		356,189
Goodwill		212,382		215,620
Investments		22,478		23,387
Intangible assets		2,014		1,702
Deferred tax assets		11,368		11,717
Other assets		1,582		2,547
Total assets	$	1,481,565	$	1,684,375
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	15,235	$	24,984
Payables to investigators		43,717		58,952
Accrued income taxes		16,560		16,182
Other accrued expenses		149,027		167,235
Deferred tax liabilities		86		101
Unearned income		195,707		205,779
Current maturities of long-term debt and capital lease obligations		75,159		—
Total current liabilities		495,491		473,233
Accrued income taxes		—		29,223
Accrued additional pension liability		10,768		9,763
Deferred tax liabilities		4,247		3,814
Deferred rent and other		18,159		18,246
Total liabilities		528,665		534,279
Commitments and contingencies (Notes 8 and 13)
Shareholders’ equity:
Common stock, $0.05 par value, 190,000,000 shares authorized; 117,623,516 and 119,095,102 shares issued and outstanding, respectively		5,881		5,955
Paid-in capital		449,173		502,898
Retained earnings		490,764		626,025
Accumulated other comprehensive income		7,082		15,218
Total shareholders’ equity		952,900		1,150,096
Total liabilities and shareholders’ equity	$	1,481,565	$	1,684,375

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

F-4

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(in thousands, except per share data)

	Common Shares	Par Value		Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive (Income)/Loss			Total			Comprehensive Income
Balance January 1, 2005	113,236	$	5,662	$	339,743	$	287,204		$	11,179		$	643,788
Net income							119,897						119,897		$	119,897
Other comprehensive income (loss):
Translation adjustments										(10,137	)		(10,137	)		(10,137	)
Minimum pension liability, net of tax of $676										(1,576	)		(1,576	)		(1,576	)
Change in fair value on hedging transactions, net of tax of $938										(2,165	)		(2,165	)		(2,165	)
Reclassification of hedging results included in direct costs, net of tax of ($520)										1,219			1,219			1,219
Unrealized gain on investment, net of tax of ($2,426)										4,156			4,156			4,156
Reclassification to net income of unrealized loss on investment										331			331			331
Comprehensive income															$	111,725
Stock compensation expense					18,907								18,907
Issuance of common shares under various stock compensation plans	2,762		138		29,408								29,546
Income tax benefit from exercise of stock options and disqualified dispositions of stock, net					7,394								7,394
Dividends ($0.525 per share)							(60,684	)					(60,684	)
Balance December 31, 2005	115,998		5,800		395,452		346,417			3,007			750,676
Net income							156,652						156,652		$	156,652
Other comprehensive income (loss):
Translation adjustments										9,721			9,721			9,721
Minimum pension liability, net of tax of ($1,217)										2,840			2,840			2,840
Change in fair value on hedging transactions, net of tax of ($140)										327			327			327
Reclassification of hedging results included in direct costs, net of tax of ($88)										206			206			206
Unrealized loss on investment, net of tax of $2,184										(5,746	)		(5,746	)		(5,746	)
Comprehensive income															$	164,000
Adjustment to initially apply SFAS No. 158, net of tax of $1,403										(3,273	)		(3,273	)
Stock compensation expense					20,565								20,565
Issuance of common shares under various stock compensation plans	1,626		81		27,824								27,905
Income tax benefit from exercise of stock options and disqualified dispositions of stock, net					5,332								5,332
Dividends ($0.105 per share)							(12,305	)					(12,305	)
Balance December 31, 2006	117,624		5,881		449,173		490,764			7,082			952,900
Net income							163,401						163,401		$	163,401
Other comprehensive income (loss):
Translation adjustments										10,001			10,001			10,001
Minimum pension liability, net of tax of ($205)										526			526			526
Change in fair value on hedging transactions, net of tax of $368										(911	)		(911	)		(911	)
Reclassification of hedging results included in direct costs, net of tax of $71										(184	)		(184	)		(184	)
Unrealized loss on investment, net of tax of $669										(1,135	)		(1,135	)		(1,135	)
Reclassification to net income of unrealized gain on investment, net of tax of $88										(161	)		(161	)		(161	)
Comprehensive income															$	171,537
Adjustment to initially apply SFAS No. 48							(5,550	)					(5,550	)
Stock compensation expense					21,418								21,418
Issuance of common shares under various stock compensation plans	1,471		74		27,624								27,698
Income tax benefit from exercise of stock options and disqualified dispositions of stock, net					4,683								4,683
Dividends ($0.19 per share)							(22,590	)					(22,590	)
Balance December 31, 2007	119,095	$	5,955	$	502,898	$	626,025		$	15,218		$	1,150,096

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

F-5

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(in thousands)

	2005			2006			2007
Cash flows from operating activities:
Net income	$	119,897		$	156,652		$	163,401
Adjustments to reconcile net income to net cash provided by operating activities:
Impairment of investments		5,928			—			690
Depreciation and amortization		40,250			47,738			55,592
Stock compensation expense		18,907			20,565			21,418
Provision for doubtful accounts		126			3,286			2,181
Gain on exchange of assets		(5,144	)		—			—
Gain on sale of investment		—			(782	)		(54	)
(Benefit) provision for deferred income taxes		(6,340	)		6,986			487
Loss on impairment and disposal of assets, net		192			1,047			86
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable and unbilled services, net		(44,911	)		(99,096	)		(69,739	)
Prepaid expenses and investigator advances		(9,726	)		(883	)		(11,450	)
Accrued income taxes		24,827			971			10,276
Other assets		(3,407	)		3,717			399
Accounts payable, other accrued expenses and deferred rent		27,886			21,278			29,129
Payables to investigators		1,593			(2,073	)		14,946
Unearned income		12,030			28,020			9,381
Net cash provided by operating activities		182,108			187,426			226,743
Cash flows from investing activities:
Purchases of property and equipment		(109,896	)		(148,046	)		(94,951	)
Proceeds from sale of property and equipment		4,002			871			1,599
Purchases of available-for-sale investments		(195,940	)		(680,286	)		(549,967	)
Maturities and sales of available-for-sale investments		163,140			562,137			473,270
Purchase of note receivable		—			(7,415	)		—
Repayment of note receivable		—			7,415			—
Purchases of investments		(15,522	)		(1,844	)		(2,837	)
Proceeds from sale of investment		25,000			1,482			979
Net cash used in investing activities		(129,216	)		(265,686	)		(171,907	)
Cash flows from financing activities:
Principal repayments on long-term debt		(364	)		(6,005	)		—
Proceeds from revolving credit facility		17,097			—			24,986
Repayment of revolving credit facility		—			(17,097	)		(24,986	)
Proceeds from construction loan		—			74,833			—
Repayment of construction loan		—			—			(74,833	)
Repayment of capital lease obligations		(1,755	)		(1,319	)		(325	)
Proceeds from exercise of stock options and employee stock purchase plan		29,546			28,294			27,905
Income tax benefit from exercise of stock options and disqualifying dispositions of stock		8,791			5,442			4,887
Cash dividends paid		(60,684	)		(12,297	)		(22,578	)
Net cash (used in) provided by financing activities		(7,369	)		71,851			(64,944	)
Effect of exchange rate changes on cash and cash equivalents		(7,871	)		4,204			1,740
Net increase (decrease) in cash and cash equivalents		37,652			(2,205	)		(8,368	)
Cash and cash equivalents, beginning of the year		144,348			182,000			179,795
Cash and cash equivalents, end of the year	$	182,000		$	179,795		$	171,427

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

F-6

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

1. Summary of Operations and Significant Accounting Policies:

Nature of Business

Pharmaceutical Product Development, Inc. and its subsidiaries (collectively the “Company”) provide a broad range of research and development and consulting services through its Development and Discovery Sciences segments. In the Development segment, the Company provides a broad range of development services, which include preclinical programs and Phase I to IV clinical development services as well as bioanalytical product testing and clinical laboratory services. In addition, for marketed drugs, biologics and devices, the Company offers support such as product launch services, medical information, patient compliance programs, patient and disease registry programs, product safety and pharmacovigilance, Phase IV monitored studies and prescription-to-over-the-counter programs. The Discovery Sciences services include preclinical evaluations of anticancer therapies, biomarker discovery and patient sample analyses and compound development and commercialization collaborations. The Company provides services to clients and partners in the pharmaceutical, biotechnology and medical device industries and to academic and government organizations. The Company markets its Development services primarily in the United States and Europe. The Company’s Discovery Sciences revenues have all been generated in the United States.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts and results of operations of the Company. All intercompany balances and transactions have been eliminated in consolidation.

Stock Split

On December 30, 2005, the Company’s Board of Directors approved a two-for-one stock split. The record date for the stock split was February 17, 2006. The distribution of shares was completed on February 28, 2006. All share and per share amounts for all periods presented in the accompanying consolidated financial statements have been adjusted to reflect the effect of this stock split.

Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board, or FASB, issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”, or FIN 48, which establishes a single model to address accounting for uncertainty in tax positions. FIN 48 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. FIN 48 is effective for fiscal years beginning after December 15, 2006, so the Company adopted FIN 48 as of January 1, 2007. The cumulative impact of applying the provisions of FIN 48 was an adjustment to the opening balance of retained earnings. See Note 11 for further details.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”, or SFAS No. 157, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In addition, the statement establishes a framework for measuring fair value and expands disclosure about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those years. The Company does not expect the adoption of SFAS No. 157 to have a material impact on its financial condition or results of operations.

F-7

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

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

Recent Accounting Pronouncements (continued)

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)”, or SFAS No. 158. This standard requires employers to recognize the underfunded or overfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in the funded status in the year in which the changes occur through accumulated other comprehensive income. Additionally, SFAS No. 158 requires employers to measure the funded status of a plan as of the date of its year-end statement of financial position. The recognition of an asset and liability related to the funded status of a plan and the new disclosure provisions of SFAS No. 158 are effective for fiscal years ending after December 15, 2006. The Company currently uses a measurement date of November 30 and will be required to change the measurement date to December 31 for the year ended December 31, 2008. The Company adopted the provisions of SFAS No. 158 as of December 31, 2006.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115”, or SFAS No. 159. This standard permits, but does not require, all entities to choose to measure eligible items at fair value at specified election dates. For items for which the fair value option has been elected, an entity would report unrealized gains and losses in earnings at each subsequent reporting date. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. The Company is not electing to adopt the provisions permitting the measurement of eligible financial assets and liabilities at January 1, 2008 using the fair value option.

In June 2007, the FASB reached a consensus on Emerging Issues Task Force, or EITF, Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards”. EITF 06-11 requires companies to recognize as an increase to additional paid-in capital the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for nonvested equity-classified employee share-based payment awards. EITF 06-11 is effective for fiscal years beginning after December 15, 2007. The Company does not expect EITF 06-11 will have a material impact on its financial condition or results of operations.

In June 2007, the FASB reached a consensus on EITF Issue No. 07-03, “Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities”. EITF 07-03 requires companies to defer and capitalize, until the goods have been delivered or the related services have been rendered, non-refundable advance payments for goods that will be used or services that will be performed in future research and development activities. EITF 07-03 is effective for fiscal years beginning after December 15, 2007. The Company does not expect EITF 07-03 will have a material impact on its financial condition or results of operations.

In December 2007, the FASB reached a consensus on EITF Issue No. 07-01, “Accounting for Collaborative Arrangements”. EITF 07-01 defines collaborative arrangements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. EITF 07-01 also establishes the appropriate income statement presentation and classification for joint operating activities and payments between participants, as well as the required disclosures related to these arrangements. EITF 07-01 is effective for fiscal years beginning after December 15, 2008. The Company does not expect EITF 07-01 will have a material impact on its financial condition or results of operations.

F-8

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

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

Recent Accounting Pronouncements (continued)

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations”, or SFAS 141(R). FAS 141(R) expands the definition of a business and a business combination, requires that: the purchase price of an acquisition, including the issuance of equity securities to be determined on the acquisition date, be recorded at fair value at the acquisition date; all assets, liabilities, contingent consideration, contingencies and in-process research and development costs of an acquired business be recorded at fair value at the acquisition date; acquisition costs generally be expensed as incurred; restructuring costs generally be expensed in periods subsequent to the acquisition date; and changes be made in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period to impact income tax expense. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently evaluating the impact SFAS 141(R) will have on its financial condition or results of operations.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51”, or SFAS 160”. SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. An ownership interest in subsidiaries held by parties other than the parent should be presented in the consolidated statement of financial position within equity, but separate from the parent’s equity. SFAS 160 requires that changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary should be accounted for similarly to equity transactions. When a subsidiary is deconsolidated, any retained noncontrolling equity investment should be initially measured at fair value, with any gain or loss recognized in earnings. SFAS 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interests. SFAS 160 is effective for fiscal years, including interim periods within those fiscal years, beginning on or after December 15, 2008. The Company is currently evaluating the impact SFAS 160 will have on its financial condition or results of operations.

Revenue Recognition

The Company records revenue from contracts, other than time-and-material contracts, on a proportional performance basis in its Development and Discovery Sciences segments. To measure performance on a given date, the Company compares direct costs through that date to estimated total direct costs to complete the contract. Direct costs relate primarily to the amount of labor and labor related overhead costs for the delivery of services. The Company believes this is the best indicator of the performance of the contractual obligations. Changes in the estimated total direct costs to complete a contract without a corresponding proportional change to the contract value result in a cumulative adjustment to the amount of revenue recognized in the period the change in estimate is determined. For time-and-material contracts in both its Development and Discovery Sciences segments, the Company recognizes revenue as hours are worked, multiplied by the applicable hourly rate. For the Company’s Phase I, laboratory and biomarker businesses, the Company recognizes revenue from unitized contracts as subjects or samples are tested, multiplied by the applicable unit price. The Company offers volume discounts to its large customers based on annual volume thresholds. The Company records an estimate of the annual volume rebate as a reduction of revenue throughout the period based on the estimated total rebate to be earned for the period.

F-9

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

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

Revenue Recognition (continued)

In connection with the management of clinical trials, the Company pays, on behalf of its clients, fees to investigators and test subjects as well as other out-of-pocket costs for items such as travel, printing, meetings and couriers. The Company’s clients reimburse the Company for these costs. As required by EITF 01-14, amounts paid by the Company as a principal for out-of-pocket costs are included in direct costs as reimbursable out-of-pocket expenses and the reimbursements the Company receives as a principal are reported as reimbursed out-of-pocket revenue. In the statements of operations, the Company combines amounts paid by the Company as an agent for out-of-pocket costs with the corresponding reimbursements, or revenue, the Company receives as an agent. During the years ended December 31, 2005, 2006 and 2007, fees paid to investigators and other fees the Company paid as an agent and the associated reimbursements were approximately $279.8 million, $292.6 million and $335.7 million, respectively.

Most of the Company’s contracts can be terminated by the client either immediately or after a specified period following notice. These contracts typically require the client to pay the Company the fees earned to date, the fees and expenses to wind down the study, and, in some cases, a termination fee or some portion of the fees or profit that the Company could have earned under the contract if it had not been terminated early. Therefore, revenue recognized prior to cancellation generally does not require a significant adjustment upon cancellation. If the Company determines that a loss will result from the performance of a contract, the entire amount of the estimated loss is charged against income in the period in which such determination is made.

The Discovery Sciences segment also generates revenue from time to time in the form of milestone payments in connection with licensing of compounds. The Company only recognizes milestone payments as revenue if the specified milestone is achieved and accepted by the client, and continued performance of future research and development services related to that milestone is not required.

Cash and Cash Equivalents

Cash and cash equivalents consist of unrestricted cash accounts that are not subject to withdrawal restrictions or penalties, and all highly liquid investments rated A or better by Standard & Poor’s or Moody’s that have a maturity of three months or less at the date of purchase.

Supplemental cash flow information consisted of the following:

	Year Ended December 31,
	2005		2006		2007
Cash paid for interest, including amounts capitalized	$	1,129	$	1,957	$	2,396
Cash paid for income taxes, net of refunds	$	33,727	$	60,391	$	65,902
Accrued property and equipment purchases	$	1,920	$	10,277	$	7,436

See Note 2 for non-cash investing and financing activities related to the 2005 acquisition of biomarker services from SurroMed, Inc.

Payables to Investigators and Investigator Advances

Billings and payments to investigators are based on contractual agreements that can differ from the accrual of the related costs. The Company generally recognizes investigator costs based upon the status of the work completed as a percentage of the total procedures required under the contract or based on patient enrollment over the term of the contract. The Company classifies payments made in excess of the accrued costs as investigator advances and accrued costs in excess of amounts paid as payables to investigators in its consolidated balance sheets.

F-10

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

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

Inventory

The Company values inventories, which consist principally of laboratory supplies, at the lower of cost (first-in, first-out method) or market. As of December 31, 2006 and 2007, prepaid expenses and other current assets included inventories totaling $2.7 million and $2.8 million, respectively.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method, based on estimated useful lives of 40 years for buildings, five years for laboratory equipment, two to five years for software, computers and related equipment and five to ten years for furniture and equipment, except for aircrafts which are depreciated over 30 years. Leasehold improvements are depreciated over the shorter of the respective lives of the leases or the useful lives of the improvements. Property under capital leases is depreciated over the life of the lease or the service life, whichever is shorter.

Internal Use Software

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

Operating Leases

The Company records rent expense for operating leases, some of which have escalating rentals over the term of the lease, on a straight-line basis over the initial effective lease term. The Company begins amortization on the date of initial possession, which is generally when the Company enters the space and begins to make improvements in preparation of intended use. The Company accounts for the difference between rent expense and rent paid as deferred rent. For tenant improvement allowances, rent holidays and other lease incentives, the Company records a deferred rent liability at the inception of the lease term and amortizes the deferred rent over the term of the lease as a reduction to rent expense.

Goodwill

The excess of the purchase price of a business acquired over the fair value of net tangible assets, identifiable intangible assets and acquired in-process research and development costs at the date of the acquisition has been assigned to goodwill. In accordance with SFAS 142, “Goodwill and Other Intangible Assets”, the Company evaluates goodwill for impairment on an annual basis or more frequently if events or changes in circumstances indicate that goodwill might be impaired. In the event goodwill is impaired, the impairment could have a material adverse effect on the Company’s financial condition and results of operations.

Realizability of Carrying Value of Long-Lived Assets

The Company reviews the recoverability of long-lived and finite-lived intangible assets when circumstances indicate that the carrying amount of assets may not be recoverable. This evaluation is based on various analyses, including undiscounted cash flow projections. In the event undiscounted cash flow projections indicate impairment, the Company would record an impairment based on the fair value of the assets at the date of the impairment. In 2005, 2006 and 2007, the Company recorded no material impairments of long-lived assets.

F-11

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

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

Short-term Investments

The Company accounts for its investment in marketable securities in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”. The Company’s short-term investments are classified as available-for-sale securities due to management’s intent regarding these securities. The Company determines realized and unrealized gains and losses on short-term investments on a specific identification basis.

Investments

The Company has equity investments in publicly traded entities. The Company classifies investments in marketable equity securities as available-for-sale securities and measures them at market value. The Company determines realized and unrealized gains and losses on equity investments in publicly traded entities on a specific identification basis. The Company records net unrealized gains or losses associated with investments in publicly traded entities as a component of shareholders’ equity until they are realized or until an other-than-temporary decline has occurred. The market value of the Company’s equity investments in publicly traded entities is based on the closing price as quoted by the applicable stock exchange or market on the last day of the reporting period. The Company classifies its equity investments in publicly traded companies as long-term assets due to the Company’s ability to hold its investments long-term, the strategic nature of the investment and the lack of liquidity in the public markets for these securities.

The Company also has investments in privately held entities in the form of equity and convertible debt instruments that are not publicly traded and for which fair values are not readily determinable. The Company records all of its investments in private entities at cost. The Company determines realized and unrealized gains and losses on a specific identification basis. The Company assesses the net realizable value of these entities on a quarterly basis to determine if there has been a decline in the fair value of these entities, and if so, if the decline is other-than-temporary. This quarterly review includes an evaluation of the entity, including, among other things, the market condition of its overall industry, historical and projected financial performance, expected cash needs and recent funding events, as well as the Company’s expected holding period and the length of time and the extent to which the fair value of the investment has been less than cost.

Unbilled Services and Unearned Income

In general, prerequisites for billings are established by contractual provisions, including predetermined payment schedules, the achievement of contract milestones or submission of appropriate billing detail. Unbilled services represent revenue recognized to date for which amounts are currently unbillable to the customer pursuant to contractual terms. Conversely, unearned income is recorded for cash received from customers for which revenue has not been recognized at the balance sheet date.

Income Taxes

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

F-12

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

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

Concentration of Credit Risk

SFAS No. 105, “Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk”, requires disclosure of information about financial instruments with off-balance-sheet risk and financial instruments with concentrations of credit risk. Financial instruments that subject the Company to concentrations of credit risk consist principally of accounts receivable, cash equivalents and short-term investments.

The Company’s clients are primarily pharmaceutical and biotechnology companies and academic and government organizations. No single client accounted for more than 10% of the Company’s net revenue in 2005, 2006 or 2007. Concentrations of credit risk with respect to accounts receivable are limited to a degree due to the large number of clients comprising the Company’s client base. No single client accounted for more than 10% of the Company’s accounts receivable balance as of December 31, 2006. One customer accounted for 13.3% of accounts receivable at December 31, 2007. The majority of this customer accounts receivable balance at December 31, 2007 was less than 60 days old, so the Company does not deem this receivable a risk to the financial condition or results of operations at this time. The Company performs ongoing credit evaluations of clients’ financial condition and, generally, does not require collateral. The Company maintains allowances for potential credit losses and these losses, in the aggregate, have historically not exceeded estimates.

The Company’s cash equivalents consist principally of bonds and money market funds. Bank deposits exceed the FDIC insurance limit. Based on the nature of the financial instruments and/or historical realization of these financial instruments, the Company believes they bear minimal credit risk. At December 31, 2007, short-term investments were generally triple-A rated municipal and government securities.

Comprehensive Income

The Company has elected to present comprehensive income and its components in the statements of shareholders’ equity. The components of comprehensive income are net income and all other non-owner changes in equity.

The balances in accumulated other comprehensive income were as follows:

	December 31,
	2006			2007
Translation adjustment	$	14,487		$	24,487
Minimum pension liability, net of tax		(4,489	)		(7,235	)
Adjustment to initially apply SFAS No. 158, net of tax		(3,273	)		—
Fair value of hedging transactions, net of tax		—			(1,095	)
Unrealized gain (loss) on investment, net of tax		357			(939	)
Total	$	7,082		$	15,218

Foreign Currency Translations and Transactions

The Company translates assets and liabilities of foreign operations, where the functional currency is the local currency, into U.S. dollars at the rate of exchange at each reporting date. The Company translates income and expenses at the average rates of exchange prevailing during the month in which a transaction occurs. Gains or losses from translating foreign currency financial statements are recorded in other comprehensive income. The changes in cumulative translation adjustment included in other comprehensive income for the years ended December 31, 2005, 2006 and 2007 totaled $(10.1) million, $9.7 million and $10.0 million, respectively. Foreign currency transaction gains and losses are included in other income, net. Foreign currency transaction gains during 2005, 2006 and 2007 were $2.1 million, $2.8 million and $6.2 million, respectively. Foreign currency transaction losses during 2005, 2006 and 2007 were $2.4 million, $4.9 million and $6.4 million, respectively.

F-13

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

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

Earnings Per Share

The Company computes basic income per share information based on the weighted average number of common shares outstanding during the year. The Company computes diluted income per share information based on the weighted average number of common shares outstanding during the year plus the effects of any dilutive common stock equivalents. The Company excluded 215,800 shares, 130,100 shares and 244,257 shares from the calculation of earnings per diluted share during 2005, 2006 and 2007, respectively, because they were antidilutive.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised) “Share-Based Payment”. Accordingly, the Company measures stock-based compensation cost at grant date, based on the fair value of the award, and recognizes it as expense over the employee’s requisite service period. In accordance with the modified retrospective application method, the Company has adjusted its financial statements for all periods prior to January 1, 2006 to give effect to the fair-value based method of accounting for all awards granted in fiscal years beginning after December 15, 1994.

Advertising Costs

The Company charges advertising costs to operations as incurred. Advertising costs were approximately $0.8 million, $0.9 million and $1.8 million for the years ended December 31, 2005, 2006 and 2007, respectively.

Research and Development Costs

The Company charges research and development costs to operations as incurred. Research and development costs are disclosed on the consolidated statements of operations.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F-14

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

2. Acquisitions:

In February 2005, the Company completed its acquisition of substantially all of the assets of SurroMed, Inc.’s biomarker business. This biomarker business is now part of the Discovery Sciences segment of the Company. In exchange for the assets, the Company surrendered to SurroMed all shares of SurroMed preferred stock it held. As additional consideration for the acquisition, the Company assumed approximately $3.4 million of SurroMed liabilities under capital leases and additional operating liabilities, and agreed to guarantee repayment of up to $1.5 million under a SurroMed bank loan. In accordance with the requirements of FASB Statement No. 5, “Accounting for Contingencies”, as clarified by FASB Interpretation No. 45, the Company recorded a liability for the estimated fair value of the net obligation it assumed under this guarantee. The Company’s guarantee expired on December 31, 2006. The capital leases were paid off in the fourth quarter of 2007. In connection with the acquisition, the Company recognized a pre-tax gain on exchange of assets of $5.1 million, primarily related to the $4.9 million gain on the termination of a preexisting facility lease arrangement with SurroMed in accordance with EITF 04-01, “Accounting for Preexisting Relationships between the Parties to a Business Combination”. The Company determined the fair value of the leasing arrangement based on the discounted cash flows of the difference between the future required rental payments under the lease agreement and the market rate for similar facilities as of the closing.

The Company accounted for this acquisition using the purchase method of accounting, utilizing appropriate fair value techniques to allocate the purchase price based on the estimated fair values of the assets and liabilities. Accordingly, the Company included the estimated fair value of assets acquired and liabilities assumed in its consolidated balance sheet as of the effective date of the acquisition.

The Company allocated the total purchase price for the SurroMed acquisition in 2005 to the estimated fair value of assets acquired and liabilities assumed as set forth in the following table:

Condensed balance sheet:
Current assets	$	186
Property and equipment, net		8,780
Deferred rent and other		(742	)
Current liabilities		(3,512	)
Long-term liabilities		(2,267	)
Value of unidentifiable intangible assets:
Goodwill		33,001
Total		$35,446

Goodwill related to SurroMed is deductible for tax purposes.

The Company included the results of operations from the biomarker assets acquired in the Company’s consolidated statements of operations as of and since February 1, 2005, the effective date of the acquisition. Pro forma results of operations for the full year ended December 31, 2005 have not been presented because the financial results related to the biomarker assets for the one-month period ended January 31, 2005 are not material to the consolidated statements of operations.

F-15

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

3. Accounts Receivable and Unbilled Services:

Accounts receivable and unbilled services consisted of the following amounts on the dates set forth below:

	December 31,
	2006			2007
Trade:
Billed	$	273,941		$	302,429
Unbilled		141,423			186,112
Provision for doubtful accounts		(6,447	)		(7,064	)
	$	408,917		$	481,477

The Company derived 22.6% and 27.0% of its accounts receivable and unbilled services from operations outside the United States as of December 31, 2006 and 2007, respectively. Of these amounts, the Company derived 65.3% and 61.9% from operations in the United Kingdom as of December 31, 2006 and 2007, respectively.

Change in provision for doubtful accounts consisted of the following:

	Year Ended December 31,
	2005			2006			2007
Balance at beginning of year	$	4,102		$	3,926		$	6,447
Additions charged to costs and expenses		126			3,286			2,181
Invoice write-offs		(302	)		(765	)		(1,564	)
Balance at end of year	$	3,926		$	6,447		$	7,064

4. Property and Equipment:

Property and equipment, stated at cost, consisted of the following amounts on the dates set forth below:

	December 31,
	2006			2007
Land	$	6,987		$	6,761
Buildings and leasehold improvements		87,106			214,842
Construction in progress		114,810			18,758
Furniture and equipment		170,230			194,187
Computer equipment and software		143,313			171,790
		522,446			606,338
Less accumulated depreciation and amortization		(198,907	)		(250,149	)
	$	323,539		$	356,189

F-16

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

4. Property and Equipment (continued):

Capitalized costs for the new corporate headquarters facility in Wilmington, North Carolina, included in construction in progress as of December 31, 2006 and 2007 were $104.5 million and $0.3 million, respectively. During the year ended December 31, 2007, the Company capitalized the new corporate headquarters building, related parking facility, and furniture and equipment for the new building. During 2006 and 2007, the Company capitalized interest of approximately $2.5 million and $1.4 million, respectively, relating to the construction of the facility.

As of December 31, 2006, the Company owned a building in Kersewell, Scotland, with a net book value of $1.3 million. The Company classified this building as available for sale and included it in prepaid expenses and other current assets on its consolidated balance sheet as of December 31, 2006. This building housed employees performing work in the Development segment of the Company. In January 2007, the Company sold this building for approximately $1.4 million, resulting in a gain of $0.1 million included in selling, general and administrative expenses on the Company’s consolidated statement of operations.

The Company owns a building and land in Leicester, England, with a net book value of $2.4 million as of December 31, 2007. This building housed employees performing work in the Phase I business unit of the Development segment of the Company prior to the closure of that business unit. The Company classified this building as available for sale and included it in prepaid expenses and other current assets on its consolidated balance sheet as of December 31, 2007. The net book value at December 31, 2007 was based on offers from external parties. During the fourth quarter of 2007, the Company recorded a loss of $0.2 million which is included in selling, general and administrative expenses on the Company’s consolidated statement of operations. The Company is seeking to dispose of the property and expects to close on this transaction in the first quarter of 2008.

Property and equipment under capital leases, stated at cost, consisted of the following amounts on the dates set forth below:

	December 31,
	2006			2007
Leasehold improvements	$	824		$	—
Computer equipment and software		656			—
Furniture and equipment		1,976			—
		3,456			—
Less accumulated depreciation and amortization		(2,139	)		—
	$	1,317		$	—

F-17

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

5. Goodwill and Intangible Assets:

Changes in the carrying amount of goodwill for the twelve months ended December 31, 2006 and 2007, by operating segment, were as follows:

	Development		Discovery Sciences		Total
Balance as of January 1, 2006	$	155,267	$	53,616	$	208,883
Translation adjustments		3,499		—		3,499
Balance as of December 31, 2006		158,766		53,616		212,382
Translation adjustments		3,238		—		3,238
Balance as of December 31, 2007	$	162,004	$	53,616	$	215,620

Information regarding the Company’s other intangible assets follows:

	December 31, 2006						December 31, 2007
	Carrying Amount		Accumulated Amortization		Net		Carrying Amount		Accumulated Amortization		Net
Backlog and customer relationships	$	543	$	447	$	96	$	308	$	275	$	33
License and royalty agreements		4,500		2,582		1,918		2,500		831		1,669
Total	$	5,043	$	3,029	$	2,014	$	2,808	$	1,106	$	1,702

The Company amortizes all intangible assets on a straight-line basis, based on estimated useful lives of three to five years for backlog and customer relationships and three to ten years for license and royalty agreements. The weighted average amortization period is 5.0 years for backlog and customer relationships, 10.0 years for license and royalty agreements and 9.5 years for all intangibles collectively.

Amortization expense for the twelve months ended December 31, 2005, 2006 and 2007 was $1.1 million, $0.6 million and $0.3 million, respectively. As of December 31, 2007, estimated amortization expense for each of the next five years is as follows:

2008	$	283
2009		250
2010		250
2011		250
2012		250

F-18

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

6. Short-term Investments and Investments:

Short-term investments, which are composed of available-for-sale securities, and investments consisted of the following amounts on the dates set forth below:

	December 31,
	2006		2007
Short-term investments:
Auction Rate Securities	$	133,700	$	209,475
Other municipal debt securities		114,524		111,230
Other debt securities		4,165		5,908
Preferred stock		3,487		4,344
Total short-term investments	$	255,876	$	330,957
Investments:
Cost basis investments:
Bay City Capital Funds	$	3,200	$	5,449
A.M. Pappas Life Science Ventures III, L.P.		1,188		1,529
Other equity investments		750		750
Total cost basis investments		5,138		7,728
Marketable equity securities:
BioDelivery Sciences International, Inc.		2,394		1,653
Accentia Biopharmaceuticals, Inc.		14,946		14,006
Total marketable equity securities		17,340		15,659
Total investments	$	22,478	$	23,387

Short-term Investments

As of December 31, 2006 and 2007, the Company had short-term investments in Auction Rate Securities, or ARS, various other debt securities and preferred stock. As of December 31, 2006 and 2007, the Company had unrealized gains of $0.2 million and $0.4 million, respectively, and unrealized losses of $0.3 million and $2.1 million, respectively, associated with its investments in other municipal debt securities. There were no gross realized gains or losses on these securities in 2005, 2006 and 2007.

The Company held approximately $209.5 million in tax-exempt auction rate securities at December 31, 2007. The Company does not believe that these investments have been impaired as a result of the recent sub-prime mortgage market crisis. The Company’s investments in auction rate securities consist principally of interests in government guaranteed student loans and insured and uninsured municipal debt obligations. None of the auction rate securities in its portfolio were asset or mortgage-backed, and as of December 31, 2007 there had been no failed auctions for securities the Company held. During February 2008, a significant number of auction rate securities auctions began to fail, including auctions for approximately $123.3 million of securities held by the Company as of February 22, 2008. As a result of these failed auctions or future failed auctions, the Company may not be able to liquidate these securities until a future auction is successful, the issuer redeems the outstanding securities or the securities mature. If the Company determines that an issuer of the securities is unable to successfully close future auctions or redeem or refinance the obligations, the Company might have to reclassify the investments from a current asset to a non-current asset. If an issuer’s financial stability or credit rating deteriorates or adverse developments occur in the bond insurance market, the Company might be required to adjust the carrying value of its action rate securities through a future impairment charge. The Company has evaluated the market conditions and credit worthiness of the issuers of its action rate securities and has determined that there have been no decreases in market value.

F-19

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

6. Short-term Investments and Investments (continued):

Short-term Investments (continued)

The estimated fair value of short-term investment securities at December 31, 2007, by contractual maturity, was as follows:

Due in 1 year or less	$ 80,242
Due in 1-5 years	49,654
Due in 5-10 years	13,609
Due after 10 years	187,452
	$330,957

Investments

The Company had long-term investments in marketable securities as of December 31, 2006 and 2007. As of December 31, 2006 and 2007, gross unrealized gains were $0.7 million and $0.3 million, respectively. There were no gross unrealized losses as of December 31, 2006 or 2007.

During 2005, the Company recorded charges to earnings for other-than-temporary declines in the fair market value of its cost basis investments of $5.6 million, which included $1.6 million related to the outstanding balance of a revolving line of credit that was guaranteed by the Company, and its marketable equity securities of $0.3 million. The write-downs were due to a business failure, current fair market values, historical and projected performance and liquidity needs of the investees.

During 2007, the Company recorded charges to earnings of $0.7 million for an other-than-temporary decline in the fair market value of its investments in Accentia Biopharmaceuticals, Inc. The write-down was based on a decrease in the publicly quoted market price that Company management believes was other-than-temporary due to the length of time the stock had been trading below the Company’s cost basis and its projected near-term performance.

In September 2005, the Company became a limited partner in Bay City Capital Fund IV, L.P., a venture capital fund established in July 2004 for the purpose of investing in life sciences companies. The Company has committed to invest up to a maximum of $10.0 million in this fund. Aggregate capital calls through December 31, 2007 were $5.1 million. Because no capital call can exceed 20% of the Company’s aggregate capital commitment and the Company’s capital commitment will expire in June 2009, the Company anticipates its remaining capital commitment of $4.9 million will be made through a series of future capital calls over the next several years. The Company owned approximately 2.9% of the Bay City Fund IV as of December 31, 2007.

In May 2007, the Company became a limited partner in Bay City Capital Fund V, L.P., a venture capital fund established for the purpose of investing in life sciences companies. The Company has committed to invest up to a maximum of $10.0 million in this fund. Aggregate capital calls through December 31, 2007 were $0.4 million. Because no capital call can exceed 20% of the Company’s aggregate capital commitment and the Company’s capital commitment will expire in October 2012, the Company anticipates its remaining capital commitment of $9.6 million will be made through a series of future capital calls over the next several years. The Company owned approximately 2.0% of the Bay City Fund V as of December 31, 2007.

In November 2003, the Company became a limited partner in A. M. Pappas Life Science Ventures III, L.P., a venture capital fund established for the purpose of making investments in equity securities of privately held companies in the life sciences, healthcare and technology industries. The Company has committed to invest up to a maximum of $4.8 million in this fund. Aggregate capital calls through December 31, 2007 were $1.9 million. Because no capital call can exceed 10% of the Company’s aggregate capital commitment and the Company’s capital commitment will expire in May 2009, the Company anticipates that its remaining capital commitment of $2.9

F-20

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

6. Short-term Investments and Investments (continued):

Investments (continued)

million will be made through a series of future capital calls over the next two years. In January 2007, the Pappas Fund made a cash distribution to its owners of which the Company’s portion was approximately $0.4 million. The Company owned approximately 4.7% of the Pappas Fund as of December 31, 2007.

In October 2007, the Company executed a Subscription Agreement to become a limited partner in A. M. Pappas Life Science Ventures IV, L.P., a venture capital fund established for the purpose of making investments in equity securities of privately held companies in the life sciences, healthcare and technology industries. The Company has committed to invest up to a maximum of $6.0 million in this fund. There have not been any capital calls. Because a single capital call cannot exceed 10% of the company’s aggregate capital commitment, the Company anticipates its capital commitment will be made through a series of future capital calls over the term of its commitment. The Company’s capital commitment will expire on the fifth anniversary of the fund’s first investment. In June 2002, the Company purchased approximately 0.7 million units of BioDelivery Sciences International, Inc. Each unit consisted of one share of common stock and one warrant for common stock. In June 2007, the Company sold all of its outstanding warrants at various prices for total proceeds of $0.1 million, resulting in a loss of $0.2 million. In addition, the Company sold 125,924 shares of common stock in BioDelivery Sciences International for total proceeds of $0.5 million, resulting in a gain of $0.2 million. The Company owned approximately 3.6% of BioDelivery Sciences International’s outstanding common stock as of December 31, 2007.

In April 2003, the Company purchased 2.0 million shares of Chemokine Therapeutics Corp. Series A convertible preferred stock. In December 2004, Chemokine completed an initial public offering of its common stock in Canada. In May 2006, the Company sold its 2.0 million shares of Chemokine Therapeutics Corp. preferred stock for total consideration of $1.5 million and recorded a gain on sale of its investment of $0.8 million in other income, net, in the Company’s consolidated statements of operations. In addition, the Company surrendered its license rights to Chemokine’s compound CTCE-0214 in exchange for $0.1 million and potential milestone payments up to $2.5 million.

In 2004 and 2005, the Company purchased 15.0 million shares of Accentia Biopharmaceuticals, Inc. Series E convertible preferred stock. Accentia’s Series E convertible preferred stock paid a dividend based on a percentage of net sales of certain Accentia products. The Company received dividends in excess of Accentia’s earnings in 2005 and thus recorded these as a reduction of cost of the investment in Accentia. On October 28, 2005, Accentia completed its initial public offering of 2.4 million shares of common stock for $8.00 per share. Upon completion of the initial public offering, the Company’s 15.0 million shares of Series E convertible preferred stock were converted to 4.3 million shares of common stock. The Company owned approximately 10.1% of the outstanding capital stock of Accentia as of December 31, 2007. Accentia is a specialty biopharmaceutical company focused on the development and commercialization of late-stage clinical products in the areas of respiratory disease and oncology.

7. Other Accrued Expenses:

Other accrued expenses consisted of the following amounts on the dates set forth below:

	December 31,
	2006		2007
Accrued salaries, wages, benefits and related costs	$	87,441	$	91,219
Other		61,586		76,016
	$	149,027	$	167,235

F-21

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

8. Long-Term Debt, Debt Instruments and Lease Obligations:

Long-Term Debt

Long-term debt consisted of the following amounts on the dates set forth below:

	December 31,
	2006			2007
Construction loan facility	$	74,833		$	—
Capital leases		326			—
		75,159			—
Less: current maturities		(75,159	)		—
	$	—		$	—

Revolving Credit Facility

Effective July 1, 2007, the Company renewed its $50.0 million revolving line of credit facility with Bank of America, N.A. Indebtedness under the facility is unsecured and subject to covenants relating to financial ratios and restrictions on certain types of transactions. This revolving credit facility does not expressly restrict or limit the payment of dividends. The Company was in compliance with all loan covenants as of December 31, 2007. Outstanding borrowings under the facility bear interest at an annual fluctuating rate equal to the one-month London Interbank Offered Rate, or LIBOR, plus a margin of 0.6%. Borrowings under this credit facility are available to provide working capital and for general corporate purposes. This credit facility is currently scheduled to expire in June 2008, at which time any outstanding balance will be due. As of December 31, 2007, no borrowings were outstanding under this credit facility, although the aggregate amount available for borrowing had been reduced by $1.8 million due to outstanding letters of credit issued under this facility.

Construction Loan Facility

In February 2006, the Company entered into an $80.0 million construction loan facility with Bank of America, N.A. Borrowings under this credit facility were used to finance the construction of the Company’s new corporate headquarters building and related parking facility in Wilmington, North Carolina, and bore interest at an annual fluctuating rate equal to the one-month LIBOR plus a margin of 0.6%. Interest on amounts borrowed under this construction loan facility was payable quarterly. The credit facility was scheduled to mature in February 2008, but in May 2007 the Company repaid all outstanding borrowings under this facility, which totaled $74.8 million.

Lease Obligations

The Company is obligated under noncancellable operating leases expiring at various dates through 2021 relating to its buildings and certain equipment. Rental expense for all operating leases, net of sublease income of $1.1 million, $1.5 million and $1.8 million, was $37.5 million, $44.3 million and $48.1 million for the years ended December 31, 2005, 2006 and 2007, respectively.

Certain facility leases provide for concessions by the landlords, including payments for leasehold improvements and free rent periods. The Company reflects these concessions as deferred rent and other in the accompanying consolidated financial statements. The Company is recording rent expense on a straight-line basis for these leases.

F-22

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

8. Long-Term Debt, Debt Instruments and Lease Obligations (continued):

Lease Obligations (continued)

As of December 31, 2007, future minimum payments for lease obligations for years subsequent were as follows:

2008	$	47,813
2009		41,716
2010		35,429
2011		28,875
2012		24,792
2013 and thereafter		65,516
		244,141
Less: sublease income		(14,255	)
	$	229,886

9. Accounting for Derivative Instruments and Hedging Activities:

The Company enters into foreign exchange forward and option contracts that are designated and qualify as cash flow hedges under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”. The Company recognizes changes in the fair value of the effective portion of these outstanding forward and option contracts in accumulated other comprehensive income, or OCI. The Company reclassifies these amounts from OCI and recognizes them in earnings when either the forecasted transaction occurs or it becomes probable that the forecasted transaction will not occur.

The Company recognizes changes in the ineffective portion of a derivative instrument in earnings in the current period. The Company measures effectiveness for forward cash flow hedge contracts by comparing the fair value of the forward contract to the change in the forward value of the anticipated transaction. The fair market value of the hedged exposure is presumed to be the market value of the hedge instrument when critical terms match. The Company’s hedging portfolio ineffectiveness during 2005, 2006 and 2007 was $0, $0 and $0.3 million, respectively. The Company records the ineffectiveness as a component of direct costs.

The Company has significant international revenues and expenses, and related receivables and payables, denominated in non-functional currencies in the Company’s foreign subsidiaries. As a result, from time to time the Company purchases currency option and forward contracts as cash flow hedges to help manage certain foreign currency exposures that can be identified and quantified. Pursuant to its foreign exchange risk hedging policy, the Company may hedge anticipated and recorded transactions, and the related receivables and payables denominated in non-functional currencies, using forward foreign exchange rate contracts and foreign currency options. The Company’s policy is to only use foreign currency derivatives to minimize the variability in the Company’s operating results arising from foreign currency exchange rate movements. The Company does not enter into derivative financial instruments for speculative or trading purposes. Hedging contracts are measured at fair value using dealer quotes and mature within 18 months from their inception. The Company’s existing hedging contracts will expire over the course of 2008. The Company expects to reclassify the current loss positions of $1.3 million within the next 12 months from OCI into the income statement.

F-23

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

9. Accounting for Derivative Instruments and Hedging Activities (continued):

The Company’s hedging contracts are intended to protect against the impact of changes in the value of the U.S. dollar against other currencies and their impact on operating results. Accordingly, for forecasted transactions, subsidiaries incurring expenses in foreign currencies seek to hedge U.S. dollar revenue contracts. The Company reclassifies OCI associated with hedges of foreign currency revenue into direct costs upon recognition of the forecasted transaction in the statement of operations. At December 31, 2007, the face value of these foreign exchange contracts were $60.0 million.

At December 31, 2006 and 2007, the Company’s foreign currency derivative portfolio resulted in the Company recognizing a liability of $0 and $1.9 million, respectively, as a component of other accrued expenses.

10. Stock Plans:

The Company accounts for its share-based compensation plans using the provisions of SFAS No. 123 (revised), “Share-Based Payment”. Accordingly, the Company measures stock-based compensation cost at grant date, based on the fair value of the award, and recognizes it as expense over the employee’s requisite service period.

Equity Compensation Plan

The Company has an equity compensation plan (the “Plan”) under which the Company may grant stock options, restricted stock and other types of stock-based awards to its employees and directors. Total shares authorized for grant under this plan are 21.3 million. The exercise price of each option granted is equal to the market price of the Company’s common stock on the date of grant and the maximum exercise term of each option granted does not exceed ten years. Options are granted upon approval of the Compensation Committee of the Board of Directors and vest over various periods, as determined by the Compensation Committee at the date of the grant. The majority of the Company’s options vest ratably over a period of three or four years. The options expire on the earlier of ten years from the date of grant or within specified time limits following termination of employment, retirement or death. Shares are issued from the Company’s authorized but unissued stock. The Company does not pay dividends on unexercised options. As of December 31, 2007, there were 5.4 million shares of common stock remaining available for grant under the Plan.

For the years ended December 31, 2005, 2006 and 2007, stock-based compensation cost totaled $14.7 million, $17.3 million and $18.9 million, respectively. The associated future income tax benefit recognized was $5.2 million, $6.5 million and $6.9 million for the years ended December 31, 2005, 2006 and 2007, respectively.

For the years ended December 31, 2005, 2006 and 2007, the amount of cash received from the exercise of stock options was $23.0 million, $21.1 million and $20.2 million, respectively. In connection with these exercises, the actual excess tax benefit realized for the tax deductions by the Company for the years ended December 31, 2005, 2006 and 2007 were $8.6 million, $5.3 million and $4.8 million, respectively.

F-24

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

10. Stock Plans (continued):

Equity Compensation Plan (continued)

A summary of the option activity under the Plan at December 31, 2005, 2006 and 2007, and changes during the years, is presented below:

	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at January 1, 2005	8,692		$	15.70
Granted	456			25.41
Exercised	(2,246	)		10.24
Forfeited	(418	)		19.24
Outstanding at December 31, 2005	6,484		$	18.05
Exercisable at December 31, 2005	2,738		$	14.82
Outstanding at January 1, 2006	6,484		$	18.05
Granted	1,780			34.31
Exercised	(1,328	)		15.90
Forfeited	(430	)		25.27
Expired	(20	)		18.08
Outstanding at December 31, 2006	6,486		$	22.46
Exercisable at December 31, 2006	2,858		$	16.79
Outstanding at January 1, 2007	6,486		$	22.46
Granted	1,672			34.54
Exercised	(1,202	)		17.23
Forfeited	(896	)		27.95
Expired	(36	)		27.28
Outstanding at December 31, 2007	6,024		$	26.01	7.4 years	$	86,543
Exercisable at December 31, 2007	3,054		$	20.78	6.4 years	$	59,851
Vested or expected to vest at December 31, 2007	5,921		$	25.52	7.3 years	$	87,950

F-25

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

10. Stock Plans (continued):

Equity Compensation Plan (continued)

The following table summarizes information about the Plan’s stock options at December 31, 2007:

	Options Outstanding				Options Exercisable
	Number	Weighted Average	Weighted		Number	Weighted
Range of	Outstanding	Remaining	Average		Exercisable	Average
Exercise Prices	at 12/31/07	Contractual Life	Exercise Price		at 12/31/07	Exercise Price
$ 1.95 - $ 21.00	1,187	4.8 years	$	13.69	1,182	$	13.66
$21.01 - $ 22.00	1,787	6.8 years	$	21.20	1,172	$	21.20
$22.01 - $ 33.00	554	8.1 years	$	28.82	268	$	27.51
$33.01 - $ 34.00	1,003	9.1 years	$	33.63	49	$	33.82
$34.01 - $ 42.29	1,493	8.6 years	$	35.42	383	$	35.11
	6,024	7.4 years	$	26.01	3,054	$	20.78

All options granted during the years ended December 31, 2005, 2006 and 2007 were granted with an exercise price equal to the fair value of the Company’s common stock on the grant date. The fair value of the Company’s common stock on the grant date is equal to the Nasdaq closing price of the Company’s stock on the date of grant, except for shares granted under the U.K. Subplan where the fair value of the Company’s common stock on the grant date is equal to the average of the high and low price of the Company’s common stock on the date of grant as reported by Nasdaq. The weighted-average grant date fair value per share of options granted during the years ended December 31, 2005, 2006 and 2007 was $12.11, $15.36 and $10.93, respectively. The aggregate fair value of options granted during the years ended December 31, 2005, 2006 and 2007 was $5.4 million, $27.3 million and $18.3 million, respectively. The total intrinsic value (which is the amount by which the market value of the Company’s common stock exceeded the exercise price of the options on the date of exercise) of options exercised during the years ended December 31, 2005, 2006 and 2007 was $35.1 million, $24.4 million and $23.0 million, respectively.

A summary of the status of unvested options as of December 31, 2007, and changes during the year then ended, is presented below:

Unvested options	Shares		Weighted- Average Grant Date Fair Value
Unvested at January 1, 2007	3,628		$	12.64
Granted	1,672			10.93
Vested	(1,485	)		12.01
Forfeited	(845	)		11.95
Unvested at December 31, 2007	2,970		$	12.19

As of December 31, 2007, the total unrecognized compensation cost related to unvested stock options was approximately $31.2 million. The Company expects to recognize this cost over a weighted-average period of 1.4 years in accordance with the vesting periods of the options. The total fair value of shares vested during the years ended December 31, 2005, 2006 and 2007 was $16.4 million, $14.5 million and $21.4 million, respectively.

F-26

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

10. Stock Plans (continued):

Equity Compensation Plan (continued)

The Company estimates fair value of each option award on the grant date using the Black-Scholes option-pricing model. The following table indicates the assumptions used in estimating fair value for the years ended December 31, 2005, 2006 and 2007.

	2005	2006	2007
Expected term (years)	5.00	4.50	4.00
Dividend yield (%)	0.32	0.28-0.34	0.31-0.37
Risk-free interest rate (%)	4.35	4.36-5.11	4.13-4.91
Expected volatility (%)	50.31	39.69-51.39	30.67-33.00

The expected term represents an estimate of the period of time options are expected to remain outstanding and is based on historical exercise and termination data. The dividend yield is based on the most recent dividend payment over the market price of the stock at the beginning of the period. The risk-free interest rate is based on the rate at the date of grant for a zero-coupon U. S. Treasury bond with a term that approximates the expected term of the option. Expected volatilities are based on the historical volatility of the Company’s stock price over the expected term of the options.

Restricted Stock

The Company also awards shares of restricted stock to members of senior management and the Company’s non-employee directors under the plan. The shares awarded to members of senior management are generally subject to a three-year linear vesting schedule with one-third of the grant vesting on each of the first, second and third anniversaries of the grant date. The Company determines compensation cost based on the market value of shares on the date of grant, and records compensation expense on these shares on a straight-line basis over the vesting period. The restricted stock shares granted to the Company’s non-employee directors vest over a three-year period, with ninety percent of the shares vesting on the first anniversary of the grant and five percent vesting on each of the second and third anniversary dates. The Company records compensation expense on these shares according to this vesting schedule.

During the years ended December 31, 2005, 2006 and 2007, the Company awarded 162,280, 16,512 and 35,928 shares of restricted stock, respectively, with a fair value of $4.1 million, $0.5 million and $1.2 million, respectively. The weighted average grant date fair value of each share was $25.16, $31.47 and $34.47 for the years ended December 31, 2005, 2006 and 2007, respectively. Total compensation expense recorded during the years ended December 31, 2005, 2006 and 2007 for restricted stock shares granted was $1.0 million, $1.6 million and $1.1 million, respectively. The associated future income tax benefit recognized was $0.4 million, $0.6 million and $0.4 million for the years ended December 31, 2005, 2006 and 2007, respectively. As of December 31, 2007, the total unrecognized compensation cost related to 55,510 shares of unvested restricted stock was approximately $0.8 million. The Company expects to recognize this cost over a weighted-average period of 2.2 years in accordance with the vesting periods of the restricted stock. The total fair value of restricted stock shares vested during the year ended December 31, 2007 was $1.8 million.

In May 2006 and 2007, shares of restricted stock held by two members of the senior management team vested. Both employees elected to surrender to the Company a portion of their vested shares to pay the income taxes due as a result of the vesting in 2006 and one employee made this election in 2007. As a result, 10,855 and 5,943 shares, respectively, were forfeited to satisfy tax obligations in these years. In connection with this vesting, the tax benefit realized by the Company for the year ended December 31, 2006 and 2007 was $0.4 million and $1.8 million, respectively. In addition, the Company’s previous President and Chief Financial Officer resigned in 2006 and 2007, respectively, resulting in the Company canceling 30,000 and 14,000 shares, respectively, of unvested restricted stock that had previously been granted to them.

F-27

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

10. Stock Plans (continued):

Employee Stock Purchase Plan

The Board of Directors and shareholders have reserved 4.5 million shares of the Company’s common stock for issuance under the Employee Stock Purchase Plan (the “ESPP”). The ESPP has two six-month offering periods (each an “Offering Period”) each year, beginning January 1 and July 1, respectively. Eligible employees can elect to make payroll deductions from 1% to 15% of their base pay during each payroll period of an Offering Period. In addition, in accordance with the ESPP and beginning with the first six-month Offering Period in 2006, the Board of Directors set a limit on the total payroll deductions for each year of $8.0 million. In September 2007, the Board of Directors approved new limitations on the dollar amount of shares purchased under the ESPP for the calendar years 2008, 2009 and 2010 as $13.0 million, $15.0 million and $17.5 million, respectively. None of the contributions made by eligible employees to purchase the Company’s common stock under the ESPP are tax-deductible to the employees. During 2005, the purchase price was 85%, and beginning January 1, 2006 it became 90%, of the lesser of (a) the reported closing price of the Company’s common stock for the first day of the Offering Period or (b) the reported closing price of the common stock for the last day of the Offering Period. As of December 31, 2007, there were 2.0 million shares of common stock available for purchase by ESPP participants, after giving effect to shares purchased for the second Offering Period of 2007 that were issued in January 2008.

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

The fair value of each ESPP share is estimated using the Black-Scholes option-pricing model. The following table indicates the assumptions used in estimating fair value for the years ended December 31, 2005, 2006 and 2007.

	2005	2006	2007
Expected term (years)	0.50	0.50	0.50
Dividend yield (%)	0.32	0.28-0.32	0.31-0.37
Risk-free interest rate (%)	4.35	4.37-5.24	4.74-4.90
Expected volatility (%)	50.31	30.56-40.38	21.20-28.44

The compensation costs for the ESPP, as determined based on the fair value of the discount and option feature of the underlying ESPP grant, consistent with the method of SFAS No. 123, were $3.3 million, $1.7 million and $1.4 million for years ended December 31, 2005, 2006 and 2007, respectively. The income tax benefit recognized was $1.2 million, $0.2 million and $0.1 million for the years ended December 31, 2005, 2006 and 2007, respectively. The weighted average grant date fair value per share during the years ended December 31, 2005, 2006 and 2007 was $8.37, $6.12 and $5.89, respectively. As of December 31, 2007, there was no unrecognized compensation cost related to ESPP shares.

For the years ended December 31, 2005, 2006 and 2007, the value of stock issued for ESPP purchases was $6.6 million, $7.2 million and $7.7 million, respectively. In connection with disqualifying dispositions, the tax benefits realized by the Company for the years ended December 31, 2005, 2006 and 2007 were $0.2 million, $0.1 million and $0.1 million, respectively.

F-28

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

10. Stock Plans (continued):

Employee Stock Purchase Plan (continued)

During the years ended December 31, 2005, 2006 and 2007, employees contributed $7.3 million, $7.8 million and $7.6 million, respectively, to the ESPP for the purchase of 391,000, 274,000 and 241,000 shares, respectively. The aggregate fair value of shares purchased during the years ended December 31, 2005, 2006 and 2007 was $8.6 million, $9.1 million and $8.5 million, respectively. Contributions for the second Offering Period of 2007 were not converted to issued shares until January 2008.

11. Income Taxes:

The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”, or FIN 48, on January 1, 2007. As of December 31, 2006, the Company had recorded a contingent tax liability of $9.1 million. As a result of the implementation of FIN 48, the Company reclassified $8.2 million of this liability to non-current liabilities and recognized an increase in this non-current liability of $22.7 million. This increase was accounted for as a $5.5 million decrease in retained earnings, a $15.9 million increase in deferred tax assets, and a $1.3 million increase in long-term assets as of January 1, 2007. The Company includes the non-current assets in other long-term assets on the Company’s consolidated balance sheet.

The Company had gross unrecognized tax benefits of approximately $28.0 million as of January 1, 2007. Of this total, $11.6 million, net of the federal benefit on state taxes, is the amount that, if recognized, would result in a reduction of the Company’s effective tax rate. As of December 31, 2007, the total gross unrecognized tax benefits were $23.8 million and of this total, $9.3 million is the amount that, if recognized, would reduce the Company’s effective tax rate. The Company does not anticipate a significant change in total unrecognized tax benefits or the Company’s effective tax rate due to the settlement of audits or the expiration of statutes of limitations within the next 12 months.

The Company’s policy for recording interest and penalties associated with tax audits is to record them as a component of provision for income taxes. In conjunction with the adoption of FIN 48, the Company recognized approximately $3.0 million for the payment of interest and approximately $1.0 million for the payment of penalties at January 1, 2007. During 2007, the amount of interest and penalties recorded as an expense to the income statement was $2.0 million and $0.4 million, respectively. As of December 31, 2007, $4.1 million of interest and $1.3 million of penalties are accrued. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.

F-29

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

11. Income Taxes (continued):

The Company has analyzed its filing positions in all significant federal, state and foreign jurisdictions where it is required to file income tax returns, as well as open tax years in these jurisdictions. The only periods subject to examination by the major tax jurisdictions where the Company does business are the 2004 through 2007 tax years. Various foreign and state income tax returns are under examination by taxing authorities. The Company does not believe that the outcome of any examination will have a material impact on its financial condition or results of operations.

Rollforward of gross unrecognized tax positions:

Gross tax liability at December 31, 2006	$	27,980
Additions for tax positions of the current year		11,742
Reductions for tax positions of the prior years:
Foreign exchange movements		229
Changes in judgment		(1,516	)
Settlements during the current year		(560	)
Statute closures		(14,083	)
Gross tax liability at December 31, 2007	$	23,792

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

	Year Ended December 31,
	2005		2006		2007
Domestic	$	136,444	$	181,959	$	187,784
Foreign		43,359		53,546		60,169
Income from continuing operations	$	179,803	$	235,505	$	247,953

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

	Year Ended December 31,
	2005			2006		2007
State income taxes:
Current	$	8,357		$	2,094	$	10,694
Deferred		(867	)		941		(1,450	)
Federal income taxes:
Current		40,387			50,249		63,762
Deferred		(72	)		8,598		(4,004	)
Foreign income taxes:
Current		11,165			15,304		13,107
Deferred		936			1,667		2,443
Provision for income taxes	$	59,906		$	78,853	$	84,552

F-30

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

11. Income Taxes (continued):

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

	Year Ended December 31,
	2005			2006			2007
Effective tax rate		33.3	%		33.5	%		34.1	%
Statutory rate of 35%	$	62,931		$	82,427		$	86,784
State taxes, net of federal benefit		4,177			5,294			6,072
Nontaxable income net of nondeductible expenses		(3,033	)		(4,667	)		(6,468	)
Change in valuation allowance		(1,677	)		(941	)		375
Impact of international operations		(932	)		(679	)		(1,518	)
Other		(1,560	)		(2,581	)		(693	)
Provision for income taxes	$	59,906		$	78,853		$	84,552

Components of the current deferred tax assets were as follows:

	December 31,
	2006			2007
Future benefit of net operating losses	$	435		$	534
Reserve for doubtful accounts		3,169			3,826
Accrued expenses		10,328			18,330
Unearned income		1,753			4,492
Tax credits		364			408
Valuation allowance		(2,930	)		(3,908	)
Total current deferred tax asset	$	13,119		$	23,682

The current deferred tax liabilities of $0.1 million at both December 31, 2006 and 2007, respectively, relates to various expenses deducted for tax purposes, not book purposes.

Components of the long-term deferred tax assets were as follows:

	December 31,
	2006			2007
Other depreciation and amortization	$	(22,616	)	$	(25,229	)
Patent depreciation		11,606			7,266
Deferred rent		7,091			7,171
Stock options		10,767			13,543
Deferred compensation		1,780			1,111
Investment basis differences		(1,121	)		(477	)
Valuation allowance		(2,650	)		(2,040	)
Future benefit of net operating losses		5,116			4,493
Other		1,395			5,879
Total long-term deferred tax asset	$	11,368		$	11,717

F-31

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

11. Income Taxes (continued):

Components of the long-term deferred tax liabilities were as follows:

	December 31,
	2006			2007
Other depreciation and amortization	$	8,810		$	8,622
Stock options		(570	)		(849	)
Pension and other		(3,993	)		(3,959	)
Total long-term deferred tax liability	$	4,247		$	3,814

The Company has recorded a deferred tax asset for foreign and state net operating losses and credits that are subject to either five-year, 15-year, 20-year or indefinite carryforward periods. Management has recorded a valuation allowance of $3.4 million against the net operating loss assets and $1.9 million against the tax credit assets for amounts that it does not believe are more likely than not to be utilized.

The Company also recorded a deferred tax asset related to U.S. net operating losses received in an acquisition in 2003. Although the net operating losses are subject to annual limitation under IRC Section 382, management expects all losses to be utilized during the 20-year carryforward period that is available.

The Company has also established a deferred tax asset for federal and state tax related to unrealized investment losses and state tax on realized capital losses. Management has recorded a valuation allowance of $0.7 million for the state tax benefit that it does not believe is more likely than not to be realized. The federal valuation allowance for unrealized and realized investment losses has been fully released.

In 2007, the total valuation allowance increased by $0.3 million primarily due to an increase in allowance for tax credit assets offset by the release of valuation for some state losses. In 2006, the total valuation allowance decreased by $1.0 million primarily due to the closing of a state audit.

The Company records current and deferred income tax expense related to its foreign operations to the extent those earnings are taxable. Historically, the Company has made no provision for the additional taxes that would result from the distribution of earnings of foreign subsidiaries because the Company expected to invest them permanently. Although the Company repatriated certain foreign earnings in 2005 under the American Jobs Creation Act of 2004, the Company considers that the remainder of its foreign earnings will remain permanently invested overseas. The cumulative amount of undistributed earnings for which no U.S. tax liability has been recorded was $73.3 million and $119.5 million for December 31, 2006 and 2007, respectively.

12. Employee Savings and Pension Plans:

Savings Plan

The Company provides a 401(k) Retirement Savings Plan to its U.S. employees. The Company matches 50% of an employee’s savings up to 6% of pay and these contributions vest ratably over a four-year period. Company matching contributions, net of forfeitures, for all employees for the years ended December 31, 2005, 2006 and 2007 were $5.4 million, $6.6 million and $7.7 million, respectively.

F-32

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

12. Employee Savings and Pension Plans (continued):

Non-Qualified Deferred Compensation Plans

The Company maintains non-qualified, unfunded deferred compensation plans that permit certain highly paid executive employees who are employed in the United States and members of the Board of Directors to defer current income for future financial and retirement needs. An eligible employee participant may defer up to 25% of their base salary and/or a portion of their annual bonus on a pre-tax basis. Board of Directors participants may defer up to 100% of their annual retainer and meeting fees on a pre-tax basis. Participants also have the opportunity to defer receipt of restricted stock. There are no Company contributions to these plans, and other than accruals for interest or dividend equivalents, all amounts credited to these plans are derived from elective deferrals of compensation otherwise payable to participants.

Cash amounts deferred each quarter will accrue interest based upon the three-month LIBOR plus 1.5%. Shares of restricted stock that are deferred are held as restricted stock units, payable as shares of common stock if and when the units become distributable. The restricted stock units remain subject to the same vesting conditions as applicable to the shares of restricted stock. In addition, restricted stock units provide for cash dividend equivalents that are payable as cash at the time the units become vested or when the units become distributable, depending on the participant’s election.

The plans offer a number of account distribution options providing flexibility for financial and retirement planning. Employee participants elect with each set of annual deferrals to have the deferrals payable either (i) on a specified date that is at least two years after the deferral election is made but not more than 10 years after termination of employment or (ii) upon termination of employment. The amount deferred will be payable either in a lump sum or installments over a period of five, 10 or 15 years as elected by the participant at the time of deferral. However, these payment elections only become effective if the employee participant retires after age 55 with 10 years of service. Otherwise, the deferrals are payable in a lump sum following termination of employment. Board of Director participants may elect with each set of annual deferrals to have the deferrals payable either (x) on a specified date that is at least two years after the deferral election is made but not more than 10 years after termination of services as a director or (y) the earlier of any such date and the date of termination of services as a director. Board of Director participants may choose to have deferrals payable either in a lump sum or installments over a period of five years.

These payment elections can be made separately with respect to cash and restricted stock deferrals. There is a limited ability to subsequently change the payment elections, provided the election is made at least 12 months before the scheduled payment date and defers commencement of the payment by at least five years. Other special payment rules apply in case of death or disability and with respect to certain “key employees” (whose payments must be delayed by at least six months following termination of employment). Additionally, the Board of Directors may elect to pay out participants in the event of a “Change of Control”. As of December 31, 2006 and 2007, 127,900 and 128,763 shares of restricted stock granted to members of management and the Board of Directors were deferred under this plan and had not been issued.

At December 31, 2006 and 2007, the Company recorded a deferred compensation liability under this plan of $1.9 million in the consolidated balance sheets as a component of other accrued expenses.

Pension Plans

During 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132 (R)”, or SFAS No. 158. SFAS No. 158 requires employers to recognize the underfunded or overfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in the funded status in the year in which the changes occur through accumulated other comprehensive income effective for fiscal years ending after December 15, 2006. SFAS No. 158 did not change net income or comprehensive income

F-33

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

12. Employee Savings and Pension Plans (continued):

Pension Plans (continued)

for the fiscal year ending December 31, 2006. Rather, it requires a one-time adjustment to accumulated other comprehensive income. The Company recorded a one-time adjustment of $3.3 million, net of tax of $1.4 million, during 2006. Additionally, SFAS No. 158 requires employers to measure the funded status of a plan as of the date of its year-end statement of financial position. The Company currently uses a measurement date of November 30 and will be required to change the measurement date to December 31 for the year ended December 31, 2008.

The Company determined pension costs under the provisions of SFAS No. 87, “Employers’ Accounting for Pensions” and related disclosures are determined under the provisions of SFAS No. 132 (Revised 2003), “Employers’ Disclosures about Pensions and other Postretirement Benefits” as modified by SFAS No. 158.

The Company has a separate contributory defined benefit plan for its qualifying U.K. employees employed by the Company’s U.K. subsidiaries. This pension plan was closed to new participants as of December 31, 2002. The benefits for the U.K. Plan are based primarily on years of service and average pay at retirement. Plan assets consist principally of investments managed in a mixed fund.

Following closure of the above plan to new participants, the Company set up a new defined contribution plan for qualifying U.K. employees employed by the Company’s U.K. subsidiaries. The employees can contribute between 3% and 6% of their annual compensation and the Company matches those contributions with 5% to 8% of the employees’ annual compensation. Company contributions for the years ended December 31, 2006 and 2007 were $0.6 million and $1.9 million, respectively.

Pension costs and other amounts recognized in other comprehensive income for the U.K. Plan included the following components:

	Year Ended December 31,
	2005			2006			2007
Net periodic pension cost:
Service cost benefits earned during the year	$	1,106		$	1,895		$	1,586
Interest cost on projected benefit obligation		1,910			2,367			2,609
Expected return on plan assets		(1,593	)		(2,170	)		(2,712	)
Amortization of actuarial gains and losses		561			779			550
Net periodic pension cost		1,984			2,871			2,033
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net gain (loss)		2,252			(4,057	)		(731	)
Total recognized in net periodic pension cost and other comprehensive income	$	4,236		$	(1,186	)	$	1,302

F-34

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

12. Employee Savings and Pension Plans (continued):

Pension Plans (continued)

The estimated net loss that will be amortized from accumulated other comprehensive income into net periodic pension cost over the next fiscal year is $0.5 million.

Weighted average assumptions used to determine net periodic pension cost for years ending December 31 were as follows:

	2005		2006		2007
Discount rate	6.0	%	5.0	%	5.0	%
Rate of compensation increase	4.5	%	4.5	%	4.5	%
Long-term rate of return on plan assets	6.7	%	6.3	%	6.4	%

To develop the expected long-term rate of return on assets assumption, the Company considered future expectations for yields on investments weighted in accordance with the asset allocation of the pension plan’s invested funds.

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

	Year Ended December 31,
	2006			2007
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	41,807		$	51,792
Service cost		1,895			1,586
Interest cost		2,367			2,609
Plan participants’ contributions		779			618
Net actuarial loss (gain)		(20	)		556
Benefits paid		(809	)		(773	)
Foreign currency translation adjustment		5,773			761
Projected benefit obligation at end of year	$	51,792		$	57,149
Change in plan assets:
Fair value of plan assets at beginning of year	$	29,308		$	40,944
Actual return on plan assets		4,468			3,465
Employer contributions		3,151			2,468
Plan participants’ contributions		779			618
Benefits paid		(809	)		(773	)
Foreign currency translation adjustment		4,047			602
Fair value of plan assets at end of year	$	40,944		$	47,324
Funded status:
Funded status	$	(10,768	)	$	(9,763	)
Net amount recognized	$	(10,768	)	$	(9,763	)

F-35

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

12. Employee Savings and Pension Plans (continued):

Pension Plans (continued)

Amounts recognized in statement of financial position were as follows:

	Year Ended December 31,
	2006			2007
Accrued pension liability	$	(10,768	)	$	(9,763	)
Net amount recognized	$	(10,768	)	$	(9,763	)

All amounts recognized in accumulated other comprehensive income are related to accumulated gains.

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets were as follows:

	Year Ended December 31,
	2006		2007
Projected benefit obligation	$	51,792	$	57,149
Accumulated benefit obligation	$	47,116	$	51,729
Fair value of plan assets	$	40,944	$	47,324

Weighted average assumptions used to determine benefit obligations at end of plan year were as follows:

	2006		2007
Discount rate	5.0	%	5.8	%
Rate of compensation increase	4.5	%	4.9	%

Plan Assets

The Company’s pension plan weighted-average allocations by asset category are as follows:

	November 30,
	2006		2007
Asset Category
Equity securities	82.8	%	79.2	%
Debt securities	16.7	%	20.5	%
Cash and net current assets	0.5	%	0.3	%
Total	100.0	%	100.0	%

An independent third party manages the plan assets and tracks the return on a benchmark portfolio matching the above strategic asset allocation. Based on advice from the Company’s financial advisors, the trustees have determined the above mix of asset types in order to meet the investment objectives of the pension plan.

F-36

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

12. Employee Savings and Pension Plans (continued):

Pension Plans (continued)

The Company expects to contribute $2.7 million to fund its pension plan during 2008. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

Expected benefit payments for fiscal year ending:

2008	$	795
2009		821
2010		848
2011		878
2012		908
Next 5 years		5,021

13. Commitments and Contingencies:

The Company currently maintains insurance for risks associated with the operation of its business, provision of professional services, and ownership of property. These policies provide coverage for a variety of potential losses, including loss or damage to property, bodily injury, general commercial liability, professional errors and omissions and medical malpractice. The Company’s retentions and deductibles associated with these insurance policies range from $0.25 million to $2.5 million.

The Company is self-insured for health insurance for the majority of its employees located within the United States, but maintains stop-loss insurance on a “claims made” basis for expenses in excess of $0.28 million per member per year. As of December 31, 2006 and 2007, the Company maintained a reserve of approximately $7.4 million and $4.0 million, respectively, included in other accrued expenses on the consolidated balance sheets, to cover open claims and estimated claims incurred but not reported.

The Company has commitments to invest up to an aggregate additional $23.8 million in four venture capital funds. For further details, see Note 6.

The Company has been involved in compound development and commercialization collaborations since 1997. The Company developed a risk-sharing research and development model to help pharmaceutical and biotechnology clients develop compounds. Through collaborative arrangements based on this model, the Company assists its clients by sharing the risks and potential rewards associated with the development and commercialization of drugs at various stages of development. The Company currently has four such arrangements that involve the potential future receipt of one or more of the following: payments upon the achievement of specified development and regulatory milestones; royalty payments if the compound is approved for sale; sales-based milestone payments; and a share of net sales up to a specified dollar limit. The compounds that are the subject of these collaborations are either still in development or are awaiting regulatory approvals in certain countries. None of the compounds have been approved for sale in any country in the world. As a result of the risks associated with drug development, including poor or unexpected clinical trial results and obtaining regulatory approval to sell in any country, the receipt of any further milestone payments, royalties or other payments with respect to any of the Company’s drug development collaborations is uncertain.

As of December 31, 2007, the Company had two collaborations that involved future expenditures. The first is the Company’s collaboration with ALZA Corporation, subsequently acquired by Johnson and Johnson, for dapoxetine. In connection with this collaboration, the Company has an obligation to pay a royalty to Eli Lilly and Company of 5% on annual net sales of the compound in excess of $800 million. Johnson and Johnson received a “not approvable” letter from the FDA in October 2005, but continued its global development program. In December 2007,

F-37

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

13. Commitments and Contingencies (continued):

Johnson and Johnson submitted a marketing authorization application for dapoxetine to regulatory authorities in seven countries in the European Union. Although this regulatory application has been submitted, the Company does not know if or when Johnson and Johnson will obtain regulatory approval for dapoxetine in these countries. The Company also does not know if or even when Johnson and Johnson will submit an application for or obtain regulatory approval for dapoxetine in the United States of any other country.

The second collaboration involving future expenditures is with Ranbaxy Laboratories Ltd. In February 2007, the Company exercised an option to license from Ranbaxy a statin compound that the Company is developing as a potential treatment for dyslipidemia, a metabolic disorder often characterized by high cholesterol levels. Upon exercise of the option, the Company paid a one-time license fee of $0.25 million. Under the agreement, the Company has an exclusive license to make, use, sell, import and sublicense the compound and any licensed product anywhere in the world for any human use. Ranbaxy retained a non-exclusive right to co-market licensed products in India and generic equivalents in any country in the world in which a third party has sold the generic equivalent of a licensed product. The Company is solely responsible, and will bear all costs and expenses, for the development, manufacture, marketing and commercialization of the compound and licensed products. In addition to the one-time license fee, the Company is obligated to pay Ranbaxy milestone payments upon the occurrence of specified clinical development events. If a licensed product is approved for sale, the Company must also pay Ranbaxy royalties based on sales of the product, as well as commercial milestone payments based on the achievement of specified worldwide sales targets. If all criteria are met, the total amount of potential clinical and sales-based milestones would be $44.0 million. The Company filed the investigational new drug application, or IND, for the statin compound in late March 2007. The Company completed a single ascending dose, first-in-human study for this statin in July 2007, and the compound was safe and well tolerated at all doses in this trial. The Company completed a first-in-patient study, and a drug-drug interaction study to evaluate the interaction between the Company’s statin and gemfibrozil, a fibrate commonly used to lower triglycerides. The Company is currently conducting additional trials to further evaluate the safety and efficacy of this statin. The Company has preliminary results from the first part of a high dose comparator trial. These preliminary results suggest that the Company’s statin was well-tolerated in the first part of this trial based on adverse event and clinical lab oratory data and compared favorably to the comparator statins with respect to lipid lowering. The second part of the study is in progress and final results could vary materially from the preliminary results. The Company anticipates having final results from this high dose comparator study in the first quarter of 2008 and plans to decide upon a course of action related to this statin program after evaluating the full and complete results from these trials.

In September 2007, the Company entered into a contract with a client to construct a laboratory within a leased building, to supply laboratory equipment and to provide specified laboratory services. The client has agreed to reimburse the Company for the costs of the construction of the laboratory and related equipment. The Company expects these costs will be approximately $5.5 million and that construction will be completed in mid-2008.

Under most of the agreements for Development services, the Company typically agrees to indemnify and defend the sponsor against third-party claims based on the Company’s negligence or willful misconduct. Any successful claims could have a material adverse effect on the Company’s financial condition, results of operations and future prospects.

In the normal course of business, the Company is a party to various claims and legal proceedings. Beginning early 2007 the Company was named as a co-defendant in various lawsuits involving claims relating to Sanofi-Aventis’ FDA-approved antibiotic Ketek, for which the Company provided certain clinical trial services. The Company records a reserve for pending and threatened litigation matters when an adverse outcome is probable and the amount of the potential liability is reasonably estimable. Although the ultimate outcome of pending and threatened litigation matters is currently not determinable and litigation costs can be material, management of the Company, after consultation with legal counsel, does not believe that the resolution of these matters will have a material effect upon the Company’s financial condition, results of operations or cash flows.

F-38

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

14. Related Party Transactions:

The Company leases its Highland Heights, Kentucky, building under an operating lease with a former employee and less than one percent shareholder of the Company. Rent paid to this shareholder for the years ended December 31, 2005, 2006 and 2007 totaled $0.8 million. This lease was renewed on January 1, 2005 and will expire on December 31, 2014. Future rent under this lease is included in the future minimum payments for all lease obligations included in Note 8.

The Company provided services to three companies in which two members of the Company’s Board of Directors hold board positions. Revenue received from these three companies for the years ended December 31, 2005, 2006 and 2007 were $4.4 million, $5.9 million and $5.6 million, respectively. As of December 31, 2006 and 2007, these three companies owed the Company $1.1 million and $0.2 million, respectively, for services rendered by the Company.

15. Fair Value of Financial Instruments:

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Accounts Receivable, Accounts Payable and Accrued Liabilities

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

Investments

The Company’s investments in BioDelivery Sciences International and Accentia Biopharmaceuticals are recorded at $1.7 million and $14.0 million at December 31, 2007, respectively. BioDelivery Sciences International and Accentia Biopharmaceuticals are publicly traded companies. The Company records a gain or loss related to these investments at the end of each quarter based on the closing price of these investments at the end of each period. The Company records unrealized gains or losses in accumulated other comprehensive income until they are realized or an other-than temporary decline has occurred. For further information on investments, see Note 6.

The Company’s remaining investments, for which no public market exists, are accounted for using the cost method of accounting as the Company does not exert significant influence on the operations of these companies. The Company monitors these investments for other-than-temporary declines in value. Of these investments, the Company recorded an impairment to one of its cost basis investments as of December 31, 2005. The Company believes the carrying value approximates fair value as of December 31, 2006 and 2007. For further details, see Note 6.

Derivative Instruments

The Company’s derivative financial instruments are recorded at a fair value. As of December 31, 2006 and 2007, the Company’s derivative portfolio had an unfavorable position of $0 and $1.9 million, respectively, recorded as a component of other accrued expenses.

Letters of Credit

From time to time, the Company causes letters of credit to be issued to provide credit support for guarantees, contractual commitments and insurance policies. The fair values of the letters of credit reflect the amount of the underlying obligation and are subject to fees competitively determined in the marketplace. As of December 31, 2007, the Company had four letters of credit outstanding for a total of $1.8 million.

F-39

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

16. Business Segment Data:

The Company has two reportable segments: Development and Discovery Sciences. In the Development segment, the Company provides a broad range of development services, which include preclinical programs and Phase I to IV clinical development services as well as bioanalytical product testing and clinical laboratory services. In addition, for marketed drugs, biologics and devices, the Company offers support such as product launch services, medical information, patient compliance programs, patient and disease registry programs, product safety and pharmacovigilance, Phase IV monitored studies and prescription-to-over-the-counter programs. The Discovery Sciences segment provides services that include preclinical evaluations of anticancer therapies, biomarker discovery and patient sample analysis services, and compound development and commercialization collaborations.

The accounting policies of the segments are the same as those described in Note 1. The Company evaluates its segment performance and allocates resources based on service revenue, gross profit and income from operations.

Revenues by principal business segment are separately stated in the consolidated financial statements. Income from operations, depreciation and amortization, identifiable assets and capital expenditures by principal business segment were as follows:

	Year Ended December 31,
	2005		2006		2007
Income from operations:
Development	$	170,966	$	210,581	$	246,600
Discovery Sciences		5,730		9,396		(16,619	)
Total	$	176,696	$	219,977	$	229,981
Depreciation and amortization:
Development	$	35,992	$	44,194	$	53,620
Discovery Sciences		4,258		3,544		1,972
Total	$	40,250	$	47,738	$	55,592
Identifiable assets:
Development	$	1,061,038	$	1,394,850	$	1,596,616
Discovery Sciences		98,562		86,715		87,759
Total	$	1,159,600	$	1,481,565	$	1,684,375
Capital expenditures:
Development	$	109,185	$	147,530	$	93,899
Discovery Sciences		711		516		1,052
Total	$	109,896	$	148,046	$	94,951

F-40

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

17. Operations by Geographic Area:

Geographic information for net revenue and income from operations by country is determined by the location where the services are provided for the client. Geographic information for identifiable assets by country is determined by the physical location of the assets.

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

	Year Ended December 31,
	2005		2006		2007
Net revenue:
United States	$	734,492	$	845,141	$	898,394
United Kingdom		97,012		113,880		144,479
Other (a)		205,586		288,661		371,592
Total	$	1,037,090	$	1,247,682	$	1,414,465
Income from operations:
United States	$	113,518	$	142,960	$	145,229
United Kingdom		15,023		15,748		18,553
Other (a)		48,155		61,269		66,199
Total	$	176,696	$	219,977	$	229,981
Identifiable assets:
United States	$	966,482	$	1,206,406	$	1,302,541
United Kingdom		100,767		146,666		211,138
Other (a)		92,351		128,493		170,696
Total	$	1,159,600	$	1,481,565	$	1,684,375

(a) Principally consists of operations in 38 countries, 17 of which are located in Europe, none of which comprises more than 6% of net revenue, income from operations or identifiable assets.

F-41

PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007

(numbers in tables in thousands, except years, percentages and per share data)

18. Quarterly Financial Data (unaudited):

2006	First		Second		Third		Fourth		Total
Net revenue	$	299,369	$	308,953	$	313,148	$	326,212	$	1,247,682
Income from operations		60,928		49,029		51,999		58,021		219,977
Net income		41,846		36,414		36,813		41,579		156,652
Net income per common share:
Basic	$	0.36	$	0.31	$	0.31	$	0.35	$	1.34
Diluted	$	0.35	$	0.31	$	0.31	$	0.35	$	1.32
2007
Net revenue	$	332,252	$	349,970	$	357,195	$	375,048	$	1,414,465
Income from operations		60,037		61,095		52,850		55,999		229,981
Net income		41,987		42,647		38,240		40,527		163,401
Net income per common share:
Basic	$	0.36	$	0.36	$	0.32	$	0.34	$	1.38
Diluted	$	0.35	$	0.36	$	0.32	$	0.34	$	1.36

19. Subsequent Event:

On February 20, 2008, the Company announced its plan to begin a stock repurchase program whereby up to $350 million of its common stock may be purchased from time to time in the open market. The Company decided to initiate a share repurchase program in view of the current price at which stock is trading, the strength of the Company’s balance sheet and its ability to generate cash, as well as to minimize earnings dilution from future equity compensation awards. The manner and timing of repurchases, the amount the Company spends and the number of shares repurchased, if any, will depend on a variety of factors, including the Company’s stock price and blackout periods in which the Company is restricted from repurchasing shares. The Company expects to finance the share repurchases from existing cash on hand and cash generated from future operations.

See also Note 6 in the Notes to Consolidated Financial Statements for subsequent events related to the Company’s investments in auction rate securities.

F-42

SIGNATURES

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

	PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
Date: February 26, 2008	By:	/s/ Fredric N. Eshelman, Pharm.D.
	Name:	Fredric N. Eshelman, Pharm.D.
	Title:	Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Fredric N. Eshelman, Pharm.D. Fredric N. Eshelman, Pharm.D.	Chief Executive Officer and Director (Principal Executive Officer)	February 26, 2008
/s/ Daniel G. Darazsdi Daniel G. Darazsdi	Chief Financial Officer (Principal Financial Officer)	February 26, 2008
/s/ Peter Wilkinson Peter Wilkinson	Chief Accounting Officer (Principal Accounting Officer)	February 26, 2008
/s/ Stuart Bondurant, M.D.	Director	February 26, 2008
Stuart Bondurant, M.D.
/s/ Frederick Frank	Director	February 26, 2008
Frederick Frank
/s/ David L. Grange	Director	February 26, 2008
David L. Grange
/s/ Catherine M. Klema	Director	February 26, 2008
Catherine M. Klema
/s/ Terry Magnuson, Ph.D.	Director	February 26, 2008
Terry Magnuson, Ph.D.
/s/ Ernest Mario, Ph.D.	Director	February 26, 2008
Ernest Mario, Ph.D.
/s/ John A. McNeill, Jr.	Director	February 26, 2008
John A. McNeill, Jr.

S-1

EX-10.162

Exhibit 10.162

Employee	Section 2.01 Base Salary and Bonus Multiplier	Section 2.03 Welfare Benefit Period
Fredric N. Eshelman	3.0	2 years
William Sharbaugh	2.0	2 years
Daniel G. Darazsdi	2.0	2 years
Paul S. Covington	2.5	1 year
Brainard Judd Hartman	2.0	2 years
Edward J. Murray	1.0	1 year
Paul D. Colvin	1.0	1 year

SEVERANCE AGREEMENT

THIS AGREEMENT, effective the 1st day of January, 2001, by and between Pharmaceutical Product Development, Inc. and its subsidiaries and affiliates (collectively, “PPD”) and                                          (“Employee”).

WHEREAS, Employee is a valued employee of PPD and in order to induce Employee to remain in the employ of PPD, PPD desires to provide the severance benefits hereinafter described in the event of a “Change in Control”, as hereinafter defined, of PPD.

NOW, THEREFORE, it is agreed as follows:

1. Definitions

1.01 “AFR” means the interest rate determined under Section 1274 of the Code.

1.02 “Base Amount” shall have the meaning set forth and shall be determined as provided in Section 280G of the Code.

1.03 “Change in Control” means (i) a change of control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”), provided that such a Change in Control shall be deemed to have occurred if any “person” (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of securities of PPD representing 50% or more of the combined voting power of PPD’s then outstanding securities; (ii) a sale of substantially all of the assets of PPD; or (iii) a liquidation of PPD.

1.04 “Constructive Termination” means a termination of Employee’s employment by PPD during the Covered Period initiated by Employee after (i) a substantial diminution or alteration in the duties of Employee, (ii) a reduction by PPD in Employee’s base salary in effect on the date of the Change in Control, or (iii) the relocation of Employee’s primary work location to a location that is more than twenty-five (25) miles from Employee’s primary work location prior to the Change in Control. Constructive Termination specifically does not include termination of Employee by reason of death, Disability or retirement at or after age 65. Employee shall give PPD written notice of a Constructive Termination, which notice shall provide a brief description of the circumstances which Employee asserts gives rise to a right of Constructive Termination, and PPD shall have ten (10) days from receipt of said notice within which to remedy said circumstances.

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1.05 “Covered Payment” means the amounts and benefits paid to Employee pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to Employee by PPD.

1.06 “Covered Period” means the time period commencing on the date of and coincident with a Change of Control and ending one year thereafter.

1.07 “Disability” means the inability of Employee to perform his assigned duties for PPD for a period of three (3) months due to Employee’s physical or mental illness as determined by a reputable medical doctor.

1.08 “Excess Parachute Payment” shall have the meaning set forth and shall be determined as provided in Section 280G of the Code.

1.09 “Excise Tax” shall mean the tax imposed under Section 4999 of the Code on an Excess Parachute Payment.

1.10 “Executive Consultant” shall mean the executive compensation or comparable consultant used from time to time by PPD in designing its compensation program for executive and senior management employees of PPD; provided, however, that in its sole discretion PPD may at any time designate its independent auditors as its Executive Consultant for the purpose of performing any calculations required under Section 2.05 of this Agreement.

1.11 “Final Determination” means a final determination by a court of competent jurisdiction or a proceeding of the Internal Revenue Service or its successor agency.

1.12 “First Period” means the twelve-month period ending on the Termination Date.

1.13 “Internal Revenue Code” means the Internal Revenue Code of 1986 as heretofore or hereafter amended, and any successor code. References in this agreement to specific sections of the Code shall also include any successor sections.

1.14 “Parachute Payments” shall have the meaning set forth and shall be determined as provided in Section 280G of the Code.

1.15 “Payment Cap” means the maximum amount which may be paid to Employee under the terms of this Agreement without subjecting Employee to the Excise Tax.

1.16 “Payment Date” means the date thirty (30) days following the Termination Date.

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1.17 “Stock Awards” means Employee’s outstanding awards of PPD non-qualified stock options or restricted stock as of the Termination Date.

1.18 “Termination for Cause” means (i) an act or acts involving fraud, embezzlement or theft from PPD, (ii) Employee’s willful and repeated failure to follow directions of the Board of Directors that continues for at least ten (10) days following written notice of the Board of Directors of such failure to follow directions, or (iii) termination for cause as defined in and made pursuant to a then effective employment agreement, if any, between Employee and PPD.

1.19 “Termination Date” means the date on which Employee’s employment is terminated such that Employee is entitled to the compensation and benefits provided for in Section 2 of this Agreement.

2. Compensation Upon Change of Control. If during the Covered Period (i) PPD terminates Employee’s employment for reason other than Termination for Cause or (ii) Employee’s employment is terminated by reason of Constructive Termination, Employee shall be entitled to the following compensation and benefits:

2.01 Base Salary and Bonus. PPD shall pay Employee an amount equal to                      times the sum of Employee’s (i) base salary for the First Period (determined as if Employee was employed for the entire First Period if employed for less than the First Period) and (ii) the greater of (x) Employee’s target bonus under the PPD incentive cash bonus plan in which Employee is eligible to participate immediately prior to the Termination Date or (y) the average of the cash bonuses received in the First Period and in the twelve-month period immediately preceding the First Period, said amount to be paid on the Payment Date.

2.02 Unpaid and Deferred Compensation. PPD shall pay Employee any bonus or deferred compensation (whether in the form of cash, stock or otherwise) accrued but unpaid as of the Termination Date, said sum to be paid on the Payment Date.

2.03 Benefits. For a period of              after the Termination Date, PPD shall continue to pay for and provide welfare benefits which Employee was receiving immediately prior to the Termination Date, including life insurance, health, medical, dental, vision and wellness, accidental death and dismemberment and disability benefits; provided, however, that PPD’s obligations under this clause shall terminate from the date that Employee first becomes eligible after the Termination Date for similar coverage under another employer’s plan.

2.04 Stock Awards. Notwithstanding anything to the contrary in any agreement for Stock Awards, (i) all unvested shares underlying Stock Awards granted more than six months prior to the Termination Date shall become fully vested as of the Termination Date, and (ii) Employee shall continue to be treated under each award agreement evidencing a Stock Award as if Employee was an employee of PPD until the

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first to occur of (x) the third anniversary of the Termination Date, or (y) the expiration of the exercise period provided for therein; provided, however, in the event of Employee’s death or his disability (as disability is defined in the award agreement) after the Termination Date, the time for exercise after death or such disability prescribed in the award agreement shall apply. The provisions of this Section 2.04 shall also apply to any and all substitute awards for nonqualified stock options and restricted stock granted to Employee in exchange for Stock Awards to which this section applies.

2.05 Limitation on Payments.

a. Application of Section 2.05. If a Covered Payment hereunder would be an Excess Parachute Payment and would thereby subject Employee to the Excise Tax, the provisions of this Section 2.05 shall apply to determine the amounts payable to Employee pursuant to this Agreement.

b. Calculation of Benefits. At least fifteen (15) days prior to the Payment Date, PPD shall notify Employee of the aggregate present value of all amounts and benefits to which Employee would be entitled under this Agreement and any other plan, program or arrangement with PPD as of the Termination Date, together with the projected maximum payments, determined as of such Date of Termination, that could be paid without Employee being subject to the Excise Tax.

c. Imposition of Payment Cap. If (i) the aggregate value of all amounts and benefits to which Employee would be entitled under this Agreement and any other plan, program or arrangement with PPD exceeds the amount which can be paid to Employee without Employee incurring an Excise Tax and (ii) Employee would receive a greater net after-tax amount (taking into account all applicable taxes payable by Employee, including an Excise Tax) by applying the limitation contained in this Section 2.05(c), then the amounts otherwise payable to Employee under this Section 2 shall be reduced to an amount equal to the Payment Cap. If Employee receives reduced payments and benefits hereunder, Employee shall have the right to designate which of the payments and benefits otherwise provided for in this Agreement that Employee will receive in connection with the application of the Payment Cap.

d. Application of Code Section 280G. The Executive Consultant shall determine whether any part of the Covered Payment will be subject to the Excise Tax and the amount of such Excise Tax. For purposes of such determination, the Executive Consultant shall take into consideration and be guided by the following:

(i) such Covered Payment will be treated as Parachute Payments and all Parachute Payments in excess of the Base Amount shall be treated as subject to the Excise Tax, unless and except to the extent that in the good faith judgment of the Executive Consultant, PPD has a reasonable basis to conclude that such Covered Payment, in whole or in part, either do not constitute Parachute Payments or represent reasonable compensation for personal services actually rendered (within the meaning of

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Section 280G of the Code) in excess of the Base Amount, or such Parachute Payments are otherwise not subject to the Excise Tax, and

(ii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Executive Consultant in accordance with the principles of Section 280G of the Code.

(e) Applicable Tax Rates. For purposes of determining whether Employee would receive a greater net after-tax benefit if the amounts payable under this Agreement are reduced in accordance with Section 2.05(c), Employee shall be deemed to pay:

(i) federal income taxes at the highest applicable marginal rate of federal income taxation for the calendar year in which the first amounts are to be paid hereunder, and

(ii) any applicable state and local income taxes at the highest applicable marginal rate of taxation for such calendar year, net of the maximum reduction in federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year;

provided, however, that Employee may request that such determination be made based on Employee’s individual tax circumstances, which shall govern such determination so long as Employee provides to the Executive Consultant such information and documents as the Executive Consultant shall reasonably request to determine such individual circumstances.

(f) Adjustments in Respect to Payment Cap.

(i) If Employee receives reduced payments and benefits under Section 2.05 or if Section 2.05 is determined not to be applicable to Employee because the Executive Consultant concludes that Employee is not subject to any Excise Tax, and it is established pursuant to a Final Determination that, notwithstanding the good faith of Employee and PPD in applying the terms of this Agreement, the aggregate Parachute Payments paid to Employee or for Employee’s benefit are in an amount that would result in Employee being subject to an Excise Tax and Employee would still be subject to the Payment Cap under the provisions of Section 2.05(c), then the amount in excess of the Payment Cap shall be deemed for all purposes to be a loan to Employee made on the date of the receipt of such excess payment, which Employee shall have an obligation to repay to PPD on demand, together with interest at the AFR, from the date of the payment hereunder to the date of repayment by Employee.

(ii) If Section 2.05 is not applied to reduce Employee’s entitlements under this Section 2 because the Executive Consultant determines that Employee would not receive a greater net after-tax benefit by applying Section 2.05 and it

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is established pursuant to a Final Determination that, notwithstanding the good faith of Employee and PPD in applying the terms of this Agreement, Employee would have received a greater net after-tax benefit by subjecting Employee’s payments and benefits hereunder to the Payment Cap, then the aggregate Parachute Payments paid to Employee or for Employee’s benefit in excess of the Payment Cap shall be deemed for all purposes a loan to Employee made on the date of receipt of such excess payments, which Employee shall have an obligation to repay to PPD on demand, together with interest at the AFR, from the date of payment hereunder to the date of repayment by Employee.

(iii) If Employee receives reduced payments and benefits by reason of this Section 2.05 and it is established pursuant to a Final Determination that Employee could have received a greater amount without exceeding the Payment Cap, then PPD shall promptly thereafter pay Employee the aggregate additional amount which could have been paid without exceeding the Payment Cap, together with interest on such amount at the AFR, from the original payment due date to the date of actual payment by PPD.

3. Miscellaneous.

3.01 Successor-in-Interest. PPD will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of PPD, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that PPD would be required to perform it if no succession had taken place.

3.02 Binding Effect. This Agreement shall inure to the benefit of and be enforceable by Employee’s personal or legal representatives, executives, administrators, successors, heirs, distributees, devisees and legatees.

3.03 Notice. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be given (i) by certified mail, return receipt requested, postage prepaid, (ii) by personal delivery or (iii) by recognized overnight carrier, and shall be deemed received when actually received. Notices shall be addressed as follows:

If to PPD:	Pharmaceutical Product Development, Inc.
	3151 South 17th Street
	Wilmington, North Carolina 28412
	Attention: Chief Executive Officer
If to Employee:

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Either party hereto may change the notice address by giving notice thereof in the manner provided for herein.

3.04 Waiver. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any provision or condition of this Agreement to be performed by such other party shall be deemed a subsequent waiver of the same or similar provisions or conditions.

3.05 Entire Agreement. No agreements or representations, oral or otherwise, expressed or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this agreement, and this Agreement supersedes and replaces in its entirety all prior agreements and representations, expressed, implied, oral or otherwise, made by PPD to or with Employee, including but not limited to that certain Severance Agreement dated                      between PPD and Employee.

3.06 Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of North Carolina.

3.07 Unenforceability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

3.08 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

3.09 Headings. Headings used in this Agreement are for convenience only and shall not be used to construe or interpret this Agreement.

3.10 Enforcement by Employee. All legal expenses incurred by Employee in the successful enforcement of any of the terms of this Agreement shall be paid by PPD.

IN WITNESS WHEREOF, the parties have executed this Agreement effective the date first hereinabove set forth.

Pharmaceutical Product Development, Inc.	Employee
By:
Name:	Name:
Title:

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EX-10.247

Exhibit 10.247

08/26/2003

THIRD LEASE AMENDMENT TO LEASE AGREEMENT

THIS THIRD AMENDMENT TO LEASE AGREEMENT (hereinafter referred to as the “Amendment”) is made as of the 22 day of September 2003, by and between DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership doing business in North Carolina as Duke Realty of Indiana Limited Partnership, successor by merger to Weeks Realty, L.P. (hereinafter referred to as “Landlord”) and PPD Development, LP, a Texas limited partnership and successor in interest to PPD Development, Inc. (hereinafter referred to as “Tenant”).

WITNESSETH:

WHEREAS, pursuant to a Lease Agreement dated June 26, 1998 by and between Landlord and Tenant (the Lease Agreement, and all amendments thereto shall be referred to herein collectively as the “Lease”), Landlord leased to Tenant certain premises identified in the Lease as 35,353 rentable square feet in a building located on certain land (the “Land”) which had been provided the address of 4023 Paramount Parkway, but is now known as 3900 South Paramount Parkway, Morrisville, Wake County, North Carolina 27560, all as more particularly described in the Lease; and

WHEREAS, pursuant to a First Amendment to Lease Agreement dated October 28, 1998, Landlord and Tenant amended the lease, among other things, to confirm the actual square footage of the Premises as 36,481 rentable square feet and to expand the Premises by an additional 36,481 rentable square feet for a total of 72,962 rentable square feet shall be known as the “Original Premises”; and

WHEREAS, pursuant to a Second Lease Amendment to Lease Agreement dated October 1, 2002, Landlord and Tenant amended the Lease, among other things, to extend the term of the Lease, provide for the abatement of one month of Base Rent and to provide a tenant improvement allowance, and

WHEREAS, the parties hereto desire to amend the Lease, among other things, to expand the Premises by approximately 6,100 rentable square feet in Suite 130 (the “Additional Space”) and provide for an additional tenant improvement allowance; and

NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) paid by Landlord and Tenant to one another, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Landlord and Tenant, Landlord and Tenant amend the Agreement as follows:

1. Premises and Term.

(a) Premises. Effective September 1, 2003 (the “Expansion Date”), subparagraph (a) of Article 1 of the Lease is hereby amended to provide that Tenant shall lease the Original Premises and the Additional Space which shall consist of 79,062 rentable square feet of space and which space shall hereinafter collectively be referred to as the “Premises”.

(b) Term. Subparagraph (a) of Article 1 of the Lease is hereby modified to reflect that the term of the Additional Space shall commence on the Expansion Date, and shall expire on November 8, 2013 which shall be coterminous with the existing Lease Term.

2. Base Rent, Operating Expenses and Security Deposit.

(a) Base Rent. Effective on the Expansion Date, the first paragraph of paragraph 2 (a) of the Lease is amended by adding the following:

“(a) Base Rent, Additional Rent and operating expenses for the Original Premises shall continue to be due and payable as provided in the Lease. Base Rent for the Original Premises shall continue to be subject to increases as provided in the Lease. Tenant shall pay to Landlord the Base Rent for the Additional Space as follows:

09/01/2003 -12/31/2003	$8,133.33 per month	$35,533.32 per year (1)(6)
01/01/2004 - 06/30/2004	$8,387.50 per month	$50,325.00 per year (2)(6)
07/01/2004 - 07/31/2004	$ 0.00 per month (6)
08/01/2004 -11/15/2005	$8,387.50 per month	$130,006.25 per year (3)(6)
11/16/2005 -11/08/2006	$9,607.50 per month	$113,048.25 per year (4)
11/09/2006 -11/08/2007	$9,815.92 per month	$117,791.04 per year (5)
11/09/2007 - 11/08/2008	$10,034.50 per month	$120,414.00 per year (5)

(1) represents 4 months

(2) represents 6 months

(3) represents 15.5 months

(4) represents 11 months, 23 days

(5) represents 12 months

(6) the Base Rent for this period does not include an Operating Expense component

November 8, 2008, Tenant’s Base Rent for the entire Premises shall be adjusted to the then current Market Rent (as defined in the Lease) and taking into account the readjustment of the operating expenses as set out in Paragraph 2(b) of the Second Amendment; provided, however, that in no event shall the Base Rent per square foot, as adjusted, be less than Tenant’s then current rent.”

(b) Operating Expenses. Effective on the Expansion Date, Tenant’s proportionate share of taxes and operating expenses shall be 66.34%. Tenant shall not be charged Operating Expenses on the Additional Space for the period beginning September 1, 2003 through and including November 15, 2005; provided, however, that if any such expenses were incurred solely as a result of Tenant’s occupancy, then Tenant shall be responsible for such particular Operating Expenses.

3. Additional Space Improvements.

(a) Landlord shall provide Tenant with a tenant improvement allowance for the construction of the tenant improvements to the Additional Space in the amount of Seventy-Three Thousand Two Hundred Dollars ($73,200.00) (the “Additional Space Improvement Allowance”). The Additional Space Improvement Allowance shall be applied toward construction, engineering, professional, telecommunication, design, project management, plan review, permits, architecture, voice and data cabling and other costs and expenses associated with the Additional Space Improvements (as hereinafter defined) to the Additional Space and shall be paid by Landlord upon the receipt of proper documentation from Tenant that such work has been done. Landlord shall be responsible for the payment of all costs and expense associated with improvements to the Additional Space up to the Additional Space Improvement Allowance, whether such improvements are performed by Landlord, Duke Construction Limited Partnership, any other subsidiary or affiliate of Landlord, Tenant or any other person or entity, and Tenant shall have no responsibility therefor. Any cost or expense incurred by Landlord and approved by Tenant in connection with the Additional Space Improvements to the Additional Space in excess of the Additional Space Improvement Allowance (the “Excess”) shall be borne by Tenant and shall be paid by Tenant to Landlord within thirty (30) days of Tenant’s receipt of an invoice from Landlord providing sufficient detail and documentation for such costs and expenses. Failure by Tenant to pay any portion of the Excess as aforesaid is an event of default hereunder.

(b) Following the date of this Amendment, Tenant will work with a space planner to develop a space plan for the Additional Space that is reasonably acceptable to Landlord (the ^“Space Plan”). Within thirty (30) days after Landlord’s receipt of the Space Plan, Tenant shall prepare and submit to Landlord a set of plans and specifications and/or construction drawings (the “Plans and Specifications”) prepared by an architect reasonably acceptable to Landlord covering all work to be performed by Landlord in constructing the leasehold improvements to the Additional Space in accordance with the Space Plan (the “Additional Space Improvements”). Landlord shall participate in the design meetings with Tenant’s architect to maintain Landlord’s building standard and to provide preconstruction cost estimating. Landlord shall have ten (10) days after receipt of the Plans and Specifications in which to review the Plans and Specifications and to give Tenant written notice of Landlord’s approval of the Plans and Specifications or its requested changes to the Plans and Specifications. Tenant shall have no right to request any leasehold improvements or any changes to the Plans and Specifications that would materially alter the Additional Space, the exterior appearance or basic nature of the Building, or the Building systems. If Landlord fails to approve or request changes to the Plans and Specifications within ten (10) days after its receipt of the Plans and Specifications, then Landlord shall be deemed to have approved the Plans and Specifications and the same shall thereupon be final. If Landlord requests any changes to the Plans and Specifications, Tenant shall make those changes which are reasonably requested by Landlord and shall within ten (10) business days of its receipt of such request submit the revised portion of the Plans and Specifications to Landlord. Landlord may not thereafter disapprove the revised portions of the Plans and Specifications unless Tenant has unreasonably failed to incorporate reasonable comments of Landlord and, subject to the foregoing, the Plans and Specifications, as modified by said revisions, shall be deemed to be final upon the submission of said revisions to Landlord. Landlord shall at all times in its review of the Plans and Specifications, and of any revisions thereto, act reasonably and in good faith. Landlord agrees to confirm Landlord’s consent to the Plans and Specifications in writing within three (3) business days following Tenant’s written request therefor.

(c) Following Landlord’s approval (or deemed approval) of the Plans and Specifications, Landlord shall solicit competitive bids from at least three (3) subcontractors for each major trade. Landlord shall provide Tenant with Landlord’s form for prequalifying subcontractors, attached hereto as Exhibit A and incorporated herein, and its current list of approved subcontractors for each major trade, attached hereto as Exhibit B and incorporated herein. Tenant shall have the right to provide Landlord with a proposed subcontractor for each major trade which may or may not be on Landlord’s approved list, and provided such subcontractor meets with Landlord’s reasonable approval, such subcontractor shall have the right to enter a bid. Upon Tenant’s request, Landlord shall also obtain a description of the base warranty and any extended warranty terms relating to any equipment, machinery, trade fixtures or other personal property to be installed in connection with the Additional Space Improvements. Landlord and Tenant shall review the bids and warranties, if applicable, jointly and Tenant shall select one subcontractor for each item bid. Promptly following the selection of a subcontractor for each major trade, Landlord shall deliver to Tenant a statement of the cost to construct and install all of the Additional Space Improvements (the “Cost Statement”). Tenant acknowledges and agrees that (i) the cost to construct and install the Additional Space Improvements shall include a six percent (6%) fee plus (A) Landlord’s actual overhead expenses associated with the Additional Space Improvements that includes preconstruction and project management, administrative support, telephones, utilities, etc., and (B) Landlord’s actual cost of general conditions associated with the Additional Space Improvements that include, but are not limited to, permits, onsite supervision, temporary utilities, temporary facilities and project cleanup, (such overhead and general conditions shall not exceed eight percent (8%) of the total construction costs for the Additional Space Improvements), and (ii) said fee, overhead and general conditions shall be included in the Cost Statement and applied against the Additional Space Improvement Allowance (as hereinafter defined). Tenant agrees to acknowledge the Cost Statement in writing within five (5) business days following Landlord’s written request therefor.

(d) Landlord shall provide Tenant with a proposed schedule for the construction and installation of the Additional Space Improvements that is reasonably acceptable to Tenant and shall perform the construction in accordance with such schedule and the Plans and Specifications, subject to extensions for Force Majeure Delays and Tenant Delays (as hereinafter defined). Landlord shall notify Tenant of any material changes to said schedule as a result of such Force Majeure Delays and Tenant Delays. In the event the Additional Space Improvements are not Substantially Completed (as hereafter defined) in accordance with the schedule as extended by Force Majeure Delays and Tenant Delays, Tenant shall receive one day of rent abatement for each day of delay until the Additional Space Improvements are Substantially Completed. Tenant agrees to coordinate with Landlord regarding the installation of Tenant’s phone and data wiring and any other trade related fixtures that will need to be installed in the Additional Space prior to Substantial Completion. In addition, if and to the extent permitted by applicable laws, rules and ordinances, Tenant shall have the right to enter the Additional Space for fifteen (15) days prior to the anticipated date for Substantial Completion (as such date may be modified from time to time) in order to install fixtures and otherwise prepare the Additional Space for occupancy. During any entry prior to the Substantial Completion of the Additional Space Improvements (i) Tenant shall not interfere with Landlord’s completion of the Additional Space Improvements, and (ii) Tenant shall cause its personnel and contractors to comply with the terms and conditions of Landlord’s rules of conduct (which Landlord agrees to furnish to Tenant upon request).

(e) Tenant shall have the right to request changes to the Plans and Specifications at any time by way of written change order (each, a “Change Order”, and collectively, “Change Orders”). Provided such Change Order is reasonably acceptable to Landlord, Landlord shall prepare and submit promptly to Tenant a memorandum setting forth the impact on cost and

schedule resulting from said Change Order (the “Change Order Memorandum of Agreement”). Tenant shall, within five (5) business days following Tenant’s receipt of the Change Order Memorandum of Agreement, either (i) execute and return the Change Order Memorandum of Agreement to Landlord, in which case the Cost Statement shall be deemed modified automatically to take into account said Change Order, (ii) retract its request for the Change Order or (iii) amend its proposed Change Order, in which case Landlord shall prepare a new Change Order Memorandum of Agreement and Tenant shall respond as provided herein.

(f) For purposes of this Amendment “Substantial Completion” (or any grammatical variation thereof) shall mean completion of construction of the Additional Space Improvements, subject only to punchlist items to be identified by Landlord and Tenant in a joint inspection of the Additional Space prior to Tenant’s occupancy, the completion of which will not materially affect Tenant’s use and occupancy of, or ability to obtain an occupancy permit for the Additional Space which completion and punchlist items shall be evidenced by a writing signed by Tenant by Tenant and Landlord (Tenant acknowledging, however, that even if Landlord has Substantially Completed the Additional Space Improvements, Landlord may not be able to obtain an occupancy permit for the Additional Space because of the need for completion of all or a portion of improvements being installed in the Additional Space directly by Tenant). “Tenant Delay” shall mean any delay in the completion of the Additional Space Improvements to the extent attributable to Tenant, including, without limitation, (i) Tenant’s failure to meet any time deadlines specified herein, (ii) the performance of any other work in the Additional Space by any person, firm or corporation employed by or on behalf of Tenant, or any failure to complete or delay in completion of such work, and (iii) any other act or omission of Tenant. “Force Majeure Delay” shall mean any delay in the performance of any obligation by a party hereunder when such delay is occasioned by causes beyond its control due to act of God, adverse weather, fire, earthquake, flood, explosion, war, invasion, insurrection, riot, mob violence, sabotage, vandalism, failure of transportation, strikes, lockouts, litigation, condemnation, requisition, governmental restrictions including inability or delay in obtaining governmental consents, inspections or permits, laws or orders of governmental, civil, military or naval authorities, or any other cause outside a party’s control, whether similar or dissimilar to the foregoing.

(g) Landlord hereby warrants the Additional Space Improvements for a period of one (1) year following the date of Substantial Completion. Landlord agrees to assign any and all manufacturers’ warranties or extended warranties, if obtained, directly to the Tenant, which warranties shall include, but not be limited to, the standard warranties available from the manufacturers, and if not assignable, shall cooperate with Tenant to enforce such warranties.

(h) Notwithstanding anything herein to the contrary, Tenant must use the Additional Space Improvement Allowance by October 1, 2007, or Tenant shall have no further right to use the Additional Space Improvement Allowance.

(i) All shelves, bins, machinery and other trade fixtures installed in connection with any Additional Space Improvements to the Additional Space may be removed by Tenant in accordance with the provisions of Paragraph 5 of the Lease.

4. Parking. Tenant shall be entitled to four (4) parking spaces for every 1,000 rentable square feet of the Premises in the parking areas established for the Building. All such parking spaces shall be on a first-come, first served basis.

5. Alterations. Paragraph 5 of the Lease is hereby amended to provide that Tenant shall have the right to perform interior alterations to the Additional Space pursuant to Paragraph 5 of the Lease. Prior to Tenant’s undertaking of any such alterations to the Additional Space, Tenant shall submit to Landlord for review and approval a set of plans detailing such alterations. Landlord shall designate at the time of such review whether such alterations must be removed at the termination of the Lease.

6. Generator. Tenant shall have the right to remove the existing generator serving the Premises; provided, however, that Tenant shall, at its cost and expense, repair any damage to the Premises caused by the removal of such generator and shall restore the Premises to the condition existing as of the Expansion Date, reasonable wear and tear excepted.

7. Effective Date. The provisions of this Amendment shall be and become effective as of the date and year first above written.

8. Severability. In the event any term, covenant or condition of this Amendment, the Lease, or any amendments thereto shall to any extent be invalid or unenforceable, the remainder shall not be affected thereby and each term, covenant or condition shall be valid and enforceable to the full extent permitted by law.

9. Successors and Assigns. This Amendment shall apply to, inure to the benefit of, and be binding upon the parties hereto and upon their respective heirs, legal representatives, successors and permitted assigns, except as otherwise provided herein.

10. Authority of Tenant. Tenant certifies to Landlord that it is authorized to enter into this Amendment, and that those persons signing below on its behalf are authorized to do so, and shall promptly upon the request of Landlord provide a resolution to this effect.

11. Interpretation. Although the printed provisions of this Amendment were drafted by Landlord, such fact shall not cause this Amendment to be construed either for or against Landlord or Tenant. All capitalized terms, not otherwise defined, shall be defined as provided in the Lease.

12. Full Force and Effect. Except as modified hereby, the Lease remains unmodified and in full force and effect.

13. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of North Carolina.

14. Mutual Acknowledgment of Non-Existence of Claims. Landlord and Tenant acknowledge and agree that as of the day hereof there are no known claims by either party against the other party hereto arising from the relationship as Landlord and Tenant, respectively, pursuant to the Lease, as amended.

15. Confidentiality. Except as otherwise required by law to be disclosed by Tenant the terms and provisions of the Lease, and this Amendment are strictly confidential, are to be shared by Tenant only with its accountant, employees, and attorneys, and each of those parties shall be advised of the confidential nature of the lease, and this Amendment.

[Execution signatures contained on the following page]

IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed under seal and delivered as of the day and year first above written.

			LANDLORD:
			DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership doing business in North Carolina as Duke Realty of Indiana Limited Partnership
				By:	Duke Realty Corporation, an Indiana corporation, its General Partner
				By:	/s/ Andrew Kelton
				Name:	Andrew Kelton
				Title:	Senior Vice President
ATTEST:			TENANT:
	By:	/s/ B. Judd Hartman	PPD Development, LP, a Texas limited partnership
	Name:	B. Judd Hartman
	Title:	Secretary
			By: PPD GP, LLC, a Delaware limited liability company, its General Partner
				By:	/s/ Fred B. Davenport, Jr.
				Name:	Fred B. Davenport, Jr.
				Title:	Vice President
Guarantor hereby executes this Amendment to evidence its consent to Tenant’s leasing of the Additional Space and to ratify that the Guaranty shall apply to the Additional Space as well as to the Original Premises.
				GUARANTOR:
				PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., a North Carolina Corporation
ATTEST:
	By:	/s/ B. Judd Hartman
	Name:	B. Judd Hartman
	Title:	Secretary		By:	/s/ Fred B. Davenport, Jr.
				Name:	Fred B. Davenport, Jr.
				Title:	President

EX-10.248

Exhibit 10.248

FOURTH LEASE AMENDMENT TO LEASE AGREEMENT

THIS FOURTH AMENDMENT TO LEASE AGREEMENT (hereinafter referred to as the ^“Amendment”) is made as of the      day of              2005, by and between DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership doing business in North Carolina as Duke Realty of Indiana Limited Partnership, successor by merger to Weeks Realty, L.P. (hereinafter referred to as “Landlord”) and PPD DEVELOPMENT LP, a Texas limited partnership and successor in interest to PPD Development, Inc. (hereinafter referred to as “Tenant”).

WITNESSETH:

WHEREAS, pursuant to a Lease Agreement dated June 26, 1998 by and between Landlord and Tenant, as amended by that certain First Lease Amendment to Lease Agreement dated October 28, 1998, and as amended by that certain Second Amendment to Lease Agreement dated October 1, 2002, and as further amended by that certain Third Lease Amendment to Lease Agreement dated September 22, 2003 (the Lease Agreement, and all amendments thereto shall be referred to herein collectively as the ^“Lease”), Landlord leased to Tenant certain premises consisting of approximately 79,062 rentable square feet (the ^“Original Premises”) in a building located on certain land (the ^“Land”) which had been provided the address of 4023 Paramount Parkway, but is now known as 3900 South Paramount Parkway, Morrisville, Wake County, North Carolina 27560, all as more particularly described in the Lease; and

WHEREAS, the parties hereto desire to amend the Lease, among other things, to expand the Premises by approximately 4,657 rentable square feet in Suite 150 of the Building (the “150 Additional Space”) and provide for an additional tenant improvement allowance ; and

NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) paid by Landlord and Tenant to one another, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Landlord and Tenant, Landlord and Tenant amend the Agreement as follows:

1. Premises and Term.

(a) Premises. Effective September 1, 2005 (the ^“Expansion Date”), subparagraph (a) of Article 1 of the Lease is hereby amended to provide that Tenant shall lease the Original Premises and the 150 Additional Space which together shall consist of 83,719 rentable square feet of space and which space shall hereinafter collectively be referred to as the “Premises”.

(b) Term. Subparagraph (a) of Article 1 of the Lease is hereby modified to reflect that the term of the 150 Additional Space shall commence on the Expansion Date, and shall expire on November 8, 2013 (the ^“Expansion Term”) which shall be coterminous with the existing Lease Term.

2. Base Rent, Operating Expenses and Security Deposit.

(a) Base Rent. Effective on the Expansion Date, the first paragraph of paragraph 2 (a) of the Lease is amended by adding the following:

“(a) Base Rent, Additional Rent and operating expenses for the Original Premises shall continue to be due and payable as provided in the Lease. Base Rent for the Original Premises shall continue to be subject to increases as provided in the Lease. Tenant shall pay to Landlord the Base Rent for the 150 Additional Space as follows:

09/01/2005 - 11/15/2005	$ 0.00 per month (1)
11/16/2005 - 11/08/2006	$7,334.78 per month	$88,017.36 per year
11/09/2006 - 11/08/2007	$7,493.89 per month	$89,926.68 per year
11/09/2007 - 11/08/2008	$7,660.77 per month	$91,929.24 per year

(1) represents 2.5 months

On November 8, 2008, Tenant’s Base Rent for the entire Premises shall be adjusted to the then current Market Rent (as defined in the Lease) and taking into account the readjustment of the operating expenses as set out in Paragraph 2(b) of the Second Amendment; provided, however, that in no event shall the Base Rent per square foot, as adjusted, be less than Tenant’s then current rent.”

(b) Operating Expenses. Tenant shall not be charged Operating Expenses on the 150 Additional Space for the period beginning September 1, 2005 through and including November 15, 2005; provided, however, that if any such expenses were incurred solely as a result of Tenant’s occupancy, then Tenant shall be responsible for such particular Operating Expenses. Effective on November 15, 2005, Tenant’s proportionate share of taxes and operating expenses shall be 70.3% and shall be calculated consistently with the provision of paragraph 2(b)(ii) of the Lease.

3. 150 Additional Space Improvements.

(a) Landlord shall provide Tenant with a tenant improvement allowance for the construction of the tenant improvements to the 150 Additional Space in the amount of Twelve and 00/100 Dollars ($12.00) per rentable square foot of the 150 Additional Space (the “150 Additional Space Improvement Allowance”). The 150 Additional Space Improvement Allowance shall be applied toward construction, engineering, professional, telecommunication, design, project management, plan review, permits, architecture, voice and data cabling and other costs and expenses associated with the 150 Additional Space Improvements (as hereinafter defined) to the 150 Additional Space and shall be paid by Landlord upon the receipt of proper documentation from Tenant that such work has been done. Landlord shall be responsible for the payment of all costs and expense associated with improvements to the 150 Additional Space up to the 150 Additional Space Improvement Allowance. Any cost or expense incurred by Landlord and approved by Tenant in connection with the 150 Additional Space Improvements to the 150 Additional Space in excess of the 150 Additional Space Improvement Allowance (the “Excess”) shall be borne by Tenant and shall be paid by Tenant to Landlord within thirty (30) days of Tenant’s receipt of an invoice from Landlord providing sufficient detail and documentation for such costs and expenses. Failure by Tenant to pay any portion of the Excess as aforesaid is an event of default hereunder. If the tenant has not used the 150 Additional Space Improvement Allowance within the first year of the Effective Date or the 150 Additional Space Improvement Allowance exceeds the Cost Statement (as hereinafter defined) (taking into account any increases or decreases resulting from any Change Orders), such savings shall be the property of Tenant.

(b) Following the date of this Amendment, Tenant will work with a space planner to develop a space plan for the 150 Additional Space that is reasonably acceptable to Landlord (the ^“Space Plan”). Within thirty (30) days after Landlord’s receipt of the Space Plan, Tenant shall prepare and submit to Landlord a set of plans and specifications and/or construction drawings (the “Plans and Specifications”) prepared by an architect reasonably acceptable to Landlord covering all work to be performed by Landlord in constructing the leasehold improvements to the 150 Additional Space in accordance with the Space Plan (the ^“150 Additional Space Improvements”). Landlord shall participate in the design meetings with Tenant’s architect to maintain Landlord’s building standard and to provide preconstruction cost estimating. Landlord shall have ten (10) days after receipt of the Plans and Specifications in which to review the Plans and Specifications and to give Tenant written notice of Landlord’s approval of the Plans and Specifications or its requested changes to the Plans and Specifications. Tenant shall have no right to request any leasehold improvements or any changes to the Plans and Specifications that would materially alter the 150 Additional Space, the exterior appearance or basic nature of the Building, or the Building systems. If Landlord fails to approve or request changes to the Plans and Specifications within ten (10) days after its receipt of the Plans and Specifications, then Landlord shall be deemed to have approved the Plans and Specifications and the same shall thereupon be final. If Landlord requests any changes to the Plans and Specifications, Tenant shall make those changes which are reasonably requested by Landlord and shall within ten (10) business days of its receipt of such request submit the revised portion of the Plans and Specifications to Landlord. Landlord may not thereafter disapprove the revised portions of the Plans and Specifications unless Tenant has unreasonably failed to incorporate reasonable comments of Landlord and, subject to the foregoing, the Plans and Specifications, as modified by said revisions, shall be deemed to be final upon the submission of said revisions to Landlord. Landlord shall at all times in its review of the Plans and Specifications, and of any revisions thereto, act reasonably and in good faith. Landlord agrees to confirm Landlord’s consent to the Plans and Specifications in writing within three (3) business days following Tenant’s written request therefor.

(c) Following Landlord’s approval (or deemed approval) of the Plans and Specifications, Landlord shall solicit competitive bids from at least three (3) subcontractors for each major trade. Landlord shall provide Tenant with Landlord’s form for prequalifying subcontractors, attached hereto as Exhibit A and incorporated herein, and its current list of approved subcontractors for each major trade, attached hereto as Exhibit B and incorporated herein. Tenant shall have the right to provide Landlord with a proposed subcontractor for each major trade which may or may not be on Landlord’s approved list, and provided such subcontractor meets with Landlord’s reasonable approval, such subcontractor shall have the right to enter a bid. Landlord shall also obtain a description of the base warranty and any extended warranty terms relating to any equipment, machinery, trade fixtures or other personal property to be installed in connection with the 150 Additional Space Improvements. Landlord and Tenant shall review the bids and warranties, if applicable, jointly and Tenant shall select one subcontractor for each item bid. Promptly following the selection of a subcontractor for each major trade, Landlord shall deliver to Tenant a statement of the cost to construct and install all of the 150 Additional Space Improvements (the “Cost Statement”). Tenant acknowledges and agrees that (i) the cost to construct and install the 150 Additional Space Improvements shall include a six percent (6%) fee plus (A) Landlord’s actual overhead expenses associated with the 150 Additional Space Improvements that includes preconstruction and project management, administrative support, telephones, utilities, etc., and (B) Landlord’s actual cost of general conditions associated with the 150 Additional Space Improvements that include, but are not limited to, permits, onsite supervision, temporary utilities, temporary facilities and project

cleanup, (such overhead and general conditions shall not exceed eight percent (8%) of the total construction costs for the 150 Additional Space Improvements), and (ii) said fee, overhead and general conditions shall be included in the Cost Statement and applied against the 150 Additional Space Improvement Allowance (as hereinafter defined). Tenant agrees to acknowledge the Cost Statement in writing within ten (10) business days following Landlord’s written request therefor.

(d) Landlord shall provide Tenant with a proposed schedule for the construction and installation of the 150 Additional Space Improvements that is reasonably acceptable to Tenant and shall perform the construction in accordance with such schedule and the Plans and Specifications, subject to extensions for Force Majeure Delays and Tenant Delays (as hereinafter defined). Landlord shall notify Tenant of any material changes to said schedule as a result of such Force Majeure Delays and Tenant Delays. In the event the 150 Additional Space Improvements are not Substantially Completed (as hereafter defined) in accordance with the schedule as extended by Force Majeure Delays and Tenant Delays, Tenant shall receive one day of rent abatement for each day of delay until the 150 Additional Space Improvements are Substantially Completed. Tenant agrees to coordinate with Landlord regarding the installation of Tenant’s phone and data wiring and any other trade related fixtures that will need to be installed in the 150 Additional Space prior to Substantial Completion. In addition, if and to the extent permitted by applicable laws, rules and ordinances, Tenant shall have the right to enter the 150 Additional Space for fifteen (15) days prior to the anticipated date for Substantial Completion (as such date may be modified from time to time) in order to install fixtures and otherwise prepare the 150 Additional Space for occupancy. During any entry prior to the Substantial Completion of the 150 Additional Space Improvements (i) Tenant shall not interfere with Landlord’s completion of the 150 Additional Space Improvements, and (ii) Tenant shall cause its personnel and contractors to comply with the terms and conditions of Landlord’s rules of conduct (which Landlord agrees to furnish to Tenant upon request).

(e) Tenant shall have the right to request changes to the Plans and Specifications at any time by way of written change order (each, a “Change Order”, and collectively, “Change Orders”). Provided such Change Order is reasonably acceptable to Landlord, Landlord shall prepare and submit promptly to Tenant a memorandum setting forth the impact on cost and schedule resulting from said Change Order (the “Change Order Memorandum of Agreement”). Tenant shall, within five (5) business days following Tenant’s receipt of the Change Order Memorandum of Agreement, either (i) execute and return the Change Order Memorandum of Agreement to Landlord, in which case the Cost Statement shall be deemed modified automatically to take into account said Change Order, (ii) retract its request for the Change Order or (iii) amend its proposed Change Order, in which case Landlord shall prepare a new Change Order Memorandum of Agreement and Tenant shall respond as provided herein.

(f) For purposes of this Amendment ^“Substantial Completion” (or any grammatical variation thereof) shall mean completion of construction of the 150 Additional Space Improvements, subject only to punchlist items to be identified by Landlord and Tenant in a joint inspection of the 150 Additional Space prior to Tenant’s occupancy, the completion of which will not materially affect Tenant’s use and occupancy of, or ability to obtain an occupancy permit for the 150 Additional Space which completion and punchlist items shall be evidenced by a writing signed by Tenant and Landlord (Tenant acknowledging, however, that even if Landlord has Substantially Completed the 150 Additional Space Improvements, Landlord may not be able to obtain an occupancy permit for the 150 Additional Space because of the need for completion of all or a portion of improvements being installed in the 150 Additional Space directly by Tenant). “Tenant Delay” shall mean any delay in the completion of the 150 Additional Space Improvements to the extent attributable to Tenant, including, without limitation, (i) Tenant’s failure to meet any time deadlines specified herein, (ii) the

performance of any other work in the 150 Additional Space by any person, firm or corporation employed by or on behalf of Tenant, or any failure to complete or delay in completion of such work, and (iii) any other act or omission of Tenant. “Force Majeure Delay” shall mean any delay in the performance of any obligation by a party hereunder when such delay is occasioned by causes beyond its control due to act of God, adverse weather, fire, earthquake, flood, explosion, war, invasion, insurrection, riot, mob violence, sabotage, vandalism, failure of transportation, strikes, lockouts, litigation, condemnation, requisition, governmental restrictions including inability or delay in obtaining governmental consents, inspections or permits, laws or orders of governmental, civil, military or naval authorities, or any other cause outside a party’s control, whether similar or dissimilar to the foregoing.

(g) Landlord hereby warrants the 150 Additional Space Improvements for a period of one (1) year following the date of Substantial Completion of the 150 Additional Space Improvements performed by Landlord. Landlord agrees to assign any and all manufacturers’ warranties or extended warranties, if obtained, directly to the Tenant, which warranties shall include, but not be limited to, the standard warranties available from the manufacturers, and if not assignable, shall cooperate with Tenant to enforce such warranties.

(h) All shelves, bins, machinery and other trade fixtures installed in connection with any 150 Additional Space Improvements to the 150 Additional Space may be removed by Tenant in accordance with the provisions of Paragraph 5 of the Lease.

4. Alterations. Paragraph 5 of the Lease is hereby amended to provide that Tenant shall have the right to perform interior alterations to the 150 Additional Space pursuant to Paragraph 5 of the Lease. Prior to Tenant’s undertaking of any such alterations to the 150 Additional Space, Tenant shall submit to Landlord for review and approval a set of plans detailing such alterations. Landlord shall designate at the time of such review whether such alterations must be removed at the termination of the Lease.

5. Effective Date. The provisions of this Amendment shall be and become effective as of the date and year first above written.

6. Severability. In the event any term, covenant or condition of this Amendment, the Lease, or any amendments thereto shall to any extent be invalid or unenforceable, the remainder shall not be affected thereby and each term, covenant or condition shall be valid and enforceable to the full extent permitted by law.

7. Successors and Assigns. This Amendment shall apply to, inure to the benefit of, and be binding upon the parties hereto and upon their respective heirs, legal representatives, successors and permitted assigns, except as otherwise provided herein.

8. Authority of Tenant. Tenant certifies to Landlord that it is authorized to enter into this Amendment, and that those persons signing below on its behalf are authorized to do so, and shall promptly upon the request of Landlord provide a resolution to this effect.

9. Interpretation. Although the printed provisions of this Amendment were drafted by Landlord, such fact shall not cause this Amendment to be construed either for or against Landlord or Tenant. All capitalized terms, not otherwise defined, shall be defined as provided in the Lease.

10. Full Force and Effect. Except as modified hereby, the Lease remains unmodified and in full force and effect.

11. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of North Carolina.

12. Mutual Acknowledgment of Non-Existence of Claims. Landlord and Tenant acknowledge and agree that as of the day hereof there are no known claims by either party against the other party hereto arising from the relationship as Landlord and Tenant, respectively, pursuant to the Lease, as amended.

13. Confidentiality. Except as otherwise required by law to be disclosed by Tenant the terms and provisions of the Lease, and this Amendment are strictly confidential, are to be shared by Tenant only with its accountant, employees, and attorneys, and each of those parties shall be advised of the confidential nature of the lease, and this Amendment.

[Execution signatures contained on the following page]

IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed under seal and delivered as of the day and year first above written.

			LANDLORD:
			DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership doing business in North Carolina as Duke Realty of Indiana Limited Partnership
			By:	Duke Realty Corporation, an Indiana corporation, its General Partner
			By:	/s/ Andrew Kelton
			Name:	Andrew Kelton
			Title:	Senior Vice President
ATTEST:			TENANT:
	By:	/s/ Charles H. Munn, Jr.		PPD Development, LP, a Texas limited
	Name:	Charles H. Munn, Jr.		partnership
	Title:	Assistant General Counsel
				By: PPD GP, LLC, a Delaware limited liability company, its General Partner
					By:	/s/ Fred B. Davenport, Jr.
					Name:	Fred B. Davenport, Jr.
					Title:	President

Guarantor hereby executes this Amendment to evidence its consent to Tenant’s leasing of the 150 Additional Space and to ratify that the Guaranty shall apply to the 150 Additional Space as well as to the Original Premises.

			GUARANTOR:
			PHARMACEUTICAL PRODUCT DEVELOPMENT, a North Carolina Corporation
ATTEST:
	By:	/s/ Charles H. Munn, Jr.
	Name:	Charles H. Munn, Jr.
	Title:	Assistant General Counsel	By:	/s/ Fred B. Davenport, Jr.
			Name:	Fred B. Davenport, Jr.
			Title:	President

EX-10.249

Exhibit 10.249

FIFTH LEASE AMENDMENT TO LEASE AGREEMENT

THIS FIFTH LEASE AMENDMENT TO LEASE AGREEMENT (hereinafter referred to as the “Amendment”) is made as of the 7 day of July 2005, by and between DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership doing business in North Carolina as Duke Realty of Indiana Limited Partnership, successor by merger to Weeks Realty, L.P. (hereinafter referred to as “Landlord”) and PPD DEVELOPMENT LP, a Texas limited partnership and successor in interest to PPD Development, Inc. (hereinafter referred to as “Tenant”).

WITNESSETH:

WHEREAS, pursuant to a Lease Agreement dated June 26, 1998 by and between Landlord and Tenant, as amended by that certain First Lease Amendment to Lease Agreement dated October 28, 1998, and as amended by that certain Second Amendment to Lease Agreement dated October 1, 2002, and as mended by that certain Third Lease Amendment to Lease Agreement dated September 22, 2003 and as further amended by that certain Fourth Lease Amendment to Lease Agreement dated March 31, 2005 (the Lease Agreement, and all amendments thereto shall be referred to herein collectively as the “Lease”), Landlord leased to Tenant certain premises consisting of approximately 83,719 rentable square feet (the “Original Premises”) in a building located on certain land (the “Land”) which had been provided the address of 4023 Paramount Parkway, but is now known as 3900 South Paramount Parkway, Morrisville, Wake County, North Carolina 27560, all as more particularly described in the Lease; and

WHEREAS, the parties hereto desire to correct the date on which the Base Rent and Operating Expenses for the entire Premises will be adjusted as set forth in that certain Second Amendment to Lease Agreement, Third Amendment to Lease Agreement and Fourth Amendment to Lease Agreement (collectively “the Amendments”); and

WHEREAS, the parties hereto desire to amend the Lease, among other things, to expand the Premises by approximately 3,730 rentable square feet in Suite 225 (the “Suite 225 Space”) and approximately 8,696 square feet of space in Suite 250 (the “Suite 250 Space”) of the Building (the Suite 225 Space and the Suite 250 Space shall hereinafter collectively be referred to as the “Additional Space”) and provide for an additional tenant improvement allowance ; and

NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) paid by Landlord and Tenant to one another, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Landlord and Tenant, Landlord and Tenant amend the Agreement as follows:

1. Premises and Term.

(a) Premises. Subparagraph (a) of Article 1 of the Lease is hereby amended to provide that Tenant shall lease the Original Premises and the Suite 225 Space effective June 15, 2005 (the “Suite 225 Expansion Date”). Subparagraph (a) of Article 1 of the Lease is hereby further amended to provide that Tenant shall lease the Original Premises and the Suite 250 Space effective September 1, 2005 (the Suite 250 Expansion Date”). Together the Original Premises, the Suite 225 Space and the Suite 250 Space shall consist of approximately 96,145 rentable square feet of space and shall hereinafter collectively be referred to as the “Premises”.

(b) Term. Subparagraph (a) of Article 1 of the Lease is hereby modified to reflect that the term of the Suite 225 Space shall commence on the Suite 225 Expansion Date and the term of the Suite 250 Space shall commence on the Suite 250 Expansion Date, and shall each expire on November 8, 2013 (the “Expansion Term”) and shall be coterminous with the existing Lease Term of the Original Premises.

2. Base Rent, Operating Expenses and Security Deposit.

(a) Base Rent. The first paragraph of paragraph 2 (a) of the Lease is amended by adding the following:

“(a) Base Rent, Additional Rent and Operating Expenses for the Original Premises shall continue to be due and payable as provided in the Lease. Base Rent for the Original Premises shall continue to be subject to increases as provided in the Lease through November 8, 2013. Tenant shall pay to Landlord the Base Rent for the Additional Space as follows:

Suite 225 Space (3,730 RSF):
06/15/2005 - 11/15/2005	$ 0.00 per month (1)
11/16/2005 - 11/08/2006	$5,874.74 per month	$79,497.00 per year
11/09/2006 - 11/08/2007	$6,002.19 per month	$72,026.28 per year
11/09/2007 - 11/08/2008	$6,135.85 per month	$73,630.20 per year
11/09/2008 - 11/08/2013	Adjusted as set forth below
Suite 250 Space (8,696 RSF):
09/01/2005 - 01/08/2006	$ 0.00 per month (2)
01/09/2006 - 11/08/2006	$13,696.20 per month	$136,962.00 (3)
11/09/2006 - 11/08/2007	$13,993.31 per month	$167,919.72
11/09/2007 - 11/08/2008	$14,304.92 per month	$171,659.04
11/09/2008 - 11/08/2013	Adjusted as set forth below

(1) represents five (5) months

(2) represents four (4) months and eight (8) days

(3) represents ten (10) months

The Lease is hereby further amended wherever applicable to reflect that the date on which the Base Rent and Operating Expenses for the entire Premises will be adjusted should have been November 9, 2008 rather than November 8, 2008 as was incorrectly stated in the Amendments.

Rent Adjustment. On November 9, 2008 (the “Rent Adjustment Date”), Tenant’s Base Rent for the entire Premises shall be adjusted to the then current Market Rent (as hereinafter defined) and taking into account the readjustment of the operating expenses as set out in Paragraph 2(b) of the Second Amendment; provided, however, that in no event shall the Base Rent per square foot, as adjusted, be less than Tenant’s then current rent.”

Market Rent. For purposes of this Lease, “Market Rent” shall mean the rental rate and other economic terms then in effect for buildings in the Research Triangle Park, North Carolina area of similar size, age, construction, with similar amenities and landscaping, and similar occupancy levels to the

Building. The monthly rental installments shall be an amount equal to one-twelfth (1/12) of the Base Rent for the remainder of the Term and shall be paid at the same time and in the same manner provided herein.

Arbitration. If Tenant disagrees with Landlord’s determination of Market Rent, Tenant shall deliver to Landlord a written objection to Landlord’s calculation of the Market Rent within fifteen (15) business days after Tenant’s receipt of Landlord’s determination of the Market Rent. If the parties cannot agree on the Market Rent within ten (10) days after Tenant’s written objection, Tenant may choose arbitration to determine the Market Rent. If Tenant chooses arbitration, Tenant shall give Landlord written notice of its desire to seek arbitration within three (3) days after expiration of such ten (10) day period (“Arbitration Notice”). Within ten (10) days after Tenant provides Landlord with its Arbitration Notice, the parties shall each appoint an appraiser to determine the Market Rent for the Premises. Each appraiser so selected shall be either an MAI appraiser or a licensed real estate broker, each having at least ten (10) years prior experience in the appraisal or leasing of comparable space in the Research Triangle Park area and with a working knowledge of current rental rates and practices. If the two appraisers cannot agree upon the Market Rent for the Premises within twenty (20) days after their appointment, then, within ten (10) days after the expiration of such twenty (20) day period, the two appraisers shall select a third appraiser meeting the above criteria. Once the third appraiser has been selected as provided for above, then such third appraiser shall within ten (10) days after appointment make its determination of the Market Rent. The average of the two closest determinations of the Market Rent shall be used as the Base Rent and shall be binding on both Landlord and Tenant. Landlord and Tenant shall each bear the cost of its appraiser and shall share the cost of the third. If Tenant fails to provide the Arbitration Notice as provided above, then Landlord’s original determination of Market Rent shall be deemed to be the Market Rent.”

(b) Operating Expenses. Effective on the Suite 225 Expansion Date, Tenant’s proportionate share of Taxes (as defined in Article 2(b) of the Lease, hereinafter “Taxes”) and Operating Expenses for the Premises shall be 73.38% and effective on the Suite 250 Expansion Date, Tenant’s proportionate share of taxes and Operating Expenses for the Premises shall be 80.68% and shall be calculated consistently with the provision of paragraph 2(b)(ii) of the Lease. Notwithstanding the foregoing, Tenant shall not be charged Operating Expenses on (i) the Suite 225 Space for the period beginning June 15, 2005 through and including November 15, 2005, and (ii) the Suite 250 Space for the period beginning September 1, 2005 through and including January 8, 2006; provided, however, that if any such expenses were incurred solely as a result of Tenant’s occupancy, then Tenant shall be responsible for such particular Operating Expenses.

3. Additional Space Improvements.

(a) Landlord shall provide Tenant with a tenant improvement allowance for the construction of the tenant improvements to the Additional Space in the amount of Twelve and 00/100 Dollars ($12.00) per rentable square foot of the Additional Space (the “Additional Space Improvement Allowance”). The Additional Space Improvement Allowance shall be applied toward construction, engineering, professional, telecommunication, design, project management, plan review, permits, architecture, voice and data cabling and other costs and expenses associated with the Additional Space Improvements (as hereinafter defined) to the Additional

Space and shall be paid by Landlord upon the receipt of proper documentation from Tenant that such work has been done. Landlord shall be responsible for the payment of all costs and expense associated with improvements to the Additional Space up to the Additional Space Improvement Allowance. Any cost or expense incurred by Landlord and approved by Tenant in connection with the Additional Space Improvements to the Additional Space in excess of the Additional Space Improvement Allowance (the “Excess”) shall be borne by Tenant and shall be paid by Tenant to Landlord within thirty (30) days of Tenant’s receipt of an invoice from Landlord providing sufficient detail and documentation for such costs and expenses. Failure by Tenant to pay any portion of the Excess as aforesaid is an event of default hereunder. If the tenant has not used the Additional Space Improvement Allowance within the first year of the Effective Date or the Additional Space Improvement Allowance exceeds the Cost Statement (as hereinafter defined) (taking into account any increases or decreases resulting from any Change Orders), such savings shall be the property of Tenant.

(b) Following the date of this Amendment, Tenant will work with a space planner to develop a space plan for the Additional Space that is reasonably acceptable to Landlord (the “Space Plan”). Within thirty (30) days after Landlord’s receipt of the Space Plan, Tenant shall prepare and submit to Landlord a set of plans and specifications and/or construction drawings (the “Plans and Specifications”) prepared by an architect reasonably acceptable to Landlord covering all work to be performed by Landlord in constructing the leasehold improvements to the Additional Space in accordance with the Space Plan (the “Additional Space Improvements”). Landlord shall participate in the design meetings with Tenant’s architect to maintain Landlord’s building standard and to provide preconstruction cost estimating. Landlord shall have ten (10) days after receipt of the Plans and Specifications in which to review the Plans and Specifications and to give Tenant written notice of Landlord’s approval of the Plans and Specifications or its requested changes to the Plans and Specifications. Tenant shall have no right to request any leasehold improvements or any changes to the Plans and Specifications that would materially alter the Additional Space, the exterior appearance or basic nature of the Building, or the Building systems. If Landlord fails to approve or request changes to the Plans and Specifications within ten (10) days after its receipt of the Plans and Specifications, then Landlord shall be deemed to have approved the Plans and Specifications and the same shall thereupon be final. If Landlord requests any changes to the Plans and Specifications, Tenant shall make those changes which are reasonably requested by Landlord and shall within ten (10) business days of its receipt of such request submit the revised portion of the Plans and Specifications to Landlord. Landlord may not thereafter disapprove the revised portions of the Plans and Specifications unless Tenant has unreasonably failed to incorporate reasonable comments of Landlord and, subject to the foregoing, the Plans and Specifications, as modified by said revisions, shall be deemed to be final upon the submission of said revisions to Landlord. Landlord shall at all times in its review of the Plans and Specifications, and of any revisions thereto, act reasonably and in good faith. Landlord agrees to confirm Landlord’s consent to the Plans and Specifications in writing within three (3) business days following Tenant’s written request therefor.

(c) Following Landlord’s approval (or deemed approval) of the Plans and Specifications, Landlord shall solicit competitive bids from at least three (3) subcontractors for each major trade. Landlord shall provide Tenant with Landlord’s form for prequalifying subcontractors, attached hereto as Exhibit A and incorporated herein, and its current list of approved subcontractors for each major trade, attached hereto as Exhibit B and incorporated herein. Tenant shall have the right to provide Landlord with a proposed subcontractor for each major trade which may or may not be on Landlord’s approved list, and provided such subcontractor meets with Landlord’s reasonable approval, such subcontractor shall have the right to enter a bid. Landlord shall also obtain a description of the base warranty and any extended warranty terms relating to any equipment, machinery, trade fixtures or other personal property to be installed in connection with the Additional Space Improvements.

Landlord and Tenant shall review the bids and warranties, if applicable, jointly and Tenant shall select one subcontractor for each item bid. Promptly following the selection of a subcontractor for each major trade, Landlord shall deliver to Tenant a statement of the cost to construct and install all of the Additional Space Improvements (the “Cost Statement”). Tenant acknowledges and agrees that (i) the cost to construct and install the Additional Space Improvements shall include a six percent (6%) fee plus (A) Landlord’s actual overhead expenses associated with the Additional Space Improvements that includes preconstruction and project management, administrative support, telephones, utilities, etc., and (B) Landlord’s actual cost of general conditions associated with the Additional Space Improvements that include, but are not limited to, permits, onsite supervision, temporary utilities, temporary facilities and project cleanup, (such overhead and general conditions shall not exceed eight percent (8%) of the total construction costs for the Additional Space Improvements), and (ii) said fee, overhead and general conditions shall be included in the Cost Statement and applied against the Additional Space Improvement Allowance (as hereinafter defined). Tenant agrees to acknowledge the Cost Statement in writing within ten (10) business days following Landlord’s written request therefor.

(d) Landlord shall provide Tenant with a proposed schedule for the construction and installation of the Additional Space Improvements that is reasonably acceptable to Tenant and shall perform the construction in accordance with such schedule and the Plans and Specifications, subject to extensions for Force Majeure Delays and Tenant Delays (as hereinafter defined). Landlord shall notify Tenant of any material changes to said schedule as a result of such Force Majeure Delays and Tenant Delays. In the event the Additional Space Improvements are not Substantially Completed (as hereafter defined) in accordance with the schedule as extended by Force Majeure Delays and Tenant Delays, Tenant shall receive one day of rent abatement for each day of delay until the Additional Space Improvements are Substantially Completed. Tenant agrees to coordinate with Landlord regarding the installation of Tenant’s phone and data wiring and any other trade related fixtures that will need to be installed in the Additional Space prior to Substantial Completion. In addition, if and to the extent permitted by applicable laws, rules and ordinances, Tenant shall have the right to enter the Additional Space for fifteen (15) days prior to the anticipated date for Substantial Completion (as such date may be modified from time to time) in order to install fixtures and otherwise prepare the Additional Space for occupancy. During any entry prior to the Substantial Completion of the Additional Space Improvements (i) Tenant shall not interfere with Landlord’s completion of the Additional Space Improvements, and (ii) Tenant shall cause its personnel and contractors to comply with the terms and conditions of Landlord’s rules of conduct (which Landlord agrees to furnish to Tenant upon request).

(e) Tenant shall have the right to request changes to the Plans and Specifications at any time by way of written change order (each, a “Change Order”, and collectively, “Change Orders”). Provided such Change Order is reasonably acceptable to Landlord, Landlord shall prepare and submit promptly to Tenant a memorandum setting forth the impact on cost and schedule resulting from said Change Order (the “Change Order Memorandum of Agreement”). Tenant shall, within five (5) business days following Tenant’s receipt of the Change Order Memorandum of Agreement, either (i) execute and return the Change Order Memorandum of Agreement to Landlord, in which case the Cost Statement shall be deemed modified automatically to take into account said Change Order, (ii) retract its request for the Change Order or (iii) amend its proposed Change Order, in which case Landlord shall prepare a new Change Order Memorandum of Agreement and Tenant shall respond as provided herein.

(f) For purposes of this Amendment “Substantial Completion” (or any grammatical variation thereof) shall mean completion of construction of the Additional Space Improvements, subject only to punchlist items to be identified by Landlord and Tenant in a joint inspection of the Additional Space prior to Tenant’s occupancy, the completion of which will

not materially affect Tenant’s use and occupancy of, or ability to obtain an occupancy permit for the Additional Space which completion and punchlist items shall be evidenced by a writing signed by Tenant and Landlord (Tenant acknowledging, however, that even if Landlord has Substantially Completed the Additional Space Improvements, Landlord may not be able to obtain an occupancy permit for the Additional Space because of the need for completion of all or a portion of improvements being installed in the Additional Space directly by Tenant). “Tenant Delay” shall mean any delay in the completion of the Additional Space Improvements to the extent attributable to Tenant, including, without limitation, (i) Tenant’s failure to meet any time deadlines specified herein, (ii) the performance of any other work in the Additional Space by any person, firm or corporation employed by or on behalf of Tenant, or any failure to complete or delay in completion of such work, and (iii) any other act or omission of Tenant. “Force Majeure Delay” shall mean any delay in the performance of any obligation by a party hereunder when such delay is occasioned by causes beyond its control due to act of God, adverse weather, fire, earthquake, flood, explosion, war, invasion, insurrection, riot, mob violence, sabotage, vandalism, failure of transportation, strikes, lockouts, litigation, condemnation, requisition, governmental restrictions including inability or delay in obtaining governmental consents, inspections or permits, laws or orders of governmental, civil, military or naval authorities, or any other cause outside a party’s control, whether similar or dissimilar to the foregoing.

(g) Landlord hereby warrants the Additional Space Improvements for a period of one (1) year following the date of Substantial Completion of the Additional Space Improvements performed by Landlord. Landlord agrees to assign any and all manufacturers’ warranties or extended warranties, if obtained, directly to the Tenant, which warranties shall include, but not be limited to, the standard warranties available from the manufacturers, and if not assignable, shall cooperate with Tenant to enforce such warranties.

(h) All shelves, bins, machinery and other trade fixtures installed in connection with any Additional Space Improvements to the Additional Space may be removed by Tenant in accordance with the provisions of Paragraph 5 of the Lease.

4. Alterations. Paragraph 5 of the Lease is hereby amended to provide that Tenant shall have the right to perform interior alterations to the Additional Space pursuant to Paragraph 5 of the Lease. Prior to Tenant’s undertaking of any such alterations to the Additional Space, Tenant shall submit to Landlord for review and approval a set of plans detailing such alterations. Landlord shall designate at the time of such review whether such alterations must be removed at the termination of the Lease.

5. Effective Date. The provisions of this Amendment shall be and become effective as of the date and year first above written.

6. Severability. In the event any term, covenant or condition of this Amendment, the Lease, or any amendments thereto shall to any extent be invalid or unenforceable, the remainder shall not be affected thereby and each term, covenant or condition shall be valid and enforceable to the full extent permitted by law.

7. Successors and Assigns. This Amendment shall apply to, inure to the benefit of, and be binding upon the parties hereto and upon their respective heirs, legal representatives, successors and permitted assigns, except as otherwise provided herein.

8. Authority of Tenant. Tenant certifies to Landlord that it is authorized to enter into this Amendment, and that those persons signing below on its behalf are authorized to do so, and shall promptly upon the request of Landlord provide a resolution to this effect.

9. Interpretation. Although the printed provisions of this Amendment were drafted by Landlord, such fact shall not cause this Amendment to be construed either for or against Landlord or Tenant. All capitalized terms, not otherwise defined, shall be defined as provided in the Lease.

10. Full Force and Effect. Except as modified hereby, the Lease remains unmodified and in full force and effect.

11. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of North Carolina.

12. Mutual Acknowledgment of Non-Existence of Claims. Landlord and Tenant acknowledge and agree that as of the day hereof there are no known claims by either party against the other party hereto arising from the relationship as Landlord and Tenant, respectively, pursuant to the Lease, as amended.

13. Confidentiality. Except as otherwise required by law to be disclosed by Tenant the terms and provisions of the Lease, and this Amendment are strictly confidential, are to be shared by Tenant only with its accountant, employees, and attorneys, and each of those parties shall be advised of the confidential nature of the lease, and this Amendment.

[Execution signatures contained on the following page]

IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed under seal and delivered as of the day and year first above written.

			LANDLORD:
			DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership doing business in North Carolina as Duke Realty of Indiana Limited Partnership
				By:	Duke Realty Corporation, an Indiana corporation, its General Partner
			By:	/s/ H. Andrew Kelton
			Name:	H. Andrew Kelton
			Title:	Senior Vice President
			TENANT:
ATTEST:			PPD Development LP, a Texas limited partnership
	By:	/s/ Donna J. Lague
	Name:	Donna J. Lague	By: PPD GP, LLC, a Delaware limited
	Title	Executive Assistant	liability company, its General Partner
				By:	/s/ Fred B. Davenport, Jr.
				Name:	Fred B. Davenport, Jr.
				Title:	President
Guarantor hereby executes this Amendment to evidence its consent to Tenant’s leasing of the Additional Space and to ratify that the Guaranty shall apply to the Additional Space as well as to the Original Premises.

			GUARANTOR:
ATTEST:			PHARMACEUTICAL PRODUCT DEVELOPMENT, a North Carolina Corporation
	By:	/s/ Donna J. Lague
	Name:	Donna J. Lague
	Title:	Executive Assistant
			By:	/s/ Fred B. Davenport, Jr.
			Name:	Fred B. Davenport, Jr.
			Title:	President

EX-10.250

Exhibit 10.250

SIXTH LEASE AMENDMENT TO LEASE AGREEMENT

THIS SIXTH LEASE AMENDMENT TO LEASE AGREEMENT (hereinafter referred to as the 30^th day of December 2005, by and between DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership doing business in North Carolina as Duke Realty of Indiana Limited Partnership, successor by merger to Weeks Realty, L.P. (hereinafter referred to as ^“Landlord”) and PPD DEVELOPMENT LP, a Texas limited partnership and successor in interest to PPD Development, Inc. (hereinafter referred to as ^“Tenant”).

WITNESSETH:

WHEREAS, pursuant to a Lease Agreement dated June 26, 1998 by and between Landlord and Tenant, as amended by that certain First Lease Amendment to Lease Agreement dated October 28, 1998, and as amended by that certain Second Amendment to Lease Agreement dated October 1, 2002, and as amended by that certain Third Lease Amendment to Lease Agreement dated September 22, 2003, and as amended by that certain Fourth Lease Amendment to Lease Agreement dated March 31, 2005, and as further amended by that certain Fifth Lease Amendment to Lease Agreement dated July 7, 2005 (the Lease Agreement, and all amendments thereto shall be referred to herein collectively as the “Lease”), Landlord leased to Tenant certain premises consisting of approximately 96,145 rentable square feet (the “Premises”) in a building located on certain land (the “Land”) which had been provided the address of 4023 Paramount Parkway, but is now known as 3900 South Paramount Parkway, Morrisville, Wake County, North Carolina 27560, all as more particularly described in the Lease; and

WHEREAS, the parties hereto desire to modify the Rent Adjustment for the entire Premises as set forth in the Fifth Lease Amendment to Lease Agreement; and

WHEREAS, the parties hereto desire to amend the Lease, among other things, to reflect such modification; and

NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) paid by Landlord and Tenant to one another, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Landlord and Tenant, Landlord and Tenant amend the Agreement as follows:

1. Base Rent, Operating Expenses and Security Deposit. The Rent Adjustment provision as set forth in Article 2(a) of that certain Fifth Lease Amendment to Lease Agreement is deleted in its entirety and replaced with the following:

“Rent Adjustment. On November 9, 2008 (the “Rent Adjustment Date”), Tenant’s Base Rent for the entire Premises shall be adjusted to the lesser of (i) an amount equal to one hundred three percent (103%) of the Base Rent per square foot for the twelve (12) month period immediately preceding the Rent Adjustment Date, or (ii) the then current Market Rent (as hereinafter defined) and taking into account the readjustment of the operating expenses as set out in Paragraph 2(b) of the Second Amendment; provided, however, that in no event shall the Base Rent per square foot, as adjusted, be less than Tenant’s then current rent. Beginning on November 9, 2009, Tenant’s Base Rent, as determined above, will be increased by three percent (3%) for each successive twelve (12) month period through the expiration of the current Lease term.”

2. Effective Date. The provisions of this Amendment shall be and become effective as of the date and year first above written.

3. Severability. In the event any term, covenant or condition of this Amendment, the Lease, or any amendments thereto shall to any extent be invalid or unenforceable, the remainder shall not be affected thereby and each term, covenant or condition shall be valid and enforceable to the full extent permitted by law.

4. Successors and Assigns. This Amendment shall apply to, inure to the benefit of, and be binding upon the parties hereto and upon their respective heirs, legal representatives, successors and permitted assigns, except as otherwise provided herein.

5. Authority of Tenant. Tenant certifies to Landlord that it is authorized to enter into this Amendment, and that those persons signing below on its behalf are authorized to do so, and shall promptly upon the request of Landlord provide a resolution to this effect.

6. Interpretation. Although the printed provisions of this Amendment were drafted by Landlord, such fact shall not cause this Amendment to be construed either for or against Landlord or Tenant. All capitalized terms, not otherwise defined, shall be defined as provided in the Lease.

7. Full Force and Effect. Except as modified hereby, the Lease remains unmodified and in full force and effect.

8. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of North Carolina.

9. Mutual Acknowledgment of Non-Existence of Claims. Landlord and Tenant acknowledge and agree that as of the day hereof there are no known claims by either party against the other party hereto arising from the relationship as Landlord and Tenant, respectively, pursuant to the Lease, as amended.

10. Confidentiality. Except as otherwise required by law to be disclosed by Tenant, the terms and provisions of the Lease and this Amendment are strictly confidential, are to be shared by Tenant only with its accountant, employees, and attorneys, and each of those parties shall be advised of the confidential nature of the lease and this Amendment.

[Execution signatures contained on the following page]

IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed under seal and delivered as of the day and year first above written.

			LANDLORD:
			DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership doing business in North Carolina as Duke Realty of Indiana Limited Partnership
				By:	Duke Realty Corporation, an Indiana corporation, its General Partner
				By:	/s/ H. Andrew Kelton
				Name:	H. Andrew Kelton
				Title:	Senior Vice President
			TENANT:
ATTEST:			PPD DEVELOPMENT LP, a Texas limited partnership
	By:	/s/ Charles H. Munn, Jr.
	Name:	Charles H. Munn, Jr.	By: PPD GP, LLC, a Delaware limited liability
	Title	Assistant General Counsel	company, its General Partner
				By:	/s/ Fred B. Davenport, Jr.
				Name:	Fred B. Davenport, Jr.
				Title:	Vice President
Guarantor hereby executes this Amendment to evidence its consent to this Amendment.
			GUARANTOR:
ATTEST:			PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., a North Carolina Corporation
	By:	/s/ Charles H. Munn, Jr.
	Name:	Charles H. Munn, Jr.
	Title:	Assistant General Counsel
			By:	/s/ Fred B. Davenport, Jr.
			Name:	Fred B. Davenport, Jr.
			Title:	President

END OF EXECUTION SIGNATURES

EX-10.251

Exhibit 10.251

SEVENTH LEASE AMENDMENT TO LEASE AGREEMENT

THIS SEVENTH LEASE AMENDMENT TO LEASE AGREEMENT (hereinafter referred to as the “Seventh Amendment”) is made as of the 6th day of February 2006, by and between DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership doing business in North Carolina as Duke Realty of Indiana Limited Partnership, successor by merger to Weeks Realty, L.P. (hereinafter referred to as ^“Landlord”) and PPD DEVELOPMENT LP, a Texas limited partnership and successor in interest to PPD Development, Inc. (hereinafter referred to as “Tenant”).

WITNESSETH:

WHEREAS, pursuant to a Lease Agreement dated June 26, 1998 by and between Landlord and Tenant, as amended by that certain First Lease Amendment to Lease Agreement dated October 28, 1998, and as amended by that certain Second Amendment to Lease Agreement dated October 1, 2002, and as amended by that certain Third Lease Amendment to Lease Agreement dated September 22, 2003, and as amended by that certain Fourth Lease Amendment to Lease Agreement dated March 31, 2005, and as amended by that certain Fifth Lease Amendment to Lease Agreement dated July 7, 2005, and as further amended by that certain Sixth Lease Amendment to Lease Agreement dated December 30, 2005 (the Lease Agreement, and all amendments thereto shall be referred to herein collectively as the “Lease”), Landlord leased to Tenant certain premises consisting of approximately 96,145 rentable square feet (the “Premises”) in a building located on certain land (the “Land”) which had been provided the address of 4023 Paramount Parkway, but is now known as 3900 South Paramount Parkway, Morrisville, Wake County, North Carolina 27560, all as more particularly described in the Lease; and

WHEREAS, the parties hereto desire to modify the Lease to reflect a termination option; and

NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) paid by Landlord and Tenant to one another, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Landlord and Tenant, Landlord and Tenant amend the Agreement as follows:

1. Surrender of a Portion of the Premises. Pursuant to Section 17.03(b) of that certain Office Lease by and between Landlord and Tenant dated December 29, 2005 for the lease of approximately 30,000 rentable square feet of space in a building to be constructed by Landlord at 3800 Paramount Parkway, Morrisville, North Carolina 27560 (the “3800 Lease”), Tenant has the option to surrender one or more of Suites 150, 225 and 250 (each a “Suite”) of the Premises if at anytime prior to the third anniversary of the execution of the 3800 Lease, the rentable square footage of the premises under the 3800 Lease is increased to 60,000 rentable square feet pursuant to the terms of Section 17.03(b) of the 3800 Lease. (Tenant acknowledging, however, that while Tenant shall have the right to surrender less than all three of said Suites, Tenant shall not have the right to surrender only a portion of a Suite). In order to exercise said surrender right, Tenant shall notify Landlord of such exercise within ten (10) days following Tenant’s execution and delivery of an amendment to the 3800 Lease evidencing the expansion of the premises under the 3800 Lease, and together with such notice Tenant shall deliver to Landlord an amount equal to all accrued and unpaid interest together with the unamortized portion of any tenant improvement allowance attributable to such Suite(s) that are being surrendered under the Lease. In the event Tenant exercises this surrender right, Landlord and Tenant shall enter into an amendment to the Lease whereby with respect to such Suite(s) under the Lease. Landlord and Tenant shall be released and discharged from their respective obligations under the Lease with respect to such Suite(s), and neither party shall have any further liability under the Lease with respect to such Suite(s), excluding, however, the obligations of Tenant attributable to any period of the Lease on or prior to the Surrender Date (including without limitation the payment of Minimum Annual Rent and the Annual Rental Adjustment) and any obligations of Tenant under the Lease which survive termination thereof. The effective date of the surrender of such Suite(s) (the “Surrender Date”) shall be the commencement date of the lease of such expansion space under the 3800 Lease.

2. Severability. In the event any term, covenant or condition of this Amendment, the Lease, or any amendments thereto shall to any extent be invalid or unenforceable, the remainder shall not be affected thereby and each term, covenant or condition shall be valid and enforceable to the full extent permitted by law.

3. Successors and Assigns. This Amendment shall apply to, inure to the benefit of, and be binding upon the parties hereto and upon their respective heirs, legal representatives, successors and permitted assigns, except as otherwise provided herein.

4. Authority of Tenant. Tenant certifies to Landlord that it is authorized to enter into this Amendment, and that those persons signing below on its behalf are authorized to do so, and shall promptly upon the request of Landlord provide a resolution to this effect.

5. Interpretation. Although the printed provisions of this Amendment were drafted by Landlord, such fact shall not cause this Amendment to be construed either for or against Landlord or Tenant. All capitalized terms, not otherwise defined, shall be defined as provided in the Lease.

6. Full Force and Effect. Except as modified hereby, the Lease remains unmodified and in full force and effect.

7. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of North Carolina.

8. Mutual Acknowledgment of Non-Existence of Claims. Landlord and Tenant acknowledge and agree that as of the day hereof there are no known claims by either party against the other party hereto arising from the relationship as Landlord and Tenant, respectively, pursuant to the Lease, as amended.

9. Confidentiality. Except as otherwise required by law to be disclosed by Tenant, the terms and provisions of the Lease and this Amendment are strictly confidential, are to be shared by Tenant only with its accountant, employees, and attorneys, and each of those parties shall be advised of the confidential nature of the lease and this Amendment.

[Execution signatures contained on the following page]

IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed under seal and delivered as of the day and year first above written.

				LANDLORD:
				DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership doing business in North Carolina as Duke Realty of Indiana Limited Partnership
					By:	Duke Realty Corporation, an Indiana corporation, its General Partner
					By:	/s/ H. Andrew Kelton
					Name:	H. Andrew Kelton
					Title:	Senior Vice President
			TENANT:
ATTEST:				PPD DEVELOPMENT LP, a Texas limited partnership
	By:	/s/ Charles H. Munn, Jr.
	Name:	Charles H. Munn, Jr.		By: PPD GP, LLC, a Delaware limited
	Title	Assistant General Counsel		liability company, its General Partner
					By:	/s/ Fred B. Davenport, Jr.
					Name:	Fred B. Davenport, Jr.
					Title:	President
Guarantor hereby executes this Amendment to evidence its consent to this Amendment.
				GUARANTOR:
ATTEST:				PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., a North Carolina Corporation
	By:	/s/ Charles H. Munn, Jr.
	Name:	Charles H. Munn, Jr.
	Title:	Assistant General Counsel
				By:	/s/ Fred B. Davenport, Jr.
				Name:	Fred B. Davenport, Jr.
				Title:	President

END OF EXECUTION SIGNATURES

EX-10.252

Exhibit 10.252

EIGHTH LEASE AMENDMENT TO LEASE AGREEMENT

THIS EIGHTH LEASE AMENDMENT TO LEASE AGREEMENT (hereinafter referred to as the “Amendment”) is made as of the 24^th day of September 2007, by and between DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership doing business in North Carolina as Duke Realty of Indiana Limited Partnership, successor by merger to Weeks Realty, L.P. (hereinafter referred to as “Landlord”) and PPD DEVELOPMENT LP, a Texas limited partnership and successor in interest to PPD Development, Inc. (hereinafter referred to as “Tenant”).

WITNESSETH:

WHEREAS, pursuant to a Lease Agreement dated June 26, 1998 by and between Landlord and Tenant, as amended by that certain First Amendment to Lease Agreement dated October 28, 1998, and as amended by that certain Second Lease Amendment to Lease Agreement dated October 1, 2002, and as amended by that certain Third Lease Amendment to Lease Agreement dated September 22, 2003, and as amended by that certain Fourth Lease Amendment to Lease Agreement dated March 31, 2005, and as amended by that certain Fifth Lease Amendment to Lease Agreement dated July 7, 2005, and as amended by that certain Sixth Lease Amendment to Lease Agreement dated December 30, 2005, and as amended by that certain Seventh Lease Amendment to Lease Agreement dated February 6, 2006 (the Lease Agreement, and all amendments thereto shall be referred to herein collectively as the “Lease”), Landlord leased to Tenant certain premises consisting of approximately 96,145 rentable square feet (the “Original Premises”) in a building located on certain land (the “Land”) which had been provided the address of 4023 Paramount Parkway, but is now known as 3900 South Paramount Parkway, Morrisville, Wake County, North Carolina 27560, all as more particularly described in the Lease; and

WHEREAS, Landlord and Tenant desire to expand the Original Premises by approximately 9,427 rentable square feet labeled “Additional Space” on Amended Exhibit A (“Additional Space”); and

WHEREAS, Landlord and Tenant desire to amend certain provisions of the Lease to reflect such expansion and any other changes to the Lease;

NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants herein contained and each act performed hereunder by the parties, Landlord and Tenant hereby enter into this Amendment.

1. Incorporation of Recitals and Definitions. The above recitals are hereby incorporated into this Amendment as if fully set forth herein. All capitalized terms used herein but undefined shall have the meaning as defined in the Lease.

2. Amendment of Article 1. Premises and Term. Commencing November 9, 2007, (the “Effective Date”) the following paragraphs of Article 1 of the Lease are hereby amended as follows:

(a) Premises. As of the Effective Date, subparagraph (a) of Article 1 of the Lease is hereby amended to provide that Tenant shall lease the Original Premises and the Additional Space which together shall consist of 105,572 rentable square feet of space and which space shall hereinafter collectively be referred to as the “Premises”.

(b) Term. Subparagraph (b) of Article 1 of the Lease is hereby modified to reflect that the term of the Additional Space shall commence on the Effective Date, and shall expire on November 8, 2013 (the “Expansion Term”) which shall be coterminous with the existing Lease Term.

3. Base Rent, Operating Expenses and Security Deposit.

(a) Original Premises. Base Rent, Additional Rent and operating expenses for the Original Premises shall continue to be due and payable as provided in the Lease. Base Rent for the Original Premises shall continue to be subject to increases as provided in the Lease through November 8, 2013. Tenant’s proportionate share of Taxes (as defined in Article 2(b) of the Lease, hereinafter “Taxes”) and Operating Expenses for the Original Premises shall continue to be due and payable as provided in the Lease.

(b) Base Rent. As of the Effective Date, paragraph 2(a) of the Lease is amended by adding the following:

“Additional Space. Tenant shall pay to Landlord the Base Rent for the Additional Space as follows:

	Monthly
11/09/2007 – 03/08/2008	$0.00(1)
03/09/2008 – 11/08/2008	$15,507.42 (2)
11/09/2008 – 11/08/2013	Adjusted as set forth below

⁽¹⁾ represents four (4) months

⁽²⁾ represents eight (8) months

On November 9, 2008 (the “Rent Adjustment Date”), Tenant’s Base Rent for the Additional Space shall be adjusted to the lesser of (i) an amount equal to one hundred three percent (103%) of the Base Rent per square foot for the twelve (12) month period immediately preceding the Rent Adjustment Date, or (ii) the then current Market Rent (as defined in the Lease) and taking into account the readjustment of the operating expenses as set out in Paragraph 2(b)(ii) of the Lease, as amended; provided, however, that in no event shall the Base Rent per square foot, as adjusted, be less than Tenant’s then current rent. Beginning on November 9, 2009, Tenant’s Base Rent, as determined above, will be increased by three percent (3%) for each successive twelve (12) month period through the expiration of the current Lease term.”

4. As of the Effective Date, Paragraph 2(b) of the Lease is amended by adding the following:

“Operating Expenses. Tenant’s proportionate share of Taxes and Operating Expenses for the Additional Space shall be 7.9% and shall be calculated in accordance with paragraph 2(b)(ii) of the Lease.”

5. Additional Space. Tenant has personally inspected the Additional Space and accepts the same “AS IS” without representation or warranty by Landlord of any kind and without any obligation on the part of Landlord to construct any tenant improvements.

6. Severability. In the event any term, covenant or condition of this Amendment, the Lease, or any amendments thereto shall to any extent be invalid or unenforceable, the remainder shall not be affected thereby and each term, covenant or condition shall be valid and enforceable to the full extent permitted by law.

7. Successors and Assigns. This Amendment shall apply to, inure to the benefit of, and be binding upon the parties hereto and upon their respective heirs, legal representatives, successors and permitted assigns, except as otherwise provided herein.

8. Authority of Tenant. Tenant certifies to Landlord that it is authorized to enter into this Amendment, and that those persons signing below on its behalf are authorized to do so, and shall promptly upon the request of Landlord provide a resolution to this effect.

9. Interpretation. Although the printed provisions of this Amendment were drafted by Landlord, such fact shall not cause this Amendment to be construed either for or against Landlord or Tenant. All capitalized terms, not otherwise defined, shall be defined as provided in the Lease.

10. Full Force and Effect. Except as modified hereby, the Lease remains unmodified and in full force and effect.

11. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of North Carolina.

12. Mutual Acknowledgment of Non-Existence of Claims. Landlord and Tenant acknowledge and agree that as of the day hereof there are no known claims by either party against the other party hereto arising from the relationship as Landlord and Tenant, respectively, pursuant to the Lease, as amended.

13. Confidentiality. Except as otherwise required by law to be disclosed by Tenant, the terms and provisions of the Lease and this Amendment are strictly confidential, are to be shared by Tenant only with its accountant, employees, and attorneys, and each of those parties shall be advised of the confidential nature of the lease and this Amendment.

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed on the day and year first written above.

		LANDLORD:
		DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership doing business in North Carolina as Duke Realty of Indiana Limited Partnership
		By:	Duke Realty Corporation, an Indiana Corporation, its general partner
			By:	/s/ Jeffrey B. Sheehan
				Jeffrey B. Sheehan
				Senior Vice President, Raleigh Operations
		TENANT:
:		PPD DEVELOPMENT LP, a Texas limited partnership
	:
		By: PPD GP, LLC, a Delaware limited liability
			company, its General Partner
		By:	/s/ William J. Sharbaugh
		Printed:	William J. Sharbaugh
		Title:	Chief Operating Officer
Guarantor hereby executes this Amendment to evidence its consent to Tenant’s leasing of the Additional Space and to ratify that the Guaranty shall apply to the Additional Space as well as to the Original Premises.
WITNESS:		GUARANTOR:
		PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., a North Carolina corporation
		By:	/s/ William J. Sharbaugh
Print Name:		Name:	William J. Sharbaugh
		Title:	Chief Operating Officer

END OF EXECUTION SIGNATURES

EX-10.253

Exhibit 10.253

Tenant: PPD Development, LLC

Suite: Dabney VII, Addition of Suites L, M & N

FIRST AMENDMENT TO LEASE

THIS FIRST AMENDMENT TO LEASE (this “Amendment) is made and entered into as of March 9, 2007, by and between BRANDYWINE GRANDE C, L.P., a Delaware limited partnership (“Landlord”), and PFD DEVELOPMENT, LP, a Texas limited partnership (^“ Tenant^”).

A. Landlord and Tenant, as successor-in-interest to PPD Development, LLC, are parties to a certain Lease (the ^“Lease^”) dated as of July 1,2001, for approximately 75,133 rentable square feet of space (the “Original Premises”), as more particularly described in the Lease.

B. Tenant desires to lease from Landlord, and Landlord desires to lease to Tenant, certain additional premises known as Suites L, M and N (the “Suites L, M & N Premises”) in the Dabney VII building located at 2246 Dabney Road, Richmond, Virginia 23230 (the “Dabney VII Building”), which additional premises are shown on the location plan attached hereto as Exhibit A. The parties hereby confirm that the Suites L, M & N Premises are 6,577 rentable square feet of space in the aggregate.

C. The portion of the Suites L, M & N Premises comprising Suites M & N contains 4,580 rentable square feet and is referred to herein as “Suites M & N”. The portion of the Suites L, M & N Premises comprising Suite L contains 1,997 rentable square feet and is referred to heroin as “Suite L”.

D. Landlord and Tenant wish to amend the Lease to, among other things, expand the Original Premises to include the Suites L, M & N Premises upon the terms and conditions set forth herein,

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, Landlord and Tenant hereby agree as follows:

1. Incorporation of Recita ls: Definitions. The recitals set forth above are hereby incorporated herein by reference as if set forth in full in the body of this Amendment Capitalized terms used but not otherwise defined in this Amendment shall have the respective meanings given to them in the Lease.

2. Premises.

(a) Effective on the Suites M & N Commencement Date (as defined in Section 3(a) below), as used in the Lease: (i) “Premises” shall mean, collectively, the Original Premises and Suites M & N; (ii) “Tenant’s Allocated Share” with respect to the Dabney VII Building shall mean 94.0%; and (ii) “Rentable Area” with respect to the Premises shall mean 79,713.

(b) Effective on the Suite L Commencement Date (as defined in Section 3(b) below), as used in the Lease; (i) “Premises” shall mean, collectively, the Original Premises and Suite L; (ii) “Tenant’s Allocated Share” with respect to the Dabney VII Building shall mean 86.23% and (ii) “Rentable Area” with respect to the Premises shall mean 77,130.

(e) Notwithstanding the foregoing, effective on the later of the Suites M & N Commencement Date and the Suite L Commencement Date, as used in the Lease: (i) “Premises” shall mean, collectively, the Original Premises, Suite L, and Suites M & N; (ii) “Tenant’s Allocated Share” with respect to the Dabney VII Building shall mean 100%; and (iii) “Rentable Area” with respect to the Premises shall mean 81,710 square feet.

(d) Tenant acknowledges and agrees that, notwithstanding any provision of the Lease to the contrary, Landlord shall have no obligation to make any improvements to the Suites L, M & N Premises in connection with this amendment, and Tenant accepts them in their current “AS IS” condition.

3. Term.

(a) The Term for Suites M & N shall commence on the date Landlord delivers possession of the Suites M & N to Tenant (the “Suites M & N Commencement Date”); provided if Landlord is unable to deliver possession of Suites M & N to Tenant on any particular date for any reason, including without limitation the holdover of the current tenant, the Lease as amended hereby shall continue in effect and Landlord shall not be liable to Tenant or any third party for such inability. The Suites M & N Commencement Date and expiration date of the Term shall be confirmed by Landlord and Tenant by the execution of a Confirmation of Lease Term (the “COLT”) in the form attached hereto as Exhibit B. If Tenant fails to execute or object to the COLT within ten (10) business days of its delivery, Landlord’s determination of such dates shall be deemed accepted.

(b) The Term for Suite L shall commence on the date Landlord delivers possession of Suite L to Tenant (the “Suite L Commencement Date”), which data is estimated to be May 1, 2007; provided if Landlord is unable to deliver possession of Suite L to Tenant on any particular date for any reason, including without limitation the holdover of the current tenant, the Lease as amended hereby shall continue in effect and Landlord shall not be liable to Tenant or any third party for such inability. The Suite L Commencement Date and expiration date of the Term shall be confirmed by Landlord and Tenant by the execution of a Confirmation of Lease Term (the “COLT”‘) in the form attached hereto as Exhibit B. If Tenant fails to execute or object to the COLT within ten (10) business days of its delivery, Landlord’s determination of such dates shall be deemed accepted.

(c) The Term for the Premises (collectively, the Original Premises and the Suites L, M & N Premises) shall terminate on June 30, 2015.

4. Fixed Rent. Fixed Rent for Suites M & N is set forth below, payable in the monthly installments as set forth below and otherwise in accordance with the terms of the Lease, as amended hereby:

TIME PERIOD	MONTHLY INSTALLMENTS
Suites M & N Commencement Date - 3/31/07	$	0.00
4/1/07 - 6/30/08	$	2,480.83
7/1/08 - 6i30/09	$	2,541.90
7/1/09 - 6/30/10	$	2,606.78
7/1/10 - 6/30/11	$	2,671.67
7/1/11 - 6/30/12	$	2,740.37
7/1/12 - 6/30/13	$	2,809.07
7/1/13 - 6/30/14	$	2,877.77
7/1/14 - 6/30/15	$	2,950.28

Fixed Rent for Suite L is set forth below, payable in the monthly installments as set forth below and otherwise in accordance with the terms of the Lease, as amended hereby:

TIME PERIOD	MONTHLY INSTALLMENTS
Suite L Commencement Date - 6/30/08	$	1,081.71
7/1/08 - 6/30/09	$	1,108.34
7/1/09 - 6/30/10	$	1,136.63
7/1/10 - 6/30/11	$	1,164.92
7/1/11 - 6/30/12	$	1,194.87
7/1/12 - 6/30/13	$	1,224.83
7/1/13 - 6/30/14	$	1,254.78
7/1/14 - 6/30/15	$	1,286.40

Fixed Rent shall be payable by: (i) check to Landlord at Post Office Box 828117, Philadelphia, PA 19182-8117; or (ii) wire transfer of immediately available funds to the account at PNC Bank, account no. 8610818762, with ABA routing number 031000053.

5. Landlord’s Notice Address. Landlord’s “Notice Address/Contact” set forth in Section 1(k) of the Lease is hereby deleted in its entirety and replaced with the following in lieu thereof:

Landlord:	Brandywine Grande C, L.P.	With a copy to:
	c/o Brandywine Realty Trust 300	Brandywine Realty Trust
	Arboretum Place, Suite 330	555 East Lancaster Ave-, Suite 100
	Richmond, VA 23236	Radnor, PA 19087
	Attn: William D. Redd	Attn: Brad A. Molotsky, General Counsel
	Fax No.: (804) 330-4450	Fax No,: (610) 325-4628
	E-Mail: bill.redd@bdnreit.com	Email: brad.molotsky@bdnreit.com

Each party shall have the right to change its address for notices by a writing sent to the other party in accordance with Article 28, of the Lease.

6, Brokerage Commission, Landlord and Tenant each represents and warrant~: to the other that such party has had no dealings, negotiations or consultations with respect to the Premises or this transaction with any broker or finder other than BTRS, Inc. Each party shall indemnify and hold the other harmless from and against all liability, cost and expense, including attorney’s fees and court costs, arising out of any misrepresentation or breach of warranty under this Section.

7. OFAC. Tenant represents, warrants and covenants that neither Tenant nor any of its partners, officers, directors, members or shareholders: (i) is listed on the Specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Asset Control, Department of the Treasury (“OFAC”) pursuant to Executive Order No. I3224, 66 Fed, Reg. 49079 (Sept. 25, 2001) (“Qrder^”) and all applicable provisions of Title III of the USA Patriot Act (Public Law No. 107-56 (October 26, 2001)); (ii) is listed on the Denied Persons List and Entity List maintained by the United States Department of Commerce; (iii) is listed on the List of Terrorists and List of Disbarred Parties maintained by the United States Department of State; (iv) is listed on any list or qualification of ^“Designated Nationals^” aw defined in the Cuban Assets Control Regulations 31 C.F.R. Part 515; (v) is listed on any other publicly available list of terrorists, terrorist organizations or narcotics traffickers maintained by the United States Department of State, the United States Department of Commerce or any other governmental authority or pursuant to the Order, the rules and regulations of OFAC (including without limitation the Trading with the Enemy Act, 50 U.S.C. App. 1-44; the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-06; the unrepealed provision of the Iraq Sanctions Act, Publ.L. No, 101-513; the United Nations Participation Act, 22 U.S.C. § 2349 as-9; The Cuban Democracy Act, 22 U.S.C. §§ 6001-10; The Cuban Liberty and Democratic Solidarity Act, 18 U.S.C. §§ 2332d and 233; and The Foreign Narcotic Kingpin Designation Act, Publ. L. No. 106-120 and 107-108, all as may be amended from time to time); or any other applicable requirements contained in any enabling legislation or other Executive Orders in respect of the Order (the Order and such other rules, regulations, legislation or orders are collectively called the “Orders”); (vi) is engaged in activities prohibited in the Orders; or (vii) has been convicted, pleaded nolo contondere, indicted, arraigned or custodially detained on changes involving money laundering

or predicate crimes to money laundering, drug trafficking, terrorist-related activities or other money laundering predicate crimes in connection with the Bank Secrecy Act (31 U.S.C. §§ 5311 et seq.). Tenant shall defend, indemnify, and hold harmless Landlord from and against any and all claims, damages, losses, risks, liabilities, and expenses (including

attorney’s fees and costs) arising from or related to any breach of the foregoing representation, warranty and covenant. The breach of this representation, warranty and covenant by Tenant shall be an immediate Event of Default under this Lease without cure.

8. Effect of Amendment: Ratification. Landlord and Tenant hereby acknowledge and agree that, except as provided in this Amendment, the Lease has not been modified, amended, canceled, terminated, released, superseded or otherwise rendered of no force or effect. The Lease as hereby amended is hereby ratified and confirmed by the parties hereto, and every provision, covenant, condition, obligation, right, term and power contained in and under the Lease, as amended herein, shall continue in full force and effect, affected by this Amendment only to the extent of the amendments and modifications set forth above, and each shall continue to be binding upon and inure to the benefit of the heirs, executors, administrators, successors and assigns of each party hereto.

9. Authority. Each of Landlord and Tenant represents and warrants to the other that the individual executing this Amendment on such party’s behalf is authorized to do so.

[SIGNATURES ON FOLLOWING PAGE]

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the date first above written.

WITNESS:	LANDLORD:
	BRANDYWINE GRANDE C, L.P.
	By	Brandywine Grande C Corp., its general partner
		By:	/s/ K. Suzanne Stumpf
/s/ K. Suzanne Stumpf		Name:	K. Suzanne Stumpf
K. Suzanne Stumpf		Title:	VP Asset Management
		Date:	4/20/07
WITNESS:	TENANT:
	PPD DEVELOPMENT, LP
	By: PPD GP, LLC, Its General Partner
/s/ Charles H. Munn, Jr.
Charles H. Munn, Jr.	By:	/s/ Linda Baddour
	Name:	Linda Baddour
	Title:	Treasurer
	Date:	3/15/07

EX-10.254

Exhibit 10.254

EIGHTH AMENDMENT TO LEASE AGREEMENT

THIS EIGHTH AMENDMENT TO LEASE AGREEMENT (this “Amendment”) is made and entered into this 1st day of March, 2006, by and between GREENWAY PROPERTIES, INC. (f.k.a. Western Center Properties, Inc.) (“Landlord”) and PPD DEVELOPMENT, LP (“Tenant”).

WITNESSETH:

WHEREAS, Tenant, through PPD Development, LLC (Tenant’s predecessor in interest) and Landlord entered into a lease dated April, 30, 2001, as amended on August 15, 2001, August 25, 2003, March 22, 2004, May 17, 2004, December 14, 2004, June 3, 2004 and July 29, 2005 with respect to certain space located at 8551 Research Way, Middleton, Wisconsin (the lease, as so amended and as amended by this Amendment is referred to as the “Lease”) in a building known as the Greenway Research Center (“Building”); and

WHEREAS, Landlord is the current owner of the real estate which is the subject matter of the Lease; and

WHEREAS, the parties desire to amend the Lease as set forth herein;

NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is agreed as follows:

1. Lease Extension. Modifying Section 1.9 of the Lease, the term of the Lease shall expire on November 30, 2016, unless terminated sooner or extended as elsewhere provided in the Lease.

2. Extension Commencement Date. The terms contained in this Amendment are effective March 1, 2006 (the “Extension Commencement Date”).

3. Definition of Premises. The term “Premises” as defined in Section 2.1 of the Lease shall include any and all Additional Space as defined in any amendment to the Lease effective now or hereafter. At the execution of this Amendment, the Premises consist of 89,354 rentable square feet in the Building.

4. Monthly Rent. Modifying Section 1.11 of the lease beginning with the Extension Commencement Date, the Monthly Rent (as defined in Section 4.1 of the Lease) for the Premises shall be Thirteen Dollars and Ninety Cents ($13.90) per rentable square foot ($103,501.75 per month).

5. Monthly Rent Increases. Modifying Section 1.11 of the Lease, on each anniversary of the Extension Commencement Date, the Monthly Rent shall increase three percent (3%), and that increased amount will be the Monthly Rent until the next anniversary of the Extension Commencement Date.

6. Right of First Refusal for ROFR Space.

(a) Beginning on the Extension Commencement Date, Tenant shall have a right of first refusal (the “Right of First Refusal”) to lease any space that becomes available to lease within the Building (each a “ROFR Space”) provided that:

(i) The Right of First Refusal will be subject and subordinate to the existing Right of First Offer held by LDS Nicolet (“LDS”) pursuant to the lease by and between LDS and Landlord dated May 21, 2004 for the space adjacent to LDS as identified on Exhibit A;

(ii) This Lease is in full force and effect, and Tenant is and has been, at all times during the term of the Lease, open and continuously operating in all of the Premises;

(iii) Tenant is not in default under the tell is and conditions of this Lease at the time Tenant exercises the Right of First Refusal and shall not be in default on the date Tenant is supposed to take possession of the ROFR Space; and

(iv) Guarantor’s then-current financial condition, as revealed by its most recent financial statements, must demonstrate, in Landlord’s reasonable discretion that Guarantor meets the financial criteria acceptable to Landlord.

(b) Landlord shall give Tenant written notice (the “Landlord’s Notice”) of each ROFR Space that becomes available for lease. The Landlord’s Notice shall include the terms and conditions on which Landlord is prepared to lease the ROFR Space to a bona fide third party lessee (the “Proposed Lease Terms”).

(c) To exercise this Right of First Refusal, Tenant shall:

(i) Accept the Proposed Lease Terms in their entirety, without exception or amendment, by notifying Landlord, in writing, within ten (10) business days after Tenant’s receipt of Landlord’s Notice, sent by registered or certified mail, return receipt requested, or a nationally recognized overnight courier, of Tenant’s intent to so accept; and

(ii) Execute and deliver an amendment to this Lease, subjecting the ROFR Space to this Lease at the rent and for the terms and conditions set forth in the Proposed Lease Terms) within five (5) business days after receipt of same from Landlord.

(d) Tenant acknowledges that time is of the essence with regard to this Right of First Refusal. If Tenant does not timely exercise its Right of First Refusal in strict compliance with the provisions of’ Section 6(c), then (i) Landlord will have the unfettered right to lease the ROFR Space to a bona fide third party lessee generally on the Proposed Lease Terms and (ii) Landlords obligation to notify Tenant regarding the ROFR Space or offer the ROFR Space to Tenant shall terminate, except as specifically provided in Section 6(e).

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(e) If Landlord does not lease the ROFR Space to a bona fide third party lessee generally in accordance with the Proposed Lease Terms described in Landlord’s Notice (i.e. there is a material change in the Proposed Lease Terms), then Tenant’s Right of First Refusal with respect to the ROFR Space shall be deemed revived and Landlord shall offer the ROFR Space to Tenant under new Proposed Lease Terms under which Landlord is then willing to lease the ROFR Space to a bona fide third party lessee.

(f) This Right of First Refusal for ROFR Space is personal to the Tenant and is not transferable.

7. Option to Renew.

(a) Tenant shall have two (2) options (each a “Renewal Option”) to extend the term of the Lease for five (5) additional years each, at a fixed Monthly Rent equal to ninety-five percent (95%) of the then current Market Rent (as herein defined). Each such five (5) year period is a “Renewal Term.”

(b) Provided Tenant is not then in default under the Lease, Tenant shall have the right to exercise its Renewal Option to extend the term for the next Renewal Term by giving Landlord prior written notice of its intention to exercise the Renewal Option at least one hundred eighty (180) days prior to the expiration of the initial term or the then current Renewal Term.

(c) Except as provided in this Section 7, during any Renewal Term, all terms and conditions contained in the Lease shall remain the same except that after exercising the second Renewal Option, Tenant will have no further options to renew or extend the term of the Lease. In addition, on the first day of each Renewal Term (each a “Renewal Commencement Date”), the Monthly Rent shall be recalculated to an amount that is ninety-five percent (95%) of the then current Market Rent. Thereafter, on each anniversary of the Renewal Commencement Date, fixed Monthly Rent will increase three percent (3%) and that increased amount will be the Monthly Rent until the next anniversary of the Renewal Commencement Date.

(d) If Tenant exercises one or more of its Major Expansion Options (as defined below), then, notwithstanding any provisions in this Lease to the contrary, Tenant’s exercise of each such Major Expansion Option will cause the term or the lease to be extended to the date that is ten (10) years after the date Landlord delivers the completed Major Expansion Space to Tenant. Thereafter any Unused Renewal Options (as defined in Section 7(e)) may be exercised by Tenant in accordance with the provisions of this Lease.

(e) For the purposes of this Lease, Unused Renewal Options” shall be defined as provided for in this Section 7(e).

(i) If Tenant exercises a Major Expansion Option during the initial term of this Lease or during the first Renewal Term, then after the expiration of the ten (10) year extension provided for Section 7(d), Tenant shall have two (2) complete Renewal Options to extend the term of the Lease for five (5) additional years each, all in accordance with the provisions of this Section 7.

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(ii) If Tenant exercises a Major Expansion Option during the second Renewal Term, then after the expiration of the ten (10) year extension provided for in Section 7(d), Tenant shall have one (1) complete Renewal Option to extend the term of the Lease for five (5) additional years, all in accordance with the provisions of this Section 7.

8. Market Rent. Market Rent shall be determined as follows:

(a) Within thirty (30) days following Tenant giving Landlord written notice of its intention to exercise its Renewal Option, Landlord and Tenant shall each at their own expense, hire a commercial broker experienced with commercial leases in Dane County, and each such commercial broker shall, within fifteen (15) days, provide a fair market rent determination for the Premises simultaneously to Landlord and Tenant (each a “Market Rent Determination”).

(b) If the two Market Rent Determinations vary by less than five percent (5%) of the smaller of the two Market Rent Determinations, then ninety-five percent (95%) of the average of the two Market Rent Determinations shall be the Monthly Rent for the first year of the Renewal Term.

(c) If the two Market Rent Determinations vary by five percent (5%) or more of the smaller of the two Market Rent Determinations, then Landlord and Tenant may mutually agree to average the two Market Rent Determinations, in which event, the Monthly Rent for the first year of the Renewal Term will be ninety-five per cent (95%) of the average of the two (2) Market Rent Determinations. If the parties cannot mutually agree to average the two Market Rent Determinations, then the parties shall engage a third commercial broker to assist with the determination of the fixed Monthly Rent for the Renewal Term. If a third commercial broker is to be engaged, the two commercial brokers previously engaged shall jointly select a third commercial broker with experience in commercial leases in Dane County. The third commercial broker shall, within fifteen (15) days after selection, provide a third Market Rent Determination for the Premises, in which event the Market Rent Determination for the Premises, in which event the Market Rent for the first year of the Renewal Term will be ninety-live percent of the average of the three (3) Market Rent Determinations. All expenses related to the third commercial broker shall be shared equally between Landlord and Tenant.

9. Expansion Rights. Tenant shall have the Conditional Expansion Option provided for in Section 10, the South Expansion Option provided for in Section 11, the West Expansion Option provided for in Section 12 and the North Expansion Option provided for in Section 13. The Conditional Expansion Option, the South Expansion Option, the West Expansion Option and the North Expansion Option are collectively referred to in this Lease as a “Major Expansion Option.”

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10. Conditional Expansion Option.

(a) Subject to the provisions of this Section 10, beginning on the Extension Commencement Date, Tenant shall have the option to lease that certain space that (i) is located in the Building, adjacent to and south of the Premises, (ii) consists of approximately 10,801 rentable square feet of space, (iii) is currently leased by A-R Editions (“A-R”) pursuant to that certain lease, dated October 1, 2000, between Landlord and A-R (the “A-R Lease”), and by vdw Design (`vdw”) pursuant to that certain lease, dated September 25, 2003, between Landlord and vdw (the “vdw Lease”), and (iv) is generally depicted on Exhibit B attached hereto (collectively, the Conditional Expansion Space”) for exclusive use by Tenant (the “Conditional Expansion Option”) provided that:

(i) Landlord is able to relocate A-R and vdw to other premises pursuant to new leases that are acceptable to Landlord in Landlord’s reasonable discretion, at a cost not to exceed $100,000.00, all as provided for in this Section 10. Relocation costs in excess of $100,000 would be Tenant’s responsibility;

(ii) This Lease is in full force and effect and Tenant is and has been, at all times during the term of the Lease, open and continuously operating in all of the Premises;

(iii) Tenant is not in default under the terms and conditions of this Lease at the time Tenant exercises the Conditional Expansion Option and shall not be in default when it is supposed to take possession of the Conditional Expansion Space; and

(iv) Guarantor’s then-current financial condition, as revealed by its most recent financial statements, must demonstrate, in Landlord’s reasonable discretion that Guarantor meets the financial criteria acceptable to Landlord.

(v) Tenant executes a lease amendment that is mutually acceptable to Landlord and Tenant in their reasonable discretion (the “Conditional Expansion Space Lease Amendment”) whereby Landlord agrees to lease the Conditional Expansion Space to ‘Tenant as part of the Premises, and Tenant agrees to lease the Conditional Expansion Space front Landlord as part of the Premises. Landlord and Tenant shall each negotiate any such Conditional Expansion Space Lease Amendment in good faith

(b) To exercise this Conditional Expansion Option, Tenant shall give Landlord written notice (the “Tenant’s Notice”) of its desire to lease the Conditional Expansion Space.

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(c) After Tenant’s delivery of Tenant’s Notice, Landlord and Tenant shall enter into the Conditional Expansion Space Lease Amendment. Landlord shall then use reasonable commercial efforts to cause A-R and vdw to relocate into other premises pursuant to new leases that are acceptable to Landlord in Landlord’s reasonable discretion, provided however, that Tenant shall be responsible for any expenses in excess of $100,000 incurred by Landlord related to the relocation of A-R and/or vdw to other premises pursuant to Section 10.

(d) Landlord and Tenant acknowledge and agree that, notwithstanding any provision in this Lease to the contrary, Tenant’s Conditional Expansion Option is conditioned upon and subject to A-R’s and vdw’s agreement to relocate to other premises, pursuant to new leases that are acceptable to Landlord in Landlord’s reasonable discretion. If, within ninety (90) days after the date on which Landlord and Tenant agreed to the Conditional Expansion Space Lease Amendment, despite Landlord’s reasonable commercial efforts, A-R and vdw do not agree to relocate to other premises, pursuant to new leases that are acceptable to Landlord in Landlord’s reasonable discretion, then Tenant’s rights under this Section 10 shall expire and have no further force or effect and the Conditional Expansion Space Lease Amendment shall become null and void.

(e) The Conditional Expansion Space Lease Amendment shall include, but not be limited to the following provisions:

(i) The base rent for the Conditional Expansion Space shall be equivalent to the base rent then being paid by Tenant for the remainder of the Premises;

(ii) Upon completion of the construction of the Conditional Expansion Space, Tenant shall pay costs and expenses for the Conditional Expansion Space as determined by Section 4.3 of the Lease;

(iii) Upon completion of the construction of the Conditional Expansion Space, Tenant’s pro-rata share for common area expenses, as defined in Section 4.5 of the Lease, shall be adjusted accordingly to Tenant’s increased share of leased space in the Building and the Conditional Expansion Space;

(iv) Beginning with the first day of the second year of the Conditional Expansion Space Lease Amendment and each anniversary date thereafter, the base rent for the Conditional Expansion Space shall increase three percent (3%) per rear;

(v) Landlord shall provide Tenant with a Tenant Improvement Allowance of Ten dollars and no cents ($10.00) per rentable square foot within the Conditional Expansion Space: and

(vi) Notwithstanding any provision in the Lease to the contrary, the term of the Lease for the entire Premises, including without limitation, the Conditional Expansion Space, shall be extended to the date that is ten (10) years after the date the completed Conditional Expansion Space is delivered to Tenant. Thereafter, any previous unused Renewal Options may be exercised effective as of the date that is ten (10) years after Landlord’s delivery of the Conditional Expansion Space to Tenant.

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11. South Expansion Option.

(a) Beginning on the Extension Commencement Date, Tenant shall have a right to cause Landlord to commence and complete the construction of a one-story or two-story addition containing no less than 10,000 square feet and no more than 22,000 square feet on the South side of the Conditional Expansion Space as depicted in Exhibit C (the “South Expansion Space”) for exclusive use by Tenant (the “South Expansion Option”) provided that:

(i) Tenant has first acquired the Conditional Expansion Space pursuant to the provisions of Section 10 above;

(ii) This Lease is in full force and effect and Tenant is and has been, at all times during the term of the Lease, open and continuously operating in all of the Premises;

(iii) Tenant is not in default under the terms and conditions of this Lease at the time Tenant exercises the South Expansion Option and shall not be in default when it is supposed to take possession of the South Expansion Space;

(iv) Landlord secures all permits and approvals necessary to construct and occupy the South Expansion Space from all governmental authorities with jurisdiction over the Premises;

(v) Guarantor’s then-current financial condition, as revealed by its most recent financial statements, must demonstrate, in Landlord’s reasonable discretion that Guarantor meets the financial criteria acceptable to Landlord; and

(vi) Prior to construction beginning on the South Expansion Space, Tenant executes a lease amendment that is mutually acceptable to Landlord and Tenant in their reasonable discretion (the “South Expansion Space Lease Amendment”) whereby Landlord agrees to lease the South Expansion Space to Tenant as part of the Premises, and Tenant agrees to lease the South Expansion Space from Landlord as part of the Premises. Landlord and Tenant shall each negotiate any such South Expansion Space Lease Amendment in good faith.

(b) Landlord and Tenant acknowledge and agree that if Landlord and Tenant, each acting in good faith, are unable to negotiate and agree to a South Expansion Space Lease Amendment under this Section 11(b) within sixty (60) days after the date of Tenant’s Notice, then Tenant’s rights under this Section 11(b) shall expire and have no further force or effect.

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(c) The South Expansion Space building shell materials and architecture shall be consistent with the existing Building and built in accordance with Landlord’s plans and specifications.

(d) Tenant acknowledges and agrees that if Tenant has not first leased the Conditional Expansion Space pursuant to Section 10 above, that Tenant shall have no right or option to lease the South Expansion Space.

(e) To exercise this South Expansion Option, Tenant shall:

(i) Give Landlord written notice (the “Tenant’s Notice”) of its desire to lease the South Expansion Space; and

(ii) Execute the South Expansion Space Lease Amendment as proposed by Landlord within thirty (30) business days after receipt of the South Expansion Space Lease Amendment from Landlord.

(f) The South Expansion Space Lease Amendment shall include, but not be limited to the following provisions:

(i) The base rent for the South Expansion Space shall be calculated by multiplying the actual costs of the planning and construction of the South Expansion Space (the “Project Costs”) by the sum of the then prevailing five (5) year Treasury Note (as posted in the Wall Street Journal) plus 500 basis points as of the date of the issuance of a building permit for the South Expansion Space;

(ii) Upon completion of the construction of the South Expansion Space, Tenant shall pay costs and expenses for the South Expansion Space as determined by Section 4.3 of the Lease;

(iii) Upon completion of the construction of the South Expansion Space, Tenant’s pro-rata share for common area expenses, as defined in Section 4.5 of the Lease, shall be adjusted accordingly to Tenant’s increased share of leased space in the Building and the South Expansion Space;

(iv) Beginning with the first day of the second year of the South Expansion Space Lease Amendment and each anniversary date thereafter, the base rent for the South Expansion Space shall increase three percent (3%) per year;

(v) Project Costs shall include all hard and soft costs, including a tenant improvement allowance of up to $50.00 per rentable square foot. In addition, Project Costs shall include Landlord’s cost of the North Land Parcel (see Exhibit F) and all costs necessary to improve the North Land Parcel to accommodate the Building’s additional parking requirements due to the expansion: and

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(vi) Notwithstanding any provision in the Lease to the contrary, the term of the Lease for the entire Premises, including without limitation, the South Expansion Space, shall be extended to the date that is ten (10) years after the date the completed South Expansion Space is delivered to Tenant. Thereafter, any previous unused Renewal Options may be exercised effective as of the date that is ten (10) years after Landlord’s delivery of the South Expansion Space to Tenant.

12. West Expansion Option.

(a) Beginning on the Extension Commencement Date, Tenant shall have a right to cause Landlord to commence and complete the construction of a one-story or two-story addition containing no less than 10,000 square feet and no more than 22,000 square feet on the west side of the Suite 90 as depicted in Exhibit D (the “West Expansion Space”) for exclusive use by Tenant (the “West Expansion Option”) provided that:

(i) This Lease is in full force and effect and Tenant is and has been, at all times during the term of the Lease, open and continuously operating in all of the Premises;

(ii) Tenant is not in default under the terms and conditions of this Lease at the time Tenant exercises the West Expansion Option and shall not be in default when it is supposed to take possession of the West Expansion Space;

(iii) Landlord secures all permits and approvals necessary to construct and occupy the West Expansion Space from all governmental authorities with jurisdiction over the Premises;

(iv) Prior to construction beginning on the West Expansion Space, Tenant executes a lease amendment that is mutually acceptable to Landlord and Tenant in their reasonable discretion (the “West Expansion Space Lease Amendment”) whereby Landlord agrees to lease the West Expansion Space to Tenant as part of the Premises, and Tenant agrees to lease the West Expansion Space from Landlord as part of the Premises. Landlord and Tenant shall each negotiate any such West Expansion Space Lease Amendment in good faith; and

(v) Guarantor’s then-current financial condition, as revealed by its most recent financial statements, must demonstrate, in Landlord’s reasonable discretion that Guarantor meets the financial criteria acceptable to Landlord.

(b) Landlord and Tenant acknowledge and agree that if Landlord and Tenant, each acting in good faith, are unable to negotiate and agree to a West Expansion Space Lease Amendment under this Section 12(b) within sixty (60) days after the date of Tenant’s Notice, then Tenant’s rights under this Section 12(b) shall expire and have no further force or effect.

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(c) The West Expansion Space building shell materials and architecture shall be consistent with the existing Building and built in accordance with Landlord’s plans and specifications.

(d) To exercise this West Expansion Option, Tenant shall:

(i) Give Landlord written notice (the “Tenant’s Notice”) of its desire to lease the West Expansion Space; and

(ii) Execute the West Expansion Space Lease Amendment as proposed by Landlord within thirty (30) business days after receipt of the West Expansion Space Lease Amendment from Landlord.

(e) The West Expansion Space Lease Amendment shall include, but not be limited to the following provisions:

(i) The base rent for the West Expansion Space shall be calculated by multiplying the actual costs of the planning and construction of the West Expansion Space (the “Project Costs”) by the sum of the then prevailing five (5) year Treasury Note (as posted in the Wall Street Journal) plus 500 basis points as of the date of the issuance of a building permit for the West Expansion Space;

(ii) Upon completion of the construction of the West Expansion Space, Tenant shall pay costs and expenses for the West Expansion Space as determined by Section 4.3 of the Lease;

(iii) Upon completion of the construction of the West Expansion Space, Tenant’s pro-rata share for common area expenses, as defined in Section 4.5 of the Lease, shall be adjusted accordingly to Tenant’s increased share of leased space in the Building and the West Expansion Space;

(iv) Beginning with the first day of the second year of the West Expansion Space Lease Amendment and each anniversary date thereafter, the base rent for the West Expansion Space shall increase three percent (3%) per year;

(v) Project Costs shall include all hard and soft costs, including a tenant improvement allowance of up to $50.00 per rentable square foot, excluding any attributed land value. In addition, Project Costs shall include Landlord’s cost of the Ninth Land Parcel (see Exhibit F) and all costs necessary to improve the worth hand Parcel to accommodate the Building’s additional parking requirements due to the expansion, and

(vi) Notwithstanding any provision in the Lease to the contrary, the term or the Lease for the entire Premises, including without limitation, the West Expansion Space, shall be extended to the date that is ten (10) years after the date the completed West Expansion Space is delivered to Tenant. Thereafter, any previous unused Renewal Options may be exercised effective as of the date that is ten (10) years after Landlord’s delivery of the West Expansion Space to Tenant.

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13. North Expansion Option.

(a) Beginning on the Extension Commencement Date, Tenant shall have a right to cause Landlord to commence and complete the construction of a one-story or two-story addition containing no less than 10,000 square feet and no more than 22,000 square feet on the north side of the Suite 90 as depicted in Exhibit E (the “North Expansion Space”) for exclusive use by Tenant (the “North Expansion Option”) provided that:

(i) This Lease is in full force and effect and Tenant is and has been, at all times during the term of the Lease, open and continuously operating in all of the Premises;

(ii) Tenant is not in default under the terms and conditions of this Lease at the time Tenant exercises the North Expansion Option and shall not be in default when it is supposed to take possession of the North Expansion Space;

(iii) Landlord secures all permits and approvals necessary to construct and occupy the North Expansion Space from all governmental authorities with jurisdiction over the Premises;

(iv) Prior to construction beginning on the North Expansion Space, Tenant executes a lease amendment that is mutually acceptable to Landlord and Tenant in their reasonable discretion (the “North Expansion Space Lease Amendment”) whereby Landlord agrees to lease the North Expansion Space to Tenant as part of the Premises, and Tenant agrees to lease the North Expansion Space from Landlord as part of the Premises. Landlord and Tenant shall each negotiate any such North Expansion Space Lease Amendment in good faith; and

(v) Guarantor’s then-current financial condition, as revealed by its most recent financial statements, must demonstrate, in Landlord’s reasonable discretion that Guarantor meets the financial criteria acceptable to Landlord.

(b) Landlord and Tenant acknowledge and agree that if Landlord and Tenant, each acting in good faith, are unable to negotiate and agree to a North Expansion Space Lease Amendment under this Section 13(b) within sixty (60) days after the date of Tenant’s Notice, then Tenant’s rights under this Section 13(b) shall expire and have no further force or effect.

(c) The North Expansion Space building shell materials and architecture shall be consistent with the existing Building and built in accordance with Landlord’s plans and specifications.

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(d) To exercise this North Expansion Option, Tenant shall:

(i) Give Landlord written notice (the “Tenant’s Notice”) of its desire to lease the North Expansion Space; and

(ii) Execute the North Expansion Space Lease Amendment as proposed by Landlord within thirty (30) business days after receipt of the North Expansion Space Lease Amendment from Landlord.

(e) The North Expansion Space Lease Amendment shall include, but not be limited to the following provisions:

(i) The base rent for the North Expansion Space shall be calculated by multiplying the actual costs of the planning and construction of the North Expansion Space (the “Project Costs”) by the sum of the then prevailing five (5) year Treasury Note (as posted in the Wall Street Journal) plus 500 basis points as of the date of the issuance of a building permit for the North Expansion Space;

(ii) Upon completion of the construction of the North Expansion Space, Tenant shall pay costs and expenses for the North Expansion Space as determined by Section 4.3 of the Lease;

(iii) Upon completion of the construction of the North Expansion Space, Tenant’s pro-rata share for common area expenses, as defined in Section 4.5 of the Lease, shall be adjusted accordingly to Tenant’s increased share of leased space in the Building and the North Expansion Space;

(iv) Beginning with the first day of the second year of the North Expansion Space Lease Amendment and each anniversary date thereafter, the base rent for the North Expansion Space shall increase three percent (3%) per year;

(v) Project Costs shall include all hard and soft costs, including a tenant improvement allowance of up to $50.00 per rentable square foot, excluding any attributed land value. In addition, Project Costs shall include Landlord’s cost of the North Land Parcel (see Exhibit F) and all costs necessary to improve the North Land Parcel to accommodate the Building’s additional parking requirements due to the expansion; and

(vi) Notwithstanding any provision in the Lease to the contrary, the term of the Lease for the entire Premises, including without limitation, the North Expansion Space, shall be extended to the date that is ten (10) years after the date the completed North Expansion Space is delivered to the Tenant. Thereafter, any previous unused Renewal Options may be exercised effective as of the date that is ten (10) years after Landlord’s delivery of the North Expansion Space to Tenant

14. Tenant Improvements. Landlord grants Tenant the following rights with respect to tenant improvements in the Conditional Expansion Space, South Expansion Space, West Expansion Space and North Expansion Space:

(a) To independently manage any Tenant space design and build-out.

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(b) To select, at its own discretion, all consultants and vendors including architects, engineers, consultants, construction manager, contractors and subcontractors.

(c) Landlord shall not specify any subcontractors, unless the additional cost of such subcontractors is borne by the Landlord.

(d) There will be no Landlord supervision fees or any other hidden Landlord fees.

(e) In the event Tenant does not utilize the entire allowance, any residual shall be credited to Tenant in the equivalent rental abatement, cash, or rent reduction at Tenant’s request.

(f) Tenant may custom design and build the space and may not necessarily use building standards, so long as such design has no adverse impact on common areas or other tenants’ premises.

(g) In the event Landlord constructs the Tenant Improvements, Tenant shall have the right to review and audit all costs of the construction of the Tenant Improvements to ensure costs are accurate and reasonable.

15. Alterations. Subject to Section 5.1 of the Lease, Tenant shall have the right, upon thirty (30) days prior written notice to Landlord, at its own expense, to make any repairs or renovations to the Premises that do not affect the structure, mechanical systems or electrical systems of the Building in an amount up to $250,000 (“Alteration Limit”) without Landlord’s consent. The Alteration Limit excludes costs attributable to furniture, fixtures, and equipment. In all cases, Tenant shall provide Landlord a copy of all architectural drawings of such Alterations at least thirty (30) days prior to the date the Alterations are initiated.

16. Use. Modifying Section 8.1 of the Lease, Tenant may use the Premises for any and all lawful purposes, including but not limited to general office, laboratory, medical research and warehouse and distribution, to the extent that such use does not constitute a nuisance for other Building tenants.

17. Access. Tenant’s employees shall have access to the Premises twenty-four (24) hours per day, seven (7) days per week.

18. Full Force and Effect; Miscellaneous. Except as specifically amended herein, the Lease is hereby ratified and affirmed and shall remain in full force and effect. Capitalized definitional terms used, but not defined, herein shall have the same meanings as are given to such terms in the Lease. Each party acknowledges that the other party is not in default under this Lease nor does either party know of any circumstance that, with the giving of notice, would result in the other party being in default under this Lease.

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19. Conflict. If there is a conflict between provisions of the Lease and this Amendment, the provisions of this Amendment shall control.

20. Capitalized Terms. Capitalized terms used but not otherwise defined in this Amendment shall be assigned the definition assigned to those terms in the Lease.

21. Lease Guaranty. This Lease shall be guaranteed by tenant’s parent company Pharmaceutical Product Development, Inc (NASDAQ Symbol “PPDI”), as set forth in Exhibit G to this Eighth Amendment to Lease Agreement.

22. Estoppel Certificate. Tenant agrees, within ten (10) days after written request from Landlord, to execute in recordable form and deliver to Landlord a statement, in writing, certifying, if such is the case: (a) that the Lease is unmodified and in full force and effect; (b) the Lease commencement date; (c) that Rent is paid currently without any offsets; (d) the amount of Rent, if any, paid in advance; and (e) that Tenant has no defenses, offsets or counterclaims against its obligations to pay Rent and perform its other covenants under the Lease and that there are no uncured defaults by Landlord, or stating those claimed by Tenant. Failure of Tenant to execute the above instrument within ten (10) days after written request to do so by Landlord shall constitute a breach of the Lease, and Landlord may, at its option, seek damages of $100 per day extending beyond the 10-day period outlined herein.

IN WITNESS WHEREOF, the undersigned have executed this Amendment on the day and year first above written.

LANDLORD: Greenway Properties, Inc. (f.k.a. Western Center Properties, Inc.) a Wisconsin Corporation		TENANT: PPD Development, LP By: PPD GP, LLC, General Partner
By:		By:
	Scott L.Berger		Fred B.Davenport Jr.
	Vice President		President

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EX-10.255

Exhibit 10.255

NINTH LEASE AMENDMENT- PPD Development, LLC

THIS NINTH AMENDMENT of Lease (this “Amendment”) is made and entered into this 31^st day of August, 2007, by and between Greenway Office Center L.L.C. (the “Landlord”) and PPD Developments, LLC. (the “Tenant” ).

RECITALS:

WHEREAS, Tenant, through PPD Development, LLC (Tenant’s predecessor in interest) and Landlord entered into lease dated April 30, 2001, as amended on August 15, 2001, August 25, 2003, March 22, 2004, May 17, 2004, December 5, 2004, June 30, 2005, July 29, 2005 and March 1, 2006, with respect to certain space located at 8551 Research Way, Middleton, Wisconsin(the lease, as so amended and as amended by this Amendment is referred to as the “Lease”) in a building known as the Greenway Research Center (“Building”); and

THEREFORE, for good valuable consideration, the receipt and sufficiency of which the parties hereby acknowledge, Landlord and Tenant agree as follows:

1. Tenant shall have the right to expand Existing Premises by leasing Suite 130 in the Building, which consists of 12,984 Square Footage (the “Suite 130 Expansion”).

2. Section 1.10 of the Lease is hereby replaced with the following: “Tenant shall pay rent according to Lease. Starting September 1, 2007, Tenant shall pay additional rent for the Suite 130 Expansion space as follows:

Period or Months of Term	Annual Rate Per Square Foot		Monthly Base Rent
8/1/2007 to 2/28/2008	$	12.77	$	13,817.14
3/1/2008 to 2/28/2009	$	13.15	$	14,231.65
8/1/2009 to 2/28/2010	$	13.55	$	14,658.60
8/1/2010 to 2/28/2011	$	13.95	$	15,098.36
8/1/2011 to 2/28/2012	$	14.37	$	15,551.31
8/1/2012 to 2/28/2013	$	14.80	$	16,017.85
8/1/2013 to 2/28/2014	$	15.25	$	16,498.39
8/1/2014 to 2/28/2015	$	15.71	$	16,993.34
8/1/2015 to 11/30/2016	$	16.18	$	17,503.14

3. Landlord shall deliver the space in “as is” condition

4. The first sentence of Section 2.4 is hereby replaced with the following: “Tenant Improvement Allowance: Landlord will provide Tenant with a Tenant Improvement Allowance equals to Ninety Thousand and 0/100 Dollars ($90,000).”

5. Except as specifically amended herein, the Lease is hereby ratified and affirmed and shall remain in full force and effect. Each party acknowledges that the other party is not in default under this Lease nor does either party know of any circumstances that, with the giving of notice, would result in the other party being in default under this Lease. The Lease, as herein amended, shall continue in full force and effect.

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IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the date it is executed by both of the parties.

TENANT:		LANDLORD:
PPD Developments, LLC.		Greenway Office Center L.L.C.
		By:	T. Wall Properties Management Corp.,     Its Property Manager
By:	/s/ William J. Sharbaugh	By:	/s/ John Kothe
Name:	William J. Sharbaugh		John Kothe, Vice President of Operations
Title:	Chief Operating Officer
Date:	August 30, 2007	Date:	August 31, 2007

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EX-10.256

Exhibit 10.256

TENTH AMENDMENT TO LEASE AMENDMENT

THIS TENTH AMENDMENT TO LEASE AGREEMENT (this “Amendment”) is made and entered into this              day of September, 2007, by and between Greenway Office Center L.L.C. (the “Landlord”) and PPD Developments, LLP (the “Tenant”).

RECITALS:

WHEREAS, Tenant, through PPD Development, LLC (Tenant’s predecessor in interest) and Landlord entered into a Lease dated April 30, 2001, as amended on August 15, 2001, August 25, 2003, March 22, 2004, May 17, 2004, December 5, 2004, June 30, 2005, July 29, 2005, March 1, 2006, and August 31, 2007 with respect to certain space located at 8551 Research Way, Middleton, Wisconsin (the Lease, as so amended and as amended by this Amendment is referred to as the “Lease”) in a building known as the Greenway Research Center (“Building”); and

THEREFORE, for good valuable consideration, the receipt and sufficiency of which the parties hereby acknowledge, Landlord and Tenant agree as follows:

1. Tenant shall have the right to expand Existing Premises by leasing Suite 170 in the Building, which consists of 2,777 Rentable Square Footage (the “Suite 170 Expansion”).

2. The following shall be added to the end of Section 1.10 of the Lease: “ Starting November 1, 2007, Tenant shall pay rent for the Suite 170 Expansion space as follows:

Period or Months of Term	Annual Rate Per Square Foot		Monthly Base Rent
11/1/2007 to 2/28/2008	$	14.31	$	3,311.57
3/1 /2008 to 2/28/2009	$	14.74	$	3,410.92
3/1 /2009 to 2/28/2010	$	15.18	$	3,513.25
3/1 /2010 to 2/28/2011	$	15.64	$	3,618.64
3/1 /2011 to 2/28/2012	$	16.11	$	3,727.20
3/1 /2012 to 2/28/2013	$	16.59	$	3,839.02
3/1 /2013 to 2/28/2014	$	17.09	$	3,954.19
3/1 /2014 to 2/28/2015	$	17.60	$	4,072.82
3/1 /2015 to 2/28/2016	$	18.13	$	4,195.00
3/1/2016 to 11/30/2016	$	18.67	$	4,320.85

3. Landlord shall deliver the space in “as is” condition.

4. The following language shall be added to the end of Section 2.4 of the Lease: “Landlord will provide Tenant with a Tenant Improvement Allowance for Suite 170 that is equal to Ten and 0/100 Dollars ($10.00) per Rentable Square Foot.”

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5. Except as specifically amended herein, the Lease is hereby ratified and affirmed and shall remain in full force and effect. Each party acknowledges that the other party is not in default under this Lease nor does either party know of any circumstances that, with the giving of notice, would result in the other party being in default under this Lease. The Lease, as herein amended, shall continue in full force and effect.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the date it is executed by both of the parties.

TENANT:		LANDLORD:
PPD Developments, LLP		Greenway Office Center L.L.C.
By:	PPD GP, LLC, Its General Partner	By:	T. Wall Properties Management Corp.,
			Its Property Manager
By:	/s/ William J. Sharbaugh	By:	/s/ John Kothe
Name:	William J. Sharbaugh		John Kothe, Vice President of Operations
Title:	Chief Operating Officer
Date:	September 17, 2007	Date:	September 25, 2007

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EX-21

Exhibit 21

Pharmaceutical Product Development, Inc., and Subsidiaries

Subsidiaries

The subsidiaries of Pharmaceutical Product Development, Inc., as of February 15, 2008, are as follows:

	Name of Subsidiary	Jurisdiction of Incorporation Or Organized in
1.	Applied Bioscience International, LLC	Delaware
2.	CSS Informatics, Inc.	California
3.	PPD Global Central Labs, LLC	Kentucky
4.	Piedmont Research Center, LLC	North Carolina
5.	PPD Aeronautics, LLC	North Carolina
6.	PPD Virtual, Inc.	North Carolina
7.	APBI Finance Corporation	Delaware
8.	APBI Holdings, LLC	North Carolina
9.	Development Partners, LLC	Delaware
10.	PPD GP, LLC	Delaware
11.	PPD Holdings, LLC	Delaware
12.	PPD UK Holdings Ltd	United Kingdom
13.	Genupro, Inc.	North Carolina
14.	PPD Development, LP	Texas
15.	ATP, LLC	North Carolina
16.	PPD Online Marketing and Education, Inc.	Delaware
17.	PPD Medical Device, Inc.	Delaware
18.	Pharmaco Investments, Inc.	Delaware
19.	PPD International Holdings, Inc.	Delaware
20.	PPD France SNC	France
21.	PPD Scandinavia AB	Sweden
22.	Pharmaceutical Product Development Spain SL	Spain
23.	PPD do Brasil-Suporte a Pesquisa Clinica Ltda.	Brazil
24.	PPD Argentina, S.A.	Argentina
25.	PPD International Holdings, Inc. Y Compania Limitada	Chile
26.	Pharmaceutical Product Development South Africa (Pty) Ltd	South Africa
27.	PPD Canada, Ltd.	Canada
28.	PPD Australia Pty Ltd	Australia
29.	PPD International Holdings GmbH	Germany
30.	PPD Germany GmbH	Germany
31.	PPD Poland Sp.Zo.o	Poland
32.	PPD Czech Republic, s.r.o.	Czech Republic
33.	PPD Germany GmbH & Co KG	Germany
34.	PPD Hungary Research & Development Limited	Hungary
35.	PPD Italy S.r.l.	Italy
36.	PPD Mexico, S.A. de C.V.	Mexico
37.	PPD Development (Thailand) Co., Ltd	Thailand
38.	PPD Japan K.K.	Japan
39.	PPD Global, Ltd	United Kingdom
40.	Clinical Technology Centre International Ltd	United Kingdom
41.	Cambridge Applied Nutrition Toxicology & Biosciences Ltd	United Kingdom

42.	Clinical Science Research International, Ltd	United Kingdom
43.	Leicester Clinical Research Centre, Ltd	United Kingdom
44.	Chelmsford Clinical Trials Unit, Ltd	United Kingdom
45.	Gabbay Ltd	United Kingdom
46.	Data Analysis & Research (DAR) Ltd	Scotland
47.	PPD Global Central Labs BVBA	Belgium
48.	PPD Development (S) Pte Limited	Singapore
49.	PPD Development (HK) Limited	Hong Kong
50.	PPD (Netherlands) BV	Netherlands
51.	PPD Pharmaceutical Development India Private Limited	India
52.	PPD Biomarker Discovery Sciences, LLC	North Carolina
53.	River Ventures LLC	North Carolina
54.	PPD Slovak Republic s.r.o.	Slovak Republic
55.	PPD Peru S.A.C.	Peru
56.	PPD Pharmaceutical Development (Beijing) Co., Ltd	China

Subsidiaries 1, 2, 3, 4, and 6 are wholly-owned subsidiaries of Pharmaceutical Product Development, Inc.

Subsidiaries 10 and 11 are wholly-owned subsidiaries of Subsidiary 1.

Subsidiary 13 is a wholly-owned subsidiary of Subsidiary 6.

Subsidiary 14 is owned 99.9% by Subsidiary 11 and 0.1% by Subsidiary 10.

Subsidiaries 5, 7, 8, 15, 16, 17, 18, 19, 53 and 54 are wholly-owned subsidiaries of Subsidiary 14.

Subsidiaries 9, 12, 21, 26, 27, 28, 29, 35 and 38 are wholly-owned subsidiaries of Subsidiary 19.

Subsidiary 20 is owned 99.9% by Subsidiary 19 and 0.1% by Subsidiary 1.

Subsidiary 22 is owned 99.231 % by Subsidiary 19 and 0.769% by Subsidiary 14.

Subsidiary 23 is owned 99.99% by Subsidiary 19 and 0.01% by Pharmaceutical Product Development, Inc.

Subsidiary 24 is owned 95% by Subsidiary 19 and 5% by Subsidiary 1.

Subsidiary 25 is owned 99% by Subsidiary 19 and 1% by Subsidiary 1.

Subsidiaries 30 and 31 are wholly-owned subsidiaries of Subsidiary 29.

Subsidiary 32 is owned 97.78% by Subsidiary 29 and 2.22% by Subsidiary 19.

Subsidiary 33 is owned 72% by Subsidiary 29 and 28% by Subsidiary 30.

Subsidiary 34 is owned 96.67% by Subsidiary 29 and 3.33% by Subsidiary 19.

Subsidiary 36 is owned 99.99% by Subsidiary 19 and 0.01% by Subsidiary 14.

Subsidiary 37 is owned 99.99% by Subsidiary 19 and 1 share is held by each of Subsidiary 48, Subsidiary 49, Subsidiary 12, Subsidiary 39, and 2 individuals.

Subsidiaries 39, 43, 44, 45, 46, 48, and 50 are wholly-owned subsidiaries of Subsidiary 12.

Subsidiaries 40 and 42 are wholly-owned subsidiaries of Subsidiary 39.

Subsidiary 41 is owned 50% by Subsidiary 12 and 50% by Subsidiary 39.

Subsidiary 47 is 99.9% owned by Subsidiary 12 and .1% by Subsidiary 39.

Subsidiary 49 is 50% owned by Subsidiary 48 and 50% by Subsidiary 1.

Subsidiary 51 is owned 99.99% by Subsidiary 12 and 0.01% by Subsidiary 39.

Subsidiary 54 is owned 85% by Subsidiary 12 and 15% by Subsidiary 39.

Subsidiary 55 is owned 99% by Subsidiary 19 and 1% by Subsidiary 1.

Subsidiary 56 is a wholly-owned subsidiary of Subsidiary 48.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements on Form S-8 (File Nos. 333-135731, 333-107005, 333-39974, 333-33760, 333-80691, 333-28435, 333-20925) of our report relating to the consolidated financial statements of Pharmaceutical Product Development, Inc. dated February 26, 2008 (which report expresses an unqualified opinion and includes explanatory paragraphs relating to the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109, in 2007 and the adoption of FASB Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R), in 2006), and management’s report on the effectiveness of internal control over financial reporting also dated February 26, 2008, appearing in this Annual Report on Form 10-K of Pharmaceutical Product Development, Inc. for the year ended December 31, 2007.

Raleigh, North Carolina

February 26, 2008

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Fredric N. Eshelman, certify that:

1. I have reviewed this yearly report on Form 10-K of Pharmaceutical Product Development, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 26, 2008	By:	/s/ Fredric N. Eshelman
		Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Daniel G. Darazsdi, certify that:

1. I have reviewed this yearly report on Form 10-K of Pharmaceutical Product Development, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 26, 2008	By:	/s/ Daniel G. Darazsdi
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the yearly report of Pharmaceutical Product Development, Inc. (“PPD”) on Form 10-K for the period ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Fredric N. Eshelman, Chief Executive Officer of PPD, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PPD as of, and for, the periods presented in the Report.

Date: February 26, 2008

/s/ Fredric N. Eshelman

Fredric N. Eshelman

Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the yearly report of Pharmaceutical Product Development, Inc. (“PPD”) on Form 10-K for the period ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel G. Darazsdi, Chief Financial Officer of PPD, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PPD as of, and for, the periods presented in the Report.

Date: February 26, 2008

/s/ Daniel G. Darazsdi

Daniel G. Darazsdi

Chief Financial Officer