10-K

   1

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       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 JUNE 30, 2001

                                       OR

    [  ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
              SECURITIES EXCHANGE ACT OF 1934

                        COMMISSION FILE NUMBER 000-25769

                          ACCREDO HEALTH, INCORPORATED
              (Exact name of company as specified in its charter)

                                            
                   DELAWARE                                      62-1642871
       (State or other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                      Identification No.)



         1640 CENTURY CENTER PKWY, SUITE 101, MEMPHIS, TENNESSEE 38134
         (Address, including Zip Code, of principal executive offices)

      Registrant's telephone number, including area code:  (901) 385-3688

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

                                      NONE

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

                          COMMON STOCK, $.01 PAR VALUE
                                (Title of Class)

     Indicate by check mark whether the Company (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 Company
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 the Company'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.  [ ]

     The aggregate market value of the voting stock held by non-affiliates of
the Company was $712,545,632 as of September 18, 2001, based upon the closing
price of such stock as reported on the Nasdaq National Market System ("Nasdaq
Stock Market") on that day (assuming for purposes of this calculation, without
conceding, that all executive officers and directors are affiliates). There were
26,021,675 shares of common stock, $.01 par value, outstanding at September 18,
2001.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Parts of the Registrant's Proxy Statement for its 2001 Annual Meeting of
Stockholders are incorporated by reference in Part III of this Annual Report.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
   2

                                     PART I

     Some of the information in this report contains forward-looking statements
that involve substantial risks and uncertainties. You can identify these
statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "intend," "estimate" and "continue" or similar words.
You should read statements that contain these words carefully for the following
reasons:

     - the statements discuss our future expectations;

     - the statements contain projections of our future earnings or of our
       financial condition; and

     - The statements state other "forward-looking" information.

     We believe it is important to communicate our expectations to our
investors. There may be events in the future, however, that we are not
accurately able to predict or over which we have no control. The risk factors
listed below, as well as any cautionary language in this report, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Examples of these risks, uncertainties and events include the
availability of new drugs, the demand for our services, our ability to expand
through joint ventures and acquisitions, our ability to maintain existing
pricing arrangements with suppliers, the impact of government regulation,
reliance on key payor relationships, our need for additional capital, the
seasonality of our operations and our ability to implement our strategies and
objectives.

     Before you invest in our common stock, you should be aware that the
occurrence of any of the events described in the risk factors, elsewhere in this
report and other events that we have not predicted or assessed could have a
material adverse effect on our earnings, financial condition and business. In
such case, the trading price of our common stock could decline and you may lose
all or part of your investment.

ITEM 1.  BUSINESS

OVERVIEW

     We provide specialized contract pharmacy services on behalf of
biopharmaceutical manufacturers to patients with chronic diseases. Our services
help simplify the difficult and often challenging medication process for
patients with a chronic disease and help ensure that patients receive and take
their medication as prescribed. Our services benefit biopharmaceutical
manufacturers by accelerating patient acceptance of new drugs, facilitating
patient compliance with the prescribed treatment and capturing valuable clinical
information about a new drug's effectiveness.

     Our services include contract pharmacy services, clinical services,
reimbursement services and delivery services. We provide overnight,
temperature-controlled delivery of all drugs and supplies necessary for patients
to self-administer their drug dosages safely and effectively in the privacy of
their homes. Our pharmacists and customer service staff talk frequently with
patients over the telephone, help them comply with prescribed treatment
schedules and educate them about ways to manage their complex diseases more
effectively. Our reimbursement specialists manage the complicated paperwork that
is required to collect payment for the patient's medication from insurance
companies and managed care plans.

     We sell a limited number of drugs to our patients. We mainly focus our
services on drugs that:

     - are used on a recurring basis to treat chronic and potentially
       life-threatening diseases;

     - are expensive, with annual costs generally ranging from approximately
       $8,000 to $200,000 per patient;

     - are administered through injection; and

     - require temperature control or other specialized handling.

     We have agreements with five biopharmaceutical manufacturers to provide
specialized contract pharmacy services. Although our agreements are not
exclusive, our status generally means that we are a recommended provider of the
manufacturer's drug to patients and physicians. These agreements also contain

                                        1
   3

favorable pricing from the manufacturer and compensate us for our specialized
services. The terms of these agreements may be adjusted periodically in the
event of changed market conditions or required service levels.

     Our objective is to be the leading provider of specialized contract
pharmacy services to biopharmaceutical manufacturers. Key elements of our
strategy include: (i) expanding the number of chronic diseases served; (ii)
leveraging our expertise to expand our service offerings; (iii) establishing
additional relationships with academic medical centers and children's hospitals
that treat patients with costly, chronic diseases; (iv) increasing the number of
our payor contracts; and (v) pursuing selective acquisitions of similar or
complementary businesses.

     Accredo Health, Incorporated, was incorporated in Delaware in 1996. We
acquired Southern Health Systems, Inc. ("SHS") and its wholly owned subsidiary
Nova Factor, Inc. ("Nova Factor") in 1996 and continue to own SHS and its
subsidiary, Nova Factor. In June 1997, we acquired all of the outstanding stock
of Hemophilia Health Services, Inc. ("HHS"). We consummated an initial public
offering of our common stock in April 1999.

     In October 1999, we acquired two pharmacies located in Florida and
California from Home Medical of America, Inc. through a newly created
subsidiary, AHI Pharmacies, Inc. We also acquired all of the outstanding stock
of Sunrise Health Management, Inc. ("SHM") on December 1, 1999.

     During fiscal year ended June 30, 2001, we consummated a second public
offering of our common stock in August 2000 and acquired all of the outstanding
stock of Pharmacare Resources, Inc. and a related company NCL Management, Inc.
in May 2001.

     Our principal executive offices are located at 1640 Century Center Parkway,
Suite 101, Memphis, Tennessee 38134. Our telephone number at that address is
901-385-3688.

SERVICES

     Our services include the following:

     Contract Pharmacy Services.  We offer customized services to
biopharmaceutical manufacturers designed to meet specific needs that arise at
various stages in the life cycles of their products.

     Prior to product launch, we offer:

     - consulting services related to strategic pricing decisions;

     - analyses and information to assist manufacturers in evaluating payor mix
       and pricing strategies for their new drugs;

     - testing of a manufacturer's packaging to assess maintenance of product
       temperatures and to determine whether the packaging system will meet the
       product's unique needs during normal shipping conditions;

     - advice on injection and infusion supplies related to the drug therapy and
       assistance in procuring supplies and customized packaging for infusion
       supply kits; and

     - clinical guidelines that assist nurses and caregivers in learning how to
       safely and effectively administer a drug, including sterilization
       techniques, supplies needed and infusion time required.

     Following product launch, we offer:

     - clinical hotlines that allow the physician or patient caregiver to
       inquire about product usage, adverse drug reactions and other clinical
       questions;

     - reimbursement hotlines for patients and health care professionals;

     - support for manufacturers' patient assistance programs for patients
       without the financial ability to otherwise acquire needed drugs and
       services;

     - replacement drug and supply programs that replenish patients' inventory
       of products or supplies that become damaged;
                                        2
   4

     - home care coordination programs that provide patient assistance in
       training, identify home care providers and transfer clinical information
       to all caregivers; and

     - triage services that refer patients to the appropriate provider based on
       the patients' insurance provider network.

Results of our interaction with patients, which is primarily via telephone, are
coded to protect privacy and tracked to compile valuable information, including
side effects, drug interactions, administration problems, supply issues,
physician prescription habits, changes to new products, and reasons for therapy
discontinuation and non-compliance.

     We will also report on adverse drug reactions, log the occurrence, and
complete an initial preliminary report of the occurrence to assist manufacturers
in completing adverse event reports in a timely manner. We can also create a
wide variety of additional reports that can be customized to meet specific
manufacturers' needs. Examples of reports include sales by physician, sales by
zip code, sales trending, first time patient orders, Medicaid and Medicare
sales, inventory status and reasons for patient discontinuations. Due to the
nature of the data we collect, we have established procedures designed to ensure
compliance with laws regarding confidentiality of patient information.

     Clinical Services.  We work with the patient and the patient's physician to
implement the prescribed plan of care. Each patient is assigned to a team
consisting of a pharmacist, a customer service representative and a
reimbursement specialist. Generally, each patient's team members specialize only
in that patient's disease and work only with payors and providers in that
patient's geographic region. In helping to implement the prescribed plan of
care; we:

     - help patients understand their medication and treatment program;

     - help patients manage potential side effects and adverse reactions that
       may occur so that patients are less likely to discontinue therapy;

     - help coordinate backup care in the event of a medical emergency; and

     - help patients establish an inventory management and record keeping
       system.

     In addition, we assist patients and their families in coping with a variety
of difficult and emotional social challenges presented by their diseases,
participate in patient advocacy organizations, assist in the formation of
patient support groups, advocate legislation to advance patient interests and
publish newsletters for our patients.

     Reimbursement Services.  By focusing on specific chronic diseases, we have
developed significant expertise in managing reimbursement issues related to the
patient's condition and treatment program. Due to the long duration and high
cost of therapy generally required to treat chronic disorders, the availability
of adequate health insurance is a continual concern for chronically ill patients
and their families. Generally, we contact the payor prior to each shipment to
determine the patient's health plan coverage and the portion of costs that the
payor will reimburse. Our reimbursement specialists review issues such as
pre-certification or other prior approval requirements, lifetime limits,
pre-existing condition clauses, and the availability of special state programs.
By identifying coverage limitations as part of an initial consultation, we can
assist the patient in planning for alternate coverage, if necessary. From time
to time, we negotiate with payors to facilitate or expand coverage for the
chronic diseases we serve. In addition, we accept assignment of benefits from
numerous payors, which substantially eliminates the claims submission process
for most patients.

     Delivery Services.  We provide timely delivery of drugs and ancillary
supplies directly to the patient or the patient's physician in packaging
specially designed to maintain appropriate temperatures. The package typically
contains all of the supplies required for administration in the patient's home
or in other alternate sites. Substantially all products are shipped from our two
primary pharmacy locations in Memphis and Nashville, Tennessee. We also maintain
satellite pharmacy locations in Dallas-Ft. Worth, Texas; Birmingham, Alabama;
Atlanta, Georgia; Garden Grove, California; Charlotte, North Carolina;
Jacksonville, Florida; Elmsford, New York and Milford, Massachussetts. We ship
our products via FedEx.

                                        3
   5

DISEASE MARKETS AND RELATED PRODUCTS

     Substantially all of the biopharmaceutical drugs that we sell, other than
growth hormones, IVIG and other blood-related products, are only available from
single sources. Currently, we provide our specialty services with respect to the
drugs and diseases described below.

     Multiple Sclerosis.  Multiple Sclerosis is a progressive neurological
disease in which the body loses the ability to transmit messages among nerve
cells, leading to a loss of muscle control, paralysis and, in some cases, death.
Patients with active relapsing Multiple Sclerosis experience an uneven pattern
of disease progression characterized by periods of stability interrupted by
flare-ups of the disease. Industry sources estimate that Multiple Sclerosis
affects between 250,000 and 350,000 people in the United States, approximately
two-thirds of whom are women. Disease onset typically occurs in young adults
between the ages of 20 and 40. Of the patients diagnosed with Multiple Sclerosis
in the United States, about 90% of patients initially have relapsing Multiple
Sclerosis and about half of those patients go on to develop a progressive form
of the disease. About 10% of patients exhibit a progressive form of the disease
at onset. Industry sources estimate that of the persons currently affected by
Multiple Sclerosis in the United States, approximately 50% have a relapsing form
of the disease, and approximately 50% have a progressive form. There are
currently three FDA-approved products used for treating relapsing Multiple
Sclerosis:

     - AVONEX(R), which is manufactured by Biogen, Inc.;

     - Betaseron(R), which is manufactured by Chiron Corporation; and

     - Copaxone(R), which is manufactured by Teva Pharmaceutical Industries
       Limited.

     Biogen's AVONEX(R) product is the only FDA-approved product shown to slow
the accumulation of disability in patients with relapsing forms of Multiple
Sclerosis and, as a result, AVONEX(R), which is generally administered via a
single intramuscular injection once per week, is used by a majority of such
patients in the United States currently on drug therapy.

     Effective January 2000, we entered into amended and restated agreements
with Biogen pursuant to which we dispense AVONEX(R) and provide various services
and information to Biogen. The pricing of AVONEX(R) under our agreements with
Biogen, as well as the scope and pricing of services provided by us, are subject
to periodic adjustment. Our agreements with Biogen have an initial term of three
years ending December 31, 2002 and are terminable by either party for any reason
with 90 days prior notice. In addition, our agreements provide that as long as
we are the only preferred home delivery service provider approved by Biogen
(other than providers to Medicaid patients in some states), we may not, without
Biogen's approval, sell any products that compete with AVONEX(R) for the
treatment of Multiple Sclerosis. We do not have exclusive rights to sell
AVONEX(R), and Biogen has reserved the right under our agreement to sell
AVONEX(R) directly or to appoint other providers of home delivery pharmacy
services for AVONEX(R), but any such action would eliminate our exclusivity
obligations.

     Gaucher Disease.  Gaucher Disease is a seriously debilitating, sometimes
fatal, genetic disorder caused by a deficiency of an important enzyme in the
body called glucocerebrosidase. This deficiency results in the accumulation of
the glucocerebroside lipid in the cells of organs in the body. The disease is
characterized by an enlarged liver or spleen, anemia, bleeding problems,
fatigue, bone and joint pain and other orthopedic complications such as repeated
fractures and bone erosion. Type I Gaucher Disease is the most common form of
Gaucher Disease, affecting about 90% of all Gaucher patients. Genzyme's
Ceredase(R) and Cerezyme(R) products are the only FDA-approved products used for
treating Type I Gaucher Disease.

     We have a longstanding relationship with Genzyme relating to Ceredase(R)
and Cerezyme(R). Ceredase(R) and Cerezyme(R) are administered by intravenous
infusion. Dosing frequencies vary, but a typical dosing regimen involves
administration once every two weeks. Pursuant to our current agreement with
Genzyme, we dispense Ceredase(R) and Cerezyme(R) in the United States and
provide various information and other services to Genzyme. The pricing of
Ceredase(R) and Cerezyme(R) under our agreement with Genzyme, as well as the
scope and pricing of services that we provide, are subject to periodic
adjustment. Our agreement with Genzyme automatically renews on an annual basis
unless either party provides 90 days prior notice of non-renewal, and

                                        4
   6

is terminable by either party for any reason with 60 days prior notice. In
addition, the agreement provides that, during the term of the agreement and for
a period of five years after its termination, we may not sell any prescription
drug for the treatment of Gaucher Disease other than Ceredase(R) and
Cerezyme(R). We do not have exclusive rights to sell Ceredase(R) or Cerezyme(R).
Genzyme has reserved the right under the agreement to sell these products
directly or to appoint other distributors of these products, but any such action
would eliminate our exclusivity obligations.

     Hemophilia.  Hemophilia is an inherited, genetic, lifelong bleeding
disorder caused by the absence or inactivity of an essential blood clotting
protein or "factor." Two major disease categories exist, hemophilia A, or Factor
VIII deficiency, and hemophilia B, or Factor IX deficiency. It is estimated that
there are approximately 20,000 people with hemophilia in the United States, and
presently there is no known cure. Individuals with hemophilia may suffer from
bleeding episodes that can occur spontaneously or as a result of physical
activity or trauma. While small surface cuts can usually be treated with a
pressure bandage, the most frequent complication of hemophilia is internal
bleeding into muscles and joints, which can cause arthritis and debilitating
orthopedic problems. More serious complications include internal bleeding in the
head, neck, spinal cord or internal organs, which can cause death.

     Hemophilia is generally treated by infusing anti-hemophilic factor
concentrates intravenously when the symptoms of a bleed are detected. This
therapy is generally administered by the patient or his or her family members,
without the assistance of a nurse, in response to bleeding episodes.
Approximately 60% of the persons with hemophilia in the United States have a
severe form of the disorder as measured by the level of factor naturally present
in the body. In general, the more severe the factor deficiency, the more
frequently the bleeding episodes may occur. On average, someone with severe
hemophilia will need to infuse factor weekly. In many individuals with severe
hemophilia, factor therapy is administered prophylactically to maintain high
enough circulating factor levels to minimize the risk of bleeding.

     In the recent past, many hemophilia patients contracted hepatitis or human
immunodeficiency virus, commonly known as HIV, as a result of contaminated blood
derivative therapies they received prior to the mid-1980's. It is estimated that
approximately one-half of the hemophilia population who received anti-
hemophilic factor prior to the mid-1980's was exposed to HIV and is at risk of
developing acquired immune deficiency syndrome, commonly known as AIDS. We offer
medications used in treating AIDS as a convenience to our hemophilia patients
that have contracted HIV. In the early 1990's, recombinant clotting factor, a
biotechnological alternative to plasma-derived factor, was introduced and to
date has proved to be as effective as the blood-derived products with virtually
no risk of viral transmission. Current utilization reflects increased use of
recombinant and monoclonal products by physicians because of the advantages of
increased purity. Issues related to the development of inhibitors, or antibodies
to the infused factor products, may influence future utilization of these
products.

     There are currently six major suppliers of FDA-approved products used for
treating hemophilia. We purchase products from all six suppliers. Historically,
no supplier is responsible for a majority of our hemophilia product purchases.

     Growth Hormone-Related Disorders.  A major treatable cause of growth delay
in children is growth hormone deficiency. It is estimated that there are
approximately 20,000 pediatric patients in the United States who are candidates
for growth hormone therapy. The market for growth hormone products is relatively
mature, and currently five manufacturers sell eleven FDA-approved growth hormone
products for a variety of indications. However, a majority of patients currently
being treated with growth hormone products use one of Genentech's growth hormone
products, Protropin(R), Nutropin(R), Nutropin AQ(R) or Nutropin Depot(TM), the
first long-acting dosage form of recombinant human growth hormone. Genentech
began shipping Nutropin Depot(TM) to distributors in June 2000.

     We have purchasing relationships with all five manufacturers of growth
hormone products used in the United States, including a longstanding
relationship with Genentech. Typically, patients or family members administer
growth hormone products at home without the presence of a nurse. Most growth
hormone products require administration by injection several times per week, and
in some cases daily. In contrast, Nutropin Depot(TM) may be administered as
infrequently as monthly or bi-monthly. We have entered into a distribution
                                        5
   7

agreement with Genentech in which we also provide various information and other
services relating to Genentech's human growth hormone products, Protropin(R),
Nutropin(R), Nutropin AQ(R) and Nutropin Depot(TM) in the United States. Under
the agreement, the pricing of Protropin(R), Nutropin(R), Nutropin AQ(R) and
Nutropin Depot(TM) under the distribution agreement, as well as the scope and
pricing of the services provided by us, are subject to periodic adjustment. The
distribution agreement has an initial term that has been extended to December
31, 2002. The agreement may be terminated by Genentech if we are acquired by one
of their competitors and may be terminated by either party for cause following a
60-day right to cure or in the event of bankruptcy, insolvency or similar events
affecting the other party. We do not have exclusive rights to distribute
Protropin(R), Nutropin(R), Nutropin AQ(R) and Nutropin Depot(TM). Genentech has
reserved the right under our agreement to sell these drugs directly or to
appoint other distributors of these drugs.

     Crohn's Disease.  Crohn's Disease is a chronic and debilitating disorder
involving inflammation of the gastrointestinal tract. Symptoms include abdominal
pain, diarrhea, fever, general fatigue, and weight loss. Crohn's Disease is
estimated to affect approximately 400,000 patients in the United States, of
which as many as 140,000 patients have moderate to severe Crohn's Disease. Of
those with moderate to severe Crohn's Disease, more than 40,000 suffer from
draining fistulizing disease. REMICADE(TM), a drug developed by Centocor, was
approved in 1998 by the FDA for the treatment of moderate to severe active
Crohn's Disease. It has also been approved as a treatment for patients with
fistulizing Crohn's Disease for reduction in the number of draining fistulae.

     In August 1998, we established a preferred relationship with Centocor
relating to REMICADE(TM). Under an agreement that we have with Centocor, we
dispense REMICADE(TM) and provide various information and other services to
Centocor. The pricing of REMICADE(TM) under our agreement with Centocor, as well
as the scope and pricing of the services provided by us, are subject to periodic
adjustment. Our agreement with Centocor has an initial term of three years
ending August 2001 and renews on an annual basis thereafter. We do not have any
exclusive rights to sell REMICADE(TM), and Centocor has reserved the right under
the agreement to sell REMICADE(TM) directly or to appoint distributors or other
providers of pharmacy services for REMICADE(TM).

     Rheumatoid Arthritis.  Rheumatoid arthritis is a chronic disease in which
the inflammation of various joints in the body leads to swelling, pain, and
eventual loss of function. It is estimated that Rheumatoid Arthritis affects
approximately 2.5 million patients in the United States. Three general classes
of drugs are commonly used in the treatment of Rheumatoid Arthritis:

     - anti-rheumatic drugs that slow the progression and treat the symptoms of
       the disease, such as REMICADE(TM) and Enbrel(TM);

     - corticosteroids, which reduce inflammation and regulate the immune
       system; and

     - non-steroidal agents that reduce inflammation and decrease pain and other
       symptoms.

     On November 10, 1999, the FDA approved REMICADE(TM) for the treatment of
rheumatoid arthritis. We distribute REMICADE(TM) for the treatment of rheumatoid
arthritis under our agreement with Centocor described above.

     Autoimmune Disorder.  Autoimmune disorders describe a group of chronic
diseases in which the body treats its own tissues or cells as if they were
foreign substances and produces antibodies to attack and destroy those tissues
or cells. Most autoimmune disorders currently are incurable and tend to become
progressively severe. Various therapies, including IVIG, are administered to
minimize the effects of autoimmune disorders and the severity of their
associated symptoms. Although typically administered via infusion in a hospital
or physician's office, IVIG can be administered at home by patients who require
repeated treatment.

     Prior to October 1999, we did not offer IVIG products on a retail basis. In
an effort to improve the overall effectiveness of a patient's medication, many
physicians prescribe IVIG in combination with existing drug therapies to treat
chronic diseases such as Multiple Sclerosis and rheumatoid arthritis. This trend
contributed to our decision to make two acquisitions in fiscal year 2000 through
which we gained access to the retail IVIG

                                        6
   8

market. We subsequently acquired another IVIG distributor in May 2001. Because
IVIG is collected and processed from human donors, the IVIG product market is
somewhat limited by supply constraints.

     Respiratory Syncytial Virus.  Respiratory syncytial virus (RSV) is a
serious lower respiratory tract disease that primarily attacks pediatric
patients. RSV is the most common cause of pneumonia and bronchiolitis in infants
and children. Approximately two-thirds of infants are infected with RSV during
the first year of life, and almost all have been infected by age two. It has
been estimated that, nationwide, there are approximately 300,000 children at
risk of RSV each year and approximately 90,000 hospitalizations due to RSV
infections.

     Synagis(R) (palivizumab), a drug manufactured by MedImmune, has been shown
to significantly reduce RSV hospitalizations in pediatric patients at risk of
the disease. Clinical studies have shown that preventive treatment with
Synagis(R) was associated with a 55% reduction in overall hospitalizations due
to RSV. Physicians prescribe Synagis(R) to immunize infants who are at high risk
for serious lung impairment. Synagis(R) is typically administered by
intramuscular injection once a month over a five month period.

     Respiratory syncytial virus is seasonal, with the disease striking
primarily during the period of October through April. We renewed our
relationship with MedImmune for the 2000-2001 respiratory syncytial virus season
by executing a new distribution agreement on October 3, 2000. The distribution
agreement with MedImmune automatically renews on an annual basis unless either
party provides 30 days prior notice of non-renewal and is terminable by either
party for any reason on 30 days notice. We do not have the exclusive right to
sell Synagis(R), although we were the national preferred assignment of benefits
distributor of the drug for the 2000-2001 respiratory syncytial virus season. We
are in discussions with MedImmune to renew our agreement for the 2001-2002
season.

SUPPLIERS

     The drugs that we dispense, other than growth hormones, IVIG and other
blood-related products, are available only from single sources:

     - Genzyme, with respect to Ceredase(R) and Cerezyme(R);

     - Biogen, with respect to AVONEX(R);

     - Centocor with respect to REMICADE(TM); and

     - MedImmune, with respect to Synagis(R).

     Although there are four other manufacturers of FDA-approved growth hormone
products, Genentech's products collectively enjoy a market share that exceeds
the aggregate of all other individual manufacturers of growth hormone products.
Accordingly, in the event that one or more of our current suppliers of products
(other than IVIG and other blood-related products) were to cease selling
products to us, our business, financial condition and results of operations
would be materially and adversely affected.

     Our agreements with our key suppliers generally may be canceled by either
party, without cause, upon between 30 and 90 days prior notice. Furthermore,
both we and our suppliers periodically adjust the acquisition cost and other
terms for the drugs and related supplies covered by such contracts. In addition,
our agreements with our suppliers generally provide that during the term of the
agreements (and, in some instances, for as much as five years after termination
of the agreements), we may not distribute any competing products. We do not have
any exclusive rights to dispense our products, and our suppliers have generally
reserved the right under their agreements with us to distribute their products
directly or to appoint other distributors of their products. See "Risk
Factors -- We are highly dependent on our relationships with a limited number of
biopharmaceutical manufacturers." and "Business -- Disease Markets and Related
Products."

     We have supply contracts with all six major suppliers of clotting factor
and all five major suppliers of IVIG in the United States, and no supplier is
responsible for a majority of our hemophilia or IVIG product purchases. However,
an industry wide recombinant factor VIII product shortage has existed for some
time, as

                                        7
   9

a result of the manufacturers' being unable to increase production to meet
rising global demand. Several events have occurred which prolonged the industry
wide shortage of product.

     Approximately ten months ago, Bayer Corporation released its
second-generation recombinant factor VIII product, Kogenate FS, and phased out
the original Kogenate. The new product was not produced in sufficient quantity
to serve all of the previous Kogenate users. Furthermore, Bayer Corporation has
not released Kogenate FS onto the U.S. market since mid-December, 2000 (as a
voluntary measure) so that it could follow-up on observations made by the FDA
during a December 2000 inspection of its Berkeley facility. This has also
impacted Aventis-Behring's ability to ship its product Helixate FS, as it is
manufactured under an arrangement with Bayer Corporation.

     Due to the lack of Bayer product, increased demand was placed on Baxter
Hyland Immuno's Recombinate product, which was put on allocation. Product
availability was further reduced when, on February 28, 2001, Baxter announced
the temporary closing of its Thousand Oaks manufacturing facility to perform
scheduled maintenance. Genetics Institute, Inc. entered the market in January
with Refacto, its new second-generation recombinant factor VIII product. The
demand for Refacto quickly outstripped the supply and Refacto was also put on
allocation.

     Although Baxter and Bayer have announced publicly that they anticipate
resuming product release, we are not certain when they will return to normal
product allocations.

RELATIONSHIPS WITH MEDICAL CENTERS

     At June 30, 2001, we had joint ventures with five medical centers. We
currently have joint ventures with four medical centers (or their affiliates):

     - Children's Home Care located in Los Angeles, California;

     - Alternative Care Systems, Inc. located in Dallas, Texas;

     - Cook Children's Medical Center located in Ft. Worth, Texas;

     - Children's Hospital located in Washington D.C.

     In our typical joint venture arrangement, we and the medical center (or its
affiliate) form a joint venture entity that then enters into a management
agreement with us to obtain specialized contract pharmacy services. Under the
terms of the joint venture agreement, we manage the sales, marketing, and
provision of specialty pharmacy services in exchange for a monthly management
fee and the reimbursement of some expenses. We share in the profits and losses
of the joint venture entity with the medical center in proportion to our
respective capital contributions and receive a management fee for our management
services. The agreements generally have initial terms of between one and five
years and contain restrictive covenants and rights of first refusal.

     In addition to joint venture relationships, we have from time to time
entered into management agreements with medical centers (or their affiliates) to
provide specialized contract pharmacy services.

     Under our management agreements, we provide goods and services used in our
joint ventures' specialized pharmacy business, including drugs and related
supplies, patient education, clinical consultation, and reimbursement services.
While the payment terms under such management agreements may vary, we are
generally reimbursed for our costs and are paid a monthly management fee
generally calculated as a percentage of revenues. These agreements usually have
terms of between one and five years and are terminable by either party, with or
without cause, with between one and twelve months prior notice. See "Risk
Factors -- If our relationships with some medical centers are disrupted, our
business could be harmed."

                                        8
   10

PAYORS

     The following are the approximate percentages of the Company's gross
patient service revenue attributable to various payor categories for the fiscal
years ended June 30, 1999, 2000 and 2001:



                                                    YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                   JUNE 30, 1999   JUNE 30, 2000   JUNE 30, 2001
                                                   -------------   -------------   -------------
                                                                          
Private payors (including self pay)(1)...........        82%             82%             81%
Medicaid and other state programs................        16%             16%             17%
Medicare and other federal programs..............         2%              2%              2%
                                                        ---             ---             ---
          Total..................................       100%            100%            100%
                                                        ===             ===             ===


---------------

(1) Includes sales to private physician practices, whose ultimate payor is
    typically Medicare, which accounted for approximately 6%, 5% and 4% of gross
    patient service revenue, respectively, for the fiscal years ended June 30,
    1999, 2000 and 2001.

     In fiscal year 2001, Aetna, Inc. and its affiliates ("Aetna") accounted for
approximately 15% of the Company's revenue. The Company entered into a Specialty
Pharmacy Mail Service Vendor Agreement with Aetna effective May 1, 2000. Our
Agreement has an initial term of three years ending April 30, 2003 and renews on
an annual basis thereafter. Either party may terminate the Agreement on 90 days
notice. Except for Aetna, no private payor accounts for 10% or more of the
Company's revenue.

     The primary trend in the United States health care industry is toward cost
containment. The increasing prevalence of managed care, centralized purchasing
decisions, consolidation among and integration of health care providers, and
competition for patients has affected, and continues to affect, pricing,
purchasing, and usage patterns in health care. Decisions regarding the use of a
particular drug treatment are increasingly influenced by large private payors,
including managed care organizations, pharmacy benefit managers, group
purchasing organizations, regional integrated delivery systems, and similar
organizations, and are based increasingly on economic considerations including
product cost and whether a product reduces the cost of treatment. Efforts by
payors to eliminate, contain or reduce costs through coverage exclusions, lower
reimbursement rates, greater claims scrutiny, closed provider panels,
restrictions on required formularies, claim delays or denials and other similar
measures could have a material adverse effect on our business, financial
condition and results of operations.

     Some payors set lifetime limits on the amount reimbursable to patients for
medical costs. Some of our patients may reach these limits because of the high
cost of their medical treatment and associated pharmaceutical regimens. Some
payors may attempt to further control costs by selecting some firms to be their
exclusive providers of pharmaceutical or other medical product benefits. If any
such arrangements were with our competitors, we would be unable to be reimbursed
for purchases made by such patients.

     We derive a significant portion of our revenue from governmental programs
such as Medicare and Medicaid. Such programs are highly regulated and subject to
frequent and substantial changes and cost containment measures. In recent years,
changes in these programs have limited and reduced reimbursement to providers.
The Balanced Budget Act of 1997 includes significant additional reductions in
spending levels for these programs. This legislation also replaced and relaxed
the federal Medicaid payment standard, thereby increasing state discretion over
administration of Medicaid programs.

     Federal and state proposals are pending that would impose further
limitations on governmental payments and that could increase patient co-payments
and deductibles. Many government payors, including Medicare and Medicaid, pay us
directly or indirectly at the drug's average wholesale price (AWP) or at a
percentage off AWP. The Department of Health and Human Services, Office of
Inspector General has raised concerns since 1992 about how certain manufacturers
have established AWP for certain Medicare covered drugs. Federal and state
agencies continue to examine perceived discrepancies between reported AWP of
drugs and the actual manufacturers selling price. In connection with one such
investigation, the U.S. unit of Bayer AG agreed to pay $14 million to resolve
allegations that it caused Medicaid to overpay for its drugs. Abbott
Laboratories, Novartis and the Kendall unit of Tyco International have confirmed
that they are also being investigated.

                                        9
   11

     Recently, First DataBank, Inc., which reports AWP to Medicaid programs,
announced that it will report based on market prices rather than prices
submitted by manufacturers. As a result, a number of state Medicaid agencies
have lowered the amount of reimbursement that they pay for certain drugs,
including clotting factor. Medicare also announced that it would implement lower
prices for certain drugs effective October 1, 2000. The proposal to include
clotting factor and cancer drugs in the lower Medicare pricing was withdrawn. As
recent as September 21, 2001, The United States House Subcommittees on Health
and Oversight & Investigations held hearings to examine how Medicare reimburses
providers for the cost of drugs. In conjunction with that hearing, the U.S.
General Accounting Office issued its Draft Report recommending that Medicare
establish payment levels for part-B prescription drugs and their delivery and
administration that are more closely related to their costs and that payments
for drugs be set at levels that reflect actual market transaction prices and the
likely acquisition cost to providers. Similar reports have previously been
issued regarding the prices paid by state Medicaid for certain drugs. We expect
that these developments will reduce prices and margins on some of the drugs that
we distribute.

     Recently, several proposals have been made in Congress to enlarge
prescription drug coverage. The U.S. Congress has also been studying the
accuracy of average wholesale prices as an appropriate benchmark for setting
rates of reimbursement. Additionally, a number of states are considering
legislation designed to reduce their Medicaid expenditures and provide universal
coverage and additional care for some populations, including proposals to impose
additional taxes on providers to help finance or expand such programs. Some
states may require us to maintain a licensed pharmacy in their states in order
to qualify for reimbursement under state-administered reimbursement plans. Any
of these changes could result in significant reductions in payment levels for
drugs handled and services provided by us, which would have a material adverse
effect on our business, financial condition and results of operations.

     Hemophilia treatment centers may purchase factor from manufacturers at a
discount under a government program established in 1992 which extended the
Medicaid best price rebate program to hemophilia treatment centers.
Manufacturers that sell outpatient drugs to hemophilia treatment centers agree
with the Department of Health and Human Services that they will not charge a
price for covered outpatient drugs that is higher than a statutorily set amount.
We do not directly own or operate a hemophilia treatment center that is eligible
for this special pricing, which places us at a competitive disadvantage as a
provider of factor, except where our affiliated medical centers are eligible for
the special pricing. Under the Department's guidelines, an eligible hemophilia
treatment center may obtain factor at this special pricing and use a contract
pharmacy to dispense it to the center's patients. However, if a hemophilia
treatment center does not comply with the Department's guidelines or sells
factor bought at this special pricing to patients who are not patients of the
center, it may incur civil penalties or liability to drug manufacturers for the
amount of the discount that the center received from the manufacturer.

COMPETITION

     The specialty pharmacy industry is highly competitive and is undergoing
consolidation. The industry is fragmented, with many public and private
companies focusing on different product or customer niches. Some of our current
and potential competitors include:

     - specialty pharmacy distributors, such as Caremark Therapeutic Services,
       Priority Healthcare Corporation and Gentiva Health Services, Inc.;

     - specialty pharmacy divisions of national wholesale drug distributors;

     - pharmacy benefit management companies;

     - hospital-based pharmacies;

     - retail pharmacies;

     - home infusion therapy companies;

     - manufacturers that sell their products both to distributors and directly
       to users, including clinics and physician offices; and
                                        10
   12

     - hospital-based comprehensive hemophilia care centers and other alternate
       site health care providers.

     Some of our competitors have greater financial, technical, marketing and
managerial resources than we have.

     While competition is often based primarily on price and quality of care and
service, it can also be affected by the ability to develop and maintain
relationships with patients and referral sources, depth of product line,
technical support systems, specific patient requirements and reputation. There
can be no assurance that competitive pressures will not have a material adverse
affect on our business, financial condition and results of operations.

GOVERNMENT REGULATION

     Federal and state governments heavily regulate the drug and medical supply
industry. Manufacturers, distributors, health care providers and patients are
all subject to these regulations. Particular government attention currently
focuses on:

     - the payment of inducements for patient referrals;

     - prohibited financial relationships with physicians;

     - joint venture and management arrangements;

     - product discounts;

     - inducements given to patients; and

     - professional licensing.

The laws are very broad, the regulations are complicated, and in many cases the
courts interpret them differently. This makes compliance difficult. Federal and
state civil and criminal fines and penalties may be imposed on persons who
violate these laws. While we try to comply with all laws, a violation could
result in fines or criminal penalties, which could reduce our profitability. The
following are particular areas of government regulation that apply to our
business.

     Licensing and Registration.  State laws require that we be licensed as an
in-state pharmacy in Tennessee, Alabama, Georgia, California, North Carolina,
Massachusetts, Florida and Texas. We also currently ship prescription drugs to
many other states that require us to be licensed as an out-of-state pharmacy. We
believe that we substantially comply with all state licensing laws applicable to
our business.

     Some pharmacy associations and state boards of pharmacy are attempting to
protect local pharmacies by restricting the activities of out-of-state
pharmacies. In addition, some states impose limits on financial incentives paid
to insurance companies and other payors offering managed drug programs.
Restrictions on our operations imposed by these laws could reduce our
profitability.

     Laws enforced by the federal Drug Enforcement Agency, as well as some
similar state agencies, require our pharmacy locations to individually register
in order to handle controlled substances, including prescription drugs. A
separate registration is required at each principal place of business where the
applicant manufactures, distributes, or dispenses controlled substances. Federal
and state laws also require that we follow specific labeling and record-keeping
requirements for controlled substances. We maintain federal and state controlled
substance registrations for each of our facilities that require it, and follow
procedures intended to comply with all such record-keeping requirements.

     Pharmacists and Nursing Licenses.  Our nurses must obtain state licenses to
provide teaching services and the hands on nursing which we provide to our IVIG
patients and some of our hemophilia patients, and our pharmacists must obtain
state licenses to dispense drugs. Our pharmacists and nurses are licensed in
those states where their activity requires it. Pharmacists and nurses must also
comply with professional practice rules. We monitor our nurses' and pharmacists'
practices for compliance with such state laws and rules. We do not believe that
the activities undertaken by our nurses or pharmacists violate laws or rules
governing the practice of pharmacy, nursing or medicine.
                                        11
   13

     Pharmacy Counseling.  Federal law requires that states offering Medicaid
prescription drug benefits implement a drug use review program. The program
requires "before and after" drug use reviews, the use of predetermined
standards, and patient education. Its purpose is to improve the quality of care
by ensuring drug prescriptions are medically necessary, and not likely to cause
adverse effects. Participating states must develop standards for pharmacy
counseling. These standards apply as well to non-resident pharmacies like us. We
believe our pharmacists monitor these requirements, and provide the necessary
counseling.

     Federal Mail Order.  Federal law imposes standards for:

     - the labeling, packaging and repackaging, advertising and adulteration of
       prescription drugs; and

     - the dispensing of controlled substances and prescription drugs.

     The Federal Trade Commission and the United States Postal Service regulate
mail order drug sellers. The law requires truth in advertising, a reasonable
supply of drugs to fill orders, and a right to a refund if an order cannot be
filled within thirty days. We believe that we substantially comply with all of
these requirements.

     Prescription Drug Marketing Act.  This federal law exempts many drug and
medical devices from federal labeling and packaging requirements, as long as
they are not adulterated or misbranded and were prescribed by a physician. The
law also prohibits the sale, purchase or trade of drug samples that are not
intended for sale or intended to promote the sale of the drug. Records must be
kept of drug sample distribution, and proper storage and maintenance methods
used. To the extent that this law applies to us, we believe that we comply with
the documentation, record-keeping and storage requirements.

     Anti-Kickback and Self-Referral.  We are subject to the federal Medicare
Anti-Kickback law that prohibits offering, paying, soliciting or receiving,
directly or indirectly, in cash or in kind, remuneration to induce or in
exchange for:

     - the referral of patients covered by Medicare, Medicaid or other
       government healthcare reimbursement programs; or

     - the leasing, purchasing, ordering or arranging for or recommending the
       lease, purchase or order of any item, good, facility or service covered
       by the programs.

Violations by individuals or entities are punishable by criminal fines, civil
penalties, imprisonment, or exclusion from participation in the reimbursement
programs. Sanctions imposed under this law on us, our business partners (such as
drug suppliers), or our customers could reduce our business and our profits.

     Many states have similar state laws, which, if violated, could result in
similar penalties. Courts have not applied the Anti-Kickback law or similar
state laws consistently, and some courts have found a violation if only one
purpose of an otherwise acceptable arrangement was to induce referrals.

     The Department of Health and Human Services, DHHS, published a set of "safe
harbor" regulations and continues to publish clarifications to the safe harbors.
Arrangements that fully comply with a safe harbor are deemed not to violate the
Anti-Kickback law. We have several business arrangements (for example, our joint
venture and management arrangements with medical centers, service arrangements
with physicians and product pricing arrangements with suppliers) that do not
satisfy all of the requirements necessary to fall within the safe harbors.
Failure to satisfy a safe harbor does not mean that a transaction is necessarily
illegal. The law requires the government to evaluate the intent in each
situation. We try to structure our business arrangements to comply with the
Anti-Kickback law, the Health Insurance Portability and Accountability Act and
similar state laws. However, if we are found to violate any of these laws, we
could suffer penalties, fines, or possible exclusion, which could reduce our
revenues and profits.

     Health Insurance Portability and Accountability Act.  HIPAA created new
health care crimes, and granted authority to the Secretary of DHHS to impose
certain civil penalties. Particularly, the Secretary may now exclude from
Medicare any individual with a direct or indirect ownership interest in an
entity convicted of health care fraud or excluded from the program. HIPAA
encourages the reporting of health care fraud by

                                        12
   14

allowing reporting individuals to share in any recovery made by the government.
HIPAA also requires new programs to control fraud and abuse, and new
investigations, audits and inspections.

     New crimes under HIPAA include:

     - knowingly and willfully committing a federal health care offense relating
       to a health care benefit program; and

     - knowingly and willfully falsifying, concealing, or covering up a material
       fact or making any materially false or fraudulent statements in
       connection with claims and payment for health care services by a health
       care benefit plan.

These provisions of HIPAA criminalized situations that previously were handled
civilly through repayments of overpayments, offsets, and fines. We believe that
our business arrangements and practices comply with HIPAA. However, a violation
could subject us to penalties, fines, or possible exclusion from Medicare or
Medicaid. Such sanctions could reduce our revenues or profits.

     OIG Fraud Alerts and Advisory Opinions.  The Office of Inspector General of
DHHS periodically issues Fraud Alerts and Advisory Opinions identifying
practices it believes may violate federal fraud and abuse laws. One Fraud Alert
addresses joint venture and contractual arrangements between health care
providers. Another concerns prescription drug marketing practices. Drug
marketing activities may implicate the federal fraud and abuse laws because the
cost of drugs are often reimbursed by Medicare and Medicaid. According to the
Fraud Alert, questionable practices may include payments to pharmacists to
recommend a particular drug or product. One Advisory Opinion indicates that
management fees calculated as a percentage of net revenues, where marketing
services are included, could implicate the federal fraud and abuse laws if the
fee is intended to induce patient referrals. We try to structure our business
arrangements to comply with federal fraud and abuse laws. However, if we are
found to have violated any of these laws, we could suffer penalties, fines or
possible exclusion from the Medicare, Medicaid or other governmental programs,
which could adversely affect our results of operations.

     State Consumer Protection Laws.  A number of states are involved in
enforcement actions involving pharmaceutical marketing programs, including
programs offering incentives for pharmacists to dispense one product rather than
another. State consumer protection laws generally prohibit false advertising,
deceptive trade practices and the like. A number of the states have requested
that the FDA exercise greater regulatory oversight in the area of pharmaceutical
promotional activities by pharmacists. It is not possible to determine whether
the FDA will act in this regard or what effect, if any, FDA involvement would
have on our operations.

     The Stark Law.  Federal law prohibits physicians from making a referral for
certain health items or services if they, or their family members, have a
financial relationship with the entity receiving the referral. No bill may be
submitted in connection with a prohibited referral. Violations are punishable by
civil monetary penalties upon both the person making the referral and the
provider rendering the service. Such persons or entities are also subject to
exclusion from Medicare and Medicaid. The Stark Law applies to our products and
services, and we try to structure our relationships to comply with the law.
However, if our practices are found to violate the Stark Law, we may be subject
to sanctions or be required to alter or discontinue some of our practices. This
could reduce our revenues or profits.

     Beneficiary Inducement.  HIPAA penalizes the offering of remuneration or
other inducements to beneficiaries of federal health care programs to influence
the beneficiaries' decision to seek specific governmentally reimbursable items
or services, or to choose a particular provider. HIPAA excludes items provided
to promote the delivery of preventive care. The statutory exception would apply
where "such care is provided or directly supervised by the medical provider that
has provided the incentive."

     The OIG recently issued final regulations concerning inducements to
beneficiaries. Under the new regulations, permissible incentives are those given
in connection with preventive care, including pre and post natal care, and
services described in the U.S. Preventive Service Task Force's Guide to
Preventive Care. OIG also believes that items of nominal value given to
beneficiaries are permissible even if not related to preventive care. However,
permissible incentives would not include cash or cash equivalents. We from time
to time

                                        13
   15

provide some items at no charge to our patients in connection with their drug
therapies, not all of which are included on the list of items specifically
stated not to violate the new regulations. We nevertheless believe that those
items are allowed by the underlying statute. A determination that we violated
the regulations or the statute, however, could result in sanctions that reduce
our revenue or profits.

     The False Claims Act.  We are also subject to federal and state laws
prohibiting individuals or entities from knowingly and willfully making claims
for payment to Medicare, Medicaid, or other third party payors that contain
false or fraudulent information. These laws provide for both criminal and civil
penalties. Health care providers who submit claims which they knew or should
have known were false, fraudulent, or for items or services that were not
provided as claimed, may be excluded from Medicare and Medicaid participation,
required to repay previously collected amounts, and subject to substantial civil
monetary penalties.

     Government Investigations.  The government increasingly examines
arrangements between health care providers and potential referral sources to
ensure that they are not designed to exchange remuneration for patient care
referrals. Investigators are increasingly willing to look behind formalities of
business transactions to determine the underlying purpose of payments.
Enforcement actions have increased and are highly publicized. To our knowledge,
we are not currently the subject of any investigation. Any future investigation
may cause publicity that would cause potential customers to avoid us, reducing
potential revenues and profits.

     In addition to investigations and enforcement actions initiated by
governmental agencies, we could be the subject of an action brought under the
False Claims Act by a private individual on behalf of the government. Actions
under the False Claims Act, commonly known as "whistleblower" lawsuits are
generally filed under seal to allow the government adequate time to investigate
and determine whether it will intervene in the action, and defendant health care
providers are often without knowledge of such actions until the government has
completed its investigation and the seal is lifted.

     Confidentiality.  Federal and state laws protect confidentiality of medical
records and information. We maintain medical records for each patient to whom we
dispense drugs. We are thus subject to some of these medical record and patient
confidentiality laws. In addition, we expect to become subject to DHHS rules
recently proposed to ensure integrity and confidentiality of patient data. These
rules, if adopted, would require mandatory security standards for entities which
maintain or transmit health information electronically. Compliance with new
standards to safeguard electronic medical records could be expensive, harming
our results of operations. The HIPAA statute imposes criminal penalties on
wrongful disclosure of private medical information. We maintain written
procedures and provide regular training to our employees in an effort to comply
with all of the medical record and patient confidentiality laws to which we are
subject. While we attempt to comply with all confidentiality requirements, a
violation of any confidentiality law could subject us to sanctions that could
reduce revenues or profits.

     Balanced Budget Act.  Each state operates a Medicaid program funded in part
by the Federal government. The states may customize their programs within
federal limitations. Each state program has its own payment formula and
recipient eligibility criteria. In recent years, changes in Medicare and
Medicaid programs have resulted in limitations on, and reduced levels of,
payment and reimbursement for a substantial portion of health care goods and
services. For example, the federal Balanced Budget Act of 1997 (even after the
restoration of some funding in 1999) will continue to cause significant
reductions in spending levels for the Medicare and Medicaid programs. A more
recent example is the action of a number of state Medicaid agencies to reduce
their reimbursement rates in response to the new AWP prices published by First
Data Bank. Medicare also adopted new AWP pricing for some drugs effective
October 1, 2000, although this pricing does not apply to drugs that we currently
sell.

     Laws governing Medicare, Medicaid, CHAMPUS and other governmental programs
may change, and various administrative rulings, interpretations and
determinations make compliance difficult. Any changes may materially increase or
decrease program payments or the cost of providing services. Final
determinations of government program reimbursement often require years, because
of audits, providers' rights of appeal and numerous technical requirements. We
believe we make adequate provision for adjustments. However, future reductions
in reimbursement could reduce our revenues and profits.

                                        14
   16

     Reform.  The U.S. health care industry continues to undergo significant
change. We anticipate that Congress and state legislatures will continue to
review and assess alternative health care delivery systems and payment methods
and that public debate of these issues will likely continue in the future. We
cannot predict which, if any, reform proposals will be adopted. Future changes
in the nature of the health care system could reduce revenues and profits.

EMPLOYEES

     As of June 30, 2001, we had 556 full-time and 85 part-time employees, which
included 58 full-time and 14 part-time pharmacists. Our employees are not
represented by a labor union, and we believe we have good relations with our
employees.

LIABILITY INSURANCE

     Providing health care services and products entails an inherent risk of
liability. In recent years, participants in the health care industry have become
subject to an increasing number of lawsuits, many of which involve large claims
and significant defense costs. We may from time to time be subject to such suits
as a result of the nature of our business. We maintain general liability
insurance, including professional and product liability, in an amount deemed
adequate by our management. There can be no assurance, however, that claims in
excess of, or beyond the scope of, our insurance coverage will not arise. In
addition, our insurance policies must be renewed annually. Although we have not
experienced difficulty in obtaining insurance coverage in the past, there can be
no assurance that we will be able to do so in the future on acceptable terms or
at all.

                                        15
   17

                                  RISK FACTORS

     You should carefully consider the risks and uncertainties we describe below
before investing in Accredo. The risks and uncertainties described below are NOT
the only risks and uncertainties that could develop. Other risks and
uncertainties that we have not predicted or evaluated could also affect our
company.

     If any of the following risks occur, our earnings, financial condition or
business could be materially harmed, and the trading price of our common stock
could decline, resulting in the loss of all or part of your investment.

WE ARE HIGHLY DEPENDENT ON OUR RELATIONSHIPS WITH A LIMITED NUMBER OF
BIOPHARMACEUTICAL SUPPLIERS AND THE LOSS OF ANY OF THESE RELATIONSHIPS COULD
SIGNIFICANTLY IMPACT OUR ABILITY TO SUSTAIN OR GROW OUR REVENUES.

     We derive a substantial majority of our revenue and profitability from our
relationships with Biogen, Genzyme, MedImmune and Genentech. The table below
shows the concentration of our revenue derived from these relationships as a
percentage of revenue for the periods indicated:



                                                                 FISCAL YEAR ENDED
                                                   ---------------------------------------------
                                                   JUNE 30, 1999   JUNE 30, 2000   JUNE 30, 2001
                                                   -------------   -------------   -------------
                                                                          
Biogen...........................................       31%             37%             38%
Genzyme..........................................       37%             30%             23%
MedImmune........................................        1%              1%              6%
Genentech........................................        4%              4%              5%


     Our agreements with these suppliers are short-term and cancelable by either
party without cause on 60 to 90 days prior notice. These agreements also
generally limit our ability to handle competing drugs during and, in some cases,
after the term of the agreement, but allow the supplier to distribute through
channels other than us. Further, these agreements provide that pricing and other
terms of these relationships be periodically adjusted for changed market
conditions or required service levels. Any termination or adverse adjustment to
any of these relationships could have a material adverse effect on a significant
portion of our business, financial condition and results of operations.

OUR ABILITY TO GROW COULD BE LIMITED IF WE DO NOT EXPAND OUR EXISTING BASE OF
DRUGS OR IF WE LOSE PATIENTS.

     We focus almost exclusively on a limited number of complex and expensive
drugs that serve small patient populations. The concentration of our revenue
related to these diseases and the associated drugs is shown in the table below
as a percentage of revenue for the periods indicated:



                                                                 FISCAL YEAR ENDED
                                                   ---------------------------------------------
                                                   JUNE 30, 1999   JUNE 30, 2000   JUNE 30, 2001
                                                   -------------   -------------   -------------
                                                                          
Multiple Sclerosis...............................       31%             37%             38%
Gaucher Disease..................................       37%             30%             23%
Hemophilia and Autoimmune Disorders..............       21%             21%             21%
Growth Hormone-Related Disorders.................        6%              7%              9%
Respiratory Syncytial Virus......................        1%              1%              6%
Crohn's Disease..................................        1%              1%              1%


     Due to the small patient populations that use the drugs we handle, our
future growth is highly dependent on expanding our base of drugs. Further, a
loss of patient base or reduction in demand for any reason of the drugs we
currently handle could have a material adverse effect on a significant portion
of our business, financial condition and results of operation.

                                        16
   18

OUR BUSINESS WOULD BE HARMED IF DEMAND FOR OUR PRODUCTS AND SERVICES IS REDUCED.

     Reduced demand for our products and services could be caused by a number of
circumstances, including:

     - patient shifts to treatment regimens other than those we offer;

     - new treatments or methods of delivery of existing drugs that do not
       require our specialty products and services;

     - a recall of a drug;

     - adverse reactions caused by a drug;

     - the expiration or challenge of a drug patent;

     - competing treatment from a new drug or a new use of an existing drug;

     - the loss of a managed care or other payor relationship covering a number
       of high revenue patients;

     - the cure of a disease we service; or

     - the death of a high-revenue patient.

THERE IS SUBSTANTIAL COMPETITION IN OUR INDUSTRY, AND WE MAY NOT BE ABLE TO
COMPETE SUCCESSFULLY.

     The specialty pharmacy industry is highly competitive and is continuing to
become more competitive. All of the drugs, supplies and services that we provide
are also available from our competitors. Our current and potential competitors
include:

     - other specialty pharmacy distributors;

     - specialty pharmacy divisions of wholesale drug distributors;

     - pharmacy benefit management companies;

     - hospital-based pharmacies;

     - retail pharmacies;

     - home infusion therapy companies;

     - comprehensive hemophilia treatment centers; and

     - other alternative site health care providers.

     Many of our competitors have substantially greater resources and more
established operations and infrastructure than we have. We are particularly at
risk from any of our suppliers deciding to pursue its own distribution and
services and not outsource these needs to companies like us. A significant
factor in effective competition will be an ability to maintain and expand
relationships with managed care companies, pharmacy benefit managers and other
payors who can effectively determine the pharmacy source for their enrollees.

IF ANY OF OUR RELATIONSHIPS WITH MEDICAL CENTERS ARE DISRUPTED OR CANCELLED, OUR
BUSINESS COULD BE HARMED.

     We have significant relationships with four medical centers that provide
services primarily related to hemophilia, growth hormone-related disorders and
respiratory syncytial virus. For the fiscal years ended June 30, 1999, 2000 and
2001, we received approximately 23%, 12% and 4%, respectively, of our earnings
before income taxes and extraordinary item from equity in the net income of
unconsolidated joint ventures associated with these relationships.

     As of April 1, 2000, our ownership was increased to 80% in one of our joint
ventures with Children's Home Care, Inc. and the financial results of this joint
venture are now included in our consolidated financial results. This
consolidated joint venture represented approximately 10% of our income before
income taxes for the fiscal year ended June 30, 2001.

                                        17
   19

     Our agreements with medical centers have terms of between one and five
years, and may be cancelled by either party without cause upon notice of between
one and twelve months. Adverse changes in our relationships with those medical
centers could be caused, for example, by:

     - changes caused by consolidation within the hospital industry;

     - changes caused by regulatory uncertainties inherent in the structure of
       the relationships; or

     - restrictive changes to regulatory requirements.

     Any termination or adverse change of these relationships could have a
material adverse effect on our business, financial condition and results of
operations.

IF ADDITIONAL PROVIDERS OBTAIN ACCESS TO FAVORABLY PRICED DRUGS WE HANDLE, OUR
BUSINESS COULD BE HARMED.

     We are not eligible to participate directly in the federal pricing program
of the Public Health Service, commonly known as PHS, which allows hospitals and
hemophilia treatment centers to obtain discounts on clotting factor. The federal
Health Resources and Services Administration recently issued a notice that we
expect will broaden the number of facilities purchasing PHS priced clotting
factor. Increased competition from hospitals and hemophilia treatment centers
may reduce our profit margins.

OUR ACQUISITION AND JOINT VENTURE STRATEGY MAY NOT BE SUCCESSFUL, WHICH COULD
CAUSE OUR BUSINESS AND FUTURE GROWTH PROSPECTS TO SUFFER.

     As part of our growth strategy, we continue to evaluate joint venture and
acquisition opportunities, but we cannot predict or provide assurance that we
will complete any future acquisitions or joint ventures. Acquisitions and joint
ventures involve many risks, including:

     - difficulty in identifying suitable candidates and negotiating and
       consummating acquisitions on attractive terms;

     - difficulty in assimilating the new operations;

     - increased transaction costs;

     - diversion of our management's attention from existing operations;

     - dilutive issuances of equity securities that may negatively impact the
       market price of our stock;

     - increased debt; and

     - increased amortization expense related to intangible assets that would
       decrease our earnings.

     We could also be exposed to unknown or contingent liabilities resulting
from the pre-acquisition operations of the entities we acquire, such as
liability for failure to comply with health care or reimbursement laws.

FLUCTUATIONS IN OUR QUARTERLY FINANCIAL RESULTS MAY CAUSE OUR STOCK PRICE TO
DECLINE.

     Our results of operations may fluctuate on a quarterly basis, which could
adversely affect the market price of our common stock. Our results may fluctuate
as a result of:

     - lower prices paid by Medicare or Medicaid for the drugs that we sell,
       including lower prices resulting from recent revisions in the method of
       establishing AWP;

     - below-expected sales or delayed launch of a new drug;

     - price and term adjustments with our drug suppliers;

     - increases in our operating expenses in anticipation of the launch of a
       new drug;

     - product shortages;

                                        18
   20

     - inaccuracies in our estimates of the costs of ongoing programs;

     - the timing and integration of our acquisitions;

     - changes in governmental regulations;

     - the annual renewal of deductibles and co-payment requirements that affect
       patient ordering patterns;

     - our provision of drugs to treat seasonal illnesses, such as respiratory
       syncytial virus;

     - physician prescribing patterns; and

     - general political and economic conditions.

OUR BUSINESS WOULD BE HARMED IF THE BIOPHARMACEUTICAL INDUSTRY CEASES RESEARCH,
DEVELOPMENT AND PRODUCTION OF THE TYPES OF DRUGS THAT ARE COMPATIBLE WITH THE
SERVICES WE PROVIDE.

     Our business is highly dependent on continued research, development,
manufacturing and marketing expenditures of biopharmaceutical companies, and the
ability of those companies to develop, supply and generate demand for drugs that
are compatible with the services we provide. Our business would be materially
and adversely affected if those companies stopped outsourcing the services we
provide or failed to support existing drugs or develop new drugs. Our business
could also be harmed if the biopharmaceutical industry undergoes any of the
following developments:

     - supply shortages;

     - adverse drug reactions;

     - drug recalls;

     - increased competition among biopharmaceutical companies;

     - an inability of drug companies to finance product development because of
       capital shortages;

     - a decline in product research, development or marketing;

     - a reduction in the retail price of drugs from governmental or private
       market initiatives;

     - changes in the FDA approval process; or

     - governmental or private initiatives that would alter how drug
       manufacturers, health care providers or pharmacies promote or sell
       products and services.

OUR BUSINESS COULD BE HARMED IF THE SUPPLY OF ANY OF THE PRODUCTS THAT WE
DISTRIBUTE BECOMES SCARCE.

     The biopharmaceutical industry is susceptible to product shortages. Some of
the products that we distribute, such as IVIG and blood-related products, are
collected and processed from human donors. Accordingly, the supply of these
products is highly dependent on human donors and their availability has been
constrained from time to time. An industry wide recombinant factor VIII product
shortage has existed for some time, as a result of the manufacturers being
unable to increase production to meet rising global demand. Future availability
of product is unclear and we are not certain when the manufacturers will return
to normal product allocations. If these products, or any of the other drugs that
we distribute, are in short supply for long periods of time, our business could
be harmed.

                                        19
   21

IF SOME OF THE DRUGS THAT WE PROVIDE LOSE THEIR "ORPHAN DRUG" STATUS, WE COULD
FACE MORE COMPETITION.

     Our business could also be adversely affected by the expiration or
challenge to the "orphan drug" status that has been granted by the Food and Drug
Administration, FDA, to some of the drugs that we handle. When the FDA grants
"orphan drug" status, it will not approve a second drug for the same treatment
for a period of seven years unless the new drug is chemically different or
clinically superior. The "orphan drug" status applicable to drugs that we handle
expires as follows:

     - Cerezyme(R) expired May 2001;

     - AVONEX(R) expires May 2003; and

     - REMICADE(TM) expires September 2005.

     The loss of orphan drug status could result in competitive drugs entering
the market, which could harm our business.

OUR ABILITY TO CONTINUE TO PROVIDE AVONEX(R) COULD BE AFFECTED BY A PENDING
CHALLENGE THAT BIOGEN IS INFRINGING ON A PATENT.

     Our ability to continue to service AVONEX(R) could also be affected by a
pending challenge by Berlex Laboratories, Inc. that Biogen is infringing on a
Berlex patent in the production of AVONEX(R). Berlex is seeking, among other
things, a permanent injunction restraining Biogen from manufacturing AVONEX(R).
If the permanent injunction is granted or if Biogen is unable to continue to
supply AVONEX(R) on terms favorable to us, our business could be harmed. In
August 2000 the Federal District Court for the District of Massachusetts granted
summary judgment in Biogen's favor ruling that AVONEX(R) does not infringe on a
Berlex patent, and in September 2000 the Court entered a final judgement in
favor of Biogen dismissing the District Court Case. Berlex has appealed this
decision to the U.S. Federal District Court of Appeals.

RECENT INVESTIGATIONS INTO REPORTING OF AVERAGE WHOLESALE PRICES COULD REDUCE
OUR PRICING AND MARGINS.

     Many government payors, including Medicare and Medicaid, pay us directly or
indirectly at the drug's average wholesale price (or AWP) or at a percentage off
AWP. We have also contracted with a number of private payors to sell drugs at
AWP or at a percentage off AWP. AWP for most drugs is compiled and published by
a private company, First DataBank, Inc. Various federal and state government
agencies have been investigating whether the reported AWP of many drugs,
including some that we sell, is an appropriate or accurate measure of the market
price of the drugs. As reported in the Wall Street Journal, there are also
several whistleblower lawsuits pending against various drug manufacturers. These
government investigations and lawsuits involve allegations that manufacturers
reported artificially inflated AWP prices of various drugs to First DataBank.
Bayer Corporation, one of the Company's suppliers of clotting factor, recently
agreed to pay $14 million in a settlement with the federal government and 45
states regarding these charges. Bayer also entered into a 5 year corporate
integrity agreement with the government, in which Bayer agreed to provide
average selling prices of its drugs to the government. In February 2000, First
DataBank published a Market Price Survey of 437 drugs, which was significantly
lower than the historic AWP for a number of the clotting factor and IVIG
products that we sell.

     A number of state Medicaid agencies have revised their payment methodology
as a result of the Market Price Survey. The Centers for Medicare and Medicaid
Services ("CMMS") had also announced that Medicare intermediaries should
calculate the amount that they pay for certain drugs by using the lower prices
on the First DataBank Market Price Survey. However, the proposal to include
clotting factor in the lower Medicare pricing was withdrawn. Instead, CMMS has
announced that it will seek legislation that would establish payments to cover
the administrative costs of suppliers of clotting factor as a supplement to
lower AWP pricing for factor.

     As recently as September 21, 2001, the United States House Subcommittees on
Health and Oversight & Investigations held hearings to examine how Medicare
reimburses providers for the cost of drugs. In conjunction with that hearing,
the U.S. General Accounting Office issued its Draft Report recommending that

                                        20
   22

Medicare establish payment levels for part-B prescription drugs and their
delivery and administration that are more closely related to their costs, and
that payments for drugs be set at levels that reflect actual market transaction
prices and the likely acquisition costs to providers.

     We cannot predict the eventual results of the government investigations and
the changes made by First DataBank. If the reduced average wholesale prices
published by First DataBank for the drugs that we sell are ultimately adopted as
the standard by which we are paid by government payors or private payors, this
could have a material adverse effect on our business, financial condition and
results of operation, including reducing the pricing and margins on certain of
our products.

OUR BUSINESS COULD BE HARMED BY CHANGES IN MEDICARE OR MEDICAID.

     Changes in the Medicare, Medicaid or similar government programs or the
amounts paid by those programs for our services may adversely affect our
earnings. For example, these programs could revise their pricing based on new
methods of calculating the AWP for drugs we handle. We estimate that
approximately 18% of our gross patient service revenues for the fiscal years
ended June 30, 1999 and 2000 and 19% of our gross patient service revenues for
the fiscal year ended June 30, 2001 consisted of reimbursements from federal and
state programs, excluding sales to private physicians whose ultimate payor is
typically Medicare. Any reductions in amounts reimbursable by government
programs for our services or changes in regulations governing such
reimbursements could materially and adversely affect our business, financial
condition and results of operations.

OUR BUSINESS WILL SUFFER IF WE LOSE RELATIONSHIPS WITH PAYORS.

     We are highly dependent on reimbursement from non-governmental payors. For
the fiscal years ended June 30, 1999, 2000 and 2001 we derived approximately
82%, 82% and 81% respectively of our gross patient service revenue from
non-governmental payors (including self-pay), which included 6%, 5% and 4%,
respectively for those periods, from sales to private physician practices whose
ultimate payor is typically Medicare. In fiscal year 2001, our private payor,
Aetna, Inc. and affiliates accounted for approximately 15% of the Company's
revenue.

     Many payors seek to limit the number of providers that supply drugs to
their enrollees. For example, we were selected by Aetna, Inc. as one of three
providers of injectible medications. From time to time, payors with whom we have
relationships require that we and our competitors bid to keep their business,
and there can be no assurance that we will be retained or that our margins will
not be adversely affected when that happens. The loss of a payor relationship,
for example, our relationship with Aetna (which is terminable on 90 days
notice), or an adverse change in the financial condition of a payor like Aetna,
could result in the loss of a significant number of patients and have a material
adverse effect on our business, financial condition and results of operations.

WE RELY HEAVILY ON A SINGLE SHIPPING PROVIDER, AND OUR BUSINESS WOULD BE HARMED
IF OUR RATES ARE INCREASED OR OUR PROVIDER IS UNAVAILABLE.

     Almost all of our revenues result from the sale of drugs we deliver to our
patients and principally all of our products are shipped by a single carrier,
FedEx. We depend heavily on these outsourced shipping services for efficient,
cost effective delivery of our product. The risks associated with this
dependence include:

     - any significant increase in shipping rates;

     - strikes or other service interruptions by our primary carrier, FedEx, or
       by another carrier that could affect FedEx; or

     - spoilage of high cost drugs during shipment, since our drugs often
       require special handling, such as refrigeration.

                                        21
   23

DISRUPTION IN NEW YORK CITY AND IN U.S. COMMERCIAL ACTIVITIES GENERALLY
FOLLOWING THE SEPTEMBER 2001 TERRORIST ATTACKS ON THE U.S. MAY ADVERSELY IMPACT
OUR RESULTS OF OPERATIONS, OUR ABILITY TO RAISE CAPITAL OR OUR FUTURE GROWTH.

     Our operations have been and may continue to be harmed by the recent
terrorist attacks on the U.S. For example, transportation systems and couriers
that we rely upon to deliver our drugs have been and may continue to be
disrupted, thereby causing a decrease in our revenues. In addition, we may
experience a rise in operating costs, such as costs for transportation, courier
services, insurance and security. We also may experience delays in receiving
payments from payors that have been affected by the attacks, which, in turn,
would harm our cash flow. The U.S. economy in general may be adversely affected
by the terrorist attacks or by any related outbreak of hostilities. Any such
economic downturn could adversely impact our results of operations, impair our
ability to raise capital or impede our ability to continue growing our business.

OUR BUSINESS COULD BE HARMED IF PAYORS DECREASE OR DELAY THEIR PAYMENTS TO US.

     Our profitability depends on payment from governmental and non-governmental
payors, and we could be materially and adversely affected by cost containment
trends in the health care industry or by financial difficulties suffered by
non-governmental payors. Cost containment measures affect pricing, purchasing
and usage patterns in health care. Payors also influence decisions regarding the
use of a particular drug treatment and focus on product cost in light of how the
product may impact the overall cost of treatment. Further, some payors,
including large managed care organizations and some private physician practices,
have recently experienced financial trouble. The timing of payments and our
ability to collect from payors also affects our revenue and profitability. If we
are unable to collect from payors or if payors fail to pay us in a timely
manner, it could have a material adverse effect on our business and financial
condition.

IF WE ARE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS WILL BE HARMED.

     Our rapid growth over the past several years has placed a strain on our
resources, and if we cannot effectively manage our growth, our business,
financial condition and results of operations could be materially and adversely
affected. We have experienced a large increase in the number of our employees,
the size of our programs and the scope of our operations. Our ability to manage
this growth and be successful in the future will depend partly on our ability to
retain skilled employees, enhance our management team and improve our management
information and financial control systems.

WE COULD BE ADVERSELY AFFECTED BY AN IMPAIRMENT OF THE SIGNIFICANT AMOUNT OF
GOODWILL ON OUR FINANCIAL STATEMENTS.

     Our formation and our acquisitions of Southern Health Systems, Inc.,
Hemophilia Health Services, Inc., Sunrise Health Management, Inc., Pharmacare
Resources, Inc., NCL Management, Inc. and the specialty pharmacy businesses of
Home Medical of America, Inc. resulted in the recording of a significant amount
of goodwill on our financial statements. The goodwill was recorded because the
fair value of the net assets acquired was less than the purchase price. There
can be no assurance that we will realize the full value of this goodwill. We
evaluate on an on-going basis whether events and circumstances indicate that all
or some of the carrying value of goodwill is no longer recoverable, in which
case we would write off the unrecoverable goodwill in a charge to our earnings.

     We are not presently aware of any persuasive evidence that any material
portion of our goodwill will be impaired and written off against earnings. As of
June 30, 2001, we had goodwill, net of accumulated amortization, of
approximately $89.4 million, or 31% of total assets and 47% of stockholders'
equity.

     Since our growth strategy may involve the acquisition of other companies,
we may record additional goodwill in the future. The possible write-off of this
goodwill could negatively impact our future earnings. We will also be required
to allocate a portion of the purchase price of any acquisition to the value of
non-competition agreements, patient base and contracts that are acquired. The
amount allocated to these items could be amortized over a fairly short period.
As a result, our earnings and the market price of our common stock could be
negatively impacted.
                                        22
   24

WE RELY ON A FEW KEY EMPLOYEES WHOSE ABSENCE OR LOSS COULD ADVERSELY AFFECT OUR
BUSINESS.

     We depend on a few key executives, and the loss of their services could
cause a material adverse effect to our company. We do not maintain "key person"
life insurance policies on any of those executives. As a result, we are not
insured against the losses resulting from the death of our key executives.
Further, we must be able to attract and retain other qualified, essential
employees for our technical operating and professional staff, such as
pharmacists. If we are unable to attract and retain these essential employees,
our business could be harmed.

WE MAY NEED ADDITIONAL CAPITAL TO FINANCE OUR GROWTH AND CAPITAL REQUIREMENTS,
WHICH COULD PREVENT US FROM FULLY PURSUING OUR GROWTH STRATEGY.

     In order to implement our growth strategy, we will need substantial capital
resources and will incur, from time to time, short- and long-term indebtedness,
the terms of which will depend on market and other conditions. We cannot be
certain that existing or additional financing will be available to us on
acceptable terms, if at all. As a result, we could be unable to fully pursue our
growth strategy. Further, additional financing may involve the issuance of
equity securities that would reduce the percentage ownership of our then current
stockholders.

OUR INDUSTRY IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION AND NONCOMPLIANCE BY
US OR OUR SUPPLIERS COULD HARM OUR BUSINESS.

     The marketing, sale and purchase of drugs and medical supplies is
extensively regulated by federal and state governments, and if we fail or are
accused of failing to comply with laws and regulations, we could suffer a
material adverse effect on our business, financial condition and results of
operations. Our business could also be materially and adversely affected if the
suppliers or clients we work with are accused of violating laws or regulations.
The applicable regulatory framework is complex, and the laws are very broad in
scope. Many of these laws remain open to interpretation, and have not been
addressed by substantive court decisions.

     The health care laws and regulations that especially apply to our
activities include:

     - The federal "Anti-Kickback Law" prohibits the offer or solicitation of
       compensation in return for the referral of patients covered by almost all
       governmental programs, or the arrangement or recommendation of the
       purchase of any item, facility or service covered by those programs. The
       Health Insurance Portability and Accountability Act of 1996, or HIPAA,
       created new violations for fraudulent activity applicable to both public
       and private health care benefit programs and prohibits inducements to
       Medicare or Medicaid eligible patients. The potential sanctions for
       violations of these laws range from significant fines, to exclusion from
       participation in the Medicare and Medicaid programs, to criminal
       sanctions. Although some "safe harbor" regulations attempt to clarify
       when an arrangement will not violate the Anti-Kickback Law, our business
       arrangements and the services we provide may not fit within these safe
       harbors. Failure to satisfy a safe harbor requires analysis of whether
       the parties intended to violate the Anti-Kickback Law. The finding of a
       violation could have a material adverse effect on our business.

     - The Department of Health and Human Services recently issued regulations
       implementing the Administrative Simplification provision of HIPAA
       concerning the maintenance and transmission and security of electronic
       health information, particularly individually identifiable information.
       The new regulations, when effective, will require the development and
       implementation of security and transaction standards for all electronic
       health information and impose significant use and disclosure obligations
       on entities that send or receive individually identifiable electronic
       health information. Failure to comply with these regulations, or wrongful
       disclosure of confidential patient information could result in the
       imposition of administrative or criminal sanctions, including exclusion
       from the Medicare and state Medicaid programs. In addition, if we choose
       to distribute drugs through new distribution channels such as the
       Internet, we will have to comply with government regulations that apply
       to those distribution channels, which could have a material adverse
       effect on our business.

                                        23
   25

     - The Ethics in Patient Referrals Act of 1989, as amended, commonly
       referred to as the "Stark Law," prohibits physician referrals to entities
       with which the physician or their immediate family members have a
       "financial relationship." A violation of the Stark Law is punishable by
       civil sanctions, including significant fines and exclusion from
       participation in Medicare and Medicaid.

     - State laws prohibit the practice of medicine, pharmacy and nursing
       without a license. To the extent that we assist patients and providers
       with prescribed treatment programs, a state could consider our activities
       to constitute the practice of medicine. If we are found to have violated
       those laws, we could face civil and criminal penalties and be required to
       reduce, restructure, or even cease our business in that state.

     - Pharmacies and pharmacists must obtain state licenses to operate and
       dispense drugs. Pharmacies must also obtain licenses in some states to
       operate and provide goods and services to residents of those states. If
       we are unable to maintain our licenses or if states place burdensome
       restrictions or limitations on non-resident pharmacies, this could limit
       or affect our ability to operate in some states which could adversely
       impact our business and results of operations.

     - Federal and state investigations and enforcement actions continue to
       focus on the health care industry, scrutinizing a wide range of items
       such as joint venture arrangements, referral and billing practices,
       product discount arrangements, home health care services, dissemination
       of confidential patient information, clinical drug research trials and
       gifts for patients.

     - The False Claims Act encourages private individuals to file suits on
       behalf of the government against health care providers such as us. Such
       suits could result in significant financial sanctions or exclusion from
       participation in the Medicare and Medicaid programs.

THE MARKET PRICE OF OUR COMMON STOCK MAY EXPERIENCE SUBSTANTIAL FLUCTUATIONS FOR
REASONS OVER WHICH WE HAVE LITTLE CONTROL.

     Our common stock is traded on the Nasdaq National Market. Since our common
stock has only been publicly traded for a short time, an active trading market
for the stock may not develop or be maintained. Also, the market price of our
common stock could fluctuate substantially based on a variety of factors,
including the following:

     - future announcements concerning us, our competitors, the drug
       manufacturers with whom we have relationships or the health care market;

     - changes in government regulations;

     - overall volatility of the stock market;

     - changes in earnings estimates by analysts; and

     - changes in operating results from quarter to quarter.

     Furthermore, stock prices for many companies fluctuate widely for reasons
that may be unrelated to their operating results. These fluctuations, coupled
with changes in our results of operations and general economic, political and
market conditions, may adversely affect the market price of our common stock.

SOME PROVISIONS OF OUR CHARTER DOCUMENTS MAY HAVE ANTI-TAKEOVER EFFECTS THAT
COULD DISCOURAGE A CHANGE IN CONTROL, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL
TO OUR STOCKHOLDERS.

     Our certificate of incorporation, our bylaws and Delaware law contain
provisions that could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders.

                                        24
   26

ITEM 2.  PROPERTIES

FACILITIES

     Our corporate headquarters are located in Memphis, Tennessee and our
primary pharmacy locations are in Memphis and Nashville, Tennessee and
Charlotte, North Carolina. In addition, we have satellite pharmacy locations in
the following cities:

     - Birmingham, Alabama;

     - Atlanta, Georgia;

     - Dallas/Ft. Worth, Texas;

     - Garden Grove, California;

     - Jacksonville, Florida;

     - Elmsford, New York; and

     - Milford, Massachussetts

     Memphis, Tennessee.  We currently lease approximately 87,000 square feet of
space in an office/warehouse business park in Memphis. In addition we have
recently entered into a lease agreement for an additional 61,000 square feet of
space in the same location that we will occupy later in fiscal year 2002. We
also have a land lease for an expanded parking lot next to our offices. The
lease for 9,282 square feet of space expires in March 2007, the land lease
expires in March 2007, the lease for 47,040 square feet of space expires in July
2006, and the lease on the remainder of the space will expire in March 2007, but
we have an option to extend our lease terms for one additional five-year period.

     Nashville, Tennessee.  We currently lease approximately 31,000 square feet
of space in Nashville. Our lease expires in December 2005.

     Charlotte, North Carolina.  We currently lease approximately 25,000 square
feet of space in Charlotte, North Carolina. Our lease expires in July 2006.

     Birmingham, Alabama.  We currently lease approximately 2,400 square feet of
space near Birmingham. Our lease expires in February 2003.

     Atlanta, Georgia.  We currently lease approximately 7,300 square feet of
space in the Atlanta area. Our lease expires in December 2005.

     Dallas/Ft. Worth, Texas.  Partnerships in which we are a general partner
currently lease an aggregate of approximately 2,400 square feet of space in two
locations in the Dallas/Fort Worth, Texas area. The leases for this space expire
in May 2002 with an option to extend the lease terms for one additional
three-year period.

     Garden Grove, California.  We currently lease approximately 1,700 square
feet of space in Garden Grove near Los Angeles. Our lease expires in September
2003.

     Jacksonville, Florida.  We currently lease approximately 2,400 square feet
of space in Jacksonville. Our lease expires in September 2002.

     Elmsford, New York.  We currently lease approximately 3000 square feet of
space in Elmsford near New York City. Our lease expires in November 2003.

     Milford, Massachussetts.  We currently lease approximately 2000 square feet
of space in Milford near Boston. Our lease expires in June 2004.

ITEM 3.  LEGAL PROCEEDINGS

     We are involved in a small number of lawsuits and claims arising in the
normal course of our business. In our opinion, in the aggregate these lawsuits
and claims should not have a material adverse effect on our business, financial
condition, or results of operations.

                                        25
   27

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                        26
   28

                                    PART II

ITEM 5.  MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

  Price Range of Common Stock

     The Company's common stock is traded on the Nasdaq National Market System
under the symbol "ACDO." The following table sets forth the quarterly high and
low sales prices as reported on the Nasdaq National Market System for the fiscal
years ended June 30, 2000 and 2001.



FISCAL YEARS 2000 AND 2001                                    HIGH     LOW
--------------------------                                    -----   -----
                                                                
First Quarter ended September 30, 1999......................  16.39   12.00
Second Quarter ended December 31, 1999......................  14.78   11.83
Third Quarter ended March 31, 2000..........................  26.25   12.83
Fourth Quarter ended June 30, 2000..........................  25.17   12.25
First Quarter ended September 30, 2000......................  34.67   19.83
Second Quarter ended December 31, 2000......................  37.21   23.25
Third Quarter ended March 31, 2001..........................  35.54   23.50
Fourth Quarter ended June 30, 2001..........................  39.95   26.06


  Holders

     As of September 18, 2001, the approximate number of registered stockholders
was 4,236 including 32 stockholders of record and approximately 4,204 persons or
entities holding common stock in nominee name.

  Dividend Policy

     We have never paid any cash dividends on our capital stock. We currently
anticipate that all of our earnings will be retained to finance the growth and
development of our business, and therefore, do not anticipate that any cash
dividend will be declared or paid on our common stock in the foreseeable future.
Any future declaration of dividends will be subject to the discretion of our
Board of Directors and their review of our earnings, financial condition,
capital requirements and surplus, contractual restrictions to pay such dividends
and other factors they deem relevant.

  Sales of Unregistered Securities

     None.

                                        27
   29

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

                            SELECTED FINANCIAL DATA

     You should read the following selected financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the notes thereto included
elsewhere in this Annual Report on Form 10-K. The selected financial data as of
and for the fiscal years ended June 30, 1997, 1998, 1999, 2000 and 2001 have
been derived from our audited financial statements. The information set forth
below is not necessarily indicative of the results of future operations.



                                                              YEARS ENDED JUNE 30,
                                              ----------------------------------------------------
                                                1997       1998       1999       2000       2001
                                              --------   --------   --------   --------   --------
                                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                           
STATEMENTS OF OPERATIONS DATA:
Revenues:
  Net patient service revenue...............  $106,143   $170,002   $244,158   $335,601   $446,007
  Other revenue.............................     8,049      9,806     12,277     15,432     14,985
  Equity in net income of joint ventures....     1,017      1,150      1,919      2,002      1,148
                                              --------   --------   --------   --------   --------
          Total revenues....................   115,209    180,958    258,354    353,035    462,140
Operating expenses:
  Cost of services..........................   101,080    154,046    220,517    300,973    395,365
  General and administrative................     5,939     12,489     17,637     23,831     29,871
  Bad debts.................................     2,977      3,165      4,739      6,117      6,131
  Depreciation and amortization.............     4,877      3,861      3,911      3,397      4,263
                                              --------   --------   --------   --------   --------
          Total operating expenses..........   114,873    173,561    246,804    334,318    435,630
                                              --------   --------   --------   --------   --------
Operating income............................       336      7,397     11,550     18,717     26,510
Interest expense (income), net..............       984      3,552      3,165      2,136     (2,770)
                                              --------   --------   --------   --------   --------
Income (loss) before minority interest in
  income of consolidated joint venture,
  income taxes and extraordinary item.......      (648)     3,845      8,385     16,581     29,280
Minority interest in income of cons. joint
  venture...................................        --         --         --       (177)      (692)
                                              --------   --------   --------   --------   --------
Income (loss) before income taxes and
  extraordinary item........................      (648)     3,845      8,385     16,404     28,588
Income tax expense (benefit)................     1,502      2,420      4,003      6,508     11,333
                                              --------   --------   --------   --------   --------
Income (loss) before extraordinary item.....    (2,150)     1,425      4,382      9,896     17,255
Extraordinary item for early extinguishment
  of debt, net of income tax benefit........        --         --     (1,254)        --         --
                                              --------   --------   --------   --------   --------
Net income (loss)...........................    (2,150)     1,425      3,128      9,896     17,255
Mandatorily redeemable cumulative preferred
  stock dividends...........................    (2,043)    (2,043)    (1,617)        --         --
                                              --------   --------   --------   --------   --------
Net income (loss) to common stockholders....  $ (4,193)  $   (618)  $  1,511   $  9,896   $ 17,255
                                              ========   ========   ========   ========   ========
Diluted earnings per common share:
Income (loss) before extraordinary item.....  $  (0.19)  $   0.11   $   0.28   $   0.45   $   0.66
Extraordinary item..........................        --         --      (0.08)        --         --
Preferred stock dividends...................     (0.17)     (0.16)     (0.10)        --         --
                                              --------   --------   --------   --------   --------
Net income (loss) to common
  stockholders(1)...........................  $  (0.36)  $  (0.05)  $   0.10   $   0.45   $   0.66
                                              ========   ========   ========   ========   ========
Cash dividends declared on common stock.....  $     --   $     --   $     --   $     --   $     --
                                              ========   ========   ========   ========   ========


                                        28
   30



                                                                    JUNE 30,
                                              ----------------------------------------------------
                                                1997       1998       1999       2000       2001
                                              --------   --------   --------   --------   --------
                                                                           
BALANCE SHEET DATA:
Cash and cash equivalents...................  $  3,676   $  5,087   $  5,542   $ 10,204   $ 54,520
Working capital.............................    16,894     23,377     28,906     35,639     88,288
Total assets................................   113,309    114,049    146,746    205,229    289,244
Long-term debt..............................    35,195     36,418     20,500     37,000         --
Mandatorily redeemable cumulative preferred
  stock.....................................    27,749     29,792         --         --         --
Stockholders' equity........................    12,790     12,801     64,127     77,544    189,170


---------------

(1) Historical diluted loss per share for the periods ended June 30, 1997 and
    1998 have been calculated using the same denominator as used for basic loss
    per share because the inclusion of dilutive securities in the denominator
    would have an anti-dilutive effect.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and our Financial Statements and the Notes thereto
included elsewhere in this Annual Report on Form 10-K. The discussion in this
Form 10-K contains certain forward-looking statements that involve risks and
uncertainties, such as statements regarding our plans, objectives, expectations
and intentions. The cautionary statements made in this Form 10-K should be read
as being applicable to all forward-looking statements wherever they appear in
this Report. Our actual results could differ materially from those discussed
here. Factors that could cause or contribute to such differences include those
discussed in Item 1 under the heading "Risk Factors," as well as those discussed
elsewhere herein.

OVERVIEW

     We provide specialized contract pharmacy services for the treatment of
patients with costly, chronic diseases. We derive revenues primarily from the
sale of drugs to patients.

     The following table presents the percentage of our total revenue generated
from sales and services provided with respect to the diseases that we service
for the years ended June 30:



                                                                1999    2000    2001
                                                                ----    ----    ----
                                                                       
Multiple Sclerosis..........................................     31%     37%     38%
Gaucher Disease.............................................     37%     30%     23%
Hemophilia and Autoimmune Disorders.........................     21%     21%     21%
Growth Hormone-Related Disorders............................      6%      7%      9%
Respiratory Syncytial Virus.................................      1%      1%      6%
Crohn's Disease.............................................      1%      1%      1%


Sales and services with respect to Multiple Sclerosis, Gaucher Disease, growth
hormone-related disorders, Crohn's Disease and rheumatoid arthritis and
Respiratory Syncytial Virus are dependent upon our relationships with Biogen,
Genzyme, Genentech, Centocor and MedImmune. Our agreements with these
manufacturers describe the services to be provided by us, including contract
pharmacy, information, clinical, reimbursement and customized delivery services.
These agreements generally:

     - limit our ability to supply competing drugs during (and in some cases up
       to five years after) the term of the agreement;

     - allow the manufacturer to distribute directly or through other parties;
       and

     - are short-term and may be cancelled by either party, without cause, upon
       between 60 and 90 days prior notice.

                                        29
   31

     These agreements vary in level of exclusivity and scope of services
provided. We typically purchase products at prices below the manufacturers'
average wholesale sales prices, and our resulting contribution margins vary for
each product line. Pricing is customized to reflect specific services to be
provided by us and is subject to periodic adjustments to reflect changing market
conditions.

     We purchase drugs for hemophilia and autoimmune disorders from all
available sources on a volume discount basis. We were one of the national
providers selected by MedImmune, Inc. to distribute drugs for respiratory
syncytial virus for the 1999-2000 and the 2000-2001 seasons and are in
discussions with MedImmune, Inc. to be a national provider for the 2001-2002
season.

     We recognize revenue at the time we ship drugs or when we have performed
the contractual service. While we may experience revenue changes from price
fluctuations on our existing product lines, our revenue growth will depend
principally on the introduction of new drugs and on volume growth in existing
drug lines.

     At June 30, 2001, we had six joint venture agreements with various medical
centers (or their affiliates) in which we own 50% of each venture and one joint
venture agreement with a medical center affiliate in which we own 80% of the
joint venture. Many of our patient populations have diseases that are discovered
before or during adolescence and require ongoing care from physician
specialists, many of whom are based at pediatric, academic and other acute care
medical centers. To date, these ventures have primarily derived revenues from
the treatment of patients with hemophilia, growth hormone-related disorders and
respiratory syncytial virus. We share profits and losses with our joint venture
partners in equal proportion to our respective equity ownership. We account for
our interests in the net income or loss in our 50% owned joint ventures under
the equity method of accounting, and in our 80% owned joint venture under the
consolidated method of accounting. Our equity interest in the net income of
these joint ventures represented approximately 23%, 12% and 4% of our income
before income taxes for the years ended June 30, 1999, 2000 and 2001,
respectively.

     Costs of services include drug acquisition costs, pharmacy and warehouse
personnel costs, freight and other direct costs associated with the delivery of
our products and costs of clinical services provided. General and administrative
expenses include the personnel costs of the reimbursement, sales, marketing,
administrative and support staffs as well as corporate overhead and other
general expenses. Bad debts include our provision for patient accounts
receivable which prove to be uncollectible after routine collection efforts have
been exhausted. We typically hire personnel and incur legal, recruiting,
marketing and other expenses in anticipation of the commercial launch of a new
biopharmaceutical drug. In some instances, a portion of these expenses are
reimbursed to us by the biopharmaceutical manufacturer. We have not historically
capitalized any of these start-up expenses.

     Due to the increasing sensitivity to drug cost within governmental and
non-governmental payors, we are continuously susceptible to reimbursement and
operating margin pressures. In recent years, pharmacy benefit managers and other
non-governmental payors have aggressively attempted to discount their
reimbursement rates for our products. Although this aggressive discounting has
resulted in some reduced margins for our services, our agreements with
biopharmaceutical manufacturers typically have provisions that address these
discounts through adjustments in product acquisition cost. These provisions have
allowed us to remain price competitive while maintaining relatively stable
operating margins.

     Many government payors, including Medicare and Medicaid, pay us directly or
indirectly for some of the drugs that we sell at the drugs' average wholesale
price ("AWP") or a percentage discount off AWP. Recent government investigations
into the reporting of AWP by drug manufacturers have lead First DataBank, Inc.
to publish a Market Price Survey of 437 drugs that significantly reduces
reimbursement for a number of the clotting factor and IVIG products we sell.

     A number of state Medicaid agencies now pay us for clotting factor at the
prices shown on the Market Price Survey or at a percentage discount off those
prices. Other states have not changed their pricing structure or have changed
back to their pre-Market Price Survey reimbursement rates. In addition, the
Centers for Medicare and Medicaid Services ("CMMS") had previously announced
that Medicare intermediaries should calculate the amount that they pay for
clotting factor and 49 other drugs by using the lower prices on the First
DataBank Market Price Survey. However, the proposal to include clotting factor
in the lower Medicare

                                        30
   32

pricing was withdrawn. Instead, CMMS has announced that it will seek legislation
that would establish payments to cover administrative cost of suppliers of
clotting factor as a supplement to lower AWP pricing for factor.

RESULTS OF OPERATIONS

     The following table sets forth for the periods indicated, the percentages
of total revenues represented by the respective financial items:



                                                              YEARS ENDED JUNE 30,
                                                              ---------------------
                                                              1999    2000    2001
                                                              -----   -----   -----
                                                                     
Revenues:
  Net patient service revenue...............................   94.5%   95.0%   96.5%
  Other revenue.............................................    4.8     4.4     3.2
  Equity in net income of joint ventures....................    0.7     0.6     0.3
                                                              -----   -----   -----
          Total revenues....................................  100.0   100.0   100.0
Operating expenses:
  Cost of services..........................................   85.4    85.2    85.6
  General and administrative................................    6.8     6.8     6.5
  Bad debts.................................................    1.8     1.7     1.3
  Depreciation and amortization.............................    1.5     1.0      .9
                                                              -----   -----   -----
          Total operating expenses..........................   95.5    94.7    94.3
                                                              -----   -----   -----
Operating income............................................    4.5     5.3     5.7
Interest income (expense), net..............................   (1.3)    (.6)     .6
                                                              -----   -----   -----
Income before minority interest, income taxes and
  extraordinary item........................................    3.2     4.7     6.3
Minority interest...........................................     --      .1      .1
                                                              -----   -----   -----
Income before income taxes and extraordinary item...........    3.2     4.6     6.2
Income tax expense..........................................    1.5     1.8     2.5
                                                              -----   -----   -----
Income before extraordinary item............................    1.7     2.8     3.7
Extraordinary charge, net of income tax benefit.............    (.5)     --      --
                                                              -----   -----   -----
Net income..................................................    1.2%    2.8%    3.7%
                                                              =====   =====   =====


FISCAL YEAR ENDED JUNE 30, 2001 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2000

     Revenues.  Total revenues increased 31% from $353.0 million to $462.1
million from fiscal year 2000 to fiscal year 2001. Net patient service revenues
increased 33% from $335.6 million to $446.0 million from fiscal year 2000 to
fiscal year 2001. In fiscal year 2001, we experienced growth in all of our core
products for the treatments of multiple sclerosis, growth hormone disorders,
hemophilia and Gaucher Disease as a result of the addition of new patients as
well as additional sales to existing patients. We also had a significant
increase in our seasonal drug SYNAGIS(R) for the treatment of Respiratory
Synctial Virus as a result of increased patient volume. Our sales of intravenous
immunoglobulin ("IVIG") increased due to the acquisition of Pharmacare
Resources, Inc., which added approximately $3.1 million in revenues during the
year ended June 30, 2001. We also benefited from the addition of new and
expanded contracts with managed care organizations. In June 2000, we were
selected by Aetna, Inc. to be a preferred distributor of injectable medications
to Aetna members and participating physicians.

     Equity in net income of joint ventures decreased $854,000 from fiscal year
2000 to fiscal year 2001 primarily due to the acquisition of an additional 30%
interest in the joint venture Childrens Hemophilia Services effective April 1,
2000. The results of operations of the joint venture have been consolidated with
our results of operations since the date of acquisition and, therefore, are no
longer recorded using the equity method of accounting.

                                        31
   33

     Cost of Services.  Cost of services increased 31% from $301.0 million to
$395.4 million from fiscal year 2000 to fiscal year 2001, which is commensurate
with the increase in our revenues discussed above. As a percentage of revenues,
cost of services increased from 85.2% to 85.6% from fiscal year 2000 to fiscal
year 2001 resulting in gross margins of 14.8% in fiscal year 2000 and 14.4% in
fiscal year 2001. Gross margins for the individual products have remained
relatively stable; however, a change in product mix resulted in a decrease in
the composite gross margin in fiscal year 2001. The primary drivers were
increased revenues from SYNAGIS(R) for the treatment of Respiratory Synctial
Virus and AVONEX(R) for the treatment of multiple sclerosis, which have higher
acquisition costs as a percentage of revenue than most of the other products we
distribute.

     General and Administrative.  General and administrative expenses increased
from $23.8 million to $29.9 million, or 26%, from fiscal year 2000 to fiscal
year 2001. This increase was primarily the result of increased salaries and
benefits associated with the expansion of our reimbursement, sales and
marketing, administrative and support staffs and the addition of office space
and related furniture and fixtures to support the revenue growth. General and
administrative expenses represented 6.8% and 6.5% of revenues for fiscal years
2000 and 2001, respectively.

     Bad Debts.  Bad debts were $6.1 million in both fiscal years 2000 and 2001.
As a percentage of revenues, bad debt expense decreased from 1.7% to 1.3% from
fiscal year 2000 to fiscal year 2001. The decrease in bad debts as a percentage
of revenues is primarily due to the increased percentage of our revenues that
was reimbursed by prescription card benefits versus major medical benefit plans.
The majority of the reimbursement for both AVONEX(R) and SYNAGIS(R) is being
provided by prescription card benefit plans, and therefore is subject to much
lower co-payment and deductible amounts (typically $10-$15 per prescription)
resulting in lower bad debt. AVONEX(R) and SYNAGIS(R) represented 44% of our
revenues in fiscal year 2001 compared to 38% in fiscal year 2000.

     Depreciation and Amortization.  Depreciation expense increased from
$1,094,000 to $1,509,000 from fiscal year 2000 to fiscal year 2001 as a result
of purchases of property and equipment associated with our revenue growth and
the expansion of our leasehold facility improvements. Amortization expense
associated with goodwill and other intangible assets increased from $2,303,000
to $2,754,000 from fiscal year 2000 to fiscal year 2001 due to acquisitions made
during fiscal years 2000 and 2001.

     Interest Income/Expense, Net.  Interest expense, net, amounted to
$2,136,000 in fiscal year 2000 compared to interest income, net, of $2,770,000
in fiscal year 2001. This change amounting to $4,906,000 is due to the repayment
of our debt with the proceeds of the stock offering completed during the first
quarter of fiscal year 2001, the investment of the excess proceeds from the
offering and the sale of an interest rate swap for $350,000.

     Income Tax Expense.  Our effective tax rate decreased from 39.7% to 39.6%
from fiscal year 2000 to fiscal year 2001. The difference between the recognized
effective tax rate and the statutory tax rate is primarily attributed to
approximately $816,000 and $788,000 of nondeductible amortization expense in
fiscal years 2000 and 2001, respectively, and state income taxes.

FISCAL YEAR ENDED JUNE 30, 2000 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1999

     Revenues.  Total revenues increased 37% from $258.4 million to $353.0
million from fiscal year 1999 to fiscal year 2000. Approximately $50.3 million,
or 53%, of this increase was attributable to our increased sales of AVONEX(R).
Our Cerezyme(R) and Ceredase(R)drug sales increased approximately $11.8 million,
or 12% of the revenue increase. Approximately $18.6 million, or 20% of this
increase, was attributable to increased hemophilia factor and IVIG revenue.
Approximately $10.6 million, or 11%, of the increase was attributable to the
increased sales of growth hormone products. Synagis(R) drug sales increased
approximately $2.6 million, or 3% of the increase, as a result of increased
patients. The remaining $0.7 million, or 1%, of our revenue increase was
primarily attributable to increased sales of other ancillary drugs that we
dispense as part of the patient's primary therapy or under contractual
obligations within some managed care contracts. Total revenues included
approximately $16.1 million of revenues from companies that we acquired during
the year ended June 30, 2000.
                                        32
   34

     Cost of Services.  Cost of services increased 37% from $220.5 million to
$301.0 million from fiscal year 1999 to fiscal year 2000. This increase is
commensurate with the increase in our revenues. As a percentage of revenues,
cost of services decreased from 85.4% to 85.2% from fiscal year 1999 to fiscal
year 2000. The decrease is primarily the result of changes in the revenue mix by
therapy type and more specifically increased sales of IVIG drugs which have a
lower acquisition cost as a percentage of revenues than the other drugs we
distribute.

     General and Administrative.  General and administrative expenses increased
from $17.6 million to $23.8 million, or 35%, from fiscal year 1999 to fiscal
year 2000. This increase was primarily the result of increased salaries and
benefits associated with the expansion of our reimbursement, sales, marketing,
administrative and support staffs due to existing product line revenue growth,
new product line launches and the acquisitions we made during the year ended
June 30, 2000. General and administrative expenses represented 6.8% of our
revenues for both fiscal years 1999 and 2000.

     Bad Debts.  Bad debts increased from $4.7 million to $6.1 million, or 30%,
from fiscal year 1999 to fiscal year 2000. As a percentage of revenues, bad debt
expense decreased from 1.8% to 1.7% from fiscal year 1999 to fiscal year 2000.

     Depreciation and Amortization.  Depreciation expense increased from
$614,000 to $1,094,000 from fiscal year 1999 to fiscal year 2000 as a result of
purchases of property and equipment associated with our revenue growth and the
expansion of our leasehold facility improvements. Amortization expense
associated with goodwill and other intangible assets decreased from $3,297,000
to $2,303,000 from fiscal year 1999 to fiscal year 2000 due to some contract
intangibles and a non-compete covenant that were fully amortized by the end of
fiscal year 1999. Amortization expense attributable to the acquisitions made
during fiscal year 2000 amounted to approximately $550,000.

     Interest Expense, Net.  Interest expense, net, decreased from $3,165,000 to
$2,136,000 from fiscal year 1999 to fiscal year 2000. This decrease was due to
lower interest and margin rates payable under our existing revolving line of
credit, lower fixed interest rate payments associated with our interest rate
swap agreement, and the payoff of the senior subordinated notes, with an
effective interest rate of 16%, in fiscal year 1999. We had interest income of
approximately $181,000 and $323,000 in fiscal years 1999 and 2000, respectively.

     Income Tax Expense.  Our effective tax rate decreased from 47.7% to 39.7%
from fiscal year 1999 to fiscal year 2000 as a result of the increase in income
before taxes while nondeductible amortization expense decreased. The difference
between the recognized effective tax rate and the statutory tax rate is
primarily attributed to approximately $2,300,000 and $816,000 of nondeductible
amortization expense in fiscal years 1999 and 2000, respectively, and state
income taxes.

LIQUIDITY AND CAPITAL RESOURCES

     As of June 30, 2001 and June 30, 2000, we had working capital of $88.3
million and $35.6 million, respectively. Our net cash provided by operating
activities was approximately $23.2 million for the year ended June 30, 2001 and
$17.9 million for the year ended June 30, 2000. These increases are due
primarily to our revenue growth and the timing of the collection of receivables,
inventory purchases and payments of accounts payable.

     Net cash used by investing activities was $33.1 million for the year ended
June 30, 2001 and $30.6 million for the year ended June 30, 2000. Cash used by
investing activities in the year ended June 30, 2001 consisted primarily of
$27.1 million for acquisitions, $2.6 million for purchases of property and
equipment, $2.0 million for net purchases of marketable securities and $1.3
million of undistributed earnings from our joint ventures. Cash used by
investing activities in fiscal 2000 consisted primarily of $24.5 million for
acquisitions, $4.4 million for purchases of property and equipment and $1.7
million of undistributed earnings from our joint ventures.

     Net cash provided by financing activities was $54.2 million for the year
ended June 30, 2001 and $17.4 million for the year ended June 30, 2000. Cash
provided by financing activities for the year ended June 30, 2001 consisted
primarily of $88.3 million of net proceeds from the common stock offering
completed in the
                                        33
   35

first quarter plus $3.1 million from the proceeds of stock option exercises less
$37.2 million of net repayments on the revolving line of credit. Cash provided
by financing activities for the year ended June 30, 2000 consisted primarily of
$16.0 million of net borrowings on our revolving line of credit to finance our
acquisitions and $1.9 million from the proceeds of stock option exercises less
$.5 million of payments for costs of the initial public offering.

     Historically, we have funded our operations and continued internal growth
through cash provided by operations. Capital expenditures amounted to $2.6
million in fiscal year 2001 and $4.4 million in fiscal year 2000. We anticipate
that our capital expenditures for the fiscal year ending June 30, 2002 will
consist primarily of additional computer hardware, a fully integrated pharmacy
and reimbursement software system and costs to build out and furnish additional
space needed to meet the needs of our growth. We expect the cost of our capital
expenditures in fiscal year 2002 to be approximately $7.0 million, exclusive of
any acquisitions of businesses. We expect to fund these expenditures through
cash provided by operating activities and/or borrowings under the revolving
credit agreement with our bank. In addition, in connection with two of our
acquisitions that were completed in 1999 and 2001, we may be obligated to make
up to $6.9 million in earn-out payments during the next twelve months.

     We have amended our $60 million revolving credit facility under the terms
of our existing credit agreement. The amendment has allowed us to reduce the
nonuse fees by decreasing the commitment on which fees are paid to $30 million
and by reducing the nonuse fee interest rate. We may increase the commitment up
to $60 million upon (i) 15 days written notice, (ii) the payment of an
additional commitment fee and (iii) delivery of a current compliance certificate
demonstrating no event of default exists and will not exist following the
increase in the commitment. The amendment also includes changes to the
applicable London Inter-Bank Offered Rate and Prime Rate margins, a change in
the funded debt to cash flow ratio to not more than 2.75 to 1.00, and a two-year
extension to the loan termination date to December 1, 2003.

     Interest on loans under the credit agreement accrues at a variable rate
index based on the prime rate or the London Inter-Bank Offered Rate for one,
two, three or six months (as selected by us), plus a margin depending on the
amount of our debt to cash flow ratio as defined by the credit agreement and
measured at the end of each quarter for prospective periods. As of June 30,
2001, there were no borrowings outstanding under the line of credit.

     Our obligations under the credit agreement are secured by a lien on
substantially all of our assets, including a pledge of all of the common stock
or partnership interest of each of our subsidiaries in which we own an 80% or
more interest.

     The credit agreement contains operating and financial covenants, including
requirements to maintain a certain debt to equity ratio and minimum leverage and
debt service coverage ratios. In addition, the credit agreement includes
customary affirmative and negative covenants, including covenants relating to
transactions with affiliates, uses of proceeds, restrictions on subsidiaries,
limitations on indebtedness, limitations on capital expenditures, limitations on
mergers, acquisitions and sales of assets, limitations on investments,
prohibitions on payment of dividends and stock repurchases, limitations on debt
payments (including payment of subordinated indebtedness) and other
distributions. The credit agreement also contains customary events of default,
including events relating to changes in control of our company.

     We have used interest rate swap agreements to manage our interest rate
exposure under the credit agreement. We had effectively converted, for the
period through October 31, 2001, $25.0 million of floating-rate borrowings to
fixed-rate borrowings. We had secured a 5.5% fixed interest rate (exclusive of
the margin rate) using this interest rate swap agreement. On August 21, 2000, in
conjunction with the repayment of the outstanding principal balance of our
revolving line of credit, we surrendered our swap agreement and received
$350,000 in consideration for the early termination of the agreement.

     While we anticipate that our cash from operations, along with the
short-term use of the revolving credit facility will be sufficient to meet our
internal operating requirements and growth plans for at least the next 12
months, we expect that additional funds may be required in the future to
successfully continue our growth beyond such period. We may be required to raise
additional funds through sales of equity or debt securities or

                                        34
   36

seek additional financing from financial institutions. There can be no
assurance, however, that financing will be available on terms that are favorable
to us or, if obtained, will be sufficient for our needs.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will continue to be amortized over their
useful lives.

     The Company will apply the new rules on business combinations and
accounting for goodwill and other intangible assets beginning in the first
quarter of fiscal year 2002. Application of the non-amortization provisions of
the Statement is expected to result in an increase in net income of
approximately $1,763,000 ($.06 diluted earnings per share) in fiscal year 2002.
The Company will also perform the first of the required impairment tests of
goodwill and indefinite lived intangible assets as of July 1, 2001. The Company
does not expect these impairment tests to have a material impact on the earnings
and financial position of the Company.

IMPACT OF INFLATION

     Changes in prices charged by the biopharmaceutical manufacturers for the
drugs we dispense, along with increasing labor costs, freight and supply costs
and other overhead expenses, affect our cost of services and general and
administrative expenses. Historically, we have been able to pass all, or a
portion, of the effect of such increases to the biopharmaceutical manufacturers
pursuant to negotiated adjustments made under our preferred distribution
agreements. As a result, changes due to inflation have not had significant
adverse effects on our operations.

FORWARD LOOKING INFORMATION

     Certain of the matters discussed in the preceding pages of this Form 10-K,
particularly regarding implementation of our strategy, development of new drugs
by the pharmaceutical and biotechnology industries, anticipated growth and
revenues, anticipated working capital and sources of funding for growth
opportunities, expenditures, interest, costs and income constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (See Item 1 -- "Risk Factors").

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our exposure to the impact of financial market risk is currently not
significant. Our primary financial market risk exposure consists of interest
rate risk related to interest income from our short term investments in money
market and high quality short term debt securities with maturities of twelve
months or less that we intend to hold to maturity. We have invested and expect
to continue to invest a substantial portion of our excess cash in such
securities. Generally, if the overall average return on such securities had
decreased 10% from the average return during the twelve months ended June 30,
2001, then our interest income would have decreased, and pre-tax income would
have decreased approximately $324,000 during the period. This amount was
determined by considering the impact of a hypothetical change in interest rates
on our interest income. Actual changes in rates may differ from the hypothetical
assumptions used in computing this exposure.

     In prior periods, we have used derivative financial instruments to manage
our exposure to rising interest rates on our variable-rate debt, primarily by
entering into variable-to-fixed interest rate swap agreements. Since we
currently do not have an outstanding balance on our revolving line of credit nor
any outstanding interest rate swap agreements, we do not have an exposure to
financial market risk associated with our revolving line of credit or any
derivative financial instruments.

                                        35
   37

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Consolidated Financial Statements and financial statement schedule in
Part IV, Item 14(a) (1) and (2) of the report are incorporated by reference into
this Item 8.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     None.

                                        36
   38

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

     The information required by this item will appear in, and is incorporated
by reference from, the sections entitled "Proposals for Stockholder
Action -- Election of Directors," "Section 16(a) Beneficial Ownership Reporting
Compliance," "Management" and "Compensation Committee Interlocks and Insider
Participation" included in the Company's definitive Proxy Statement relating to
the 2001 Annual Meeting of Stockholders.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by this item will appear in the section entitled
"Executive Compensation" included in the Company's definitive Proxy Statement
relating to the 2001 Annual Meeting of Stockholders, which information, other
than the Compensation Committee Report and Performance Graph required by Items
402(k) and (l) of Regulation S-K, is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item will appear in, and is incorporated
by reference from, the section entitled "Security Ownership of Directors,
Officers and Principal Stockholders" included in the Company's definitive Proxy
Statement relating to the 2001 Annual Meeting of Stockholders.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item will appear in, and is incorporated
by reference from, the sections entitled "Compensation Committee Interlocks and
Insider Participation" and "Certain Relationships and Related Transactions"
included in the Company's definitive Proxy Statement relating to the 2001 Annual
Meeting of Stockholders.

                                        37
   39

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a) Documents filed as part of this Report:



                                                                   PAGE
                                                                   ----
                                                             
(1)  Financial Statements: Report of Independent Auditors........   F-1
     Consolidated Balance Sheets at June 30, 2000 and 2001.......   F-2
     Consolidated Statements of Income for the years ended June
     30, 1999, 2000, and 2001....................................   F-3
     Consolidated Statements of Stockholders' Equity and
     Mandatorily Redeemable Preferred Stock for the years ended
     June 30, 1999, 2000, and 2001...............................   F-4
     Consolidated Statements of Cash Flows for the years ended
     June 30, 1999, 2000, and 2001...............................   F-5
     Notes to Consolidated Financial Statements..................   F-6
(2)  Financial Statement Schedules:
     Schedule II -- Valuation and Qualifying Accounts............  F-20
     All other schedules for which provision is made in the
     applicable accounting regulation of the Securities and
     Exchange Commission are not required under the related
     instructions or are inapplicable and therefore have been
     omitted.
(3)  The Index of Exhibits required by Item 601 of Regulation S-K
     included herewith, is incorporated herein by reference.


     (b) We filed a report on Form 8-K on June 15, 2001 to report our
acquisition of Pharmacare Resources, Inc. and its affiliate NCL Management, Inc.

                                        38
   40

                         REPORT OF INDEPENDENT AUDITORS

Board of Directors
Accredo Health, Incorporated

     We have audited the accompanying consolidated balance sheets of Accredo
Health, Incorporated (the "Company") as of June 30, 2000 and 2001, and the
related consolidated statements of income, stockholders' equity and mandatorily
redeemable cumulative preferred stock, and cash flows for each of the three
years in the period ended June 30, 2001. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Accredo
Health, Incorporated at June 30, 2000 and 2001, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 2001, in conformity with accounting principles generally accepted in
the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.

                                          /s/ Ernst & Young LLP

Memphis, Tennessee
August 7, 2001

                                       F-1
   41

                          ACCREDO HEALTH, INCORPORATED

                          CONSOLIDATED BALANCE SHEETS
                       (000'S OMITTED, EXCEPT SHARE DATA)



                                                                    JUNE 30,
                                                              --------------------
                                                                2000        2001
                                                              --------    --------
                                                                    
                                      ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 10,204    $ 54,520
  Marketable securities.....................................        --       2,000
  Receivables:
     Patient accounts.......................................    76,812      87,760
     Allowance for doubtful accounts........................    (8,395)    (10,808)
                                                              --------    --------
                                                                68,417      76,952
     Due from affiliates....................................     1,634       2,440
     Other..................................................     7,420      13,275
                                                              --------    --------
                                                                77,471      92,667
  Inventories...............................................    32,342      30,711
  Prepaid expenses and other current assets.................       770         537
  Deferred income taxes.....................................     3,133       4,703
                                                              --------    --------
          Total current assets..............................   123,920     185,138
Property and equipment, net.................................     6,992       8,195
Other assets:
  Joint venture investments.................................     2,056       2,809
  Goodwill, net.............................................    69,053      89,359
  Other intangible assets, net..............................     3,208       3,743
                                                              --------    --------
          Total assets......................................  $205,229    $289,244
                                                              ========    ========

                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $ 79,677    $ 88,611
  Accrued expenses..........................................     7,115       7,168
  Income taxes payable......................................     1,289       1,071
  Line of credit............................................       200          --
                                                              --------    --------
          Total current liabilities.........................    88,281      96,850
Long-term notes payable.....................................    37,000          --
Deferred income taxes.......................................     1,355       2,122
Minority interest in consolidated joint venture.............     1,049       1,102
Stockholders' equity:
  Undesignated preferred stock, 5,000,000 shares authorized,
     no shares issued.......................................        --          --
  Common stock, $.01 par value; 50,000,000 shares
     authorized; 21,160,452 shares in 2000 and 25,954,232
     shares in 2001 issued and outstanding..................       211         259
  Additional paid-in capital................................    66,768     161,091
  Retained earnings.........................................    10,565      27,820
                                                              --------    --------
          Total stockholders' equity........................    77,544     189,170
                                                              --------    --------
          Total liabilities and stockholders' equity........  $205,229    $289,244
                                                              ========    ========


                            See accompanying notes.

                                       F-2
   42

                          ACCREDO HEALTH, INCORPORATED

                       CONSOLIDATED STATEMENTS OF INCOME
                       (000'S OMITTED, EXCEPT SHARE DATA)



                                                                   YEARS ENDED JUNE 30,
                                                              ------------------------------
                                                                1999       2000       2001
                                                              --------   --------   --------
                                                                           
Revenues:
  Net patient service revenue...............................  $244,158   $335,601   $446,007
  Other revenue.............................................    12,277     15,432     14,985
  Equity in net income of joint ventures....................     1,919      2,002      1,148
                                                              --------   --------   --------
          Total revenues....................................   258,354    353,035    462,140
Operating expenses:
  Cost of services..........................................   220,517    300,973    395,365
  General and administrative................................    17,637     23,831     29,871
  Bad debts.................................................     4,739      6,117      6,131
  Depreciation..............................................       614      1,094      1,509
  Amortization..............................................     3,297      2,303      2,754
                                                              --------   --------   --------
          Total operating expenses..........................   246,804    334,318    435,630
                                                              --------   --------   --------
Operating income............................................    11,550     18,717     26,510
Other income (expense):
  Interest expense..........................................    (3,346)    (2,459)      (467)
  Interest income...........................................       181        323      3,237
                                                              --------   --------   --------
                                                                (3,165)    (2,136)     2,770
                                                              --------   --------   --------
Income before minority interest in income of consolidated
  joint venture, income taxes and extraordinary item........     8,385     16,581     29,280
Minority interest in income of consolidated joint venture...        --       (177)      (692)
                                                              --------   --------   --------
Income before income taxes and extraordinary item...........     8,385     16,404     28,588
Income tax expense..........................................     4,003      6,508     11,333
                                                              --------   --------   --------
Income before extraordinary item............................     4,382      9,896     17,255
Extraordinary charge for early extinguishment of debt, net
  of income tax benefit.....................................    (1,254)        --         --
                                                              --------   --------   --------
          Net income........................................     3,128      9,896     17,255
Mandatorily redeemable cumulative preferred stock
  dividends.................................................    (1,617)        --         --
                                                              --------   --------   --------
Net income to common stockholders...........................  $  1,511   $  9,896   $ 17,255
                                                              ========   ========   ========
Basic earnings per common share:
Income before extraordinary item............................  $   0.31   $   0.48   $   0.69
Extraordinary charge........................................     (0.09)        --         --
Preferred stock dividends...................................     (0.11)        --         --
                                                              --------   --------   --------
          Net income to common stockholders.................  $   0.11   $   0.48   $   0.69
                                                              ========   ========   ========
Diluted earnings per common share:
Income before extraordinary item............................  $   0.28   $   0.45   $   0.66
Extraordinary charge........................................     (0.08)        --         --
Preferred stock dividends...................................     (0.10)        --         --
                                                              --------   --------   --------
          Net income to common stockholders.................  $   0.10   $   0.45   $   0.66
                                                              ========   ========   ========


                            See accompanying notes.

                                       F-3
   43

                          ACCREDO HEALTH, INCORPORATED

              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
               MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK
                       (000'S OMITTED, EXCEPT SHARE DATA)



                                   COMMON                COMMON                    ADDITIONAL   RETAINED        TOTAL
                                   STOCK      COMMON     STOCK      SUBSCRIPTION    PAID-IN     EARNINGS    STOCKHOLDERS'
                                   SHARES     STOCK    SUBSCRIBED    RECEIVABLE     CAPITAL     (DEFICIT)      EQUITY
                                 ----------   ------   ----------   ------------   ----------   ---------   -------------
                                                                                       
Balance at June 30, 1998.......  12,578,822    $126      $ 204         $(204)       $ 13,969     $(1,294)     $ 12,801
  Issuance of common stock.....   7,844,625      78       (204)          204          51,470          --        51,548
  Costs related to public
    offering...................          --      --         --            --          (1,849)         --        (1,849)
  Accrued dividends on
    mandatorily redeemable
    cumulative preferred
    stock......................          --      --         --            --            (452)     (1,165)       (1,617)
  Redemption of mandatorily
    redeemable cumulative
    preferred stock............          --      --         --            --              --          --            --
  Compensation resulting from
    stock transactions, net of
    income tax benefit.........          --      --         --            --             116          --           116
  Net income...................          --      --         --            --              --       3,128         3,128
                                 ----------    ----      -----         -----        --------     -------      --------
Balance at June 30, 1999.......  20,423,447     204         --            --          63,254         669        64,127
  Issuance of common stock:
    Exercise of stock
      options..................     630,721       6         --            --           1,093          --         1,099
    Employee stock purchase
      plan.....................     106,284       1         --            --             769          --           770
  Tax benefit of disqualifying
    dispositions of stock
    options....................          --      --         --            --           1,536          --         1,536
  Compensation resulting from
    stock transactions, net of
    income tax benefit.........          --      --         --            --             116          --           116
  Net income...................          --      --         --            --              --       9,896         9,896
                                 ----------    ----      -----         -----        --------     -------      --------
Balance at June 30, 2000.......  21,160,452     211         --            --          66,768      10,565        77,544
  Issuance of common stock:
    Public offering............   4,140,000      41         --            --          88,886          --        88,927
    Exercise of stock
      options..................     625,059       6         --            --           2,436          --         2,442
    Employee stock purchase
      plan.....................      28,721       1         --            --             651          --           652
  Costs related to public
    offering...................                                                         (605)                     (605)
  Tax benefit of disqualifying
    dispositions of stock
    options....................          --      --         --            --           2,839          --         2,839
  Compensation resulting from
    stock transactions, net of
    income tax benefit.........          --      --         --            --             116          --           116
  Net income...................          --      --         --            --              --      17,255        17,255
                                 ----------    ----      -----         -----        --------     -------      --------
Balance at June 30, 2001.......  25,954,232    $259      $  --         $  --        $161,091     $27,820      $189,170
                                 ==========    ====      =====         =====        ========     =======      ========


                                 MANDATORILY
                                 REDEEMABLE
                                 CUMULATIVE
                                  PREFERRED
                                    STOCK
                                 -----------
                              
Balance at June 30, 1998.......    $29,792
  Issuance of common stock.....         --
  Costs related to public
    offering...................         --
  Accrued dividends on
    mandatorily redeemable
    cumulative preferred
    stock......................      1,617
  Redemption of mandatorily
    redeemable cumulative
    preferred stock............    (31,409)
  Compensation resulting from
    stock transactions, net of
    income tax benefit.........         --
  Net income...................         --
                                   -------
Balance at June 30, 1999.......         --
  Issuance of common stock:
    Exercise of stock
      options..................         --
    Employee stock purchase
      plan.....................         --
  Tax benefit of disqualifying
    dispositions of stock
    options....................         --
  Compensation resulting from
    stock transactions, net of
    income tax benefit.........         --
  Net income...................         --
                                   -------
Balance at June 30, 2000.......         --
  Issuance of common stock:
    Public offering............
    Exercise of stock
      options..................         --
    Employee stock purchase
      plan.....................         --
  Costs related to public
    offering...................
  Tax benefit of disqualifying
    dispositions of stock
    options....................         --
  Compensation resulting from
    stock transactions, net of
    income tax benefit.........         --
  Net income...................         --
                                   -------
Balance at June 30, 2001.......    $    --
                                   =======


                            See accompanying notes.

                                       F-4
   44

                          ACCREDO HEALTH, INCORPORATED

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (000'S OMITTED)



                                                                  YEARS ENDED JUNE 30,
                                                              -----------------------------
                                                                1999       2000      2001
                                                              --------   --------   -------
                                                                           
OPERATING ACTIVITIES:
Net income..................................................  $  3,128   $  9,896   $17,255
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation and amortization.............................     3,911      3,397     4,263
  Original issue discount amortization......................       198         --        --
  Extraordinary charge for early retirement of debt.........     2,000         --        --
  Provision for losses on accounts receivable...............     4,739      6,117     6,131
  Deferred income taxes.....................................      (969)    (1,158)     (872)
  Compensation resulting from stock transactions............       185        185       185
  Tax benefit of disqualifying disposition of stock
     options................................................        --      1,536     2,840
  Minority interest in income of consolidated joint
     venture................................................        --        177       692
Changes in operating assets and liabilities, net of effect
  from business acquisitions:
  Patient receivables and other.............................   (25,858)   (13,419)  (18,050)
  Due from affiliates.......................................    (1,784)      (990)     (806)
  Inventories...............................................    (7,796)   (11,950)    2,192
  Prepaid expenses and other current assets.................       (49)      (406)      115
  Recoverable income taxes..................................       151         --        --
  Accounts payable and accrued expenses.....................    25,891     23,618     9,439
  Income taxes payable......................................       393        896      (218)
                                                              --------   --------   -------
Net cash provided by operating activities...................     4,140     17,899    23,166
INVESTING ACTIVITIES:
Purchases of marketable securities..........................        --         --   (13,500)
Proceeds from sales and maturities of marketable
  securities................................................        --         --    11,500
Purchases of property and equipment.........................    (1,511)    (4,452)   (2,635)
Business acquisitions and joint venture investments.........    (1,298)   (24,480)  (27,088)
Change in joint venture investments, net....................    (1,489)    (1,707)   (1,343)
                                                              --------   --------   -------
Net cash used in investing activities.......................    (4,298)   (30,639)  (33,066)
FINANCING ACTIVITIES:
Proceeds from (payment of) notes payable and line of
  credit....................................................   (18,116)    16,000   (37,200)
Redemption of preferred stock...............................   (31,409)        --        --
Capitalized loan fees.......................................       (27)        --        --
Issuance of common stock....................................    51,547      1,869    92,021
Payment of costs related to public offering.................    (1,382)      (467)     (605)
                                                              --------   --------   -------
Net cash provided by financing activities...................       613     17,402    54,216
Increase in cash and cash equivalents.......................       455      4,662    44,316
Cash and cash equivalents at beginning of year..............     5,087      5,542    10,204
                                                              --------   --------   -------
Cash and cash equivalents at end of year....................  $  5,542   $ 10,204   $54,520
                                                              ========   ========   =======
SUPPLEMENTARY CASH FLOW DISCLOSURES:
Income taxes paid...........................................  $  3,731   $  5,235   $ 9,593
                                                              ========   ========   =======
Interest paid...............................................  $  3,836   $  2,529   $   555
                                                              ========   ========   =======


                            See accompanying notes.

                                       F-5
   45

                          ACCREDO HEALTH, INCORPORATED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

     The consolidated financial statements and related notes to the consolidated
financial statements include the accounts of Accredo Health, Incorporated (the
Company), its wholly-owned subsidiaries and its 80% owned joint venture.
Significant intercompany accounts have been eliminated in consolidation.

     The Company provides specialized contract pharmacy and related services
pursuant to agreements with biotechnology drug manufacturers relating to the
treatment of patients with certain costly chronic diseases. Because of the
unique needs of patients suffering from chronic diseases, biotechnology drug
manufacturers have recognized the benefits of customized programs to facilitate
alternate site drug administration, ensure compliance with treatment regimens,
provide reimbursement assistance and capture valuable clinical and patient
demographic information. The Company addresses the needs of the manufacturers by
providing specialized services that facilitate product launch and patient
acceptance including the collection of timely drug utilization and patient
compliance information, patient education and monitoring through the use of
written materials and telephonic consultation, reimbursement expertise and
overnight drug delivery.

     The Company has designed its specialty services to focus primarily on
biotechnology drugs that: (i) are used on a recurring basis to treat chronic,
and potentially life threatening diseases; (ii) are expensive; (iii) are
administered through injection; and (iv) require temperature control or other
specialized handling as part of their distribution process. Currently, the
Company provides specialized contract pharmacy and related services that address
the needs of patients with the following diseases: Multiple Sclerosis, Gaucher
Disease, hemophilia, growth hormone related disorders, primary immune
deficiencies, auto-immune disorders, Crohn's Disease, rheumatoid arthritis, and
respiratory syncytial virus.

2. SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

     The Company considers all highly liquid investments with an initial
maturity of three months or less to be cash equivalents.

MARKETABLE SECURITIES

     The Company has classified all of its investments in marketable securities
as held-to-maturity. Debt securities are classified as held-to-maturity when
there is the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization and accretion and the interest earned on the securities are
included in interest income. Investments with an original maturity of less than
three months are included in cash equivalents.

CONCENTRATIONS OF RISKS

     The Company's primary concentration of credit risk is patient accounts
receivable, which consists of amounts owed by various governmental agencies,
insurance companies and private patients. The Company manages the receivables by
regularly reviewing its accounts and contracts and by providing appropriate
allowances for uncollectible amounts. Significant concentrations of gross
patient accounts receivable consist of the following at June 30:



                                                              2000    2001
                                                              ----    ----
                                                                
Medicare....................................................    2%      2%
Medicaid....................................................   25%     21%


                                       F-6
   46
                          ACCREDO HEALTH, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Concentration of credit risk relating to accounts receivable is limited to
some extent by the diversity and number of patients and payors and the
geographic dispersion of the Company's operations. The Company grants credit
without collateral to its patients and payors.

     The Company derives a substantial portion of its revenue from the sale of
drugs provided by a limited number of biopharmaceutical suppliers. The table
below shows the concentration of the Company's revenue derived from the sale of
drugs provided by these suppliers for the years ended June 30:



                                                              1999    2000    2001
                                                              ----    ----    ----
                                                                     
Biogen......................................................   31%     37%     38%
Genzyme.....................................................   37%     30%     23%
MedImmune...................................................    1%      1%      6%
Genentech...................................................    4%      4%      5%


     The Company derived approximately 15% of its revenue from a single
non-governmental payor for the year ended June 30, 2001.

     Cash, cash equivalents and marketable securities are placed with major high
credit quality financial institutions and issuers. Management believes that
there is minimal credit risk associated with these financial institutions and
issuers.

INVENTORIES

     Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying value of accounts receivable, accounts payable and notes
payable approximates fair value of these financial instruments at June 30, 2000
and 2001.

PROPERTY AND EQUIPMENT

     Property and equipment is stated at cost. Provisions for depreciation are
computed primarily by the straight-line method based on the estimated useful
lives of the related assets of 2 to 7 years.

GOODWILL AND OTHER INTANGIBLE ASSETS

     Goodwill represents the excess of the cost of businesses acquired over fair
value of net tangible and identifiable intangible assets at the date of
acquisition. Other intangible assets consist primarily of non-compete agreements
and acquired patient relationships in connection with business acquisitions.
These assets are being amortized using the straight-line method over their
estimated useful lives of 40 years for goodwill, 3 to 10 years for the
non-compete agreements, 4 to 8 years for acquired patient relationships, and 5
to 10 years for other intangible assets. Goodwill and other intangible assets
consist of the following at June 30 (in thousands):



                                                               2000      2001
                                                              -------   -------
                                                                  
Goodwill....................................................  $74,096   $96,356
Accumulated amortization....................................   (5,043)   (6,997)
                                                              -------   -------
                                                              $69,053   $89,359
                                                              =======   =======
Other intangible assets.....................................  $ 5,028   $ 6,363
Accumulated amortization....................................   (1,820)   (2,620)
                                                              -------   -------
                                                              $ 3,208   $ 3,743
                                                              =======   =======


                                       F-7
   47
                          ACCREDO HEALTH, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

VALUATION OF LONG-LIVED ASSETS

     Management periodically evaluates carrying values of long-lived assets,
including property and equipment, strategic investments, goodwill and other
intangible assets, to determine whether events and circumstances indicate that
these assets have been impaired. An asset is considered impaired when
undiscounted cash flows to be realized from such asset are less than its
carrying value. In that event, a loss is determined based on the amount the
carrying value exceeds the fair market value of such asset.

STOCK-BASED COMPENSATION

     The Company recognizes stock-based compensation using the intrinsic value
method as permitted by Financial Accounting Standards Board Statement (FASB) No.
123, Accounting for Stock-Based Compensation (Statement 123). Accordingly, no
compensation expense is recorded for employee stock-based awards issued at
market value at the date such awards are granted. For employee stock-based
awards issued below market value at the date such awards are granted, the
intrinsic value of the options is amortized over the vesting period.

REVENUE RECOGNITION

     Net patient service revenues are reported at the net amounts billed to
patients, third-party payors and others in the period the services are rendered.
The Company has agreements with certain third-party payors that provide for
payments to the Company at amounts discounted from its established rates.

     Approximately 18%, 18% and 19% of gross patient service revenue for the
years ended June 30, 1999, 2000 and 2001, respectively, is from participation in
the Medicare and state-sponsored Medicaid programs.

     Other revenues primarily consist of management fees from biopharmaceutical
manufacturers and various management agreements with hospitals and joint
ventures. The Company recognizes revenues in the period the services are
rendered.

SHIPPING AND HANDLING COSTS

     Shipping and handling costs are included in cost of services.

INTEREST RATE SWAP AGREEMENTS

     The Company enters into interest rate swap agreements as a means of
managing its interest rate exposure. The differential to be paid or received is
recognized over the life of the agreement as an adjustment to interest expense.

EARNINGS PER SHARE

     The Company presents earnings per share in accordance with FASB Statement
No. 128, Earnings Per Share. All per share amounts have been calculated using
the weighted average number of shares outstanding during each period. Diluted
earnings per share are adjusted for the impact of common stock equivalents using
the treasury stock method when the effect is dilutive.

USE OF ESTIMATES

     The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates. Estimates are used primarily in recording the
allowance for doubtful accounts.

                                       F-8
   48
                          ACCREDO HEALTH, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RISK MANAGEMENT

     During 1999, the Company adopted a self-insured medical and dental plan for
employees. Claims are accrued under these plans as the incidents that give rise
to them occur. Unpaid claim accruals are based on the estimated ultimate cost of
settlement, including claim settlement expenses. The Company has entered into a
reinsurance agreement with an independent insurance company to limit its losses
on claims. Under the terms of this agreement, the insurance company will
reimburse the Company for individual claims generally in excess of $50,000 and
when total claims exceed an aggregate amount based on the number of covered
lives. These reimbursements are included in general and administrative expense
in the accompanying consolidated statements of income.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will continue to be amortized over their
estimated useful lives.

     The Company will apply the new rules on business combinations and
accounting for goodwill and other intangible assets beginning in the first
quarter of fiscal year 2002. Application of the non-amortization provisions of
the Statement is expected to result in an increase in net income of
approximately $1,763,000 ($.06 diluted earnings per share) in fiscal year 2002.
The Company will also perform the first of the required impairment tests of
goodwill and indefinite lived intangible assets as of July 1, 2001. The Company
does not expect these impairment tests to have a material impact on the earnings
and financial position of the Company.

3. BUSINESS ACQUISITIONS

     On October 20, 1999, the Company acquired the majority of the operating
assets of the specialty pharmacy businesses operated by certain affiliates of
Home Medical of America, Inc. ("HMA"), a company engaged in the sale and
distribution of blood clotting factors and growth hormone products. This
transaction was accounted for using the purchase method of accounting. The price
paid by the Company for this acquisition was $7,765,000. The Company also paid
an additional $482,000 for a related earn-out payment based upon the achievement
of certain revenue goals in the six-month period ended April 30, 2000, resulting
in a total purchase price of $8,247,000. The total value of tangible assets
acquired was $234,000 and no indebtedness was assumed. The excess of the total
purchase price, including acquisition costs of $91,000, over the fair value of
the tangible assets acquired was allocated as follows: $7,663,000 to goodwill,
$300,000 to acquired patient relationships and $50,000 to other intangible
assets. The Company also paid $500,000 as consideration for an agreement from
HMA and certain of its other affiliates not to compete for a period of five
years.

     The Company acquired all of the outstanding stock of Sunrise Health
Management, Inc. ("Sunrise") from its shareholders effective December 1, 1999.
Sunrise is headquartered in Norcross, Georgia and is a provider of
pharmaceutical care for certain chronic, long-term patient populations,
including those requiring intravenous immunoglobulin ("IVIG"), clotting factor
and growth hormone. This transaction was accounted for using the purchase method
of accounting. The price paid by the Company for this acquisition was
$13,724,000. The Company also paid an additional $1,000,000 for a related
earn-out payment based upon the achievement of certain financial results for the
six-month period ended May 31, 2000, resulting in a total purchase price of
$14,724,000. Total assets acquired and liabilities assumed were $1,903,000 and
$882,000, respectively. The excess of the total purchase price, including
acquisition costs of $45,000, over the fair value of the net assets acquired of
$1,021,000 was allocated as follows: $12,987,000 to goodwill, $646,000 to
acquired
                                       F-9
   49
                          ACCREDO HEALTH, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

patient relationships and $70,000 to other intangible assets. The Company also
paid $500,000 as consideration for an agreement with the selling shareholders
and a prior officer of Sunrise not to compete with the Company in certain
product lines for a period of ten years.

     Effective April 1, 2000, the Company acquired an additional 30% interest in
one of its joint ventures, Childrens Hemophilia Services, increasing its
ownership in the joint venture to 80%. Childrens Hemophilia Services is located
in Los Angeles, California and is a provider of blood clotting factors and
ancillary supplies to hemophilia patients. This transaction was accounted for
using the purchase method of accounting. The price paid by the Company for this
acquisition was $2,086,000. Total assets acquired and liabilities assumed were
$1,788,000 and $479,000, respectively. The excess of the purchase price over the
fair value of the net assets acquired of $1,309,000, which amounted to $777,000,
was allocated to goodwill. The Company also paid an additional $417,000 for an
earn-out payment based upon the achievement of targeted earnings during the
twelve-month period ended November 2000 as specified in the purchase agreement
for the acquisition of the original 50% interest. In addition, the Company will
pay up to an additional $417,000 in earn-out if targeted earnings specified in
the purchase agreement are achieved in the twelve-month period ending November
2001.

     The Company acquired all of the outstanding stock of Pharmacare Resources,
Inc. ("Pharmacare") and its sister company, NCL Management, Inc. from its
shareholders effective May 1, 2001. Pharmacare is headquartered in Elmsford, New
York and is a provider of pharmaceutical care for certain chronic, long-term
patient populations, including those requiring intravenous immunoglobulin
("IVIG"). This transaction was accounted for using the purchase method of
accounting. The price paid by the Company for this acquisition was $25,074,000.
In addition, the Company will make an earn-out payment of up to $6,475,000 if
Pharmacare achieves certain financial results in the twelve-month period ended
December 31, 2001. Total assets acquired and liabilities assumed were $3,659,000
and $1,030,000, respectively. The excess of the total purchase price, including
acquisition costs of $63,000, over the fair value of the net assets acquired of
$2,629,000 was allocated as follows: $21,767,000 to goodwill, $617,000 to
acquired patient relationships and $61,000 to other intangible assets. The
Company also paid $500,000 as consideration for an agreement with the selling
shareholders not to compete with the Company in certain product lines for a
period of six years.

     Any additional earn-out payments made under these purchase agreements will
be treated as additional purchase cost and added to goodwill.

     The results of these acquisitions have been included in the Company's
results from their respective dates of acquisition.

     The pro forma results of operations for the years ended June 30, 1999, 2000
and 2001, as if the 1999 and 2000 acquisitions had occurred on July 1, 1998, and
the 2001 acquisition had occurred on July 1, 1999, are as follows (in thousands,
except per share data):



                                                           1999       2000       2001
                                                         --------   --------   --------
                                                                      
Total revenues.........................................  $270,237   $372,191   $471,735
Income before extraordinary item.......................     5,187     11,450     17,461
Net income.............................................     3,933     11,450     17,461
Net income per common share:
  Basic................................................  $    .28   $    .55   $    .70
  Diluted..............................................  $    .25   $    .52   $    .67


4. MARKETABLE SECURITIES

     At June 30, 2001, all of the Company's investments in marketable securities
were investment-grade corporate debt instruments. The estimated fair value of
the marketable securities approximated the amortized cost, which amounted to
$16.5 million as of June 30, 2001 of which $14.5 million were classified as cash

                                       F-10
   50
                          ACCREDO HEALTH, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

equivalents. All of the investments mature within one year from June 30, 2001.
There were no marketable securities at June 30, 2000.

5. PROPERTY AND EQUIPMENT

     Property and equipment consists of the following at June 30 (in thousands):



                                                               2000      2001
                                                              -------   -------
                                                                  
Equipment...................................................  $ 4,638   $ 7,032
Furniture and fixtures......................................    4,709     5,027
                                                              -------   -------
                                                                9,347    12,059
Accumulated depreciation....................................   (2,355)   (3,864)
                                                              -------   -------
                                                              $ 6,992   $ 8,195
                                                              =======   =======


6. NOTES PAYABLE

     At June 30, 2001, the Company has a revolving line of credit agreement for
up to $60 million with banks, which expires December 1, 2003. At June 30, 2001,
the commitment under the line of credit agreement is $30,000,000. The Company
may increase the commitment to $60,000,000 upon (i) 15 days written notice (ii)
the payment of an additional commitment fee and (iii) delivery of a current
compliance certificate demonstrating no event of default exists and will not
exist following the increase in the commitment. Amounts outstanding under the
line of credit bear interest at varying rates based upon a LIBOR or prime rate
of interest at the periodic election of the Company, plus a variable margin rate
based on the Company's debt to cash flow ratio as defined by the banks. The
combination of a variable rate margin and LIBOR base rate resulted in an
effective rate of 8.15% at June 30, 2000. The line of credit is secured by
substantially all assets of the Company. The bank's security interest in a
portion of the Company's inventory is subordinate to the liens on that inventory
under the terms of a security agreement between the Company and one of its
vendors. The same vendor has a security interest in certain accounts receivable
of the Company which is subordinate to the rights of the banks. At June 30,
2000, the balance outstanding under this line of credit was $37,000,000. There
were no borrowings at June 30, 2001.

     The credit agreement contains financial covenants which require the Company
to maintain certain levels of net worth, tangible net worth, working capital,
debt to net worth and liquidity ratios. The credit agreement also restricts
certain changes in management and ownership of the Company.

     The Company entered into an interest rate swap agreement with a bank in
October 1997 in order to fix a portion of its interest rate exposure on this
line of credit. The terms of the agreement were revised and extended on January
21, 1999, and require the Company to pay a fixed interest rate of 5.5% on a $25
million notional amount and receive the 30-day LIBOR rate in exchange. On August
21, 2000, the Company surrendered the swap agreement and received $350,000 in
consideration for the early termination of the agreement.

     During June 1997, the Company issued $10 million in senior subordinated
notes (the Notes) to certain stockholders of the Company in connection with an
acquisition. The Notes, which were due June 1, 2004, had a stated interest rate
of 10% and an effective rate of 16%. The Notes were unsecured. Concurrently with
the issuance of the Notes, the Company issued 400,000 shares of its common stock
to the Note holders. The excess of the fair market value of the 400,000 shares
of common stock issued over the purchase price of $4,000 was recorded as an
original issue discount. In accordance with the terms of the Notes, the Company
added $1,046,000 of accrued interest due during 1998 to the unpaid principal
balance of the Notes.

                                       F-11
   51
                          ACCREDO HEALTH, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The note purchase agreement specified that if at any time while the Notes
were outstanding, the Company consummated a public offering, or merged or
consolidated, the Company was required to use the net proceeds of such offering
to repay the principal amount of the Notes, plus accrued interest.

     In connection with its initial public offering of common stock in April
1999, the Company repaid in full all principal and accrued interest on the
Notes. As a result of this repayment, the Company incurred an extraordinary
charge related to the early extinguishment of debt. This extraordinary charge of
$1,254,000, net of a $746,000 income tax benefit for the year ended June 30,
1999, was due to unamortized original issue discount remaining on the Notes on
the repayment date.

7. MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK

     In connection with its formation, the Company issued, at a $100 redemption
amount, 255,361 shares of Series A mandatorily redeemable preferred stock on May
31, 1996, for a total of $25,536,100. The nonvoting mandatorily redeemable
cumulative preferred stock was entitled to an $8 per share annual dividend.

     In connection with its initial public offering of common stock in April
1999, the Company redeemed all the outstanding shares of the nonvoting Series A
mandatorily redeemable cumulative preferred stock (Series A) and all accrued and
unpaid dividends thereon.

8. INCOME TAXES

     The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

     Income tax expense (benefit) consists of the following for the years ended
June 30 (in thousands):



                                                              1999     2000      2001
                                                             ------   -------   -------
                                                                       
Current:
  Federal..................................................  $4,306   $ 6,634   $10,574
  State....................................................     666     1,032     1,631
                                                             ------   -------   -------
                                                              4,972     7,666    12,205
Deferred:
  Federal..................................................    (839)   (1,004)     (769)
  State....................................................    (130)     (154)     (103)
                                                             ------   -------   -------
                                                               (969)   (1,158)     (872)
                                                             ------   -------   -------
                                                             $4,003   $ 6,508   $11,333
                                                             ======   =======   =======


     The provision for income taxes differed from the amount computed by
applying the statutory federal income tax rates for the years ended June 30 due
to the following (in thousands):



                                                               1999     2000     2001
                                                              ------   ------   -------
                                                                       
Income tax expense at statutory rate........................  $2,851   $5,619   $10,006
State income tax expense, net of federal income tax
  benefit...................................................     354      577       992
Goodwill amortization.......................................     790      279       276
Other.......................................................       8       33        59
                                                              ------   ------   -------
Income tax expense..........................................  $4,003   $6,508   $11,333
                                                              ======   ======   =======


                                       F-12
   52
                          ACCREDO HEALTH, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities at June 30 are as follows (in
thousands):



                                                               2000      2001
                                                              -------   -------
                                                                  
Deferred tax assets:
  Accounts receivable reserves..............................  $ 2,605   $ 4,010
  Accrued expenses..........................................      378       545
  Joint venture investments.................................       47        49
  Other.....................................................      103        99
                                                              -------   -------
                                                                3,133     4,703
Deferred tax liabilities:
  Property and equipment....................................     (303)     (330)
  Intangible assets.........................................   (1,015)   (1,628)
  Joint venture investments.................................      (37)     (164)
                                                              -------   -------
                                                               (1,355)   (2,122)
                                                              -------   -------
Net deferred tax assets.....................................  $ 1,778   $ 2,581
                                                              =======   =======


     Management has evaluated the need for a valuation allowance for the
deferred tax assets and believes it is more likely than not that the assets will
ultimately be realized through future taxable income from operations.

9. COMMITMENTS

     The Company leases office space and equipment under various operating
leases. Rent expense for all operating leases was approximately $985,000,
$1,227,000 and $1,575,000 for the years ended June 30, 1999, 2000 and 2001,
respectively.

     Future minimum payments, by year and in the aggregate, under non-cancelable
operating leases with initial terms of one year or more consist of the following
at June 30, 2001 (in thousands):

                                                           
2002........................................................  $1,968
2003........................................................   2,080
2004........................................................   1,734
2005........................................................   1,730
2006........................................................   1,449
Thereafter..................................................     446
                                                              ------
                                                              $9,407
                                                              ======



     In connection with the acquisition of Pharmacare Resources, Inc. made
during fiscal year 2001, the Company may be obligated to make up to $6,475,000
in earn-out payments during the next twelve months.

10. INVESTMENT IN JOINT VENTURES

     Texas Health Pharmaceutical Resources, Teddy Bear Home Care/Drug Therapies,
Children's Memorial Home Hemophilia Services, Childrens Home Services, Childrens
Biotech Pharmacy Services, Childrens National Hemophilia Care and Specialized
Pharmaceutical Services are partnerships in which the Company has a 50%
ownership interest. Campus Home Health Care-Home Hemophilia is a limited
liability company in which the Company had a 25% ownership interest (this entity
was dissolved during the fiscal year ended June 30, 1999). The Company uses the
equity method of accounting for these joint ventures. Amounts due from these
joint ventures to the Company are classified as due from affiliates in the
accompanying
                                       F-13
   53
                          ACCREDO HEALTH, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

consolidated balance sheets. The portion of the Company's retained earnings at
June 30, 2000 and 2001 attributable to undistributed earnings of these joint
ventures is $1,385,000 and $2,088,000, respectively.

     On November 10, 1998, the Company acquired a 50% general partnership
interest in Childrens Hemophilia Services, a partnership established to engage
in the sale and distribution of blood clotting factors and ancillary supplies to
hemophilia patients, for an initial purchase price of $917,000. The Company also
paid an additional $417,000 for a related earn-out payment based upon the
achievement of targeted earnings during the twelve-month period ended November
2000 as specified in the purchase agreement. In addition, the Company will pay
up to an additional $417,000 in earn-out if targeted earnings specified in the
purchase agreement are achieved in the twelve-month period ending November 2001.
Effective April 1, 2000, the Company acquired an additional 30% interest in
Childrens Hemophilia Services, increasing its ownership in the joint venture to
80% (see Note 3).

     On October 1, 1999, the Company entered into a joint venture agreement with
Children's National Medical Center in Washington, DC, to market, sell, provide
and distribute Synagis(R) and growth hormone and related services and supplies.
The term of the joint venture is for a period of five years unless terminated at
an earlier date pursuant to the terms of the agreement. Both companies
contributed $40,000 in capital to the joint venture and will share equally in
the assets, liabilities, profits and losses. In conjunction with the formation
of this joint venture, the Company also entered into a management, service and
sales agreement with the joint venture, whereby the Company will provide
specialty pharmacy and management services to the joint venture in exchange for
a management fee and the reimbursement of certain expenses.

     On January 1, 2000, the Company entered into a joint venture agreement with
Specialized Pharmaceutical Services, Inc. ("SPS") to market, sell, provide and
distribute intravenous immunoglobulin ("IVIG") products and related services and
supplies in thirteen northeastern and eastern states. The term of the joint
venture is for a period of six years unless terminated at an earlier date
pursuant to the terms of the agreement. The Company has contributed $200,000 to
this joint venture and has committed to make an additional $300,000 capital
contribution. The companies will share equally in the assets, liabilities,
profits and losses of the joint venture. In conjunction with the formation of
this joint venture, the Company entered into management, service and sales
agreements with the joint venture, whereby the Company will provide specialty
pharmacy and management services to the joint venture in exchange for a
management fee and the reimbursement of certain expenses. The Company will also
sell IVIG products to the joint venture.

     On August 15, 2000, the Company entered into a joint venture agreement with
Children's Hospital in Washington, DC, to market, sell, provide and distribute
hemophilia clotting factor and related services and supplies. The term of the
joint venture is for a period of five years unless terminated at an earlier date
pursuant to the terms of the agreement. Both companies contributed $50,000 in
capital to the joint venture and will share equally in the assets, liabilities,
profits and losses. In conjunction with the formation of this joint venture, the
Company also entered into a management, service and sales agreement with the
joint venture, whereby the Company will provide specialty pharmacy and
management services to the joint venture in exchange for a management fee and
the reimbursement of certain expenses.

     The Company received fees for management services from the joint ventures
of $589,000, $819,000 and $1,193,000 for the years ended June 30, 1999, 2000 and
2001, respectively, which are recorded as other revenues in the accompanying
consolidated statements of income.

                                       F-14
   54
                          ACCREDO HEALTH, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Summary financial information for affiliated joint ventures (20 percent to
50 percent owned) accounted for by the equity method is as follows as of and for
the years ended June 30 (in thousands):



                                                             1999      2000      2001
                                                            -------   -------   -------
                                                                       
Current assets............................................  $ 8,519   $ 6,229   $ 8,753
Property and equipment and other assets...................       81        84        69
Current liabilities.......................................    3,101     3,130     4,114
Total revenues............................................   17,512    20,637    23,359
Net income................................................    3,866     4,057     2,315


11. DEFINED CONTRIBUTION RETIREMENT PLAN

     The Company sponsors a qualified, defined contribution retirement plan
under Section 401(k) of the Internal Revenue Code in which substantially all
employees qualify for participation. The Company matches employee contributions,
as defined in the plan. The Company made annual matching contributions of
approximately $98,000, $152,000 and $189,000 for the years ended June 30, 1999,
2000 and 2001, respectively.

12. STOCKHOLDERS' EQUITY

COMMON STOCK

     In April 1999, the Company completed its initial public offering of
7,762,500 shares of common stock at an offering price of $7.11 per share. In
connection with the offering, the Company's majority shareholder exchanged
2,475,000 shares of the Company's $.01 par value common stock for 2,475,000
shares of the Company's $.01 par value non-voting common stock. The net proceeds
from the offering were used to redeem the outstanding balance of the Series A
redeemable cumulative preferred stock plus accrued dividends, repay the
Company's senior subordinated notes and reduce the balance of the outstanding
revolving line of credit. During fiscal year 2000, the shareholder converted the
2,475,000 shares of the Company's $.01 par value non-voting common stock to
2,475,000 shares of the Company's $.01 par value common stock.

     On August 17, 2000, the Company completed a stock offering of 3,600,000
shares of its common stock. An additional 540,000 shares of common stock were
sold on September 12, 2000 pursuant to the exercise of the underwriters'
over-allotment option. All shares were issued at a price of $22.67 per share.
Net proceeds to the Company, after deducting underwriting discounts and
commissions and other expenses of the offering, was $88.3 million.

     On February 21, 2000, the Company effected a three-for-two stock split in
the form of a 50% stock dividend for shareholders of record on February 11,
2000, whereby shareholders received one additional share of common stock for
every two shares held. All share and per share data in the consolidated
financial statements and the notes hereto have been retroactively adjusted for
the split.

     On February 23, 2001, the Company effected a three-for-two stock split in
the form of a 50% stock dividend for shareholders of record on February 9, 2001,
whereby shareholders received one additional share of common stock for every two
shares held. All share and per share data in the consolidated financial
statements and the notes hereto have been retroactively adjusted for the split.

PREFERRED STOCK

     In April 1999, the Company's Board of Directors and Stockholders authorized
the establishment of a new class of undesignated preferred stock.

                                       F-15
   55
                          ACCREDO HEALTH, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. EMPLOYEE STOCK PURCHASE PLAN

     In April 1999, the Company's Board of Directors adopted and the
stockholders approved the Accredo Health, Incorporated 1999 Employee Stock
Purchase Plan (the ESPP). Under the ESPP, employees may purchase shares of
common stock at 85% of market price on the first day of an offering period
(usually consisting of a six-month period beginning January 1 or July 1) or the
last day of an offering period, whichever is lower. The shares are purchased at
the end of each period with funds withheld from employees' pay during the
period. A total of 303,750 shares of the Company's common stock have been
reserved for issuance under the ESPP. Participation in the ESPP commenced on the
effective date of the Company's initial public offering in April 1999. There
were 106,284 and 28,721 shares of common stock issued during the years ended
June 30, 2000 and 2001, respectively, pursuant to this employee stock purchase
plan.

14. STOCK OPTION PLAN

     The Company's Amended and Restated Stock Option and Restricted Stock
Purchase Plan authorizes the grant of options to selected employees, officers
and directors for up to 2,171,250 shares of the Company's common stock. As of
June 30, 2001, options to purchase 2,070,036 shares of stock have been granted
under this plan. All options granted have ten-year terms and generally vest and
become fully exercisable over a period of four years of continued employment.

     The Company's 1999 Long-Term Incentive Plan authorizes the grant of options
to selected employees, officers and directors for up to 1,125,000 shares of the
Company's common stock. As of June 30, 2001, options to purchase 988,147 shares
of stock have been granted under this plan under terms similar to those
discussed above.

     Pro forma information regarding net income is required by Statement 123 and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of Statement 123. Significant assumptions
used by the Company in the Black-Scholes option pricing model computations are
as follows for the years ended June 30:



                                              1999             2000             2001
                                         --------------   --------------   --------------
                                                                  
Risk-free interest rate................  5.05% to 5.40%   5.81% to 6.59%   4.57% to 6.14%
Dividend yield.........................        0%               0%               0%
Volatility factor......................       .50              .72              .70
Weighted-average expected life.........    4.47 years       3.19 years       4.0 years


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

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information for the years ended June 30 is as follows (in thousands,
except share data):



                                                               1999     2000     2001
                                                              ------   ------   -------
                                                                       
Net income "as reported"....................................  $3,128   $9,896   $17,255
Pro forma net income........................................  $2,729   $8,784   $14,094
Pro forma basic earnings per share..........................  $ 0.19   $ 0.42   $  0.56
Pro forma diluted earnings per share........................  $ 0.18   $ 0.40   $  0.54


                                       F-16
   56
                          ACCREDO HEALTH, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     These pro forma disclosures are not necessarily representative of the
effects of stock options on reported pro forma net income for future years.

     A summary of the Company's stock option activity and related information
for the periods ended June 30 follows:



                                  1999                     2000                     2001
                         ----------------------   ----------------------   ----------------------
                                      WEIGHTED-                WEIGHTED-                WEIGHTED-
                                       AVERAGE                  AVERAGE                  AVERAGE
                                      EXERCISE                 EXERCISE                 EXERCISE
                          OPTIONS       PRICE      OPTIONS       PRICE      OPTIONS       PRICE
                         ----------   ---------   ----------   ---------   ----------   ---------
                                                                      
Outstanding at
  beginning of
  period...............   1,926,978     $1.62      2,101,678    $ 1.90      1,780,947    $ 3.97
Granted................     196,075      4.56        334,294     12.92        746,393     28.10
Exercised..............      (5,625)     1.33       (630,716)     1.75       (625,067)     3.91
Forfeited..............     (15,750)     1.78        (24,309)     5.92       (105,498)    12.30
                         ----------     -----     ----------    ------     ----------    ------
Outstanding at end of
  period...............   2,101,678     $1.90      1,780,947    $ 3.97      1,796,775    $13.52
                         ==========     =====     ==========    ======     ==========    ======
Exercisable at end of
  year.................     912,942     $1.53      1,092,495    $ 3.13        973,029    $ 4.56
                         ==========     =====     ==========    ======     ==========    ======
Weighted-average fair
  value of options
  granted during the
  year.................  $     2.21               $     6.68               $    16.03
                         ==========               ==========               ==========




                                    OPTIONS OUTSTANDING
                          ---------------------------------------     OPTIONS EXERCISABLE
                                          WEIGHTED-                 ------------------------
                                           AVERAGE      WEIGHTED-                  WEIGHTED-
                            NUMBER        REMAINING      AVERAGE      NUMBER        AVERAGE
RANGE OF EXERCISE PRICES  OUTSTANDING    CONTRACTUAL    EXERCISE    EXERCISABLE    EXERCISE
    (150% INCREMENT)      AT 6/30/01        LIFE          PRICE     AT 6/30/01       PRICE
------------------------  -----------    -----------    ---------   -----------    ---------
                                                                    
     $ 1.33 -  1.33          629,537      5.0 years      $ 1.33       629,537       $ 1.33
       2.67 -  2.67          234,941      6.6 years        2.67       175,476         2.67
       7.11 -  7.11           29,930      7.8 years        7.11         7,389         7.11
      12.89 - 13.06          182,085      8.4 years       12.91        93,127        12.90
      23.25 - 33.73          720,282      9.4 years       28.14        67,500        27.75
------------------------   ---------      ---------      ------       -------       ------
     $ 1.33 - 33.73        1,796,775      7.4 years      $13.52       973,029       $ 4.56
------------------------   ---------      ---------      ------       -------       ------


                                       F-17
   57
                          ACCREDO HEALTH, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted
earnings (loss) per share for the years ended June 30 (in thousands, except
share data):



                                                     1999          2000          2001
                                                  -----------   -----------   -----------
                                                                     
Numerator for basic and diluted income per share
  to common stockholders:
Income before extraordinary item................  $     4,382   $     9,896   $    17,255
Extraordinary item..............................       (1,254)           --            --
Preferred stock dividends.......................       (1,617)           --            --
                                                  -----------   -----------   -----------
Net income to common stockholders...............  $     1,511   $     9,896   $    17,255
                                                  ===========   ===========   ===========
Denominator:
  Denominator for basic income per share to
     common stockholders-weighted-average
     shares.....................................   14,252,707    20,764,780    24,994,496
  Effect of dilutive stock options..............    1,395,208     1,410,048     1,131,033
                                                  -----------   -----------   -----------
  Denominator for diluted income per share to
     common stockholders-adjusted
     weighted-average shares....................   15,647,915    22,174,828    26,125,529
                                                  ===========   ===========   ===========
Basic earnings per common share:
  Income before extraordinary item..............  $      0.31   $      0.48   $      0.69
  Extraordinary item............................        (0.09)           --            --
  Preferred stock dividends.....................        (0.11)           --            --
                                                  -----------   -----------   -----------
  Net income to common stockholders.............  $      0.11   $      0.48   $      0.69
                                                  ===========   ===========   ===========
Diluted earnings per common share:
  Income before extraordinary item..............  $      0.28   $      0.45   $      0.66
  Extraordinary item............................        (0.08)           --            --
  Preferred stock dividends.....................        (0.10)           --            --
                                                  -----------   -----------   -----------
  Net income to common stockholders.............  $      0.10   $      0.45   $      0.66
                                                  ===========   ===========   ===========


16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     Quarterly financial information for the years ended June 30, 2000 and 2001,
is summarized below (in thousands, except share data):



                                                                   2001
                                                 ----------------------------------------
                                                  FIRST     SECOND     THIRD      FOURTH
                                                 QUARTER   QUARTER    QUARTER    QUARTER
                                                 -------   --------   --------   --------
                                                                     
Total revenues.................................  $99,577   $113,870   $124,280   $124,413
Operating income...............................    5,368      6,175      7,213      7,754
Income before income taxes.....................    5,593      6,900      7,913      8,182
Net income.....................................    3,364      4,167      4,789      4,935
Basic earnings per common share:
  Net income...................................     0.15       0.16       0.19       0.19
Diluted earnings per common share:
  Net income...................................     0.14       0.16       0.18       0.18


                                       F-18
   58
                          ACCREDO HEALTH, INCORPORATED

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



                                                                   2000
                                                 ----------------------------------------
                                                  FIRST     SECOND     THIRD      FOURTH
                                                 QUARTER   QUARTER    QUARTER    QUARTER
                                                 -------   --------   --------   --------
                                                                     
Total revenues.................................  $76,871   $ 86,356   $ 91,392   $ 98,417
Operating income...............................    3,625      4,316      5,186      5,590
Income before income taxes.....................    3,273      3,884      4,472      4,775
Net income.....................................    1,968      2,349      2,732      2,847
Basic earnings per common share:
  Net income...................................     0.10       0.11       0.13       0.13
Diluted earnings per common share:
  Net income...................................     0.09       0.11       0.12       0.13


                                       F-19
   59

                          ACCREDO HEALTH, INCORPORATED

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)



             COL. A                      COL. B                  COL. C              COL. D        COL. E
---------------------------------  -------------------   -----------------------   ----------   -------------
                                                                ADDITIONS
                                                         -----------------------
                                                         CHARGED TO   CHARGED TO
                                       BALANCE AT        COSTS AND      OTHER                    BALANCE AT
           DESCRIPTION             BEGINNING OF PERIOD    EXPENSES     ACCOUNTS    DEDUCTIONS   END OF PERIOD
---------------------------------  -------------------   ----------   ----------   ----------   -------------
                                                                                 
Year ended June 30, 1999:
  Allowance for doubtful
     accounts....................        $3,430            $4,739       $  --       $  2,869(2)    $5,300
Year ended June 30, 2000:
  Allowance for doubtful
     accounts....................         5,300             6,117          76(1)       3,098(2)     8,395
Year ended June 30, 2001:
  Allowance for doubtful
     accounts....................         8,395             6,131          --          3,718(2)    10,808


---------------

(1) Allowance as a result of acquisitions
(2) Uncollectible accounts written off, net of recoveries

                                       F-20
   60

                                   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 on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Memphis, State of Tennessee, on the 28th day of September, 2001.

                                          ACCREDO HEALTH, INCORPORATED

                                          By:     /s/ DAVID D. STEVENS
                                            ------------------------------------
                                                      David D. Stevens
                                                 Chairman of the Board and
                                                  Chief Executive Officer
   61

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David D. Stevens, John R. Grow and Joel R.
Kimbrough and either of them (with full power in each to act alone) as true and
lawful attorneys-in-fact with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
to this Annual Report on Form 10-K, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed by the following persons in the
capacities and on the dates indicated.

                                                                               

               /s/ DAVID D. STEVENS                  Chairman of the Board, Chief    September 28, 2001
---------------------------------------------------    Executive Officer and
                 David D. Stevens                      Director (Principal
                                                       Executive Officer)

               /s/ JOEL R. KIMBROUGH                 Senior Vice President, Chief    September 28, 2001
---------------------------------------------------    Financial Officer Treasurer
                 Joel R. Kimbrough                     (Principal Financial and
                                                       Accounting Officer)

                 /s/ JOHN R. GROW                    President and Director          September 28, 2001
---------------------------------------------------
                   John R. Grow

               /s/ KYLE J. CALLAHAN                  Director                        September 28, 2001
---------------------------------------------------
                 Kyle J. Callahan

             /s/ KENNETH R. MASTERSON                Director                        September 28, 2001
---------------------------------------------------
               Kenneth R. Masterson

               /s/ KENNETH J. MELKUS                 Director                        September 28, 2001
---------------------------------------------------
                 Kenneth J. Melkus

               /s/ PATRICK J. WELSH                  Director                        September 28, 2001
---------------------------------------------------
                 Patrick J. Welsh

                /s/ KEVIN L. ROBERG                  Director                        September 28, 2001
---------------------------------------------------
                  Kevin L. Roberg

                /s/ DICK R. GOURLEY                  Director                        September 28, 2001
---------------------------------------------------
                  Dick R. Gourley


   62

                                 EXHIBIT INDEX



EXHIBIT
NUMBER                           DESCRIPTION OF EXHIBITS
-------                          -----------------------
         
 2.1       --  Stock Purchase Agreement, dated as of December 1, 1999,
               among Margo Grbinich-Hunt, Mark B. Epstein, Hemophilia
               Health Services, Inc. and Sunrise Health Management, Inc.
               (incorporated by reference to Exhibit 2.1 to our Current
               Report on Form 8-K dated December 3, 1999 and filed December
               16, 1999).
 3.1       --  Amended and Restated Certificate of Incorporation of Accredo
               Health, Incorporated (incorporated by reference to Exhibit
               3.1 to our Registration Statement on Form S-1 (File Number
               333-62679)).
 3.2       --  Certificate of Amendment of the Certificate of Incorporation
               of Accredo Health, Incorporated (incorporated by reference
               to Exhibit 3.1 to our Quarterly Report on Form 10-Q for the
               fiscal quarter ended December 31, 2000).
 3.3       --  Amended and Restated Bylaws of Accredo Health, Incorporated
               (incorporated by reference to Exhibit 3.2 to our
               Registration Statement on Form S-1 (File Number 333-62679)).
 4.1       --  Form of Common Stock Certificate (incorporated by reference
               to Exhibit 4.1 to our Registration Statement on Form S-1
               (File Number 333-62679)).
10.1       --  Accredo Health 1999 Long-Term Incentive Plan (incorporated
               by reference to Exhibit 10.6 to our Registration Statement
               on Form S-1 (File Number 333-62679)).
10.2       --  Accredo Health 1999 Employee Stock Purchase Plan
               (incorporated by reference to Exhibit 10.7 to our
               Registration Statement on Form S-1 (File Number 333-62679)).
10.3       --  Nova Holdings, Inc. and its Subsidiaries Stock Option and
               Restricted Purchase Plan, as amended and restated
               (incorporated by reference to Exhibit 10.8 to our
               Registration Statement on Form S-1 (File Number 333-62679)).
10.4       --  Registration Rights Agreement dated May 31, 1996 among the
               Company, Welsh, Carson, Anderson & Stowe VII, L.P. and
               certain other investors (incorporated by reference to
               Exhibit 10.10 to our Registration Statement on Form S-1
               (File Number 333-62679)).
10.5       --  Amendment Number One to the Registration Rights Agreement
               dated October 27, 1997 among the Company, Welsh, Carson,
               Anderson & Stowe VII, L.P. and certain other investors
               (incorporated by reference to Exhibit 10.11 to our
               Registration Statement on Form S-1 (File Number 333-62679)).
10.6       --  Amendment Number Two to the Registration Rights Agreement
               dated July 24, 1998 among the Company, Welsh, Carson,
               Anderson & Stowe VII, L.P. and certain other investors
               (incorporated by reference to Exhibit 10.12 to our
               Registration Statement on Form S-1 (File Number 333-62679)).
10.7       --  Stock Purchase Agreement dated as of June 5, 1997 among
               Dianne R. Martz, A.B. Charlton, III, the Company and Horizon
               Health Systems, Inc. (incorporated by reference to Exhibit
               10.17 to our Registration Statement on Form S-1 (File Number
               333-62679)).
10.8       --  Non-Disclosure and Non-Compete Agreement dated as of June 5,
               1997 by and among Horizon Health Systems, Inc., the Company
               and Dianne R. Martz (incorporated by reference to Exhibit
               10.18 to our Registration Statement on Form S-1 (File Number
               333-62679)).
10.9       --  Grant Agreement dated as of June 5, 1997 by and between Kyle
               Callahan and the Company (incorporated by reference to
               Exhibit 10.19 to our Registration Statement on Form S-1
               (File Number 333-62679)).
10.10      --  Subscription and Restriction Agreement dated as of June 5,
               1997 by and between the Company and Kyle Callahan
               (incorporated by reference to Exhibit 10.20 to our
               Registration Statement on Form S-1 (File Number 333-62679)).
10.11      --  Consulting and Transition Agreement dated as of June 5, 1997
               by and between Dianne Martz and Horizon Health Systems, Inc.
               (incorporated by reference to Exhibit 10.21 to our
               Registration Statement on Form S-1 (File Number 333-62679)).

   63



EXHIBIT
NUMBER                           DESCRIPTION OF EXHIBITS
-------                          -----------------------
         
10.12      --  Lease Agreement dated September 1, 1994 between Dianne Martz
               and Horizon Health Systems, Inc. (incorporated by reference
               to Exhibit 10.23 to our Registration Statement on Form S-1
               (File Number 333-62679)).
10.13      --  Addendum to Lease Agreement dated September 1, 1994 amending
               the square footage of Premises and annual rental payments
               (incorporated by reference to Exhibit 10.24 to our
               Registration Statement on Form S-1 (File Number 333-62679)).
10.14      --  Second Lease Amendment, dated May 25, 1999, between Dianne
               R. Griffith, as landlord, and Hemophilia Health Services,
               Inc. as tenant. (incorporated by reference to Exhibit 10.67
               to our Annual Report on Form 10-K for the fiscal year ended
               June 30, 1999).
10.15      --  Refunds Payable Escrow Agreement dated June 5, 1997 among
               First American National Bank, Nova Holdings, Inc. and Dianne
               Martz and A. B. Charlton, III (incorporated by reference to
               Exhibit 10.26 to our Registration Statement on Form S-1
               (File Number 333-62679)).
10.16      --  Loan and Security Agreement dated as of June 5, 1997 among
               Nova Holdings, Inc. and its Subsidiaries and NationsBank of
               Tennessee, N.A. and First Tennessee Bank National
               Association. (incorporated by reference to Exhibit 10.38 to
               our Registration Statement on Form S-1 (File Number
               333-62679)).
10.17      --  Amendment No. 1 Loan and Security Agreement dated as of
               August 28, 1998 among Nova Holdings, Inc., a Delaware
               corporation, and its Subsidiaries and NationsBank of
               Tennessee, N.A. and First Tennessee Bank National
               Association (incorporated by reference to Exhibit 10.56 to
               our Registration Statement on Form S-1 (File Number
               333-62679)).
10.18      --  Amendment No. 2 dated March 2, 1999 to Loan and Security
               Agreement as amended on June 5, 1997 among Accredo Health,
               Incorporated and its Subsidiaries and NationsBank, N.A. and
               First Tennessee Bank National Association and NationsBank,
               N.A. as Agent (incorporated by reference to Exhibit 10.66 to
               our Registration Statement on Form S-1 (File Number
               333-62679)).
10.19      --  Amendment No. 3 dated October 14, 1999 to Loan and Security
               Agreement as amended on June 5, 1997 among Accredo Health,
               Incorporated and its Subsidiaries and Bank of America, N.A.
               and First Tennessee Bank National Association and Brown
               Brothers Harriman & Co. and Bank of America, N.A. as Agent
               (incorporated by reference to Exhibit 10.1 to our Quarterly
               Report on Form 10-Q for the fiscal quarter ended September
               30, 1999).
10.20      --  Amendment No. 4 dated December 3, 1999 to Loan and Security
               Agreement as amended on June 5, 1997 among Accredo Health,
               Incorporated and its Subsidiaries and Bank of America, N.A.
               and First Tennessee Bank National Association and Brown
               Brothers Harriman & Co. and Bank of America, N.A. as Agent
               (incorporated by reference to Exhibit 10.1 to our Quarterly
               Report on Form 10-Q for the fiscal quarter ended December
               31, 1999).
10.21      --  Amendment No. 5 dated July 7, 2000 to Loan and Security
               Agreement as amended on June 5, 1997 among Accredo Health,
               Incorporated and its Subsidiaries and Bank of America, N.A.
               and First Tennessee Bank National Association and Brown
               Brothers Harriman & Co. and Bank of America, N.A. as Agent
               (incorporated by reference to Exhibit 10.21 to our Annual
               Report on Form 10-K for the fiscal year ended June 30,
               2000).
10.22      --  Amendment No. 6 dated as of January 1, 2001 to Loan and
               Security Agreement as amended dated as of June 5, 1997 among
               Accredo Health, Incorporated and its Subsidiaries and Bank
               of America, N.A. and First Tennessee Bank National
               Association and Brown Brothers Harriman & Co. and Bank of
               America, N.A. as Agent (incorporated by reference to Exhibit
               10.1 to our Quarterly Report on Form 10-Q for the fiscal
               quarter ended March 31, 2001).
10.23      --  Swing Line Note dated December 1, 1997 entered into by Nova
               Holdings, Inc. with NationsBank of Tennessee, N.A.
               (incorporated by reference to Exhibit 10.39 to our
               Registration Statement on Form S-1 (File Number 333-62679)).

   64



EXHIBIT
NUMBER                           DESCRIPTION OF EXHIBITS
-------                          -----------------------
         
10.24      --  ISDA Master Agreement dated August 7, 1997 between
               NationsBank of Tennessee, N.A. and Nova Holdings, Inc.
               (incorporated by reference to Exhibit 10.40 to our
               Registration Statement on Form S-1 (File Number 333-62679)).
10.25      --  Loan Agreement dated November 24, 1998 between NationsBank,
               N.A. and Children's Hemophilia Services, a California
               general partnership composed of Children's Home Care, a
               California not-for-profit public benefit corporation and
               Horizon Health Systems, Inc., a Tennessee Corporation
               (incorporated by reference to Exhibit 10.57 to our
               Registration Statement on Form S-1 (File Number 333-62679)).
10.26      --  Limited Guaranty dated November 24, 1998 between
               NationsBank, N.A. and Accredo Health, Incorporated
               (incorporated by reference to Exhibit 10.58 to our
               Registration Statement on Form S-1 (File Number 333-62679)).
10.27      --  Promissory Note dated December 24, 1998 between NationsBank,
               N.A. and Children's Hemophilia Services (incorporated by
               reference to Exhibit 10.59 to our Registration Statement on
               Form S-1 (File Number 333-62679)).
10.28      --  Amended and Restated General Partnership Agreement of
               Children's Hemophilia Services (incorporated by reference to
               Exhibit 10.61 to our Registration Statement on Form S-1
               (File Number 333-62679)).
10.29      --  Amendment Number One to Amended and Restated General
               Partnership Agreement of Children's Hemophilia Services and
               Restrictive Agreement dated January 5, 2000 (incorporated by
               reference to Exhibit 10.28 to our Annual Report on Form 10-K
               for the fiscal year ended June 30, 2000).
10.30      --  First Amendment to Amended and Restated General Partnership
               Agreement of Children's Hemophilia Services dated June 30,
               2000 (incorporated by reference to Exhibit 10.29 to our
               Annual Report on Form 10-K for the fiscal year ended June
               30, 2000).
10.31      --  Hemophilia Therapy Business Management, Services and Sales
               Agreement, dated November 10, 1998 between Horizon Health
               Systems, Inc., a Tennessee corporation, and Children's
               Hemophilia Services, a California general partnership (The
               Company has obtained confidential treatment with respect to
               certain portions of this Exhibit.) (incorporated by
               reference to Exhibit 10.63 to our Registration Statement on
               Form S-1 (File Number 333-62679)).
10.32      --  Amended and Restated Contract for the Sale and Distribution
               of Genentech Human Growth Hormone effective as of April 8,
               2000 by and between Genentech, Inc. and Nova Factor, Inc.
               (The Company has obtained confidential treatment with
               respect to certain portions of this Exhibit.) (incorporated
               by reference to Exhibit 10.3 to our Quarterly Report on Form
               10-Q for the fiscal quarter ended March 31, 2000).
10.33      --  Amended and Restated Distribution and Services Agreement
               effective as of January 1, 2000 by and between Biogen, Inc.
               and Nova Factor, Inc. (The Company has obtained confidential
               treatment with respect to certain portions of this Exhibit.)
               (incorporated by reference to Exhibit 10.1 to our Quarterly
               Report on Form 10-Q for the fiscal quarter ended March 31,
               2000).
10.34      --  Additional Services Agreement dated January 1, 2000 by and
               between Biogen, Inc. and Nova Factor, Inc. (The Company has
               obtained confidential treatment with respect to certain
               portions of this Exhibit.) (incorporated by reference to
               Exhibit 10.2 to our Quarterly Report on Form 10-Q for the
               fiscal quarter ended March 31, 2000).
10.35      --  Distribution and Services Agreement dated August 28, 1998
               between Centocor, Inc. and its affiliates and Nova Factor,
               Inc. (The Company has obtained confidential treatment with
               respect to certain portions of this Exhibit.) (incorporated
               by reference to Exhibit 10.65 to our Registration Statement
               on Form S-1 (File Number 333-62679)).
10.36      --  Amendment No. 1 to Distribution and Service Agreement dated
               January 11, 1999 by and between Centocor, Inc. and its
               Affiliates and Nova Factor, Inc. (incorporated by reference
               to Exhibit 10.67 to our Registration Statement on Form S-1
               (File Number 333-62679)).

   65



EXHIBIT
NUMBER                           DESCRIPTION OF EXHIBITS
-------                          -----------------------
         
10.37      --  Services Agreement, dated July 26, 1999, by and between
               Centocor, Inc. and Nova Factor, Inc. (The Company has
               obtained confidential treatment with respect to certain
               portions of this Exhibit.) (incorporated by reference to
               Exhibit 10.63 to our Annual Report on Form 10-K for the
               fiscal year ended June 30, 1999).
10.38      --  Distribution Agreement, dated October 3, 2000, between
               MedImmune, Incorporated and Nova Factor, Inc. (The Company
               has obtained confidential treatment with respect to certain
               portions of this Exhibit.) (incorporated by reference to
               Exhibit 10.1 to our Quarterly Report on Form 10-Q for the
               fiscal quarter ended December 31, 2000).
10.39      --  Amended and Restated Distribution Agreement, dated January
               1, 1998, by and between Nova Factor, Inc. and Genzyme
               Corporation (The Company has obtained confidential treatment
               with respect to certain portions of this Exhibit.)
               (incorporated by reference to Exhibit 10.65 to our Annual
               Report on Form 10-K for the fiscal year ended June 30,
               1999).
10.40      --  Incentive Stock Option Agreement of David Stevens dated May
               31, 1996 (incorporated by reference to Exhibit 10.46 to our
               Registration Statement on Form S-1 (File Number 333-62679)).
10.41      --  Incentive Stock Option Agreement of Joel R. Kimbrough dated
               May 31, 1996 (incorporated by reference to Exhibit 10.47 to
               our Registration Statement on Form S-1 (File Number
               333-62679) ).
10.42      --  Incentive Stock Option Agreement of John R. Grow dated May
               31, 1996 (incorporated by reference to Exhibit 10.48 to our
               Registration Statement on Form S-1 (File Number 333-62679)).
10.43      --  Incentive Stock Option Agreement of Kyle Callahan dated
               September 3, 1997 (incorporated by reference to Exhibit
               10.49 to our Registration Statement on Form S-1 (File Number
               333-62679)).
10.44      --  Non-Qualified Stock Option Agreement of Patrick J. Welsh
               dated February 9, 1998 (incorporated by reference to Exhibit
               10.50 to our Registration Statement on Form S-1 (File Number
               333-62679)).
10.45      --  Non-Qualified Stock Option Agreement of Ken Melkus dated
               February 9, 1998 (incorporated by reference to Exhibit 10.51
               to our Registration Statement on Form S-1 (File Number
               333-62679)).
10.46      --  Incentive Stock Option Agreement of Kyle Callahan dated
               February 9, 1998 (incorporated by reference to Exhibit 10.52
               to our Registration Statement on Form S-1 (File Number
               333-62679)).
10.47      --  Non-Qualified Stock Option Agreement of Kenneth R. Masterson
               dated April 30, 1998 (incorporated by reference to Exhibit
               10.54 to our Registration Statement on Form S-1 (File Number
               333-62679)).
10.48      --  Incentive Stock Option Agreement of Thomas W. Bell, Jr.
               dated July 10, 1998 (incorporated by reference to Exhibit
               10.55 to our Registration Statement on Form S-1 (File Number
               333-62679)).
10.49      --  Non-Qualified Stock Option Agreement of Patrick J. Welsh
               dated November 10, 1999 (incorporated by reference to
               Exhibit 10.2 to our Quarterly Report on Form 10-Q for the
               fiscal quarter ended December 31, 1999).
10.50      --  Non-Qualified Stock Option Agreement of Kenneth J. Melkus
               dated November 10, 1999 (incorporated by reference to
               Exhibit 10.4 to our Quarterly Report on Form 10-Q for the
               fiscal quarter ended December 31, 1999).
10.51      --  Non-Qualified Stock Option Agreement of Kenneth R. Masterson
               dated November 10, 1999 (incorporated by reference to
               Exhibit 10.5 to our Quarterly Report on Form 10-Q for the
               fiscal quarter ended December 31, 1999).

   66



EXHIBIT
NUMBER                           DESCRIPTION OF EXHIBITS
-------                          -----------------------
         
10.52      --  Non-Qualified Stock Option Agreement of Kevin L. Roberg
               dated November 10, 1999 (incorporated by reference to
               Exhibit 10.6 to our Quarterly Report on Form 10-Q for the
               fiscal quarter ended December 31, 1999).
10.53      --  Non-Qualified Stock Option Agreement of Kevin L. Roberg
               dated November 18, 1999 (incorporated by reference to
               Exhibit 10.7 to our Quarterly Report on Form 10-Q for the
               fiscal quarter ended December 31, 1999).
10.54      --  Non-Qualified Stock Option Agreement of Patrick J. Welsh
               dated November 1, 2000 (incorporated by reference to Exhibit
               10.2 to our Quarterly Report on Form 10-Q for the fiscal
               quarter ended December 31, 2000).
10.55      --  Non-Qualified Stock Option Agreement of Kevin L. Roberg
               dated November 1, 2000 (incorporated by reference to Exhibit
               10.3 to our Quarterly Report on Form 10-Q for the fiscal
               quarter ended December 31, 2000).
10.56      --  Non-Qualified Stock Option Agreement of Kenneth J. Melkus
               dated November 1, 2000 (incorporated by reference to Exhibit
               10.4 to our Quarterly Report on Form 10-Q for the fiscal
               quarter ended December 31, 2000).
10.57      --  Non-Qualified Stock Option Agreement of Kenneth R. Masterson
               dated November 1, 2000 (incorporated by reference to Exhibit
               10.5 to our Quarterly Report on Form 10-Q for the fiscal
               quarter ended December 31, 2000).
10.58      --  Non-Qualified Stock Option Agreement of Dick R. Gourley
               dated November 1, 2000 (incorporated by reference to Exhibit
               10.6 to our Quarterly Report on Form 10-Q for the fiscal
               quarter ended December 31, 2000).
10.59      --  Non-Qualified Stock Option Agreement of Dick R. Gourley
               dated November 16, 2000 (incorporated by reference to
               Exhibit 10.7 to our Quarterly Report on Form 10-Q for the
               fiscal quarter ended December 31, 2000).
10.60      --  Incentive Stock Option Agreement of David Stevens dated
               November 1, 2000 (incorporated by reference to Exhibit 10.8
               to our Quarterly Report on Form 10-Q for the fiscal quarter
               ended December 31, 2000).
10.61      --  Incentive Stock Option Agreement of John R. Grow dated
               November 1, 2000 (incorporated by reference to Exhibit 10.9
               to our Quarterly Report on Form 10-Q for the fiscal quarter
               ended December 31, 2000).
10.62      --  Incentive Stock Option Agreement of Joel R. Kimbrough dated
               November 1, 2000 (incorporated by reference to Exhibit 10.10
               to our Quarterly Report on Form 10-Q for the fiscal quarter
               ended December 31, 2000).
10.63      --  Incentive Stock Option Agreement of Thomas W. Bell, Jr.
               dated November 1, 2000 (incorporated by reference to Exhibit
               10.11 to our Quarterly Report on Form 10-Q for the fiscal
               quarter ended December 31, 2000).
10.64      --  Incentive Stock Option Agreement of Kyle J. Callahan dated
               November 1, 2000 (incorporated by reference to Exhibit 10.12
               to our Quarterly Report on Form 10-Q for the fiscal quarter
               ended December 31, 2000).
10.65      --  Employment Agreement dated as of September 1, 1999 between
               Accredo Health, Incorporated and David D. Stevens
               (incorporated by reference to Exhibit 10.55 to our Annual
               Report on Form 10-K for the fiscal year ended June 30,
               2000).
10.66      --  Employment Agreement dated as of September 1, 1999 between
               Accredo Health, Incorporated and John R. Grow (incorporated
               by reference to Exhibit 10.56 to our Annual Report on Form
               10-K for the fiscal year ended June 30, 2000).
10.67      --  Employment Agreement dated as of September 1, 1999 between
               Accredo Health, Incorporated and Joel R. Kimbrough
               (incorporated by reference to Exhibit 10.57 to our Annual
               Report on Form 10-K for the fiscal year ended June 30,
               2000).

   67



EXHIBIT
NUMBER                           DESCRIPTION OF EXHIBITS
-------                          -----------------------
         
10.68      --  Employment Agreement dated as of September 1, 1999 between
               Accredo Health, Incorporated and Kyle J. Callahan
               (incorporated by reference to Exhibit 10.58 to our Annual
               Report on Form 10-K for the fiscal year ended June 30,
               2000).
10.69      --  Employment Agreement dated as of September 1, 1999 between
               Accredo Health, Incorporated and Thomas W. Bell, Jr.
               (incorporated by reference to Exhibit 10.59 to our Annual
               Report on Form 10-K for the fiscal year ended June 30,
               2000).
10.70      --  Amendment Number One to Employment Agreement effective as of
               September 1, 2000 between Accredo Health, Incorporated and
               David D. Stevens (incorporated by reference to Exhibit 10.13
               to our Quarterly Report on Form 10-Q for the fiscal quarter
               ended December 31, 2000).
10.71      --  Amendment Number One to Employment Agreement effective as of
               September 1, 2000 between Accredo Health, Incorporated and
               John R. Grow (incorporated by reference to Exhibit 10.14 to
               our Quarterly Report on Form 10-Q for the fiscal quarter
               ended December 31, 2000).
10.72      --  Amendment Number One to Employment Agreement effective as of
               September 1, 2000 between Accredo Health, Incorporated and
               Joel R. Kimbrough (incorporated by reference to Exhibit
               10.15 to our Quarterly Report on Form 10-Q for the fiscal
               quarter ended December 31, 2000).
10.73      --  Amendment Number One to Employment Agreement effective as of
               September 1, 2000 between Accredo Health, Incorporated and
               Kyle J. Callahan (incorporated by reference to Exhibit 10.16
               to our Quarterly Report on Form 10-Q for the fiscal quarter
               ended December 31, 2000).
10.74      --  Amendment Number One to Employment Agreement effective as of
               September 1, 2000 between Accredo Health, Incorporated and
               Thomas W. Bell, Jr. (incorporated by reference to Exhibit
               10.17 to our Quarterly Report on Form 10-Q for the fiscal
               quarter ended December 31, 2000).
10.75      --  Amendment Number 7 dated as of June 1, 2001 to Loan and
               Security Agreement as Amended dated as of June 5, 1997 among
               Accredo Health, Incorporated and its Subsidiaries and Bank
               of America, N.A., First Tennessee Bank National Association
               and Brown Brother Harriman & Co. and Bank of America, N.A.,
               as Agent
10.76      --  Amendment Number One to Amended and Restated Contract for
               the Sale and Distribution of Genentech Human Growth Hormone
               effective as of June 8, 2001 by and between Genentech, Inc.
               and Nova Factor, Inc. (The Company has requested
               confidential treatment with respect to certain portions of
               this Exhibit.)
21.1       --  Subsidiaries
23.1       --  Consent of Ernst & Young LLP
24.1       --  Power of Attorney (contained on the signature pages of this
               report)

EX-10.75

   1

                                                                   EXHIBIT 10.75

                                 AMENDMENT NO. 7

                            DATED AS OF JUNE 1, 2001

                                       TO

                           LOAN AND SECURITY AGREEMENT

                                   AS AMENDED

                            DATED AS OF JUNE 5, 1997

                                      AMONG

                ACCREDO HEALTH, INCORPORATED AND ITS SUBSIDIARIES

                                       AND

                             BANK OF AMERICA, N.A.,

                    FIRST TENNESSEE BANK NATIONAL ASSOCIATION

                                       AND

                          BROWN BROTHERS HARRIMAN & CO.

                                       AND

                         BANK OF AMERICA, N.A., AS AGENT



   2

                                TABLE OF CONTENTS



                                                                                                                 Page
                                                                                                                 ----
                                                                                                        
1.       Definitions.........................................................................................      1

2.       Amendments to Agreement.............................................................................      1

3.       Representations and Warranties......................................................................      2
         3.1.     Incorporation..............................................................................      2
         3.2.     Due Authorization, No Conflicts, Etc.......................................................      2
         3.3.     Due Execution, Etc.........................................................................      3

4.       Conditions Precedent................................................................................      3
         4.1.     Conditions Precedent to Effectiveness of Amendment No. 7...................................      3

5.       Effectiveness of Amendment No. 7....................................................................      4

6.       Closing.............................................................................................      4

7.       Governing Law, Etc..................................................................................      4

8.       Section Titles and Table of Contents................................................................      5

9.       Waiver of Jury Trial................................................................................      5

10.      Counterparts........................................................................................      5

11.      Agreement to Remain in Effect.......................................................................      5



   3

         AMENDMENT NO. 7 dated as of June 1, 2001 under and to that certain Loan
and Security Agreement dated as of June 5, 1997 as amended by Amendment No. 1
dated August 28, 1998, as further amended by Amendment No. 2 dated March 1,
1999, as further amended by Amendment No. 3 dated as of October 14, 1999,
Amendment No. 4 dated December 3, 1999, Amendment No. 5 dated July 7, 2000 and
as further amended by Amendment No. 6 dated January 1, 2001 (collectively, the
"Agreement"), among Accredo Health, Incorporated (formerly Nova Holdings, Inc.),
a Delaware corporation (the "Borrower"); the Guarantors, jointly and severally;
each of the undersigned Banks (in such capacity, the "Banks"), and Bank of
America, N.A. (successor to NationsBank, N.A.), as Agent for the Banks (in such
capacity, the "Agent").

                                   WITNESSETH:

         WHEREAS, the Borrower, the Guarantors (other than Pharmacare Resources,
Inc. and NCL Management, Inc.), the Banks and the Agent are parties to the
Agreement; and

         WHEREAS, the Borrower, subject to the conditions and provisions of this
Amendment No. 7 being satisfied as hereinafter set forth, is acquiring all of
the outstanding stock of Pharmacare Resources, Inc., a New York corporation
("PRI") and NCL Management, Inc., a New York corporation ("NCL"), pursuant to a
certain Stock Purchase Agreement dated May 31, 2001 between Borrower and the
owners of said New York corporations; and

         WHEREAS, under Section 7.15 of the Agreement, PRI and NCL are, upon
their acquisition by the Borrower, required to enter into the Agreement as
Guarantors hereto and to further execute Guaranty and Suretyship Agreements in
favor of the Agent on behalf of the Banks;

         NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, and for other good and valuable
consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereto agree to amend the Agreement as follows:

         1.       DEFINITIONS. All capitalized terms used in this Amendment
No. 7 which are not otherwise defined herein shall have the respective meanings
ascribed thereto in the Agreement.

         2.       AMENDMENTS TO AGREEMENT.

                  2.1.     Section I of the Agreement, DEFINITIONS, is hereby
amended by adding thereto the following new definition as follows:

                  "AMENDMENT NO. 7 EFFECTIVE DATE" has the meaning specified in
         Section 5 of this Amendment No. 7.

In addition to the foregoing new definition, the following definition is hereby
amended:

                  "GUARANTOR" is hereby amended to delete AHI Pharmacies, Inc.
         as a Guarantor (it having been merged into Nova Factor, Inc.) and to
         replace the period after subparagraph (F) with a comma, and to add two
         new subparagraphs (G) and (H) as follows:

                           "(G)     Pharmacare Resources, Inc., a New York
         corporation, and

                           (H)      NCL Management, Inc., a New York
         corporation."

                  2.2.     Pharmacare Resources, Inc., a New York corporation,
and NCL Management, Inc., a New York corporation, each hereby agree to become a
party to the Agreement as a Guarantor, and each hereby grants and confirms the
grant of the security interests contained therein.


   4

                  2.3.     Subsection 10.5(A) is hereby amended under the
Borrower's address to replace "1620" with "1640" in front of Century Center
Parkway and to replace "Suite 109" with "Suite 101".

                  2.4.     Exhibits H, I, J, K and L to the Agreement are hereby
deleted and replaced by Exhibits H, I, J, K and L attached hereto, which
replacement exhibits the Borrower and each Guarantor jointly and severally
represent and warrant to the Agents and each Bank to be true and correct as of
the date of this Amendment No. 7.

         3.       REPRESENTATIONS AND WARRANTIES. To induce the Banks and the
Agent to enter into this Amendment No. 7, Borrower and Guarantors jointly and
severally represent and warrant to the Banks and the Agent as follows:

                  3.1.     INCORPORATION. Accredo Health, Incorporated is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and is qualified to transact business in the State of
Tennessee; Nova Factor, Inc., Southern Health Systems, Inc., and Hemophilia
Health Services, Inc. (successor to Horizon Health Systems, Inc.) are
corporations duly organized, validly existing and in good standing under the
laws of the State of Tennessee; Sunrise Health Management, Inc., is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Georgia; Childrens Hemophilia Services is a general
partnership duly formed and validly existing under the laws of the State of
California; Pharmacare Resources, Inc. and NCL Management, Inc. are corporations
duly organized, validly existing and in good standing under the laws of the
State of New York; each of the foregoing entities has the lawful power to own
its properties and to engage in the business it now conducts, and each
corporation is duly qualified and in good standing as a foreign corporation in
the jurisdictions wherein the nature of the business transacted by it or
property owned by it is both material and makes qualification necessary; Accredo
Health, Incorporated has its chief executive office and principal place of
business in Memphis, Tennessee, and each of the other entities has its chief
executive office and principal place of business located in either Nashville,
Tennessee or Memphis, Tennessee, except for Sunrise Health Management, Inc.,
which has its principal office in Norcross, Georgia, Childrens Hemophilia
Services which has its principal office in Los Angeles, California, and
Pharmacare Resources, Inc. and NCL Management, Inc. which have their principal
offices in Elmsford, New York.

                  3.2.     DUE AUTHORIZATION, NO CONFLICTS, ETC. The execution,
delivery and performance by the Borrower and Guarantors of this Amendment No. 7
and any and all other agreements, instruments and documents to be executed
and/or delivered by the Borrower or any Guarantor pursuant hereto or in
connection herewith, and the consummation by Borrower and Guarantors of the
transactions contemplated hereby or thereby: (a) are within the corporate and/or
partnership powers of each; (b) have been duly authorized by all necessary
corporate and/or partnership action, including without limitation, the consent
of stockholders/partners where required; (c) do not and will not (i) contravene
the respective certificate of incorporation or by-laws or other comparable
governing documents of Borrower or any Guarantor, (ii) violate any Laws, or any
order or decree of any court or governmental authority, or (iii) conflict with
or result in the breach of, or constitute a default under, or result in the
termination of, any material contractual obligation of Borrower or any
Guarantor, and (d) do not require the consent, authorization by, or approval of,
or notice to, or filing or registration with, any governmental authority or any
other Person other than those which have been obtained and copies of which have
been delivered to the Agent pursuant to Subsection 4.1(a)(ii) hereof, each of
which is in full force and effect.

                  3.3.     DUE EXECUTION, ETC. This Amendment No. 7 and each of
the other agreements, instruments and documents to be executed and/or delivered
by Borrower or any Guarantor pursuant hereto or in connection herewith (a) has
been duly executed and delivered, and (b) constitutes the legal, valid and
binding obligation of each, enforceable against it in accordance with its terms,
subject however to state and federal bankruptcy, insolvency, reorganization and
other laws and general principles of equity affecting enforcement of the rights
of creditors generally.


                                       2

   5

         4.       CONDITIONS PRECEDENT. The effectiveness of this Amendment No.
7 is subject to the fulfillment of the following conditions precedent on or
prior to the Amendment No. 7 Effective Date (as hereinafter defined in Section 5
hereof):

                  4.1.     CONDITIONS PRECEDENT TO EFFECTIVENESS OF AMENDMENT
NO. 7. The Agent shall have received, on or prior to the Amendment No. 7
Effective Date, the following, each dated on or prior to the Amendment No. 7
Effective Date unless otherwise indicated, in form and substance satisfactory to
the Agent and in sufficient copies for each Bank:

                           (a)      Certified copies of (i) the resolutions of
the Board of Directors and/or Partners of Borrower and each Guarantor approving
this Amendment No. 7 and each other agreement, instrument or document to be
executed by them pursuant hereto or as contemplated hereby, and (ii) all
documents evidencing other necessary corporate or partnership action and
required governmental and third party approvals, licenses and consents with
respect to this Amendment No. 7 and the transactions contemplated hereby.

                           (b)      A certificate of the Secretary or an
Assistant Secretary of Borrower and each Guarantor certifying the names and true
signatures of the officers of Borrower and each corporate Guarantor who have
been authorized to execute on behalf of Borrower and such corporate Guarantor
this Amendment No. 7 and any other agreement, instrument or document executed or
to be executed by Borrower and any Guarantor in connection herewith.

                           (c)      A certificate dated the Amendment No. 7
Effective Date signed by the President or any Vice-President of Borrower, to the
following effect:

                           (i)      The representations and warranties of the
         Borrower contained in Sections 3.1, 3.2 and 3.3 of this Amendment No. 7
         are true and correct on and as of such date as though made on and as of
         such date;

                           (ii)     No Default or Event of Default has occurred
         and is continuing, and no Default or Event of Default would result from
         the execution and delivery of this Amendment No. 7 or the other
         agreements, instruments and documents contemplated hereby; and

                           (iii)    The Borrower has paid or agreed to pay all
         amounts payable by it pursuant to the Agreement as amended hereby
         (including, without limitation, all legal fees and expenses of Banks'
         counsel incurred in connection herewith) to the extent then due and
         payable.

                           (d)      Original Guaranty and Suretyship Agreements
duly executed by each of Pharmacare Resources, Inc. and NCL Management, Inc. in
the form attached hereto as EXHIBIT F-1.

                           (e)      Such UCC financing statements and amendments
thereto (including UCC filings to be made in the State of New York) as may be
required by the Banks.

                           (f)      Accession to Stock Pledge Agreement executed
by the Borrower in the form attached hereto as EXHIBIT E-1 together with the
original of all outstanding stock certificates held by Borrower in Pharmacare
Resources, Inc. and NCL Management, Inc., and such blank stock powers as may be
required by the Agent.

         5.       EFFECTIVENESS OF AMENDMENT NO. 7. This Amendment No. 7 and the
Exhibits attached hereto shall become effective at such time as (a) each of the
conditions precedent set forth in Section 4.1 hereof shall have been satisfied,
and (b) counterparts of this Amendment No. 7, executed and delivered by the
Borrower, the Guarantors, the Banks and the Agent shall have been received by
the Agent (or, alternatively, confirmation of the execution hereof by such
parties shall have been received by the Agent). The date upon which the
conditions


                                       3

   6

described in clauses (a) and (b) of the foregoing sentence shall have been
fulfilled is referred to herein as the "Amendment No. 7 Effective Date".

         6.       CLOSING. The Closing under this Amendment No. 7 shall occur on
the Amendment Effective Date at the offices of Boult, Cummings, Conners & Berry,
PLC, 414 Union Street, Nashville, Tennessee 37219, or such other location as the
parties may agree.

         7.       GOVERNING LAW, ETC. This Amendment No. 7 shall be governed by,
and construed in accordance with, the laws of the State of Tennessee as provided
in Section 10.9 of the Agreement, which Section is incorporated herein by
reference and made a part hereof as though set forth in full herein.

         8.       SECTION TITLES AND TABLE OF CONTENTS. The Section Titles and
Table of Contents contained in this Amendment No. 7 are and shall be without
substantive meaning or content of any kind whatsoever and are not a part of the
agreement among the parties hereto.

         9.       WAIVER OF JURY TRIAL. EACH PARTY HERETO, INCLUDING THE
BORROWER, EACH SUBSIDIARY, THE BANKS, AND THE AGENT, HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE (TO THE EXTENT PERMITTED BY APPLICABLE LAWS)
ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER,
RELATING TO, OR CONNECTED WITH THIS AGREEMENT, THE COLLATERAL OR ANY OTHER
AGREEMENT, INSTRUMENT OR DOCUMENT CONTEMPLATED HEREBY OR DELIVERED IN CONNECTION
HEREWITH AND AGREE THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING
WITHOUT A JURY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANKS' AND THE
AGENT ENTERING INTO THIS AGREEMENT.

         10.      COUNTERPARTS. This Amendment No. 7 may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same instrument.

         11.      AGREEMENT TO REMAIN IN EFFECT. Except as expressly provided
herein, the Agreement and each other Collateral Document shall be and shall
continue in full force and effect in accordance with its respective terms.


                                       4

   7

         IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 7
to be executed by their respective officers thereunto duly authorized, as of the
date first above written.



AGENT                                BORROWER
-----                                --------


BANK OF AMERICA, N.A.,               ACCREDO HEALTH, INCORPORATED
as Agent


BY:  /s/  Elizabeth L. Knox          BY:       /s/  Joel R. Kimbrough
   ----------------------------         ----------------------------------------

TITLE:          SVP                  TITLE:               CFO
      -------------------------            -------------------------------------



BANKS                                GUARANTORS AND SUBSIDIARIES
-----                                ---------------------------


BANK OF AMERICA, N.A.                SOUTHERN HEALTH SYSTEMS, INC.


BY:  /s/  Elizabeth L. Knox          BY:       /s/  Joel R. Kimbrough
   ----------------------------         ----------------------------------------

TITLE:         SVP                   TITLE:             CFO
      -------------------------            -------------------------------------


FIRST TENNESSEE BANK NATIONAL        NOVA FACTOR, INC.
ASSOCIATION


BY:    /s/  Bob Nieman               BY:       /s/ Joel R. Kimbrough
   ----------------------------         ----------------------------------------

TITLE: Senior Vice President         TITLE:             CFO
      -------------------------            -------------------------------------


BROWN BROTHERS HARRIMAN & CO.        HEMOPHILIA HEALTH SERVICES, INC.
                                     (successor to Horizon Health Systems, Inc.)


BY:  /s/  Gregory S. Pachus          BY:           /s/ Joel R. Kimbrough
   ----------------------------         ----------------------------------------

TITLE:    Vice President             TITLE:             CFO
      -------------------------            -------------------------------------


                                       5

   8

                                     SUNRISE HEALTH MANAGEMENT, INC.



                                     BY:           /s/ Joel R. Kimbrough
                                        ----------------------------------------

                                     TITLE:                  CFO
                                           -------------------------------------


                                     CHILDRENS HEMOPHILIA SERVICES


                                     BY: Hemophilia Health Services, Inc.,
                                         general partner



                                     BY:         /s/ Joel R. Kimbrough
                                        ----------------------------------------

                                     TITLE:                  CFO
                                           -------------------------------------


                                     PHARMACARE RESOURCES, INC.



                                     BY:           /s/ Joel R. Kimbrough
                                        ----------------------------------------

                                     TITLE:                  CFO
                                           -------------------------------------


                                     NCL MANAGEMENT, INC.



                                     BY:           /s/ Joel R. Kimbrough
                                        ----------------------------------------

                                     TITLE:                  CFO
                                           -------------------------------------


                                       6

   9

                                    EXHIBIT H
                                CORPORATE MATTERS


STATE OF INCORPORATION OF SUBSIDIARIES

         Nova Factor, Inc.                           Tennessee

         Southern Health Systems, Inc.               Tennessee

         Hemophilia Health Services, Inc.            Tennessee

         Sunrise Health Management, Inc.             Georgia

         Pharmacare Resources, Inc.                  New York

         NCL Management, Inc.                        New York

STATES OF QUALIFICATION

         Accredo Health, Incorporated                Tennessee
                                                     California

         Nova Factor, Inc.                           Alabama
                                                     California
                                                     Florida
                                                     Georgia
                                                     Illinois
                                                     Montana
                                                     Texas
                                                     North Carolina

         Hemophilia Health Services, Inc.            California
                                                     Oklahoma

         Pharmacare Resources, Inc.                  New Jersey

STOCK OWNERSHIP

         Accredo Health, Incorporated owns the following outstanding shares of
stock or partnership interests of each Subsidiary listed below:

         Nova Factor, Inc.                   One Hundred Percent (100%) is owned
                                             by Southern Health Systems, Inc.

         Southern Health Systems, Inc.       One Hundred Percent (100%)

         Hemophilia Health Services, Inc.    One Hundred Percent (100%) (as of
                                             June 1, 1997)

         Sunrise Health Management, Inc.     One Hundred Percent (100%) is owned
                                             by Hemophilia Health Services, Inc.

         Pharmacare Resources, Inc.          One Hundred Percent (100%) is owned
                                             by Accredo Health, Incorporated


   10

         NCL Management, Inc.                One Hundred Percent (100%) is owned
                                             by Accredo Health, Incorporated

Children's Hemophilia Services         80% is owned by Hemophilia Health
                                       Services, Inc.

OTHER SUBSIDIARIES

A.       Nova Factor, Inc. has the following partnership interests:

         Texas Health Pharmaceutical Resources:        Equity Ownership of 50%

         Teddy Bear Home Care - Drug Therapies,
         d/b/a Cook Children's Home Health:            Equity Ownership of 50%

         Children's Memorial Home Hemophilia Services
         d/b/a CM Factorcare:                          Equity Ownership of 50%

         Children's Home Services                      Equity Ownership of 50%

         Children's Biotech Pharmacy Services          Equity Ownership of 50%


B.       Hemophilia Health Services has the following partnership interests:

         Specialized Pharmacy Services:                Equity Ownership of 50%

         Children's National Hemophilia Care           Equity Ownership of 50%


                                       2

   11

                                    EXHIBIT I
                                    ADDRESSES

         THE FOLLOWING ARE THE ADDRESSES OF ALL OF THE PLACES OF BUSINESS OF THE
BORROWER AND EACH SUBSIDIARY AS DEFINED IN THE LOAN AND SECURITY AGREEMENT:

         Accredo Health, Incorporated
         1640 Century Center Parkway
         Suites 101, 103, 104, 105
         Memphis, Tennessee  38134

         Nova Factor, Inc.
         1620 Century Center Parkway
         Suite 101-110
         Memphis, Tennessee  38134

         Nova Factor, Inc.
         3576 Lorna Ridge Drive
         Hoover, Alabama  35216

         Southern Health Systems, Inc.
         1640 Century Center Parkway
         Suite 101
         Memphis, Tennessee  38134

         Hemophilia Health Services, Inc.
         6820 Charlotte Pike
         Suite 100
         Nashville, Tennessee  37209

         Pharmacare Resources, Inc.
         8 Westchester Plaza
         Elmsford, New York  10523

         NCL Management, Inc.
         8 Westchester Plaza
         Elmsford, New York  10523

         Texas Health Pharmaceutical Resources
         2100 Hwy. 360, Suite 604
         Grand Prairie, Texas  75050

         Teddy Bear Home Care/Drug Therapies
         d/b/a Cook Childrens Home Health
         2100 Hwy. 360, Suite 605A
         Grand Prairie, Texas  75050

         Children's Memorial Home Hemophilia Services
         d/b/a CM Factorcare
         1620 Century Center Parkway
         Suite 109
         Memphis, Tennessee  38134


   12

         Sunrise Health Management, Inc.
         5980-E, F, G & H Unity Drive
         Norcross, Georgia  30071

         Nova Factor, Inc.
         5393 Roosevelt Blvd.
         Jacksonville, Florida  32210

         Nova Factor, Inc.
         11562 Knott Avenue
         Unit 6
         Garden Grove, California  92841

         Nova Factor, Inc.
         9741 A Southern Pine
         Charlotte, North Carolina  28273

         Childrens Hemophilia Services
         6820 Charlotte Pike
         Suite 100
         Nashville, Tennessee  37209

         Children's Home Services
         1620 Century Center Parkway
         Suite 109
         Memphis, Tennessee  38134

         Specialized Pharmaceutical Services, Inc.
         6820 Charlotte Pike
         Suite 100
         Nashville, Tennessee  37209

         Children's National Hemophilia Care
         6820 Charlotte Pike
         Suite 100
         Nashville, Tennessee  37209

         Children's Biotech Pharmacy Services
         1620 Century Center Parkway
         Suite 109
         Memphis, Tennessee  38134


                                       2

   13

                              INVENTORY LOCATIONS

The following are the addresses of all of the inventory locations of the
Borrower and each subsidiary as defined in the Loan and Security Agreement:



                                                     Owner of                           Inventory*(1)
Address                                              Inventory                          Amount
-------                                              ---------                          -------------
                                                                                  
Nova Factor, Inc.                                    Nova Factor, Inc.                  $15,000,000.00
1620 Century Center Pkwy.
Suite 109
Memphis, TN  38134

Nova Factor, Inc.                                    NFI                                $1,100,000.00
3576 Lorna Ridge Drive
Hoover, AL  35216

Hemophilia Health Services, Inc.                     HHS                                $7,000,000.00
6820 Charlotte Pike
Suite 100
Nashville, TN  37209

Texas Health Pharmaceutical Resources                NFI                                $1,100,000.00
Nova Factor -- Dallas
Cook Children's Home Health
2100 Hwy. 360, Suite 604
Grand Prairie, TX  75050

Nova Factor, Inc.                                    AHI                                $500,000.00
11562 Knott Avenue
Unit 6
Garden Grove, California  92841

Nova Factor, Inc.                                    AHI                                $600,000.00
5393 Roosevelt Blvd.
Suite 21
Jacksonville, Florida  32210

Nova Factor, Inc.                                    AHI                                $500,000.00
9741 A Southern Pine
Charlotte, North Carolina  28273

Sunrise Health Management, Inc.                      SHM                                $750,000.00
5980-G Unity Drive
Norcross, GA  30071

Dallas Children's Hospital                           NFI/HHS                            $200,000.00
1935 Motor Street
Dallas, TX  75235

A.I. Dupont Hospital for Children                    NFI                                $50,000.00
1600 Rockland Road
Wilmington, DE  19899



                                       3

   14

                                                                                  
Childrens Home Care                                  NFI/HHS                            $100,000.00
4650 Sunset Blvd.
Mailstop #16
Los Angeles, CA  90027

Childrens Hospital of Oklahoma                       HHS                                $100,000.00
940 NE 19th Street
Oklahoma City, OK  73126

University Pharmacy of Oklahoma                      HHS                                $175,000.00
835 Station L Young Blvd.
Oklahoma City, OK  73104

LeBonheur Childrens Hospital                         HHS                                $20,000.00
848 Adams
Memphis, Tennessee  38103

St. Vincent Mercy Medical Center                     HHS                                $10,000.00
Ohio

Pharmacare Resources, Inc.
8 Westchester Plaza
Elmsford, New York  10523                            PRI                                $1,000,000.00




*(1)     Please note that these inventory balances will fluctuate from month to
         month.


                                       4

   15

                                    EXHIBIT J
                              LITIGATION AND CLAIMS

1.       Judy Merritt v. Darryl Hunter, PharmaThera, Inc. and Southern Health
         Systems, Inc. (Southern Health Systems, Inc.) -- This lawsuit was filed
         in the Circuit Court of Shelby County, Tennessee for the Thirtieth
         Judicial District at Memphis on August 29, 1995, cause number 72254
         T.D. 95. This is a negligence lawsuit arising out of an automobile
         accident involving a van owned by PharmaThera, Inc. and driven by a
         Southern Health Systems, Inc. employee. Plaintiff seeks medical
         expenses, lost wages, loss of earning capacity, pain and suffering,
         etc. and has requested a jury trial.

2.       Workers Compensation Claims -- From time to time, Nova Factor, Inc.
         receives claims for workers compensation in the normal course of
         business. Nova Factor, Inc. maintains workers compensation insurance
         through Travelers Insurance Company and the workers compensation claims
         are being handled by Travelers.


   16

                                    EXHIBIT K
                              COMPLIANCE WITH LAWS

         Nova Factor, Inc. and Hemophilia Health Services, Inc. historically
have entered into partnerships and other agreements with various physicians,
home health agencies and hospitals. Those activities, practices, procedures and
arrangements have been consistent with contemporaneous industry practices and
norms with respect to compliance with Medicare/Medicaid fraud and abuse statutes
and regulations, the federal prohibitions against physician referrals, commonly
referred to as Stark I and Stark II, and state corporate practice of medicine,
fee-splitting and anti-referral statutes, regulations and policies.
Additionally, some of those arrangements predate the adoption of the "safe
harbors", and, therefor not all of those arrangements currently fit within a
known "safe harbor".

         While the Borrower and the Subsidiaries have at all times attempted to
comply with all applicable laws, Borrower and the Subsidiaries cannot foreclose
the possibility that their activities could be challenged by a governmental
agency. If challenged, Borrower and the Subsidiaries believe that their actions
are defendable.


   17

                                    EXHIBIT L
                   MATERIAL LEASES, CONTRACTS AND COMMITMENTS

1.       Nova Factor, Inc. has distribution agreements with Genzyme Corporation,
         Genentech Managed Distribution System, Biogen, Inc., Genentech, Inc.,
         Centocor, Inc., MedImmune, Inc., Allergan, Inc. and all manufacturers
         of clotting factor.

2.       Accredo Health, Incorporated has employment agreements with the
         following individuals: Kyle Callahan, David Stevens, John R. Grow, Joel
         Kimbrough and Thomas W. Bell, Jr.

3.       Nova Factor, Inc. has the following partnership agreements:

         (a)      Teddy Bear Home Care Drug Therapies, d/b/a Cook Children's
                  Home Health, is a general partnership formed under the laws of
                  the State of Texas; NFI has an equity ownership of 50%; other
                  partner is Cook Children's Medical Center with a 50% equity
                  interest.
         (b)      Texas Health Pharmaceutical Resources is a general partnership
                  formed under the laws of the State of Texas; NFI has equity
                  ownership of 50%; other partner is Alternative Care Systems,
                  Inc. with a 50% equity interest.
         (c)      Children's Memorial Home Hemophilia Services' partnership
                  d/b/a CM FactorCare, is a general partnership formed under the
                  laws of the State of Tennessee; NFI has an equity ownership of
                  50%; other partner is CM Healthcare Resources, Inc. with a 50%
                  equity interest.
         (d)      Children's Home Services.
         (e)      Children's Biotech Pharmacy Services

4.       Hemophilia Health Services, Inc. has the following partnership
         agreements:

         (a)      Specialized Pharmacy Services
         (b)      Childrens Hemophilia Services
         (c)      Children's National Hemophilia Care

5.       Nova Factor, Inc. has management, sales and/or service agreement with
         Texas Health Pharmaceutical Resources, Teddy Bear Home Care Drug
         Therapies d/b/a Cook Children's Home Health and Children's Memorial
         Home Hemophilia Services d/b/a CM FactorCare, Childrens Home Services
         and Childrens Biotech Pharmacy Services.

6.       HHS has management sales and/or service agreements with Specialized
         Pharmacy Services, Childrens Hemophilia Services and Children's
         National Hemophilia Care.

7.       Accredo Health, Incorporated has two stock option plans, an employee
         stock purchase plan, a 401(k) plan, and a cafeteria (health benefits)
         plan.

8.       Nova Factor, Inc., Hemophilia Health Services, Inc., Pharmacare
         Resources, Inc., NCL Management, Inc. and Sunrise Health Management,
         Inc. have informal employee bonus plans and other incentive plans in
         the ordinary course of business.

9.       Nova Factor, Inc., Hemophilia Health Services, Inc., Pharmacare
         Resources, Inc., NCL Management, Inc., AHI Pharmacies, Inc. and Sunrise
         Health Management, Inc. have managed care contracts, Medicare contracts
         and Medicaid contracts.
   18
10.      Hemophilia Health Services, Inc. has contracts with Bronson Hospital in
         Michigan for said hospital to supply services for a fee.

11.      Nova Factor, Inc. and Hemophilia Health Services, Inc. have pharmacy
         contracts.

12.      Nova Factor, Inc., Hemophilia Health Services, Inc., Pharmacare
         Resources, Inc., NCL Management, Inc. and Sunrise Health Management,
         Inc. have confidentiality and noncompete agreements with various
         employees.

13.      Hemophilia Health Services, Inc. leases the following:

         (a)      Real property at 6820 Charlotte Pike, Nashville, Tennessee
                  37209;

14.      Nova Factor, Inc. leases real estate at 1620 Century Center Parkway,
         Suites      and 109, Memphis, Tennessee 38134, 1640 Century Center
         Parkway, Suites 101, 103 and      , Memphis, Tennessee 38134 and real
         estate at 3576 Lorna Ridge Drive, Hoover, Alabama 35216.

15.      Teddy Bear Home Care Drug Therapies d/b/a Cook Children's Home Health
         leases real property at 2100 Hwy. 360, Suite 605A, Grand Prairie, Texas
         75050.

16.      Nova Factor, Inc. leases real property at 5393 Roosevelt Blvd.,
         Suite 21, Jacksonville, Florida 32210; 9741 A Southern Pine, Charlotte,
         North Carolina 28273; and 11562 Knott Avenue, Unit 6, Garden Grove,
         California 92841.

17.      Sunrise Health Management, Inc. leases real property at 5980-E, F, G &
         H Unity Drive, Norcross, Georgia 30071.

18.      Pharmacare Resources, Inc. and NCL Management, Inc. leases real
         property at 8 Westchester Plaza, Elmsford, New York 10523

19.      Sunrise Health Management, Inc. has a management agreement with
         Specialized Pharmacy Services.

20.      Accredo has filed lists of material contracts with the Securities and
         Exchange Commission. A copy of the lists of these contracts are
         attached hereto and incorporated herein by reference.


                                       2

EX-10.76

   1

                                                                   EXHIBIT 10.76

        AMENDMENT NO. 1 TO AMENDED AND RESTATED CONTRACT FOR THE SALE AND
                 DISTRIBUTION OF GENENTECH HUMAN GROWTH HORMONE

This Amendment No. 1 is entered into by and between Genentech, Inc., a Delaware
corporation, with offices at 1 DNA Way, South San Francisco, California 94080
("Genentech") and Nova Factor, Inc., a Tennessee corporation located at 1620
Century Center Parkway, Suite 109, Memphis, Tennessee 38134 ("Nova Factor") for
the purpose of amending that certain Amended and Restated Contract for the Sale
and Distribution of Genentech Human Growth Hormone between Genentech and Nova
Factor effective April 8, 2000 ("Agreement"). Genentech and Nova Factor are
collectively referred to hereinafter as the ("Parties"), or individually as a
("Party").

Genentech and Nova Factor now wish to amend certain terms of the Agreement as
described below. Accordingly, the parties hereby agree to amend the Agreement as
follows:

1.       Subsection 10(a) is hereby deleted in its entirety and replaced with
         the following language:

         10.      Distribution of Genentech HGH

         (a)      Dispensing Obligation. In accordance with applicable laws and
         regulations, Nova Factor shall evaluate the reimbursement status of,
         and dispense Genentech HGH to, all patients with a prescription for
         Genentech HGH who are referred by any person or entity to Nova Factor.
         Within three (3) business days of Nova Factor's receipt of each
         prescription or other appropriate shipment request, Nova Factor shall
         dispense Genentech HGH to patients without regard to third party payor
         coverage of such patient's Genentech HGH; provided, however, that if
         the patient or physician specifically requests a delay in dispensing or
         if prior authorization is required for a Government Program patient,
         both as documented by written records of Nova Factor, said three (3)
         day time period for shipping shall not apply, and Nova Factor shall use
         its commercially reasonable best efforts to ship the requested
         Genentech HGH within thirty (30) days of such prescription or shipment
         request. Notwithstanding the preceding provisions, Nova Factor shall
         not dispense Genentech HGH if the patient has drug on hand at the time
         of the referral. If prior authorization is required, regardless of
         whether the payor is a Government Program or not, Nova Factor shall
         [***] As [***] within three (3) days of the referral to Nova Factor,
         the three (3) day time period [***].

2.       Exhibit L is hereby deleted and replaced by Exhibit L attached hereto
         and incorporated into the Agreement.

3.       This Amendment No. 1 shall be effective upon execution by all of the
         parties hereto.

4.       All terms in this Agreement with initial capitalization shall have the
         meanings assigned to such terms herein or in the Agreement.

5.       The remaining terms and conditions of the Agreement shall remain in
         full force and effect.


   2

IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be
duly executed by their respective officers or representatives duly authorized so
to do.


NOVA FACTOR, INC.                         GENENTECH, INC.



By:       /s/  Randy Grow                 By:       /s/  Diane Parks
   ----------------------------------        -----------------------------------

Name:          Randy Grow                 Name:          Diane Parks
     --------------------------------          ---------------------------------

Title:      President                        Vice President, Managed Care and
      -------------------------------        Commercial Support
                                             -----------------------------------

Date:             6/01/01                 Date:          8/08/01
     --------------------------------          ---------------------------------

1620 Century Center Parkway, Ste. 109     1 DNA Way
Memphis, TN  38134                        South San Francisco, CA  94080
(901) 385-3745                            (650) 225-1000

Notices to be Addressed to:               Notices to be Addressed to:
President                                 Vice President, Managed Care and
                                          Commercial Support

                                          With a copy to:
                                          Corporate Secretary


                                       2

   3

                                    EXHIBIT L

                              PERFORMANCE STANDARDS

Nova Factor shall monitor data elements and status codes on all patients
receiving Genentech HGH. Performance will be monitored on all patients receiving
Genentech HGH except patients with diagnosis codes relating to infertility.
Patients receiving Genentech HGH through the [***] program shall have their
first shipment from Nova Factor measured as a maintenance shipment. Genentech's
[***] program shall notify Nova Factor at least seven (7) calendar days in
advance of the expected exhaust date of patients who have previously received a
starter kit and have chosen Nova Factor as the designated provider of service.



----------------------------------------------------------------------------------------------------------------------
   Performance                     Optimal              Standard             Suboptimal           Failure to Meet
    Standard                                                                                        Standard
----------------------------------------------------------------------------------------------------------------------
                                                                                    
#1 Time to verify         At least 90%           80-89% within 72        75-79% within 72       <75% within 72
coverage                  Within 72 hours        hours                   hours                  hours
----------------------------------------------------------------------------------------------------------------------
#2 Time to Ship           At least 90%           80-89% within 72        75-79% within 72       <75% within 72
                          within 72 hrs. of      hours of referral       hours of referral      hours of referral
                          referral date for      date for initial        date for initial       date for initial
                          initial shipment       shipment and 72         shipment and 72        shipment and 72
                          and 72 hours           hours prior to          hours prior to         hours prior to
                          prior to exhaust       exhaust for             exhaust for            exhaust for
                          for maintenance        maintenance             maintenance            maintenance
                          patients               patients                patients               patients
----------------------------------------------------------------------------------------------------------------------



   4

                               EXHIBIT L (cont.'d)

                      DESCRIPTION OF PERFORMANCE STANDARDS

[***]


                                       2

   5

                               EXHIBIT L (cont.'d)

Assumptions/Definitions

[***]


                                       3

EX-21.1

   1

                                                                    EXHIBIT 21.1

                         SUBSIDIARIES OF THE REGISTRANT



NAME OF SUBSIDIARY                                 JURISDICTION OF INCORPORATION
------------------                                 -----------------------------
                                                
Southern Health Systems, Inc.                      Tennessee
Nova Factor, Inc.                                  Tennessee
Hemophilia Health Services, Inc.                   Tennessee
Pharmacare Resources, Inc.                         New York
Sunrise Health Management, Inc.                    Georgia

EX-23.1

   1

                                                                    EXHIBIT 23.1

                         Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-76399) pertaining to: the Accredo Health, Inc. and its
Subsidiaries Stock Option and Restricted Stock Purchase Plan, as amended and
restated; the Accredo Health, Incorporated 1999 Employee Stock Purchase Plan;
and the Accredo Health, Incorporated Long-Term Incentive Plan, of our report
dated August 7, 2001, with respect to the consolidated financial statements and
schedule included in this Annual Report (Form 10-K) of Accredo Health,
Incorporated.



                                       /s/ Ernst & Young LLP

Memphis, Tennessee
September 25, 2001