Quintiles Transnational Corp.

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QAC/iE7GvNUC1SNu8hMCO0P2tixYtMVsO8E+2T5+92ijROgQIAzxRWsnoxOiOJpN AoDBHfxrg2ZD1+jKb26Eag== 0000950144-03-005739.txt : 20030429 0000950144-03-005739.hdr.sgml : 20030429 20030429155513 ACCESSION NUMBER: 0000950144-03-005739 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUINTILES TRANSNATIONAL CORP CENTRAL INDEX KEY: 0000919623 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 561714315 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-23520 FILM NUMBER: 03669549 BUSINESS ADDRESS: STREET 1: 4709 CREEKSTONE DR STREET 2: RIVERBIRCH BLDG STE 200 CITY: DURHAM STATE: NC ZIP: 27703-8411 BUSINESS PHONE: 9199982000 MAIL ADDRESS: STREET 1: 4709 CREEKSTONE DR STREET 2: STE 300 CITY: DURHAM STATE: NC ZIP: 27703-8411 10-K/A 1 g82359ae10vkza.htm QUINTILES TRANSNATIONAL CORP. Quintiles Transnational Corp.

FORM 10-K/A

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT NO. 1

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

For the fiscal year ended December 31, 2002

Commission file number 000-23520

QUINTILES TRANSNATIONAL CORP.

(Exact name of registrant as specified in its charter)


North Carolina (State of incorporation)		56-1714315 (I.R.S. Employer Identification Number)


4709 Creekstone Drive, Suite 200 Durham, North Carolina (Address of principal executive office)		27703-8411 (Zip Code)

Registrant’s telephone number, including area code: (919) 998-2000

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 per share (and Rights Attached Thereto)
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

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

The aggregate market value of the registrant’s Common Stock at March 31, 2003 held by those persons deemed by the registrant to be non-affiliates was approximately $1,344,254,791.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes x No o

The aggregate market value of the registrant’s Common Stock at June 30, 2002 held by those persons deemed by the registrant to be non-affiliates was approximately $1,344,280,396.

As of March 31, 2003 (the latest practicable date), there were 118,283,920 shares of the registrant’s Common Stock, $.01 par value per share, outstanding.

EXPLANATORY NOTE

The undersigned registrant hereby amends Item 6 and Item 7 of Part II, Item 11, Item 12 and Item 13 of Part III and Item 15 of Part IV of its Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 24, 2003 for the fiscal year ended December 31, 2002, as set forth in the pages attached hereto.

INDEX


	Page

PART II
Item 6. Selected Consolidated Financial Data		4
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		5

PART III
Item 10. Directors and Executive Officers of the Registrant		30
Item 11. Executive Compensation		32
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		42
Item 13. Certain Relationships and Related Transactions		48

PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K		49

PART II

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected Consolidated Statement of Operations Data set forth below for each of the years in the three-year period ended December 31, 2002 and the Consolidated Balance Sheet Data set forth below as of December 31, 2002 and 2001 are derived from our audited consolidated financial statements and notes thereto as included elsewhere herein. The selected Consolidated Statement of Operations Data set forth below for the years ended December 31, 1999 and 1998, and the Consolidated Balance Sheet Data set forth below as of December 31, 2000, 1999 and 1998 are derived from our consolidated financial statements not included herein. During 2000, we completed the sale of our electronic data interchange unit, ENVOY Corporation, and as such the results of ENVOY, for all periods presented, have been reported separately as a discontinued operation in the consolidated financial statements. The selected consolidated financial data presented below should be read in conjunction with our audited consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.


		Year Ended December 31,

		2002		2001			2000			1999		1998

		(in thousands, except per share data)
Gross revenues		$	1,992,409	$	1,883,912		$	1,871,077		$	1,830,365	$	1,418,788
Income (loss) from continuing operations before income taxes			123,660		(262,496	)		(51,005	)		115,910		125,567
Income (loss) from continuing operations			81,664		(175,873	)		(34,174	)		73,168		85,643
Income (loss) from discontinued operation, net of income taxes			—		—			16,770			36,123		2,926
Extraordinary gain from sale of discontinued operation, net of income taxes			—		142,030			436,327			—		—
Cumulative effect on prior years (to December 31, 2001) of changing to a different method of recognizing deferred income taxes			45,659		—			—			—		—
Net income (loss) available for common shareholders		$	127,323	$	(33,843	)	$	418,923		$	109,291	$	88,569

Basic net income (loss) per share:
	Income (loss) from continuing operations	$	0.69	$	(1.49	)	$	(0.29	)	$	0.64	$	0.82
	Income (loss) from discontinued operation		—		—			0.14			0.32		0.03
	Extraordinary gain from sale of discontinued operation		—		1.20			3.76			—		—
	Cumulative effect of change in accounting principle		0.39		—			—			—		—

	Basic net income (loss) per share	$	1.08	$	(0.29	)	$	3.61		$	0.96	$	0.85

Diluted net income (loss) per share:
	Income (loss) from continuing operations	$	0.69	$	(1.49	)	$	(0.29	)	$	0.63	$	0.77
	Income (loss) from discontinued operation		—		—			0.14			0.31		0.03
	Extraordinary gain from sale of discontinued operation		—		1.20			3.76			—		—
	Cumulative effect of change in accounting principle		0.39		—			—			—		—

	Diluted net income (loss) per share	$	1.07	$	(0.29	)	$	3.61		$	0.94	$	0.80

Weighted average shares outstanding:
	Basic		118,135		118,223			115,968			113,525		104,799
	Diluted		118,458		118,223			115,968			115,687		110,879


	As of December 31,

	2002		2001		2000		1999		1998

			(in thousands, except employee data)
Cash and cash equivalents	$	644,284	$	565,063	$	330,214	$	191,653	$	128,621
Working capital, excluding discontinued operation		568,473		617,552		308,684		78,039		197,005
Total assets		2,152,083		1,947,740		1,961,578		1,607,565		1,171,777
Long-term debt and capital leases including current portion		40,574		37,866		38,992		185,765		193,270
Shareholders’ equity	$	1,598,386	$	1,455,088	$	1,404,706	$	991,759	$	646,132
Full-time equivalent employees		15,801		17,639		18,060		20,496		16,732

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Overview

Quintiles Transnational Corp. helps improve healthcare worldwide by providing a broad range of professional services, information and partnering solutions to the pharmaceutical, biotechnology and healthcare industries. Based on industry analyst reports, we are the largest company in the pharmaceutical outsourcing services industry as ranked by 2002 revenues. The revenues of the second largest company were approximately $1.1 billion less than our 2002 revenues.

In May 2002, we completed the formation of our previously announced healthcare informatics joint venture, Verispan, with McKesson, which is designed to leverage the operational strengths of the healthcare information businesses of each company. We are equal co-owners of a majority of the equity of Verispan with McKesson. Verispan has licensed data products to McKesson and us for use in our core businesses. Under the license arrangement, we continue to have access to Verispan’s commercially available market information and products, at no further cost to us, to enhance our service delivery to and partnering with our customers.

On October 14, 2002, we announced that Pharma Services Company, a newly formed company owned by our Chairman of the Board and Founder, made a non-binding proposal to acquire all of our outstanding shares for a cash price of $11.25 per share. In response to the proposal, our Board of Directors established a special committee of independent directors to act on our behalf with respect to the proposal or alternatives in the context of evaluating what is in our best interest and the best interest of our shareholders. On November 11, 2002, the special committee announced its rejection of the proposal by Pharma Services Company and its intention to investigate strategic alternatives available to us for purposes of enhancing shareholder value, including the possibility of a sale of our company and alternatives that would keep us independent and publicly owned.

On April 10, 2003, following the unanimous recommendation of the special committee, our Board of Directors approved a merger transaction with Pharma Services Holding, Inc., or Pharma Services, for our public shareholders to receive $14.50 per share in cash. Pharma Services was founded by Dennis B. Gillings, Ph.D., the Company’s Chairman of the Board and Founder, and One Equity Partners, LLC, the private equity arm of Bank One Corporation. Dr. Gillings and certain of his affiliates will retain their equity interest in the Company. In addition, in order to finance the transaction, Pharma Services has received an equity commitment of $415.7 million from One Equity Partners, LLC and debt commitments totaling $875 million from Citicorp North America, Inc. and Citigroup Global Markets Inc. Pharma Services also intends to use approximately $586 million of the Company’s existing cash to fund the transaction. The transaction, which is anticipated to be completed later this year, is subject to Pharma Services’ completion of its committed financing and customary conditions, including regulatory and shareholder approvals.

Results of Operations

We adopted Emerging Issues Task Force Issue 01-14 on January 1, 2002, as required. This new accounting guidance requires us to report reimbursed service costs as part of service revenues. Our reimbursed service costs include such items as payments to investigators and travel expenses for our clinical monitors and sales representatives. Historically, we have not reported these reimbursed service costs as service revenues since we do not earn a profit on these costs. In accordance with this new accounting guidance, we have reclassified reimbursed service costs to service revenues for all periods

presented. However, it was impracticable to identify and reclassify certain prior period commercialization reimbursed service costs and, accordingly, historical results have not been restated for these costs. These commercialization reimbursed service costs totaled approximately $60.4 million for the year ended December 31, 2002.

Year Ended December 31, 2002 Compared with Year Ended December 31, 2001

Gross revenues for the year ended December 31, 2002 were $1.99 billion versus $1.88 billion for the year ended December 31, 2001. Gross revenues include service revenues, revenues from commercial rights and royalties and revenues from investments. Net revenues exclude reimbursed service costs. Reimbursed service costs may fluctuate due, in part, to the payment provisions of the respective service contract. Below is a summary of revenues (in thousands):


	2002		2001

Service revenues	$	1,868,324	$	1,857,509
Less: reimbursed service costs		399,650		263,429

Net service revenues		1,468,674		1,594,080
Commercial rights and royalties		110,381		25,792
Investments		13,704		611

Total net revenues	$	1,592,759	$	1,620,483

• Service revenues were $1.87 billion for 2002 compared to $1.86 billion for 2001. Service revenues less reimbursed service costs, or net service revenues, for 2002 were $1.47 billion, a decrease of $125.4 million or (7.9%) over net service revenues of $1.59 billion in 2001. Included in net service revenues for 2002 was $20.3 million from our informatics group as compared to $58.2 million from that group for 2001. Our informatics group was transferred to a joint venture during May 2002, therefore revenues for this group are not included in our net service revenues since the date of transfer. Net service revenues for 2002 were positively impacted by approximately $15.2 million due to the effect of foreign currency fluctuations. The positive foreign currency fluctuation due to the weakening of the US Dollar relative to the euro and the British pound was partially offset by the strengthening of the US Dollar relative to the South African Rand and the Japanese yen. Net service revenues increased in the Asia Pacific region $29.4 million or 18.0% to $193.2 million, which was negatively impacted by $2.2 million due to the effect of foreign currency fluctuations. Net service revenues increased $67.9 million or 11.5% to $658.7 million in the Europe and Africa region, which was positively impacted by $18.2 million due to the effect of foreign currency fluctuations. Net service revenues decreased $222.7 million or (26.5%) to $616.8 million in the Americas region primarily as a result of the decline in the commercial services group revenues.

• Commercial rights and royalties revenues, which include product revenues, royalties and commissions, for 2002 were $110.4 million, an increase of $84.6 million over 2001 commercial rights and royalties revenues of $25.8 million. Commercial rights and royalties revenues were positively impacted by approximately $3.8 million due to the effect of foreign currency fluctuations related to the weakening of the US Dollar relative to the euro. These revenues include products for which we have acquired certain commercial rights, such as the dermatology products, Solaraze™ and ADOXA™. Also included are royalties or commissions on product sales that we receive in exchange for providing commercial or product development services. The $84.6 million increase is primarily the result of our

acquisition of certain assets of Bioglan Pharma, Inc., and its suite of dermatology products, a new risk sharing contract in Europe with a large pharmaceutical customer and our contracts with Scios Inc. and Kos Pharmaceuticals, Inc. In December 2002, we agreed to permit Scios to hire the sales force we had previously provided under contract to them, effective December 31, 2002 in return for (1) Scios reimbursing us for the operating profit that we would have earned between December 31, 2002 and the first date on which Scios would have been permitted to hire the sales force under the contract terms and (2) advancing from May 31, 2003 to December 31, 2002, our ability to exercise the remaining unexercisable warrants. The early settlement of our service obligation resulted in an accelerated recognition of revenues of approximately $9.3 million in the fourth quarter of 2002. For the year ended December 31, 2002, approximately 55.5% of our commercial rights and royalties revenues was attributable to the contracts with Scios and Kos, approximately 17.2% was attributable to the risk sharing contract in Europe, approximately 20.3% was attributable to the suite of dermatology products and the remaining 7.0% was attributable to miscellaneous contracts and activities.

• Investment revenues related to our PharmaBio Development group’s financing arrangements, which include gains and losses from the sale of equity securities and impairments from other than temporary declines in the fair values of our direct and indirect investments, for 2002 were $13.7 million versus $611,000 for 2001. Included in 2002 and 2001 are $4.3 million and $14.0 million, respectively, of impairment losses on investments whose decline in fair value was considered to be other than temporary.

Costs of revenues were $1.37 billion for 2002 versus $1.32 billion in 2001. Below is a summary of these costs (in thousands):


	2002		2001

Reimbursed service costs	$	399,650	$	263,429
Service costs		775,447		931,029
Commercial rights and royalties costs		106,146		26,800
Investment costs		320		1,914
Depreciation and amortization		86,148		95,095

	$	1,367,711	$	1,318,267

• Reimbursed service costs were $399.7 million and $263.4 million for 2002 and 2001, respectively. It was impracticable to identify and reclassify certain commercialization reimbursed service costs, and accordingly, the 2001 results have not been restated for these costs. These commercialization reimbursed service costs totaled approximately $60.4 million for 2002.

• Service costs, which include compensation and benefits for billable employees, and certain other expenses directly related to service contracts, were $775.4 million or 52.8% of 2002 net service revenues versus $931.0 million or 58.4% of 2001 net service revenues. This reduction is primarily a result of the continued effect of our process enhancements and cost reduction efforts.

• Commercial rights and royalties costs, which include compensation and related benefits for employees, amortization of commercial rights, infrastructure costs of the PharmaBio Development group and other expenses directly related to commercial rights and royalties, were $106.1 million for 2002 versus $26.8 million for 2001. These costs include services and

products provided by third parties, as well as services provided by our other service groups totaling approximately $54.5 million for 2002 and $12.9 million for 2001. The year 2002 also includes costs to launch and market Solaraze™ and ADOXA™ and expenses relating to the risk sharing contract in Europe.

• Investment costs, which include costs directly related to direct and indirect investments in our customers or other strategic partners as part of the PharmaBio Development group’s financing arrangements, were $320,000 in 2002 versus $1.9 million in 2001.

• Depreciation and amortization, which include depreciation of our property and equipment and amortization of our definite-lived intangible assets except commercial rights, decreased to $86.1 million for 2002 versus $95.1 million for 2001. This decrease is primarily due to the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” which requires that all goodwill and indefinite-lived intangible assets no longer be amortized but reviewed at least annually for impairment. In addition, depreciation expense decreased $2.9 million as a result of the transfer of our informatics group to Verispan. During 2002, we completed the goodwill transitional impairment test as of January 1, 2002, as required, and the annual impairment test as of July 31, 2002, in which no goodwill impairment was deemed necessary at either date.

General and administrative expenses, which include compensation and benefits for administrative employees, non-billable travel, professional services, and expenses for advertising, information technology and facilities, were $508.1 million or 31.9% of total net revenues in 2002 versus $520.7 million or 32.1% of total net revenues in 2001. General and administrative expenses decreased $12.6 million primarily due to realization of the benefits from our restructurings, including efficiencies created through the implementation of our shared service centers, and the deployment of our Internet initiative products into day-to-day operations resulting in our research and development expenses decreasing to $2.1 million in 2002 from $18.1 million in 2001. These decreases were partially offset by increases in Japan and Europe primarily due to the effect of foreign currency fluctuations.

Net interest income, which represents interest income received from bank balances and investments in debt securities net of interest expense incurred on lines of credit, notes and capital leases, was $14.2 million in 2002 versus $16.7 million in 2001. Although we had an increase in our investable funds during 2002, we experienced a decrease in interest income due to a decline in interest rates.

Other expense was $7.1 million in 2002 versus $489,000 in 2001. The increase is a result of several factors, including the effects of foreign currency translations, disposals of assets and transaction costs. Included in the 2002 transaction costs are approximately $3.4 million of expenses relating to the activities of the special committee of our Board of Directors and its financial and legal advisors, and approximately $2.7 million of expenses associated with the formation of the Verispan joint venture.

In 2001, we recognized a $325.6 million impairment on our investment in WebMD Corporation, or WebMD, common stock. This included a $334.0 million write-down in the third quarter of 2001 of our cost basis in our investment in WebMD whose decline in fair value was considered to be other than temporary. In the fourth quarter of 2001 we recognized an $8.5 million gain on our investment in WebMD as a result of the sale of all 35 million shares of WebMD common stock to WebMD.

During 2001, we recognized $83.2 million of income from the settlement of litigation between WebMD and us. We received $185.0 million in cash for all 35 million shares of WebMD common stock we owned and to resolve the remaining disputes. Also as part of the settlement, WebMD surrendered the warrant to purchase 10 million shares of our common stock.

In 2001 we announced a strategic plan that has been implemented across each service line and geographic area of our business which we believe will allow us to meet the changing needs of our customers and to increase our opportunity for growth by committing ourselves to innovation, quality and efficiency. In connection with this plan, we recognized $54.2 million of restructuring charges in 2001 which included approximately $1.1 million relating to a 2000 restructuring plan. In 2002, we revised our estimates of the restructuring plan which we adopted during 2001. This review resulted in a reduction of $9.1 million in our accruals, including $5.7 million in severance payments and $3.4 million in exit costs. However, also during 2002, we recognized $9.1 million of restructuring charges as a result of the continued implementation of the strategic plan we announced during 2001. This restructuring charge included revisions to the 2001 and 2000 restructuring plans of approximately $2.5 million and $1.9 million, respectively, due to a revision in the estimates for the exit costs relating to the abandoned leased facilities.

During 2001, we recognized a $27.1 million charge to write-off goodwill and other operating assets primarily relating to goodwill recorded in four separate acquisitions in our commercial services segment and personal computers including desktops and laptops that were no longer in service. The goodwill was deemed impaired and written-off due to changing business conditions and strategic direction.

Income before income taxes was $123.7 million or 7.8% of total net revenues for 2002 versus a loss before income taxes of $262.5 million for 2001.

The effective income tax rate was 33.5% for 2002 versus (33.0%) for 2001. Since we conduct operations on a global basis, our effective income tax rate may vary. See “Income Taxes.”

During 2002, we recognized $569,000 of losses from equity in unconsolidated affiliates and other which represents our pro rata share of net losses of unconsolidated affiliates, primarily Verispan’s net loss since its formation in May 2002, net of minority interest in a consolidated subsidiary.

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

During 2001, we completed a tax basis study for ENVOY Corporation, our electronic data interchange unit we sold to WebMD Corporation during 2000. As a result of this study, our tax basis in ENVOY was determined which resulted in an approximate $142.0 million reduction in the income taxes provided on the sale of ENVOY.

Net income was $127.3 million for 2002 versus a net loss of $33.8 million for 2001.

Analysis by Segment:

During the first quarter of 2002, we transferred the portion of the operations of our Late Phase, primarily Phase IV, clinical group that was in the commercial services group to the product development group in order to consolidate the operational and business development activities. All historical information presented has been revised to reflect this change.

The following table summarizes the operating activities for our reportable segments for the years ended December 31, 2002 and 2001, respectively. We do not include reimbursed service costs, general and administrative expenses, depreciation and amortization except amortization of commercial rights, interest (income) expense, other (income) expense and income tax expense (benefit) in our segment analysis. Intersegment revenues have been eliminated and the profit on intersegment revenues is reported within the service group providing the services (dollars in millions).


	Total Net Revenues									Contribution

												% of Net						% of Net
	2002			2001			Growth %			2002		Revenues			2001			Revenues

Product development	$	944.9		$	913.9			3.4	%	$	477.5		50.5	%	$	438.4			48.0	%
Commercial services		558.0			634.9			(12.1	)		207.7		37.2			197.5			31.1
PharmaBio Development		124.1			26.4			370.0			17.6		14.2			(2.3	)		(8.8	)
Informatics		20.3			58.2			(65.0	)		8.0		39.4			27.2			46.7
Eliminations		(54.5	)		(12.9	)		—			—		—			—			—

	$	1,592.8		$	1,620.5			(1.7	%)	$	710.8		44.6	%	$	660.7			40.8	%

The product development group’s financial performance improvement was a result of several factors, including an increase in revenues and the continued improvement in contribution margin due to greater efficiency and improved contract management.

The commercial services group’s financial performance was negatively impacted by difficult business conditions for large fee-for-service contracts in the United States. The impact of the revenue decline was offset by the effects of our cost management efforts.

The PharmaBio Development group’s increase in net revenues, which consist of commercial rights and royalties and investments, was primarily the result of our acquisition of certain assets of Bioglan Pharma, Inc. and its suite of dermatology products, the risk sharing contracts in Europe, our contracts with Scios Inc. and Kos Pharmaceuticals, Inc. and the rollover of the Scios sales force effective December 31, 2002. The investment revenues (net of related costs) increased the contribution of this group by approximately $14.7 million when compared to 2001. This group’s contribution margin was negatively impacted by the costs associated with the launch and marketing of Solaraze™ and ADOXA™ and expenses relating to the risk sharing contracts in Europe. The commercial services provided to PharmaBio Development by our commercial services group increased approximately $41.6 million.

The informatics group’s performance was impacted by the pending transfer of this group into the joint venture. This was completed in May 2002; therefore, the 2002 results include only five months of revenues and contribution for the informatics group.

Year Ended December 31, 2001 Compared with Year Ended December 31, 2000

Gross revenues for the year ended December 31, 2001 were $1.88 billion versus $1.87 billion for the year ended December 31, 2000. Gross revenues include service revenues, revenues from commercial rights and royalties and investment revenues. Net revenues exclude reimbursed service costs. Reimbursed service costs may fluctuate, due in part, to the payment provisions of the respective service contract. Below is a summary of revenues (in thousands):


	2001		2000

Service revenues	$	1,857,509	$	1,860,316
Less: reimbursed service costs		263,429		210,588

Net service revenues		1,594,080		1,649,728
Commercial rights and royalties		25,792		10,182
Investments		611		579

Total net revenues	$	1,620,483	$	1,660,489

• Service revenues were $1.86 billion for 2001 compared to $1.86 billion for 2000. Net service revenues for 2001 were $1.59 billion, a decrease of $55.6 million or (3.4%) over net service revenues of $1.65 billion in 2000. However, there was a negative impact of approximately $49.0 million due to the effect of foreign currency fluctuations related to the strengthening of the US Dollar relative to the euro, other European currencies and the Japanese yen combined with the effects of the devaluation of several currencies including the South African Rand. Net service revenues for the commercial services group decreased $113.6 million or (15.2%) as a result of large contracts that were terminated or converted in-house by our customers instead of being renewed. The decrease was partially offset by an increase of approximately $11.7 million from our Phase I development services and an increase of approximately $76.6 million from our clinical development services, primarily Phase II and III services. Net service revenues increased in the Asia Pacific region $44.0 million or 36.7% to $163.8 million but decreased $116.7 million or (12.2%) to $839.5 million in the Americas region primarily resulting from the decline in the commercial services segment. Net service revenues in the Europe and Africa region increased $20.3 million or 3.5% to $601.8 million.

• Commercial rights and royalties revenues, which include product revenues, royalties and commissions, for 2001 were $25.8 million, an increase of $15.6 million over 2000 commercial rights and royalties revenues of $10.2 million. The increase was primarily attributable to the contract with Scios which was operational by the third quarter of 2001.

• Investment revenues related to our PharmaBio Development group’s financing arrangements, which include gains and losses from the sale of equity investments and impairments from other than temporary declines in the fair values of our direct and indirect investments, for 2001 were $611,000 versus $579,000 for 2000. Included in 2001 and 2000 are $14.0 million and $5.5 million, respectively, of impairment losses on investments whose decline in fair value was considered to be other than temporary.

Costs of revenues were $1.32 billion for 2001 versus $1.30 billion in 2000. Below is a summary of these costs (in thousands):


	2001		2000

Reimbursed service costs	$	263,429	$	210,588
Service costs		931,029		986,343
Commercial rights and royalties costs		26,800		9,441
Investment costs		1,914		—
Depreciation and amortization		95,095		91,242

	$	1,318,267	$	1,297,614

• Reimbursed service costs were $263.4 million and $210.6 million for 2001 and 2000, respectively.

• Service costs, which include compensation and benefits for billable employees, and certain other expenses directly related to service contracts, were $931.0 million or 58.4% of 2001 net service revenues versus $986.3 million or 59.8% of 2000 net service revenues. This reduction is primarily a result of the continued effect of our process enhancements and cost reduction efforts.

• Commercial rights and royalties costs, which include compensation and related benefits for employees, amortization of commercial rights, infrastructure costs of the PharmaBio Development group and other expenses directly related to commercial rights and royalties, were $26.8 million for 2001 versus $9.4 million for 2000. These costs include services and products provided by third parties, as well as services provided by our other service groups totaling approximately $12.9 million for 2001.

• Investment costs, which include costs directly related to direct and indirect investments in our customers or other strategic partners as part of the PharmaBio Development group’s financing arrangements, were $1.9 million in 2001, the initial year of the group’s operations.

• Depreciation and amortization, which include depreciation of our property and equipment and amortization of our definite-lived intangible assets except commercial rights, increased to $95.1 million for 2001 versus $91.2 million for 2000. Depreciation expense increased $4.2 million due to the increase in our capitalized asset base while amortization expense decreased $300,000 primarily as a result of the write-off of goodwill.

General and administrative expenses, which include compensation and benefits for administrative employees, non-billable travel, professional services, and expenses for advertising, information technology and facilities, were $520.7 million or 32.1% of total net revenues in 2001 versus $565.1 million or 34.0% of total net revenues in 2000. General and administrative expenses decreased primarily due to the effects of reductions relating to our restructuring activities including a decrease of approximately $15.4 million in the spending for our Internet initiative. These reductions were partially offset by an increase in costs of approximately $7.8 million associated with the continued implementation of our shared service center initiative and approximately $9.0 million associated with the realignment of our business development strategy.

Net interest income, which represents interest income received from bank balances and investments in debt securities, net of interest expense incurred on lines of credit, notes and capital leases, was $16.7 million in 2001 versus $15.9 million in 2000.

Other expense was $489,000 in 2001 versus other income of $725,000 in 2000.

In 2001, we recognized a $325.6 million impairment on our investment in WebMD common stock. This included a $334.0 million write-down in the third quarter of 2001 of our cost basis in our investment in WebMD due to an other than temporary decline in its fair value and an $8.5 million gain on our investment in WebMD as a result of the sale of all 35 million shares of WebMD common stock to WebMD.

In response to a change in demand for our services, we announced restructuring plans during 2000, resulting in a $58.6 million restructuring charge. This consisted of $33.2 million related to severance payments, $11.3 million related to asset impairment write-offs and $14.0 million in exit costs. As of December 31, 2001, all affected individuals, approximately 990 positions, had been notified of their termination and approximately $1.5 million remained to be spent.

During the third quarter of 2001, we announced a strategic plan that has been implemented across each service line and geographic area of our business to meet the changing needs of our customers and to increase our opportunity for growth by committing ourselves to innovation, quality and efficiency.

In connection with the plan, we recognized $54.2 million of restructuring charges that included approximately $1.1 million relating to a 2000 restructuring plan. The restructuring charges consisted of $33.1 million related to severance payments, $8.2 million related to asset impairment write-offs and $12.9 million of exit costs. As part of these restructurings, approximately 1,040 positions were eliminated. As of December 31, 2001, 755 individuals had been notified of their termination of which 485 had been paid and were no longer employed by us.

During 2001, we recognized a $27.1 million charge to write-off goodwill and other operating assets primarily relating to goodwill recorded in four separate acquisitions in our commercial services group and personal computers including desktops and laptops that were no longer in service. The goodwill was deemed impaired and written-off due to changing business conditions and strategic direction.

During 2000, we recognized a $17.3 million loss on the disposal of our general toxicology operations in Ledbury, Herefordshire, UK.

Loss before income taxes was $262.5 million for 2001 versus $51.0 million for 2000.

The effective income tax rate was (33.0%) for 2001 and 2000, respectively. Since we conduct operations on a global basis, our effective income tax rate may vary. See “Income Taxes.”

During 2000, we completed the sale of ENVOY to WebMD. The results of ENVOY, $16.8 million in 2000, are included in our consolidated statement of operations as a discontinued operation. The

results of ENVOY do not include any interest expense, management fee or transaction costs allocated by us.

We received $400 million in cash and 35 million shares of WebMD common stock in exchange for our entire interest in ENVOY and a warrant to acquire 10 million shares of our common stock at $40 per share, exercisable for four years. We recorded an extraordinary gain on the sale of $436.3 million, net of income taxes of $184.7 million. During 2001, we completed a tax basis study for ENVOY. As a result of this study, our tax basis in ENVOY was determined which resulted in an approximate $142.0 million reduction in the income taxes provided on the sale of ENVOY.

Net loss was $33.8 million for 2001 versus a net income of $418.9 million for 2000.

Analysis by Segment:

The following table summarizes the operating activities for our reportable segments for the years ended December 31, 2001 and 2000, respectively. We do not include reimbursed service costs, general and administrative expenses, depreciation and amortization except amortization of commercial rights, interest (income) expense, other (income) expense and income tax expense (benefit) in our segment analysis. Intersegment revenues have been eliminated and the profit on intersegment revenues is reported within the service group providing the services (dollars in millions).


	Total Net Revenues								Contribution

												% of Net					% of Net
	2001			2000		Growth %			2001			Revenues			2000		Revenues

Product development	$	913.9		$	841.5		8.6	%	$	438.4			48.0	%	$	382.6		45.5	%
Commercial services		634.9			748.5		(15.2	)		197.4			31.1			247.6		33.1
PharmaBio Development		26.4			10.8		145.4			(2.3	)		(8.8	)		1.3		12.3
Informatics		58.2			59.7		(2.6	)		27.2			46.7			33.2		55.7
Eliminations		(12.9	)		—		—			—			—			—		—

	$	1,620.5		$	1,660.5		(3.4	%)	$	660.7			40.8	%	$	664.7		40.0	%

The product development group’s financial performance improvement was a result of several factors, including process enhancements and cost reduction efforts in the American and European operations, growth in our Phase I and clinical development services, primarily Phase II and III services, and an improvement in the quality of our contracts.

The commercial services group’s financial performance was negatively impacted by several factors, including the effects of large contracts converted in-house or terminated by our customers instead of being renewed and the effects of a collection issue with a non-pharmaceutical customer receivable. These were partially offset by the effects of our cost reduction efforts.

The PharmaBio Development group’s increase in net revenues, which consist of commercial rights and royalties and investments, was primarily the result of the Scios contract becoming operational in the third quarter of 2001.

The informatics group’s financial performance was impacted by several factors, including the effects of the strategic plan and related restructuring, the costs associated with developing new data products and a decrease in new business as a result of the dispute with WebMD and concerns regarding our continuing ability to receive data from WebMD.

Liquidity and Capital Resources

Cash and cash equivalents were $644.3 million at December 31, 2002 as compared to $565.1 million at December 31, 2001.

Cash flows provided by operations were $246.5 million in 2002 versus $247.4 million and $10.5 million in 2001 and 2000, respectively. Increasing cash flows from operations in 2001 was $63.2 million related to the settlement of the litigation with WebMD and $56.2 million for income tax refunds.

Cash flows used in investing activities in 2002 were $152.3 million and $16.4 million in 2001, versus $270.4 million of cash flows provided by investing activities in 2000. Investing activities consisted primarily of the acquisition of commercial rights, capital asset purchases and acquisition of businesses and purchases and sales of investments.

Capital asset purchases required cash outlays of $40.2 million, $134.0 million and $108.8 million in 2002, 2001 and 2000, respectively. Capital asset purchases by our informatics group was $666,000 in 2002 versus $10.0 million and $7.0 million in 2001 and 2000, respectively. The decrease in 2002 was due, in part, to the transfer of this group to Verispan. The $134.0 million capital asset purchases in 2001 included the final payment of $58 million in connection with our 1999 acquisition of Aventis S.A.’s Drug Innovation and Approval Facility, $19.9 million for the implementation of the shared service centers and $5.7 million for our informatics group’s data center. Capital asset purchases in 2000 included $25.2 million for the implementation of the shared service centers and $8.0 million for the purchase of our training academy in Japan.

During 2002, cash used for the acquisition of commercial rights was $88.3 million versus $26.7 million for 2001. The 2002 commercial rights included $70.0 million in payments under our agreement with Eli Lilly and Company. Also in 2002, we acquired certain assets of Bioglan Pharma, Inc., including its management team and sales force and approximately $1.6 million in cash, for approximately $27.9 million. In 2001, we acquired the rights to market for 14 years in the United States, Canada and Mexico SkyePharma’s Solaraze™, a treatment of actinic keratosis, for $26.7 million.

In 2001, we jointly announced with WebMD the settlement of litigation between the companies and the resolution of our disputes. As part of the settlement, WebMD paid us $185.0 million in cash for all 35 million shares of WebMD common stock we held and to resolve the remaining disputes. The proceeds were allocated as follows: $63.2 million related to the settlement of litigation was reported as cash flows provided by operations and $121.8 million related to the sale of WebMD common stock was reported as cash flows from investing activities. We will also receive an additional payment from WebMD if, on or before June 30, 2004, WebMD is acquired for a price greater than $4.00 per share or its ENVOY subsidiary is acquired for a price greater than $500 million. Also as part of the settlement, WebMD surrendered the warrant it held to purchase 10 million shares of our common stock.

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


	December 31, 2002			December 31, 2001

Trade accounts receivable, net	$	227,636		$	258,917
Unbilled services		120,383			166,754
Unearned income		(239,598	)		(205,783	)

Net service receivables outstanding	$	108,421		$	219,888

Number of days of service revenues outstanding		21			43

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

Investments in debt securities were $36.7 million at December 31, 2002 versus $37.0 million at December 31, 2001. Our investments in debt securities consist primarily of U.S. Government Securities, which are callable by the issuer, at par, and money funds.

Investments in marketable equity securities at December 31, 2002 were $64.9 million, a decrease of $13.1 million, as compared to $78.0 million at December 31, 2001. This decrease is due to the sale of equity investments. In accordance with our policy to continually review declines in fair value of our marketable equity securities for declines that may be other than temporary, we recorded a loss of approximately $335,000 in 2002 to establish a new cost basis for certain investments.

Investments in non-marketable equity securities and loans at December 31, 2002 were $46.4 million, an increase of $8.9 million, as compared to $37.6 million at December 31, 2001. In accordance with our policy to review the carrying values of our non-marketable equity securities and loans if the facts and circumstances suggest that a potential impairment, representing an other than temporary decline in fair value, may have occurred, we recorded a loss of approximately $4.0 million in 2002 to establish a new cost basis for certain investments.

In 2002, we completed the formation of our healthcare informatics joint venture, Verispan. We contributed the net assets of our informatics group and funded $10.0 million to Verispan. Accordingly, we have recorded our investment in Verispan, which is approximately $120.7 million at December 31, 2002, as an investment in unconsolidated affiliates.

We have available to us a £10.0 million (approximately $16.0 million) unsecured line of credit with a U.K. bank and a £1.5 million (approximately $2.4 million) general bank facility with the same U.K. bank. At December 31, 2002 and 2001, we did not have any outstanding balances on these facilities.

In March 2001, the Board of Directors authorized us to repurchase up to $100 million of our common stock from time to time until March 1, 2002. In February 2002, the Board extended this authorization until March 1, 2003. During the first half of 2002, we entered into agreements to repurchase approximately 1.6 million shares for an aggregate price of $22.2 million. We did not enter into any agreements to repurchase our common stock during the second half of 2002. During 2001, we entered into agreements to repurchase approximately 1.7 million shares for an aggregate price of $27.5 million. Shareholders’ equity increased $143.3 million to $1.60 billion at December 31, 2002 from $1.46 billion at December 31, 2001.

Below is a summary of our future payment commitments by year under contractual obligations as of December 31, 2002 (in thousands):


	2003		2004		2005		2006		2007		Thereafter		Total

Long-term debt	$	3,347	$	2,179	$	1,957	$	1,702	$	941	$	1,431	$	11,557
Obligations held under capital leases		19,301		7,330		1,213		617		482		1,433		30,376
Operating leases		62,443		39,776		26,548		22,078		18,970		72,191		242,006
Service agreement		20,000		20,000		20,000		20,000		20,000		15,007		115,007
PharmaBio funding commitments in various commercial rights and royalties		46,828		18,695		15,520		9,914		3,834		—		94,791
PharmaBio funding commitments in non-marketable equity securities and loans		32,344		10,144		—		—		—		—		42,488

	$	184,263	$	98,124	$	65,238	$	54,311	$	44,227	$	90,062	$	536,225

We have also additional future PharmaBio funding commitments that are contingent upon satisfaction of certain milestones by the third party such as receiving FDA approval, obtaining funding from additional third parties, agreement of a marketing plan and other similar milestones. Due to the uncertainty of the amounts and timing of these commitments, they are not included in the commitment amounts above. If all of these contingencies were satisfied over approximately the same time period, then we estimate these commitments to be a minimum of approximately $115-140 million per year for a period of five to six years, subject to certain limitations and varying time periods.

We have entered into financial arrangements with customers in which a portion of our net revenue and operating income will be based on the performance of a specific product. These arrangements typically involve funding, either by direct investment or in the form of a loan, which we commit to provide to our customers. Any securities we may acquire as a result of our investment or upon conversion of the loan may not be readily marketable, and we will bear the risk of carrying these investments for an indefinite period of time. The customer may apply this funding to certain pre-launch and sales and marketing activities or it may represent payment for a royalty stream relating to a specific product. We intend to continue to pursue these types of strategic arrangements, and we are actively seeking additional opportunities to create alliances with our customers.

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

The proposed merger described in the “Overview” calls for the use of a large portion of our existing cash as part of the financing for the transaction. In addition, the proposed merger calls for substantial debt financing and after the merger, assuming its completion, much of our available cash would be used to service the debt incurred in the merger.

Critical Accounting Policies

As we believe these policies require difficult, subjective and complex judgments, we have identified the following critical accounting policies which we use in the preparation of our financial statements.

Contract Revenue

We recognize revenue for service contracts based upon (1) percentage of completion (utilizing input or output measures as appropriate) for fixed price contracts, (2) contractual per diem or hourly rate basis as work is performed for fee-for-service contracts or (3) completion of units of service for unit-of-service contracts. The percentage of completion method requires us to estimate total expected revenue, costs, profitability, duration of the contract and outputs. These estimates are reviewed periodically and, if any of these estimates change or actual results differs from expected results then an adjustment is recorded in the period in which they become reasonably estimable. These adjustments could have a material effect on our results of operations.

Certain of our commercial rights and royalty contracts provide for us to receive minimum guaranteed payments. These contracts usually contain multiple elements which include payments being made to the customer, as well as payments being received by us from the customer. We account for the contracts as a single contract taking into account the net cash flows we receive. We recognize revenue over the related service period of the contract based on the net present value of the guaranteed payments. As revenues are recognized and payments are made between the customer and us, we record an asset, which represents the obligation owed to us by the customer. Milestone payments, which we make to the customer, are amortized as a reduction to revenue over the service period of the contract. We also impute interest on the asset balance and record interest income as the contract progresses. We will fully realize the asset balance when we receive the guaranteed minimum level of cash flows. We recognize revenues in excess of the guaranteed minimums as they are earned. The inherent subjectivity of determining the net present values of the guaranteed payments could have a significant impact on the revenues recognized in any period.

We recognize product revenues upon shipment when title passes to the customer. Revenues are net of allowances for estimated returns, rebates and discounts. We are obligated to accept from customers the return of products that are nearing or have reached their expiration date. We also monitor product ordering patterns, actual returns and analyze wholesale inventory levels to estimate potential product return rates. When we lack a sufficient historical basis to estimate return rates, we recognize revenues and the related cost of revenues when we receive end-user prescription data from third-party providers. Although we believe the product return allowances are adequate, if actual product returns exceed our estimates our results of operations could be adversely affected.

Accounts Receivable, Unbilled Services and Unearned Income

Accounts receivable represents amounts billed to customers. Revenues recognized in excess of billings are classified as unbilled services, while billings in excess of revenue recognized are classified as unearned income. The realization of these amounts is based on the customer’s willingness and ability to pay us. We have an allowance for doubtful accounts based on management’s estimate of probable incurred losses resulting from a customer failing to pay us. If any of these estimates change or actual results differs from expected results, then an adjustment is recorded in the period in which they become reasonably estimable. These adjustments could have a material effect on our results of operations.

Marketable Debt and Equity Investments

We have investments in debt securities and investments in marketable equity securities. Periodically, we review our investments for declines in fair value that we believe may be other than temporary. When we identify such a decline in fair value we record a loss through earnings to establish a new cost basis for the investment. In addition, we may experience future material declines in the fair value of our investments which would require us to record additional losses. These adjustments could have a material adverse effect on our results of operations.

Non-Marketable Equity Investments and Loans

We have investments in non-marketable equity securities and loans. These arrangements typically involve funding, either by direct investment or in the form of a loan, which we commit to provide. Any securities we may acquire as a result of our investment or upon conversion of the loan may not be readily marketable, and we will bear the risk of carrying these investments for an indefinite period of time. We may not be able to recover our cost of the investment or loan at any time in the future, and we could experience an impairment in the carrying value of these investments, which would require us to record additional losses, which could have a material adverse effect on our results of operations.

Income Taxes

We have undistributed earnings of our foreign subsidiaries. Those earnings are considered to be indefinitely reinvested and, accordingly, no U.S. Federal and State income taxes have been provided. If those earnings were distributed, we would be subject to both U.S. income taxes and withholding taxes payable to the various countries. Any resulting income tax obligations could materially adversely affect our results of operations.

Certain items of income and expense are not recognized on our income tax returns and financial statements in the same year, which creates timing differences. The income tax effect of these timing differences results in (1) deferred income tax assets that create a reduction in future income taxes and (2) deferred income tax liabilities that create an increase in future income taxes. Recognition of deferred income tax assets is based on management’s belief that it is more likely than not that the income tax benefit associated with certain temporary differences, income tax operating loss and capital loss carry forwards and income tax credits, will be realized. We record a valuation allowance to reduce our deferred income tax assets for those deferred income tax items for which it is more likely than not that realization will not occur. We determine the amount of the valuation allowance based, in part, on our assessment of future taxable income and in light of our ongoing prudent and feasible income tax strategies. If our estimate of future taxable income or tax strategies change at any time in the future, we would be required to record an additional income tax provision; recording such a provision could have a material adverse effect on our results of operations.

Foreign Currencies

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

U.S. dollars, known as translation risk, and the risk that we incur expenses in a currency other than that in which the contract revenues are paid, known as transaction risk. Gains and losses on foreign currency transactions are reported in results of operations, while translation adjustments are reported as a component of accumulated other comprehensive income within shareholders’ equity. If certain balances owed by our foreign subsidiaries are deemed to be not of a long-term investment nature, then the translation effect related to those balances would not be classified as translation adjustments but rather transaction adjustments, which could have a material effect on our results of operations.

Long-Lived Assets

Realization of identifiable tangible and intangible assets in which we have invested is exposed to a changing regulatory and competitive market. Examples include investments we have made in certain product related rights such as marketing and distribution rights and investments made to develop an Internet platform for our product development and commercialization services. The realization of these assets could be affected by technological changes, approval by the FDA, and proposed and final laws and regulations, such as regulations governing individually identifiable health information or FDA requirements for use of electronic records and/or electronic signatures.

Periodically, we review the carrying values of property and equipment if the facts and circumstances suggest that a potential impairment may have occurred. If this review indicates that carrying values will not be recoverable, as determined based on undiscounted cash flows over the remaining depreciation or amortization period, we will reduce carrying values to estimated fair value. The inherent subjectivity of our estimates of future cash flows could have a significant impact on our analysis. Any future write-offs of long-lived assets could have a material adverse effect on our financial condition or results of operations.

Goodwill and Identifiable Intangible Assets

Net assets of companies acquired in purchase transactions are recorded at fair value at the date of acquisition. The recoverability of the excess of the cost over the fair value of the net assets acquired, known as goodwill, is evaluated annually for impairment or if and when events or circumstances indicate a possible impairment. During 2002, we completed the goodwill transitional impairment test as of January 1, 2002, as required, and the annual impairment test as of July 31, 2002, in which no goodwill impairment was deemed necessary at either date. Goodwill and indefinite-lived intangible assets are not amortized. Other identifiable intangible assets are amortized over their estimated useful lives. The inherent subjectivity of applying a market comparables approach to valuing our assets and liabilities could have a significant impact on our analysis. Any future impairment could have a material adverse effect on our financial condition or results of operations.

Employee Stock Compensation

We have elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Options Issued to Employees”, or APB 25, and related interpretations in accounting for our employee stock options because the alternative fair value accounting provided for under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS No. 148, or SFAS 123, requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized. If we accounted for stock options under SFAS 123, we would have recorded additional compensation expense for the stock option grants to employees. If we are unable to or decide not to continue to account for stock options under APB 25, our financial results would be materially adversely affected to the extent of the additional

compensation expense we would have to recognize, which could change significantly from period to period based on several factors including the number of stock options granted and fluctuations of our stock price and/or interest rates.

Backlog Reporting

We report revenue backlog based on anticipated net revenue from uncompleted projects that our customers have authorized. We report only service-related revenue as backlog, and we do not include product revenue or commercial rights-related revenue (royalties and commissions) in backlog. Our backlog is calculated based upon our estimate of forecasted currency exchange rates. Annually, we adjust the beginning balance of our backlog to reflect changes in our forecasted currency exchange rates. Our backlog at anytime can be affected by:

- the variable size and duration of projects,

- the loss or delay of projects, and

- a change in the scope of work during the course of a project.

If customers delay projects, the projects will remain in backlog, but will not generate revenue at the rate originally expected. Accordingly, historical indications of the relationship of backlog to revenues may not be indicative of the future relationship. The reporting of revenue backlog is not authoritatively prescribed, therefore practices tend to vary among competitors and reported amounts are not necessarily comparable.

Inflation

We believe the effects of inflation generally do not have a material adverse impact on our operations or financial condition.

Market Risk

Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency rates, interest rates and other relevant market rate or price changes. In the ordinary course of business, we are exposed to various market risks, including changes in foreign currency exchange rates, interest rates and equity price changes, and we regularly evaluate our exposure to such changes. Our overall risk management strategy seeks to balance the magnitude of the exposure and the cost and availability of appropriate financial instruments. From time to time, we have utilized forward exchange contracts to manage our foreign currency exchange rate risk. The following analyses present the sensitivity of our financial instruments to hypothetical changes in interest and foreign currency exchange rates that are reasonably possible over a one-year period.

Foreign Currency Exchange Rates

Approximately 56.4%, 49.7% and 44.0% of our total net revenue for the years ended December 31, 2002, 2001, and 2000, respectively, was derived from our operations outside the United States. We do not have significant operations in countries in which the economy is considered to be highly-inflationary. Our financial statements are denominated in U.S. dollars, and accordingly, changes in the exchange rate between foreign currencies and the U.S. dollar will affect the translation of our subsidiaries’ financial results into U.S. dollars for purposes of reporting our consolidated financial results. Accumulated currency translation adjustments recorded as a separate component (reduction) of shareholders’ equity were ($18.4) million at December 31, 2002 as compared to ($60.6) million at December 31, 2001.

We may be subject to foreign currency transaction risk when our service contracts are denominated in a currency other than the currency in which we earn fees or incur expenses related to such contracts. At December 31, 2002, our most significant foreign currency exchange rate exposures were in the British pound, Japanese yen and the euro. We limit our foreign currency transaction risk through exchange rate fluctuation provisions stated in our contracts with customers, or we may hedge our transaction risk with foreign currency exchange contracts or options. There were no open foreign exchange contracts or options relating to service contracts at December 31, 2002 or 2001.

Interest Rates

At December 31, 2002, our investment in debt securities portfolio consists primarily of U.S. Government securities, of which most are callable by the issuer at par, and money funds. The portfolio is primarily classified as available-for-sale and therefore these investments are recorded at fair value in the financial statements. These securities are exposed to market price risk which also takes into account interest rate risk. As of December 31, 2002, the fair value of the investment portfolio was $36.7 million, based on quoted market prices. The potential loss in fair value resulting from a hypothetical decrease of 10% in quoted market price is approximately $3.7 million.

Equity Prices

At December 31, 2002, we had investments in marketable equity securities. These investments are classified as available-for-sale and are recorded at fair value in the financial statements. These securities are subject to equity price risk. As of December 31, 2002, the fair value of these investments was $64.9 million, based on quoted equity prices. The potential loss in fair value resulting from a hypothetical decrease of 10% in quoted equity price is approximately $6.5 million.

Recently Issued Accounting Standards

In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” requiring companies to record certain exit costs activities when legally obligated instead of when an exit plan is adopted. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002; therefore, the adoption of SFAS No. 146 did not have a material impact on our results of operations and/or financial position.

In January 2003, the EITF published EITF Issue 00-21, “Revenue Arrangements with Multiple Deliverables,” which requires companies to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. In applying this EITF Issue 00-21, revenue arrangements with multiple deliverables should be divided into separate units of accounting if the deliverables in the arrangement meet certain criteria. Arrangement consideration should be allocated among the separate units of accounting based on their relative fair values. This issue is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We are currently evaluating the impact the adoption of this issue will have on our results of operations and/or financial position.

From time to time the Staff of the United States Securities and Exchange Commission communicates its interpretations of accounting rules and regulations. The manner by which these views are communicated varies by topic. While these communications represent the views of the Staff, they do not carry the authority of law or regulation. Nonetheless, the practical effect of these communications is

that changes in the Staff’s views from time to time can impact the accounting and reporting policies of public companies, like ours.

Risk Factors

In addition to the other information provided in this Annual Report on Form 10-K, you should consider the following factors carefully in evaluating our business and us. Additional risks and uncertainties not presently known to us, that we currently deem immaterial or that are similar to those faced by other companies in our industry or business in general, such as competitive conditions, may also impair our business operations. If any of the following risks occur, our business, financial condition, or results of operations could be materially adversely affected.

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

Economic factors and industry trends that affect our primary customers, pharmaceutical and biotechnology companies, also affect our business. For example, the practice of many companies in these industries has been to hire outside organizations like us to conduct large clinical research and sales and marketing projects. This practice grew substantially during the 1990’s and we benefited from this trend. Some industry commentators believe that the rate of growth of outsourcing will tend to decrease. If these industries reduce their tendency to outsource those projects, our operations, financial condition and growth rate could be materially and adversely affected. Recently, we also believe we have been negatively impacted by mergers and other factors in the pharmaceutical industry, which appear to have slowed decision making by our customers and delayed certain trials. A continuation of these trends would have an ongoing adverse effect on our business. In addition, numerous governments have undertaken efforts to control growing healthcare costs through legislation, regulation and voluntary agreements with medical care providers and pharmaceutical companies. If future regulatory cost containment efforts limit the profits which can be derived on new drugs, our customers may reduce their research and development spending, which could reduce the business they outsource to us. We cannot predict the likelihood of any of these events or the effects they would have on our business, results of operations or financial condition.

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

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

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

We are currently developing an Internet platform for our product development and commercialization services. We have entered into agreements with certain vendors for them to provide web-enablement services to help us develop this platform. If such vendors fail to perform as required or if there are substantial delays in developing and implementing this platform, we may have to make substantial further investments, internally or with third parties, to achieve our objectives. Meeting our objectives is dependent on a number of factors which may not take place as we anticipate, including obtaining adequate web-enablement services, creating web-enablement services which our customers will

find desirable and implementing our business model with respect to these services. Also, these expenditures are likely to negatively impact our profitability, at least until our web-enabled products are operationalized. Over time, we envision continuing to invest in extending and enhancing our Internet platform in other ways to further support and improve our services. We cannot assure you that any improvements in operating income resulting from our Internet capabilities will be sufficient to offset our investments in the Internet platform. Our results could be further negatively impacted if our competitors are able to execute their services on a web-based platform before we can launch our Internet services or if they are able to structure a platform that attracts customers away from our services.

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

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

• its ability to obtain continuous access to de-identified healthcare data from third parties in sufficient quantities to support its informatics products;

• its ability to process and use the volume of data received from a variety of data providers;

• its ability to attract customers, besides Quintiles and McKesson, to purchase its products and services;

• the risk of changes in healthcare information privacy laws and regulations that could create a risk of liability, increase the cost of Verispan’s business or limit its service offerings;

• the risk that industry regulation may restrict Verispan’s ability to analyze and disseminate pharmaceutical and healthcare data; and

• the risk that it will not be able to effectively and cost-efficiently replace services previously provided to the contributed businesses by the former parent corporations.

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

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

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

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

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

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

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

Our acquisition of the rights to market and sell Solaraze™ and the rights to other dermatology products acquired from Bioglan Pharma, Inc., as well as any other product rights we may hold at any time, subject us to a number of risks typical to the pharmaceutical industry. For example, we could face product liability claims in the event users of these products, or of any other pharmaceutical product rights we may acquire in the future, experience negative reactions or adverse side effects or in the event it causes injury, is found to be unsuitable for its intended purpose or is otherwise defective. While we believe we currently have adequate insurance in place to protect against these risks, we may nevertheless be unable to satisfy any claims for which we may be held liable as a result of the use or misuse of products which we manufacture or sell, and any such product liability claim could adversely affect our business, operating results or financial condition. In addition, like pharmaceutical companies, our

commercial success in this area will depend in part on our obtaining, securing and defending our intellectual property rights covering our pharmaceutical product rights.

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

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

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

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

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

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

We also contract with physicians to serve as investigators in conducting clinical trials. Such testing creates risk of liability for personal injury to or death of volunteers, particularly to volunteers with life-threatening illnesses, resulting from adverse reactions to the drugs administered during testing. It is possible third parties could claim that we should be held liable for losses arising from any professional malpractice of the investigators with whom we contract or in the event of personal injury to or death of persons participating in clinical trials. We do not believe we are legally accountable for the medical care rendered by third party investigators, and we would vigorously defend any such claims. For example, we are among the defendants named in a purported class action by participants in an Alzheimer’s study seeking to hold us liable for alleged damages to the participants arising from the study. Nonetheless, it is possible we could be found liable for those types of losses.

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

We also provide limited clinical trial packaging services. We could be held liable for any problems that result from the trial drugs we package, including any quality control problems in our packaging facilities. For example, accounting for drug samples that contain controlled substances is subject to regulation by the United States Drug Enforcement Administration, or the DEA. For example, some of our facilities have been audited by the DEA. In one case, the DEA indicated that it found that we miscounted certain drugs. Though we provided a corrected accounting of these drugs to the DEA and no audit report or action has been taken, the DEA could pursue one or more courses of action, including a re-audit of the facility, the assessment of civil fines, or in extreme cases, criminal penalties.

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

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

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

In connection with our contribution to Verispan, Verispan assumed our obligation under our settlement agreement with WebMD to indemnify WebMD for losses arising out of or in connection with the cancelled Data Rights Agreement with WebMD, our data business that we contributed to the joint venture, the collection, accumulation, storage or use of data by ENVOY for the purpose of transmitting or delivering data to us, any transmission or delivery by ENVOY of data to us or violations of law or contract attributable to any such event. This indemnity obligation is limited to 50% for the first $20 million in aggregate losses, subject to exceptions for certain indemnity obligations that were not transferred to Verispan. Although Verispan has assumed our indemnity obligations to WebMD relating to our data business, WebMD may seek indemnity from us and we would have to proceed against Verispan.

In addition, we remain subject to other indemnity obligations to WebMD, including for losses arising out of the settlement agreement itself or out of the sale of ENVOY to WebMD. In particular, we could be liable for losses which may arise in connection with a class action lawsuit filed against ENVOY prior to its purchase by us and subsequent sale to WebMD. Our indemnification obligation with regard to losses arising from the sale of ENVOY to WebMD including ENVOY’s class action lawsuit is not subject to the limitation on the first $20 million of losses described above.

Relaxation of government regulation could decrease the need for the services we provide.

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

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

Any failure on our part to comply with applicable regulations could result in the termination of ongoing clinical research or sales and marketing projects or the disqualification of data for submission to regulatory authorities, either of which could have a material adverse effect on us. For example, if we were to fail to verify that informed consent is obtained from patient participants in connection with a particular clinical trial, the data collected from that trial could be disqualified, and we could be required to redo the trial under the terms of our contract at no further cost to our customer, but at substantial cost to us.

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

The markets for our services are characterized by rapidly changing technology, evolving industry standards and frequent introduction of new and enhanced services. To succeed, we must continue to:

• enhance our existing services;

• introduce new services on a timely and cost-effective basis to meet evolving customer requirements;

• integrate new services with existing services;

• achieve market acceptance for new services; and

• respond to emerging industry standards and other technological changes.

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

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

- Foreign Currency Translation Risk. The revenue and expenses of our foreign operations are generally denominated in local currencies.

- Foreign Currency Transaction Risk. Our service contracts may be denominated in a currency other than the currency in which we incur expenses related to such contracts.

We try to limit these risks through exchange rate fluctuation provisions stated in our service contracts, or we may hedge our transaction risk with foreign currency exchange contracts or options. Although we may hedge our transaction risk, there were no open foreign exchange contracts or options relating to service contracts at December 31, 2002. Despite these efforts, we may still experience fluctuations in

financial results from our operations outside the United States, and we cannot assure you that we will be able to favorably reduce our currency transaction risk associated with our service contracts.

We may be adversely affected by customer concentration.

We have one customer that accounted for approximately 11% of our net service revenues for the year ended December 31, 2002 due, in part, to the effect of a long term contract that is set to expire as of the end of 2003. These revenues resulted from services provided by the product development and commercial services groups. If this customer or any large customer decreases or terminates its relationship with us, our business, results of operations or financial condition could be materially adversely affected.

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

If we were unable to submit electronic records to the United States Food and Drug Administration, also referred to as the FDA, which meet the requirements of FDA regulations, this may adversely affect our customers when they submit the data concerned to the FDA in support of an application for approval of a product. The FDA published 21 CFR Part 11 “Electronic Records; Electronic Signatures; Final Rule” (“Part 11”) in 1997. Part 11 became effective in August 1997 and defines the regulatory requirements that must be met for FDA acceptance of electronic records and/or electronic signatures in place of the paper equivalents. Part 11 requires that those utilizing such electronic records and/or signatures employ procedures and controls designed to ensure the authenticity, integrity and, as appropriate, confidentiality of electronic records and, Part 11 requires those utilizing electronic signatures ensure that a person appending an electronic signature cannot readily repudiate the signed record. Pharmaceutical, medical device and biotechnology companies are increasing their utilization of electronic records and electronic signatures and are requiring their service providers and partners to do likewise. Becoming compliant with Part 11 involves considerable complexity and cost. Our ability to provide services to our customers in full compliance with applicable regulations includes a requirement that, over time, we become compliant and maintain compliance with the requirements of Part 11. If we are unable to achieve this objective, our ability to provide services to our customers which meet FDA requirements may be adversely affected.

Our proposed transaction with Pharma Services is subject to uncertainties.

Our proposed transaction with Pharma Services is subject to customary conditions, including regulatory and shareholder approval, and Pharma Services’ completion of its committed financing. If any of the conditions to closing are not satisfied or waived, the proposed transaction would not be completed and our public shareholders would not receive $14.50 per share in cash. In addition, the merger agreement relating to the proposed transaction can be terminated prior to completion of the transaction under certain circumstances, including where we receive an acquisition proposal from a third party that our board believes is more favorable to our shareholders than the Pharma Services transaction (after following specific procedures described in our merger agreement with Pharma Services). If the merger agreement is terminated, the proposed transaction would not be completed, our public shareholders would not receive $14.50 per share in cash and, in certain circumstances, we could be required to pay Pharma Services a termination fee of $52 million, as well as reimburse its costs, fees and expenses up to $5 million. If the merger is not completed, our common stock would continue to trade on the Nasdaq National Market, however, the value of our stock could decline substantially below the $14.50 per share consideration in the merger. We are currently targeting to close the proposed transaction, assuming the satisfaction or waiver of all conditions, in the third quarter of 2003. The closing of the proposed

transaction could be delayed beyond the third quarter of 2003 due to many factors, including factors beyond the control of either party. In addition, we may not prevail in pending litigation regarding Pharma Services’ proposal to acquire us. An injunction or other adverse outcome in that litigation could have a material adverse effect on our financial condition, regardless of whether the merger is completed.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is certain information with respect to each director of the Company. Information with respect to executive officers of the Company is included under Part I of this Annual Report on Form 10-K. There are no family relationships between any of the executive officers or directors of the Company.


				First Year
				Elected
Name	Position With Company	Age		Director

Robert C. Bishop, Ph.D. (1)(2)(3)(5)(6)	Director		60		1994
Arthur M. Pappas (1)(4)	Director		55		1994
E.G.F. Brown (1)(2)	Director		58		1998
Vaughn D. Bryson (1)(2)(4)(5)	Director		64		1997
Pamela J. Kirby, Ph.D.	Chief Executive Officer and Director		49		2002
William L. Roper, M.D., MPH (1)(4)	Director		54		2002
Dennis B. Gillings, Ph.D. (1)	Chairman		58		1982
Chester W. Douglass, DMD, Ph.D. (1)(3)(4)	Director		62		1983
Virginia V. Weldon, M.D. (1)(3)(5)(6)	Director		67		1997

(1)		Member of Executive Committee

(2)		Member of Audit Committee

(3)		Member of Human Resources and Compensation Committee

(4)		Member of Quality Committee

(5)		Member of Special Committee

(6)		Member of an ad hoc committee formed during 2002

Robert C. Bishop, Ph.D. has served as a Director since April 1994. Since June 1999, Dr. Bishop has served as Chairman of the Board and Chief Executive Officer for AutoImmune Inc., a biotechnology company. From May 1992 to December 1999, Dr. Bishop served as President and Director of AutoImmune Inc. Dr. Bishop serves as a director of Millipore Corporation, a multinational company that applies its purification technology to research and manufacturing applications in the biopharmaceutical industry; Caliper Technologies Corporation, a company developing microfluidic analytical systems for healthcare applications; he serves as a director of Optiobionics Corporation, a company developing ophthalmological devices; and he serves as a Member of the Board of Trustees/Managers for the MFS/Sun Life Series Trust and Compass Accounts at MFS Investment Management.

E. G. F. Brown has served as a Director since January 1998. Mr. Brown is currently an independent director of Vantec Corporation, a Japanese logistics business, Keller plc, a global construction company, and CH Jones, Ltd, a holding company focused on Information Technology. His previous appointments include Chairman - Mainland Europe of Tibbett & Britten Group plc, an international logistics service provider, Executive Director of T.D.G. plc, a European logistics company, Operations Director of Exel plc, a global logistics company and independent director of Datrontech PLC, a distributor of personal computer components.

Vaughn D. Bryson has served as a Director since March 1997. Currently, Mr. Bryson is President of Life Science Advisors, LLC, a consulting firm. Mr. Bryson is also President and founder of Clinical Products, Inc., a medical foods company. Previously he served as President and Chief Executive Officer of Eli Lilly and Company, a pharmaceutical company, and also as a member of its Board of Directors. Mr. Bryson is a director of Amylin Pharmaceuticals, Inc., Ariad Pharmaceuticals, Inc., AtheroGenics, Inc. and Chiron Corporation.

Chester W. Douglass, DMD, Ph.D. has served as a Director since 1983. Dr. Douglass has served as Professor and Chairman of the Department of Oral Health Policy and Epidemiology, Harvard University School of Dental Medicine and Professor, Department of Epidemiology, Harvard University School of Public Health since 1989. Previous to that time, Dr. Douglass served in academic appointments in the School of Public Health and School of Dentistry at the University of North Carolina at Chapel Hill from 1971-1978.

Dennis B. Gillings, Ph.D. founded the Company in 1982 and has served as Chairman of the Board of Directors since its inception and as Chief Executive Officer from its inception until April 2001.

Pamela J. Kirby, Ph.D. has served as a Director since May 2002 and became the Company’s Chief Executive Officer in April 2001. Previously, she served as Head of Global Strategic Marketing and Business Development of the Pharmaceuticals Division of F. Hoffmann-La Roche Ltd., a healthcare company in Basel, Switzerland. Dr. Kirby served from September 1996 until September 1998 as global commercial director with British Biotech plc, a drug development company. Dr. Kirby is a director of Smith & Nephew plc.

Arthur M. Pappas has served as a Director since September 1994. Mr. Pappas is Chairman and Chief Executive Officer of A. M. Pappas & Associates, LLC, an international advisory services and investment company that works with life science companies, products and related technologies. Mr. Pappas is a director of AtheroGenics, Inc., a biopharmaceutical company focused on research and development of genes that regulate atherosclerosis and cancer. He is also a director of three privately-held companies.

William L. Roper, M.D., MPH has served as Director since May 2002. Dr. Roper has served as the dean of the School of Public Health at the University of North Carolina at Chapel Hill, professor of health policy and administration in the School of Public Health and professor of pediatrics in the School of Medicine since May 1997. From August 1993 to May 1997, Dr. Roper served in a variety of capacities with the Prudential Insurance Company of America, including Senior Vice President for Medical Management. Dr. Roper is a director of Luminex Corporation, a research and development company specializing in biological testing technologies with applications throughout the life sciences industry, and DaVita Inc., a provider of dialysis services for patients suffering from chronic kidney failure.

Virginia V. Weldon, M.D. has served as a Director since November 1997. Dr. Weldon served as Senior Vice President, Public Policy, Monsanto Company, an agro-chemicals and biotechnology (life sciences) company, from March 1989 until her retirement in March 1998. Prior to 1989, Dr. Weldon was

Professor of Pediatrics and Deputy Vice Chancellor for Medical Affairs at Washington University School of Medicine. Dr. Weldon is a director of CPI Corp., a consumer services entity focusing on portrait photography. Dr. Weldon also served as a Member of the Board of GenAmerica Corporation, a mutual insurance company, which is now a subsidiary of MetLife.

Section 16(a)
Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s executive officers and Directors to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Based solely upon review of Forms 3 and 4 and amendments thereto furnished to the Company during fiscal 2002, the Company believes that all Section 16(a) filing requirements applicable to its officers, Directors and greater-than-10% shareholders were fulfilled during 2002 in a timely manner. No Forms 5 were required to be filed with respect to fiscal year 2002; however, due to an administrative error, the Form 5 with respect to fiscal year 2001 for Pamela J. Kirby was inadvertently filed late.

ITEM 11. EXECUTIVE COMPENSATION

The following tables show annual and long-term compensation paid or accrued by the Company for services rendered for the fiscal years indicated by the Company’s Chief Executive Officer and the next three most highly compensated executive officers whose total salary and bonus exceeded $100,000 individually during the year ended December 31, 2002 (collectively, the “named executive officers”).

Summary Compensation Table


													Long Term
				Annual Compensation									Compensation

													No. Of
													Securities
Name and										Other Annual			Underlying			All Other
Principal Position		Year		Salary			Bonus			Compensation			Options			Compensation

Dennis B. Gillings (1)			2002	$	600,000	(2)	$	80,067		$	(3	)		339,733	(4)	$	847,422	(5)
	Chairman		2001		600,000	(6)		31,875	(7)		(3	)		372,323	(8)		724,318	(9)
			2000		600,000	(10)		—			(3	)		553,403	(11)		604,027	(12)

Pamela J. Kirby			2002	$	570,625		$	63,463	(13)	$	(3	)		237,813		$	1,413	(14)
	Chief Executive Officer		2001		412,047	(15)		24,063	(16)		(3	)		1,127,703	(17)		1,342	(18)

James L. Bierman			2002	$	365,750		$	65,956		$	(3	)		144,387		$	5,782	(19)
	Executive Vice President		2001		368,749			12,031			(3	)		106,470	(20)		9,332	(21)
	And Chief Financial Officer		2000		261,252			—			(3	)		427,726	(22)		4,765	(23)

John S. Russell			2002	$	283,250	(24)	$	24,694		$	(3	)		142,743		$	9,663	(25)
	Executive Vice President		2001		271,248	(26)		9,453	(27)		(3	)		95,800	(28)		9,332	(29)
	And General Counsel, Head		2000		247,503	(30)		—			(3	)		154,226	(31)		7,279	(32)
	Global Human Resources

(1)		Dr. Gillings resigned as Chief Executive Officer effective April 2, 2001 and retained the office of Chairman.

(2)		Includes $540,000 deferred during 2002 pursuant to the Company’s Elective Deferred Compensation Plan.

(3) Perquisites and other personal benefits received did not exceed the lesser of $50,000 or 10% of salary and bonus compensation for the named executive officer.

(4) In 2002, with the use of his own plane, Dr. Gillings provided extensive business-related travel services for himself and other Company employees. The Human Resources and Compensation Committee approved reimbursing Dr. Gillings for these services by authorizing cash payments up to approximately $1.4 million, which is in addition to the amounts shown in this table. The Company also granted options to Dr. Gillings with an aggregate Black-Scholes value of approximately $1.4 million in quarterly installments with an exercise price on March 31, 2002 of $17.75 per share; on June 15, 2002 of $13.09 per share; on September 16, 2002 of $9.76 per share; and on December 16, 2002 of $12.11 per share. These options to purchase 190,250 shares are not included in the table as they were not treated as long-term compensation. (see “Certain Relationships and Related Transactions” for additional information).

(5) Includes contributions to the Company’s 401(k) Plan on behalf of Dr. Gillings in the amount of $1,688, the estimated value of forfeitures allocated by the ESOP on behalf of Dr. Gillings in the amount of $158, the present value of the benefit to Dr. Gillings of the premiums the Company paid under a split-dollar life insurance arrangement in the amount of $843,255 (see “Employment Agreements” below for a description of this arrangement), and other life insurance premiums that the Company paid in the amount of $2,321.

(6) Includes $540,000 deferred during 2001 pursuant to the Company’s Elective Deferred Compensation Plan.

(7) Includes $31,875 relating to bonus payable for 2001 deferred during 2002 pursuant to the Company’s Elective Deferred Compensation Plan.

(8) Includes 8,281 shares subject to options granted pursuant to the 2001 bonus. In 2001, with the use of his own plane, Dr. Gillings provided extensive business-related travel services for himself and other Company employees. The Human Resources and Compensation Committee approved reimbursing Dr. Gillings for these services by authorizing cash payments up to $1.4 million, which is in addition to the amounts shown in this table. The Company also granted options to Dr. Gillings with an aggregate Black-Scholes value of $1.4 million in quarterly installments with an exercise price on March 31, 2001 of $18.875 per share; on June 30, 2001 of $25.25 per share; on September 30, 2001 of $14.60 per share; and on December 31, 2001 of $16.05 per share. These options are included in the table as long-term compensation.

(9) Includes contributions to the Company’s 401(k) Plan on behalf of Dr. Gillings in the amount of $2,700, the estimated value of forfeitures allocated by the ESOP on behalf of Dr. Gillings in the amount of $869 and interest in the amount of $1,228, the present value of the benefit to Dr. Gillings of the premiums the Company paid under a split-dollar life insurance arrangement in the amount of $717,199 (see “Employment Agreements” below for a description of this arrangement), and other life insurance premiums that the Company paid in the amount of $2,322.

(10) Includes $300,000 deferred during 2000 pursuant to the Company’s Elective Deferred Compensation Plan.

(11) Includes 166,708 shares subject to options granted pursuant to the 2000 bonus. In 2000, with the use of his own plane, Dr. Gillings provided extensive business-related travel services for himself and other Company employees. The Compensation Committee approved reimbursing Dr. Gillings for these services by authorizing cash payments up to $1.4 million, which is in addition to the amounts shown in this table. The Company also granted options to Dr. Gillings with a Black-Scholes value of $1.4 million at an exercise price of $13.44 per share. These options are included in the table as long-term compensation.

(12) Includes contributions to the Company’s 401(k) Plan on behalf of Dr. Gillings in the amount of $2,550, the estimated value of contributions made to the ESOP on Dr. Gillings’ behalf in the amount of $4,063, the present value of the benefit to Dr. Gillings of the premiums the Company paid under a split-dollar life insurance arrangement in the amount of $591,480 (see “Employment Agreements” below for a description of this arrangement), and other life insurance premiums that the Company paid in the amount of $5,934.

(13) Includes $62,543 relating to bonus payable for 2002 deferred during 2003 pursuant to the Company’s Elective Deferred Compensation Plan.

(14) Includes other life insurance premiums that the Company paid in the amount of $810 and the estimated value of forfeitures allocated by the ESOP on behalf of Dr. Kirby in the amount of $603.

(15) Dr. Kirby became Chief Executive Officer effective as of April 2, 2001.

(16) Includes $24,063 relating to bonus payable for 2001 deferred during 2002 pursuant to the Company’s Elective Deferred Compensation Plan.

(17) Includes 3,126 shares subject to options granted pursuant to the 2001 bonus.

(18) Includes other life insurance premiums that the Company paid in the amount of $473 and the estimated value of forfeitures allocated by the ESOP on behalf of Dr. Kirby in the amount of $869.

(19) Includes $3,938 in contributions to the Company’s 401(k) Plan on behalf of Mr. Bierman. Includes $1,242, which represents the value of life insurance premiums paid in 2002 and the estimated value of forfeitures allocated by the ESOP on behalf of Mr. Bierman in the amount of $602.

(20) Includes 3,126 shares subject to options granted pursuant to the 2001 bonus.

(21) Includes $7,650 in contributions to the Company’s 401(k) Plan on behalf of Mr. Bierman. Includes $810, which represents the value of life insurance premiums paid in 2001 and the estimated value of forfeitures allocated by the ESOP on behalf of Mr. Bierman in the amount of $869 and interest in the amount of $3.

(22) Includes 598 shares subject to options granted pursuant to the 2000 bonus.

(23) Includes $4,063, which represents the estimated value of contributions made to the ESOP on behalf of Mr. Bierman and $702 representing the value of life insurance premiums paid in 2000.

(24) Includes $28,325 deferred during 2002 pursuant to the Company’s Elective Deferred Compensation Plan.

(25) Includes $8,250 in contributions to the Company’s 401(k) Plan on behalf of Mr. Russell, $810 representing the value of life insurance premiums paid in 2002 and the estimated value of forfeitures allocated by the ESOP on behalf of Mr. Russell in the amount of $603.

(26) Includes $27,125 deferred during 2001 pursuant to the Company’s Elective Deferred Compensation Plan.

(27) Includes $945 relating to bonus payable for 2001 deferred during 2002 pursuant to the Company’s Elective Deferred Compensation Plan.

(28) Includes 2,456 shares subject to options granted pursuant to the 2001 bonus.

(29) Includes $7,650 in contributions to the Company’s 401(k) Plan on behalf of Mr. Russell, $810 representing the value of life insurance premiums paid in 2001 and the estimated value of forfeitures allocated by the ESOP on behalf of Mr. Russell in the amount of $869 and interest in the amount of $3.

(30) Includes $24,750 deferred during 2000 pursuant to the Company’s Elective Deferred Compensation Plan.

(31) Includes 567 shares subject to options granted pursuant to the 2000 bonus.

(32) Includes $2,550 in contributions to the Company’s 401(k) Plan on behalf of Mr. Russell, $4,063, which represents the estimated value of contributions made to the ESOP on behalf of Mr. Russell and $666 representing the value of life insurance premiums paid in 2000.

Option Grants In Last Fiscal Year

The following table reflects the stock options granted during the past fiscal year to the named executive officers pursuant to the Company’s 2002 Stock Option Plan, Equity Compensation Plan and Nonqualified Stock Option Plan. No stock appreciation rights were granted to the named executive officers during 2002. Unless otherwise noted, all options expire 10 years from the date of grant or, if sooner, three months after termination of employment, unless employment is terminated because of: (1) death or disability, in which case the options expire one year after the date of such termination; (2) retirement, as determined by the administrator of the Plan, in which case the options expire 10 years after such termination, if the holder has agreed to a non-compete (otherwise, the options expire one year after such termination); or (3) termination as a result of a Special Program, as determined by the administrator of the Plan, in which case the options granted prior to August 1, 2002, expire three years after the date of such termination and the options granted on or after August 1, 2002 expire one year after the date of termination; however, in no event will options expire later than their original 10-year term.


											Potential Realizable Value
											at Assumed Annual Rates
											of Stock Price
											Appreciation for Option
	Individual Grants										Term(1)

				Percent of Total
	Number of Securities			Options Granted to			Exercise or Base
	Underlying Options			Employees in Fiscal			Price Per Share		Expiration
Name	Granted			Year (2)			($)		Date		5% ($)		10% ($)

Dennis B. Gillings		32,930	(3)		0.5	%		17.75		03/31/2012		367,594		931,554
		58,804	(4)		0.8	%		17.75		03/31/2012		656,422		1,663,502
		44,909	(5)		0.6	%		13.09		06/15/2012		369,701		936,896
		80,195	(6)		1.1	%		13.09		06/15/2012		660,184		1,673,035
		62,544	(7)		0.9	%		9.76		09/16/2012		383,896		972,867
		111,685	(8)		1.6	%		9.76		09/16/2012		685,524		1,737,252
		49,867	(9)		0.7	%		12.11		12/16/2012		379,783		962,444
		89,049	(10)		1.2	%		12.11		12/16/2012		678,190		1,718,665

Pamela J. Kirby		41,163	(4)		0.6	%		17.75		03/31/2012		459,498		1,164,457
		56,137	(6)		0.8	%		13.09		06/15/2012		462,133		1,171,135
		78,179	(8)		1.1	%		9.76		09/16/2012		479,864		1,216,069
		62,334	(10)		0.9	%		12.11		12/16/2012		474,730		1,203,060

James L. Bierman		23,522	(4)		0.3	%		17.75		03/31/2012		262,573		665,412
		8,493	(11)		0.1	%		14.20		05/06/2012		75,845		192,206
		32,078	(6)		0.4	%		13.09		06/15/2012		264,073		669,214
		44,674	(8)		0.6	%		9.76		09/16/2012		274,210		694,901
		35,620	(10)		0.5	%		12.11		12/16/2012		271,279		687,474


											Potential Realizable Value
											at Assumed Annual Rates
											of Stock Price
											Appreciation for Option
	Individual Grants										Term(1)

				Percent of Total
	Number of Securities			Options Granted to			Exercise or Base
	Underlying Options			Employees in Fiscal			Price Per Share		Expiration
Name	Granted			Year (2)			($)		Date		5% ($)		10% ($)

John S. Russell		23,522	(4)		0.3	%		17.75		03/31/2012		262,573		665,412
		6,849	(11)		0.1	%		14.20		05/06/2012		61,164		155,001
		32,078	(6)		0.4	%		13.09		06/15/2012		264,073		669,214
		44,674	(8)		0.6	%		9.76		09/16/2012		274,210		694,901
		35,620	(10)		0.5	%		12.11		12/16/2012		271,279		687,474

(1)		Potential realizable value of each grant is calculated assuming that market price of the underlying security appreciates at annualized rates of 5% and 10%, respectively, over the respective term of the grant. The assumed annual rates of appreciation of 5% and 10% would result in the price of the Common Stock increasing to $28.91 and $46.04 per share, respectively, for the options expiring March 31, 2012, $23.13 and $36.83 per share, respectively, for the options expiring May 6, 2012, $21.32 and $33.95 per share, respectively, for the options expiring June 15, 2012, $15.90 and $25.31 per share, respectively, for the options expiring September 16, 2012, and $19.73 and $31.41 per share, respectively, for the options expiring December 16, 2012.

(2)		Options to purchase an aggregate of 7,196,710 shares were granted to employees during 2002.

(3)		Nonqualified stock options granted March 31, 2002. Shares subject to the options granted vest immediately.

(4)		Nonqualified stock options granted March 31, 2002. Shares subject to the options granted vest over the next four years, with 25% of such shares vesting on March 31 of each year beginning March 31, 2003.

(5)		Nonqualified stock options granted June 15, 2002. Shares subject to the options granted vest immediately.

(6)		Nonqualified stock options granted June 15, 2002. Shares subject to the options granted vest over the next four years, with 25% of such shares vesting on June 15 of each year beginning June 15, 2003.

(7)		Nonqualified stock options granted September 16, 2002. Shares subject to the options granted vest immediately.

(8)		Nonqualified stock options granted September 16, 2002. Shares subject to the options granted vest over the next four years, with 25% of such shares vesting on September 16 of each year beginning September 16, 2003.

(9)		Nonqualified stock options granted December 16, 2002. Shares subject to the options granted vest immediately.

(10)		Nonqualified stock options granted December 16, 2002. Shares subject to the options granted vest over the next four years, with 25% of such shares vesting on December 16 of each year beginning December 16, 2003.

(11)		Nonqualified stock options granted May 6, 2002. Shares subject to the options granted vest over the next four years, with 25% of such shares vesting on May 6 of each year beginning May 6, 2003.

Aggregated Option Exercises In Last Fiscal Year
and Fiscal Year End Option Values

The following table provides information about the stock options exercised by the named executive officers during the year ended December 31, 2002 and held by them as of that date.


					Number of Securities Underlying				Value of Unexercised In-the
					Unexercised				Money Options
					Options at FY-End				at FY-End (1)
	Shares Acquired		Value
Name	on Exercise (#)		Realized ($)		Exercisable		Unexercisable		Exercisable ($)		Unexercisable($)

Dennis B. Gillings		—		—		1,022,451		703,679		146,352.96		261,342.90
Pamela J. Kirby		—		—		284,271		1,081,245		0.00		182,938.86
James L. Bierman		—		—		382,487		358,776		0.00		104,537.16
John S. Russell		—		—		172,252		280,257		0.00		104,537.16

(1)

The value of the options is based upon the difference between the exercise price and the closing price per share on December 31, 2002, $12.10.

Director Compensation

Each non-officer Director receives annually a grant of stock options valued at $100,000 with the number of options determined in accordance with the Black-Scholes method. In addition, except as otherwise indicated below, each non-officer Director receives (1) an annual retainer of $24,000; (2) $1,000 for each Board meeting attended in person or by teleconference; and (3) $500 for each committee meeting attended in person or by teleconference, each paid quarterly in cash. Committee chairs also receive an extra $5,000 per year in compensation for their additional responsibilities. Beginning in 2002, each member of the Audit Committee received an additional $1,250 quarterly in light of increased responsibilities in the current public company environment. Each member of an ad hoc committee, formed during 2002, received $5,000. During 2002 each member of the Special Committee received $50,000 and the chair of the Special Committee received an additional $25,000. For so long as the Special Committee operates during 2003 each member of the Special Committee will receive $16,667 per month and the chair of the Special Committee will receive an additional $8,333 per month. The Company reimburses each non-officer Director for out-of-pocket expenses incurred in connection with the rendering of services as a Director. Some additional financial relationships with Directors are described in “Certain Relationships and Related Transactions.”

Employment Agreements

The Company has entered into employment agreements with Dr. Gillings, Dr. Kirby, Mr. Bierman and Mr. Russell. The named executive officers are eligible to participate in any bonus, stock option, pension, insurance, medical, dental, 401(k), disability and other plans generally made available to the Company’s executives.

The employment agreement for Dr. Gillings extends for three years from February 22, 1994 and automatically renews for additional and successive one-year terms unless either party provides 90 days’ notice of intent to terminate prior to the expiration of the then-current term. This agreement was amended on October 26, 1999 to provide more detailed change in control provisions. The agreement terminates upon Dr. Gillings’ death, upon notice by the Company if Dr. Gillings becomes permanently disabled, upon notice by the Company for cause, upon notice by Dr. Gillings in the event of a change in control, as defined in his employment agreement (provided Dr. Gillings terminates his employment within 18 months following such change in control), upon notice by Dr. Gillings in the event of the Company’s material breach or improper termination of the employment agreement and upon notice by Dr. Gillings if

Dr. Gillings is not elected as Executive Chairman of the Company. The agreement provides for severance payments and continuation of benefits in the event Dr. Gillings’ termination is for permanent disability, change in control, breach or improper termination by the Company, or for a change in position. In the event of termination by Dr. Gillings due to permanent disability, breach or improper termination by the Company or for a change in position, the Company must pay Dr. Gillings or his estate or beneficiaries his full base salary then in effect and other benefits under the agreement for the lesser of three years or the term of the non-compete covenant provided in the agreement. In the event that Dr. Gillings terminates his employment or is terminated by the Company without cause within 18 months following a change in control, the Company must make a severance payment equal to 2.99 times the amount of Dr. Gillings’ base salary and executive compensation plan benefits for the year of termination, continue his other benefit plans for 18 months and make a lump sum payment of any amounts held by Dr. Gillings in any of the Company’s retirement plans. In addition, upon a change in control, all options held by Dr. Gillings will become fully vested and exercisable. The Company is not obligated to make any additional payments or provide benefits to Dr. Gillings if the termination is for cause. The agreement includes a three year (or such lesser period as the Board determines, but in no event less than one year) non-compete provision pursuant to which Dr. Gillings cannot compete with the Company in any geographic area in which it does business and cannot solicit or interfere with the Company’s relationship with any person or entity doing business with the Company, or offer employment to any person employed by the Company in the one year period prior to Dr. Gillings’ termination of employment. The agreement prohibits disclosure of any confidential information acquired during the period of employment with the Company.

The Company entered into split-dollar life insurance agreements as of May 16, 1996 with certain trusts created by Dr. Gillings, pursuant to which the Company and the trusts will share in the premium costs of certain variable and whole life insurance policies that pay an aggregate death benefit to the trusts upon the death of Dr. Gillings or his wife, Joan Gillings, whichever occurs later. The trusts pay premiums on the policies as if each policy were a one-year term life policy, and the Company pays the remaining premiums. The Company may cause this arrangement to be terminated at any time upon 30 days’ notice. Upon termination of the arrangement, surrender of a policy, or payment of the death benefit under a policy, the Company is entitled to repayment of an amount equal to the cumulative premiums previously paid by the Company thereunder, with all remaining amounts going to the trust. Upon any surrender of a policy, the liability of the related trust to the Company is limited to the cash value of the policy. See footnotes (5), (9) and (12) to the “Summary Compensation Table” above for additional information on premium payments made by the Company under the policies.

The employment agreement for Dr. Kirby extends for two years from April 2, 2001 and automatically renews for additional and successive one-year terms unless either party provides 90 days’ notice of intent to terminate prior to the expiration of the then-current term. Either party may terminate the employment relationship without cause at any time upon 90 days’ written notice. The Company may terminate the agreement without written notice at any time for the following reasons which constitute “cause” under the agreement: Dr. Kirby’s death; Dr. Kirby’s physical or mental inability to perform her duties for a specified period of time; any act or omission by Dr. Kirby constituting willful or gross misconduct, gross negligence, fraud, misappropriation, embezzlement, criminal behavior, conflict of interest or competitive business activities or any other actions that are materially detrimental to the Company or any of its affiliates’ interests; any other reason recognized as “cause” under applicable law; or any uncured material and fundamental breach of the agreement by Dr. Kirby. Dr. Kirby may terminate the agreement upon written notice in the event of the Company’s material breach or within 18 months of a change in control, as defined in her employment agreement, whether or not for “good reason,” as defined in the agreement. “Good reason” includes, without limitation: (1) if within 18 months of a change in control, Dr. Kirby is not elected as Chief Executive Officer of the Company, (2) if there is a reduction in Dr. Kirby’s base salary and (3) if Dr. Kirby’s employment base is moved any place outside a thirty (30) mile radius from her principal place of residence. In the event Dr. Kirby’s employment is not renewed by

the Company or if she is terminated by the Company without cause, the agreement provides for severance payments equal to Dr. Kirby’s monthly base salary then in effect for the 24 month term of the non-compete covenant provided in the agreement and continuation of benefits. In the event that Dr. Kirby terminates her employment, whether or not for good reason, or is terminated by the Company without cause within 18 months following a change in control, the Company must make a severance payment equal to 2.99 times the amount of Dr. Kirby’s base salary and executive compensation plan benefits for the year of termination, continue her other benefit plans for 18 months and make a lump sum payment of any amounts held by Dr. Kirby in any of the Company’s retirement plans. In addition, upon a change in control, all options held by Dr. Kirby will become fully vested and exercisable and will remain exercisable until the later of the expiration of the applicable exercise period or three (3) years following the date of termination (but in no event later than the expiration of the original 10-year term of the options). In the event that Dr. Kirby terminates her employment as a result of an uncured material breach of the agreement by the Company, in addition to any other damages or other relief to which she may otherwise be entitled, the Company must make a liquidated damage payment equal to Dr. Kirby’s then current monthly salary for the non-competition period set forth in the agreement. The Company is not obligated to make any additional payments or provide additional benefits to Dr. Kirby if the termination is for cause. The agreement includes a 24 month non-compete provision pursuant to which Dr. Kirby cannot compete with the Company in any geographic area in which it does business and cannot solicit or interfere with the Company’s relationship with any person or entity doing business with the Company, or offer employment to any person employed by the Company in the one year period prior to Dr. Kirby’s termination of employment. The agreement prohibits disclosure of any confidential information acquired during the period of employment with the Company.

Mr. Bierman’s employment agreement, dated June 16, 1998, may be terminated by either party with 90 days written notice. This employment agreement was amended on March 31, 2003 to revise the change in control provisions. Either party may terminate the employment relationship without cause at any time upon 90 days’ written notice. The Company may terminate this agreement without notice upon Mr. Bierman’s death, his physical or mental inability to perform his duties for a period of 180 days, his material breach or his acts or omissions that are materially harmful to the Company’s interest. Mr. Bierman may terminate the agreement if the Company fails to cure its material breach of the agreement within 30 days of receiving notice of the breach from him or within 18 months of a change in control, as defined in his employment agreement. Mr. Bierman is entitled to severance payments for 12 months following termination if the Company terminates the agreement for non-renewal or without cause, in which case he is also entitled to continuation of benefits, or if Mr. Bierman terminates the agreement for the Company’s failure to cure its material breach, in each instance subject to his compliance with the noncompete, confidentiality, intellectual property and release provisions of the agreement. In the event that Mr. Bierman terminates his employment or is terminated by the Company for any reason other than a reason for which the Company may terminate without notice (as described above), in either case within 18 months following a change in control, as defined in the agreement, the Company must make a severance payment equal to 2.99 times the amount of Mr. Bierman’s base salary and executive compensation plan benefits for the year of his termination, continue his other benefit plans for 18 months and make a lump sum payment of any amounts held by Mr. Bierman in any of the Company’s retirement plans. In addition, upon a change in control, all options held by Mr. Bierman will become fully vested and exercisable. The agreement includes a one year non-compete provision and prohibits Mr. Bierman from soliciting or interfering with the Company’s relationship with any person doing business with the Company or offering employment to any person employed by the Company in the one year period prior to termination of Mr. Bierman’s employment.

Mr. Russell’s employment agreement, dated December 3, 1998, extends for successive one-year intervals unless terminated by either party with 90 days written notice. This employment agreement was amended on October 26, 1999 to provide more detailed change in control provisions. Either party may

terminate the employment relationship without cause at any time upon 90 days’ written notice. The Company may terminate this agreement without notice upon Mr. Russell’s death, his physical or mental inability to perform his duties for a period of 180 days, his material breach, his acts or omissions that are materially harmful to the Company’s interest or any other reason recognized as “cause” under applicable law. Mr. Russell may terminate the agreement if the Company fails to cure its material breach of the agreement within 30 days of receiving notice of the breach from him or within 18 months of a change in control, as defined in his employment agreement, whether or not for “good reason,” as defined in the agreement. “Good reason” includes, without limitation: (1) if within 18 months of a change in control, Mr. Russell’s status, title, position or responsibilities are changed adversely, (2) if there is a reduction in Mr. Russell’s base salary and (3) if Mr. Russell’s employment base is moved any place outside a thirty (30) mile radius from his principal place of residence. Mr. Russell is entitled to severance payments and continuation of benefits during the 12 months following termination if the Company terminates the agreement for non-renewal or without cause or if Mr. Russell terminates the agreement for the Company’s failure to cure its material breach, in each instance subject to his compliance with the noncompete, confidentiality, intellectual property and release provisions of the agreement. In the event that Mr. Russell terminates his employment or is terminated by the Company without cause within 18 months following a change in control, as defined in the agreement, the Company must make a severance payment equal to 2.99 times the amount of Mr. Russell’s base salary and executive compensation plan benefits for the year of termination, continue his other benefit plans for 18 months and make a lump sum payment of any amounts held by Mr. Russell in any of the Company’s retirement plans. In addition, upon a change in control, all options held by Mr. Russell will become fully vested and exercisable. The Company is not obligated to make any additional payments or provide additional benefits to Mr. Russell if the termination is for cause. The agreement includes a one year non-compete provision and prohibits Mr. Russell from soliciting or interfering with the Company’s relationship with any person doing business with the Company or offering employment to any person employed by the Company in the one year period prior to Mr. Russell’s termination of employment.

Special Bonus Arrangements

The Company has implemented special bonus arrangements for certain groups of employees which permit payment of cash bonuses to employees in the circumstances specified. These arrangements are described below.

In connection with the Special Committee’s process that commenced in the fall of 2002, the Company established the Special Bonus Plan to provide appropriate incentives to certain of the Company’s executive officers. The Special Bonus Plan, as administered by the Special Committee, provides for two types of bonus structures: Plan I and Plan II. In the event of a sale or other change in control of the Company, Plan I provides for cash bonus payments to certain executive officers of the Company designated by the Special Committee, including Dr. Kirby and Messrs. Bierman and Russell. Pursuant to the terms of Plan I, upon the earlier of June 30, 2003 or the date of a public announcement of a sale or a change in control, 50% of the Plan I bonus pool will be allocated pro rata among the participants in Plan I meeting performance standards set by the Special Committee in proportion to such participant’s 2002 base salary. The remaining funds in the Plan I bonus pool will be allocated among the participants in Plan I as determined by the Special Committee and paid to such participants either (i) upon closing of the sale or change in control transaction, (ii) December 31, 2003 or (iii) if a sale or change in control transaction is announced but is subsequently terminated or abandoned, on the date that is three months after first public announcement of such termination or abandonment. The Plan I bonus pool is equal to 50% of the aggregate of the 2002 base salaries of all participants in Plan I, but in no event will it be less than $1,000,000 nor more than $2,500,000. Plan II provides for cash bonus payments to certain executive officers of the Company designated by the Special Committee who have change in control provisions in their employment agreements with the Company, including Dr. Kirby and Messrs. Bierman

and Russell. Pursuant to the terms of Plan II, either (a) on the same date as normal 2003 cash bonuses are paid to participants in Plan II or (b) if a sale or change in control transaction is announced but is subsequently terminated or abandoned, on the date that is three months after first public announcement of such termination or abandonment, 100% of the Plan II bonus pool, equal to $1,500,000, will be allocated among the participants in Plan II as determined by the Special Committee. If a sale or change in control occurs within six months of payment of the Plan II bonus, then any change in control payment otherwise due to an executive pursuant to the terms of such participant’s employment agreement will be reduced by the amount of Plan II bonus paid to such executive. In order to receive payment of an additional bonus under either Plan I or Plan II, each participant must be employed by the Company or a subsidiary of the Company on the applicable payment date. In addition, if absent written consent of the Special Committee, a participant commits to a specific potential bidder in an exclusive or inappropriate manner, as determined by the Special Committee in its sole discretion, such participant will be excluded from participation in either aspect of the Special Bonus Plan.

In connection with the PharmaBio Development group’s mission to structure innovative partnering solutions, the Company has created a discretionary cash bonus pool designed to link the group’s compensation to its performance and to serve as a retention incentive. The amount of the bonus is discretionary to the Company’s Chairman in relation to the performance of the group. For 2002, the Company accrued aggregate bonus payments of $1.6 million in cash, of which $875,000 was allocated to the top managers of the PharmaBio Development group. While a portion of the amount accrued was paid in 2003, the remainder was accrued for payment during 2004 and 2005, subject to the continued employment of the affected employees.

The Company also has established an incentive plan for customer relationship management executives in the Product Development group. The plan has two components, including a quarterly commission program and an annual recognition program. The quarterly commission program allows eligible managers to earn commissions on gross contract wins less cancellations, subject to adjustments for change orders. The program is available only with respect to contracts that satisfy certain contribution criteria. Commission rates are established annually. Participating employees who leave the Company forfeit their rights to any commissions earned but unpaid. There is no cap on the amount of payouts that can be earned for over-achieving targets, but senior management must approve any payouts that are due to significant anomalies. In 2002, the Company paid an aggregate of $500,046 in cash commissions under this incentive plan to an aggregate of 47 participants.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Stock Ownership of Management

The following table provides information, as of March 31, 2003, regarding shares of Common Stock of the Company owned of record or known to the Company to be owned beneficially by each Director, executive officer named in the Summary Compensation Table on page 32 and all current Directors and executive officers as a group. On March 31, 2003, there were 118,283,920 shares of Common Stock outstanding. Except as set forth in the footnotes, each of the shareholders identified in the table below has sole voting and investment power over the shares beneficially owned by such person, except to the extent such power may be shared with a spouse.


	Shares		Percent
Name	Beneficially Owned(1)		of Class

Dennis B. Gillings, Ph.D. (2)		7,546,803		6.3	%
Pamela J. Kirby, Ph.D. (3)		548,956		*
James L. Bierman (4)		406,172		*
John S. Russell (5)		192,227		*
Robert C. Bishop, Ph.D. (6)		67,746		*
Chester W. Douglass, DMD, Ph.D. (7)		482,494		*
Arthur M. Pappas (8)		80,844		*
Vaughn D. Bryson (9)		78,986		*
Virginia V. Weldon, M.D. (10)		53,002		*
E.G.F. Brown (11)		60,002		*
William L. Roper, M.D., MPH (12)		13,730		*
All current Directors and executive officers as a group (11 persons) (13)		9,530,962		7.9	%

* Less than one percent

(1)		Pursuant to the rules of the Securities and Exchange Commission, certain shares of the Company’s Common Stock which a person has the right to acquire within 60 days of the date shown above pursuant to the exercise of stock options are deemed to be outstanding for the purpose of computing the percentage ownership of such person but are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Such shares are described below as being subject to presently exercisable stock options. A beneficial owner of shares held in the Company’s Employee Stock Ownership Plan (the “ESOP”) has sole voting power over the shares held in his or her account, but shares investment power over the shares with the plan trustee.

(2)		Includes 1,109,066 shares subject to presently exercisable stock options and 161,532 shares held by the ESOP for Dr. Gillings’ account. Includes 13,343 shares owned by Dr. Gillings’ daughter, 240,000 shares owned by the Gillings Family Limited Partnership, of which Dr. Gillings and his wife are the general partners, 14,200 shares held by the GFEF Limited Partnership, of which Dr. Gillings is the general partner and 259,278 shares owned by Dr. Gillings’ wife. Dr. Gillings shares voting power over 526,821 shares and shares investment power over 688,353 shares. Dr. Gillings disclaims beneficial ownership of all shares owned by his wife and daughter, all shares in

the Gillings Family Limited Partnership, and all shares owned by the GFEF Limited Partnership, except to the extent of his interest therein.

(3) Includes 544,562 shares subject to presently exercisable stock options and 104 shares held by the ESOP for Dr. Kirby’s account. Includes 2,918 shares owned by Dr. Geoffrey Barker, Dr. Kirby’s husband, 1,296 shares subject to presently exercisable stock options owned by Dr. Barker and 76 shares held by the ESOP for Dr. Barker’s account. Dr. Kirby disclaims beneficial ownership of all shares owned by her husband.

(4) Includes 402,014 shares subject to presently exercisable stock options and 473 shares held by the ESOP for Mr. Bierman’s account.

(5) Includes 190,118 shares subject to presently exercisable stock options and 473 shares held by the ESOP for Mr. Russell’s account.

(6) Includes 65,246 shares subject to presently exercisable stock options.

(7) Includes 79,994 shares subject to presently exercisable stock options. Includes 117,000 shares owned by the Douglass Family Limited Partnership, of which Dr. Douglass is the sole general partner. Dr. Douglass disclaims beneficial ownership of the shares held by the limited partnership except to the extent of his pecuniary interest therein.

(8) Includes 77,244 shares subject to presently exercisable stock options.

(9) Includes 43,986 shares subject to presently exercisable stock options.

(10) Includes 52,002 shares subject to presently exercisable stock options. Includes 1,000 shares held in a trust under which Dr. Weldon is a beneficiary and a trustee.

(11) Includes 52,002 shares subject to presently exercisable stock options. Includes 8,000 shares owned by Mr. Brown’s wife. Mr. Brown disclaims beneficial ownership of the shares held by his wife.

(12) Includes 13,730 shares subject to presently exercisable stock options.

(13) Includes 2,631,260 shares subject to presently exercisable stock options and 162,658 shares held by the ESOP for the accounts of individual executive officers and Dr. Barker.

Stock Ownership of Certain Beneficial Owners

The following table provides information regarding shares of the Company’s Common Stock known to be beneficially owned by persons holding more than five percent of the Company’s outstanding Common Stock (other than Directors and executive officers shown in the preceding table) as of March 31, 2003. The percentage is calculated based on 118,283,920 total shares outstanding of the Company as of March 31, 2003.


			Percent of
Name and Address of Beneficial Owner	Shares Beneficially Owned		Class

Wellington Management Company, LLP (1)		15,897,900	13.4 %
75 State Street
Boston, MA 02109

Vanguard Specialized Funds –		8,171,800	6.9 %
Vanguard Health Care Fund (2)
100 Vanguard Blvd.
Malvern, PA 19355

(1)

Based on a Schedule 13G/A filed with the Securities and Exchange Commission on February 12, 2003. Wellington Management Company, LLP (“WMC”), an investment advisor, reports shared voting power over 7,327,560 shares and shared dispositive power over 15,897,900 shares held by its clients, including Vanguard Health Care Fund. WMC is the parent holding company of

Wellington Trust Company, NA, a bank which is deemed to have acquired the securities being reported.

(2) Based on a Schedule 13G/A filed with the Securities and Exchange Commission on February 12, 2003. Vanguard Specialized Funds – Vanguard Health Care Fund, an investment company, reports sole voting and shared dispositive power over the shares.

Changes in Control

On April 10, 2003, the Company entered into a merger agreement with Pharma Services and its wholly owned subsidiary, Pharma Services Acquisition Corp., pursuant to which Pharma Services Acquisition Corp. will be merged with and into the Company, with the Company continuing as a wholly owned subsidiary of Pharma Services. Pharma Services was founded by Dr. Gillings and One Equity Partners LLC, the private equity arm of Bank One Corporation.

If the merger is completed, each issued and outstanding share of the Company’s common stock will be converted into the right to receive $14.50 in cash, excluding shares held by subsidiaries of the Company, Pharma Services or Pharma Services Acquisition Corp.

In order to finance the transaction, Pharma Services and Pharma Services Acquisition Corp. have received an equity commitment from One Equity Partners LLC of $415.7 million and debt commitments from Citicorp North America, Inc. and Citigroup Global Markets Inc. totaling $875 million. In addition, Dr. Gillings has agreed to contribute all shares of the Company’s common stock and options to purchase the Company’s common stock held by him or his affiliates to Pharma Services in exchange for an equity interest totaling approximately $95.2 million in Pharma Services. Pharma Services intends to fund the remainder of the aggregate merger consideration, approximately $586 million, with the Company’s cash.

The proposed merger, which is targeted to be completed later in 2003, is subject to Pharma Services’ completion of its committed financing and customary conditions, including regulatory and shareholder approvals. The Company’s shareholders are expected to vote on the proposal at a special meeting to be held later this year.

Equity Compensation Plans

The Company currently maintains the following plans pursuant to which it may grant equity awards to eligible persons: (1) the Equity Compensation Plan, or the 1994 Plan, which was originally adopted in 1994, (2) the Nonqualified Stock Option Plan, or the 1997 Plan, which was originally adopted in 1997, (3) the 2002 Stock Option Plan, or the 2002 Plan, and (4) the 1999 Employee Stock Purchase Plan, or the ESPP. In addition, in the past the Company has granted equity securities, and options currently remain outstanding, under certain of the following plans: (5) the 1990 Nonqualified Stock Option Plan, (6) the Quintiles Lewin Nonqualified Stock Option Plan, (7) the Quintiles BRI Nonqualified Stock Option Plan, (8) the Innovex Limited 1996 Unapproved Executive Share Option Scheme, (9) the Action International Marketing Services Limited Nonqualified Stock Option Plan, (10) the Professional Pharmaceutical Marketing Services (Proprietary) Limited Nonqualified Stock Option Plan and (11) the Quintiles Share Save Scheme. Of these, plans 6-10 were adopted so that substitute stock options could be granted to employees of companies acquired by the Company to replace options granted by the acquired companies. Plan 11 was adopted to replace a stock purchase plan of an acquired company located in the United Kingdom. No further options will be granted under plans 5-10 and plan 11 was discontinued in 2002. In addition, in connection with its acquisition of Envoy Corporation in March 1999, the Company assumed outstanding options granted under (12) the Envoy 1990 Officer and Employee Stock Option Plan, (13) the Envoy 1995 Stock Option Plan, (14) the Envoy 1998 Stock Incentive Plan, and (15) the 1998

Synergy Stock Option Plan. The Company did not adopt plans 12-15, and no further options will be granted under those plans. The material terms of each of these plans is described more fully below.

The following table provides information, as of December 31, 2002, for all equity compensation plans of the Company (including individual arrangements) under which the Company is authorized to issue equity securities.

Number of

Weighted

Number of securities

securities to be

average

remaining available for

issued upon

exercise price

future issuance under

exercise of

of outstanding

equity compensation

outstanding

options,

plans (excluding

options, warrants

warrants and

securities reflected in

Plan Category

and rights(1).

rights

column (a))(1)

(a)

(b)

(c)

Equity compensation plans approved by security holders

5,970,374

(2)

19.1032

4,408,037

(3)

Equity compensation plans not approved by security holders

27,707,190

(4)

19.8097

107,461

(5)

Total

33,677,564

19.6844

4,515,498

(1)		Refers to shares of the Company’s common stock. All amounts are as of December 31, 2002.

(2)		Includes shares issuable upon exercise of outstanding options under the following plans in the amounts indicated: • 1994 Plan – 4,076,845 shares, with a weighted exercise price of $39.5752 for incentive stock options and $21.1325 for nonqualified stock options and • 2002 Plan – 1,893,529 shares, with a weighted exercise price of $10.4942.

(3)		Includes shares remaining for future issuance under the following plans in the amounts indicated:

•     1994 Plan – 343,993 shares;

•     2002 Plan – 3,106,471 shares and

•     ESPP – 957,573 shares.

Although the 1994 Plan includes an “evergreen” share replenishment feature described below, no shares were added on January 1, 2003 because there was no increase in the authorized and issued shares outstanding during 2002.

(4) Includes shares issuable upon exercise of outstanding options under the following plans in the amounts indicated:

•     1990 Nonqualified Stock Option Plan — 46,000 shares, with a weighted exercise price of $4.3175;

•     Action International Marketing Services Limited Nonqualified Stock Option Plan — 105,828 shares, with a weighted exercise price of $34.2187;

•     Quintiles BRI Nonqualified Stock Option Plan — 225,401 shares, with a weighted exercise price of $28.1726;

•     Envoy 1990 Officer and Employee Stock Option Plan — 29,853 shares, with a weighted exercise price of $3.3060;

•     Envoy 1995 Stock Option Plan — 176,218 shares, with a weighted exercise price of $10.5883;

•     Envoy 1998 Stock Incentive Plan — 291,500 shares, with a weighted exercise price of $6.6500;

•     1998 Synergy Stock Option Plan — 87,450 shares, with a weighted exercise price of $34.3100;

•     Innovex Limited 1996 Unapproved Executive Share Option Scheme — 115,502 shares, with a weighted exercise price of $19.5134;

•     Quintiles Lewin Nonqualified Stock Option Plan — 92,650 shares, with a weighted exercise price of $36.7340;

•     1997 Plan — 26,531,026 shares, with a weighted exercise price of $19.8223 and

•     Professional Pharmaceutical Marketing Services (Proprietary) Limited Nonqualified Stock Option Plan — 5,762 shares, with a weighted exercise price of $40.5000.

Although the 1997 Plan includes an “evergreen” share replenishment feature described below, no shares were added on January 1, 2003 because there was no increase in the authorized and issued shares outstanding during 2002.

The Action International Marketing Services Limited Nonqualified Stock Option Plan, Quintiles BRI Nonqualified Stock Option Plan, Innovex Limited 1996 Unapproved Executive Share Option Scheme, Quintiles Lewin Nonqualified Stock Option Plan and Professional Pharmaceutical Marketing Services (Proprietary) Limited Nonqualified Stock Option Plan were adopted so that substitute stock options could be granted to employees of companies acquired by the Company. In connection with its acquisition of Envoy Corporation, the Company assumed outstanding options granted under the Envoy 1990 Officer and Employee Stock Option Plan, Envoy 1995 Stock Option Plan, Envoy 1998 Stock Incentive Plan, and 1998 Synergy Stock Option Plan but did not adopt those plans.

(5) Includes 107,461 shares remaining for future issuance under the 1997 Plan.

Summary Description of the Company’s Equity Compensation Plans

Option Plans under which Future Grants may be Awarded – General. The 1994 Plan, the 1997 Plan and the 2002 Plan are administered by the Human Resources and Compensation Committee of the Board of Directors, or the Committee, which is composed entirely of directors who are not employed by the Company. The Committee has broad discretion to determine the terms and conditions of options granted under the plans and must approve, among other things, (1) the individuals to whom options are granted, (2) the date of grant of each option, (3) the number of shares subject to each option, (4) the vesting schedule of each option, and (5) the term of each option. The Committee may grant options under these plans to employees, directors and other service providers of the Company and its subsidiaries and affiliated companies. The Committee has never granted options under these plans with exercise prices less than the fair market value of the Common Stock on the date of grant.

Each of these plans provides that the exercise price and the number of shares subject to options granted under the plans shall be appropriately adjusted upon a stock split, stock dividend, recapitalization or other specified events involving a change in the capitalization of the Company. The vesting of certain options granted under these plans will accelerate upon a corporate transaction that is a “change in control” of the Company, as defined in the plans and applicable option agreements. The terms of these plans permit the Board of Directors to amend or terminate the plans, provided that no modification or termination may adversely affect prior awards without the optionee’s approval. In the case of the 1994 and the 2002 Plans, amendments to increase the number of shares reserved for issuance under the plans are subject to shareholder approval.

1994 Plan. The 1994 Plan provides for grants to participants of incentive stock options and nonqualified stock options. Incentive stock options are options that are intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended. Although restricted stock and stock appreciation rights may be granted under the 1994 Plan, only stock options have been granted under the 1994 Plan. Most stock options granted under the 1994 Plan have been nonqualified stock options, and it is the

present intention of the Committee to grant only nonqualified stock options in the future. The 1994 Plan has been approved by the shareholders of the Company.

As of December 31, 2002, 5,958,004 shares had been reserved for issuance under the 1994 Plan. The 1994 Plan contains a so-called “evergreen” share replenishment feature, under which up to the lesser of 500,000 shares or 5% of any increase in the authorized and issued shares since the preceding January 1 (other than increases attributable to exercises of stock options) will be added to the 1994 Plan on January 1 of each year. As of December 31, 2002, there were 435,302 incentive stock options and 3,641,543 nonqualified stock options outstanding under the 1994 Plan, and 343,993 shares remained available for future grants of options. During 2002, options to purchase 832,303 shares were granted under the 1994 Plan at an average exercise price of $12.69 per share.

1997 Plan. The 1997 Plan provides solely for grants of nonqualified stock options. The 1997 Plan is not required to be, and has never been, approved by the shareholders of the Company. As of December 31, 2002, 29,577,462 shares had been reserved for issuance under the 1997 Plan. The 1997 Plan contains a so-called “evergreen” share replenishment feature, under which up to the lesser of 500,000 shares or 5% of any increase in the authorized and issued shares since the preceding January 1 (other than increases attributable to exercises of stock options) will be added to the 1997 Plan on January 1 of each year. As of December 31, 2002, there were 26,531,026 nonqualified stock options outstanding under the 1997 Plan, and 107,461 shares remained available for future grants of options. During 2002, options to purchase 4,559,240 shares were granted under the 1997 Plan at an average exercise price of $13.76 per share.

2002 Plan. Like the 1994 Plan, the 2002 Plan is a shareholder-approved plan that provides for grants of incentive stock options and nonqualified stock options, although no incentive stock options have been granted under the 2002 Plan. As of December 31, 2002, 5,000,000 shares had been reserved for issuance under the 2002 Plan. There is no evergreen share replenishment feature in the 2002 Plan. As of December 31, 2002, there were 1,893,529 nonqualified stock options outstanding under the 2002 Plan, and 3,106,471 shares remained available for future grants of options. During 2002, 1,920,062 nonqualified stock options were granted under the 2002 Plan at an average exercise price of $10.48. No options granted under the 2002 Plan had been exercised as of December 31, 2002.

The ESPP. The ESPP is an employee stock purchase plan that is intended to qualify under Section 423 of the Internal Revenue Code of 1986, as amended. The Committee administers the ESPP. Employees of the Company may participate in the ESPP through payroll deductions of up to 15% of compensation. Shares are automatically purchased with accumulated payroll deductions at the end of each calendar quarter. The purchase price is 85% of the lower of the fair market value of the Common Stock on the first or the last day of the quarter. As of December 31, 2002, 2,500,000 shares had been reserved for issuance, 1,542,427 shares had been purchased and 957,573 shares remained available for purchase under the ESPP.

Option Plans under which No Future Grants may be Awarded. The 1990 Nonqualified Stock Option Plan, the Quintiles Lewin Nonqualified Stock Option Plan, the Quintiles BRI Nonqualified Stock Option Plan, the Innovex Limited 1996 Unapproved Executive Share Option Scheme, the Quintiles Share Save Scheme, the Action International Marketing Services Limited Nonqualified Stock Option Plan, and the Professional Pharmaceutical Marketing Services (Proprietary) Limited Nonqualified Stock Option Plan are all plans under which no future grants may be made. With the exception of the 1990 Plan and the Quintiles Share Save Scheme, all of these plans were adopted so that substitute options could be granted to optionees of companies acquired by the Company. With the exception of the Innovex 1996 Unapproved Executive Share Option Scheme and the Quintiles Share Save Scheme, which are plans drafted to comply with applicable law in the United Kingdom, the terms of these plans correspond closely

to those of the 1997 Plan described above. The Innovex 1996 Unapproved Executive Share Option Scheme was a plan under which stock options were granted that were not qualified for preferred tax treatment under U.K. law. The Quintiles Share Save Scheme was a stock purchase plan under which employees could purchase shares at a discount through payroll deductions. As of December 31, 2002, options to purchase an aggregate of 591,143 shares were outstanding under these plans at an average exercise price of $27.17 per share and only a small percentage of those options remained unvested.

Options Assumed in the Acquisition of Envoy Corporation. In connection with the acquisition of Envoy Corporation in March 1999, pursuant to which Envoy Corporation became a wholly-owned subsidiary of the Company, the Company assumed outstanding stock options that had been granted under the Envoy 1990 Officer and Employee Stock Option Plan, the Envoy 1995 Employee Stock Option Plan, the Envoy 1998 Stock Incentive Plan and the Envoy 1998 Synergy Stock Option Plan. As of December 31, 2002, there were 585,021 options outstanding under these Envoy plans with an average exercise price of $11.80 per share and only a small percentage of those options remained unvested. The Company did not assume the Envoy plans and since the closing of the acquisition, no additional stock options have been awarded, nor are any authorized to be awarded, under any of these Envoy plans.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In 2002, Dr. Gillings provided extensive business-related travel services for himself and other Company employees with the use of his own plane. The Company reimbursed Dr. Gillings for the use of his plane by cash payments totaling approximately $1.4 million and by granting options to Dr. Gillings with an annual aggregate Black-Scholes value of approximately $1.4 million granted on a quarterly basis at an exercise price of $17.75 on March 31; $13.09 on June 15; $9.76 on September 16; and $12.11 on December 16. This reimbursement package was approved by the Human Resources and Compensation Committee.

Dr. Geoffrey Barker, the husband of the Company’s Chief Executive Officer, is the Company’s Chief Medical and Scientific Officer and reports to the Company’s Chairman. In connection with his employment, the Company pays him an annual salary of $225,000. The Company granted Dr. Barker options to purchase 1,552 shares of Common Stock at an exercise price of $17.75 per share on March 31, 2002; 4,812 shares of Common Stock at an exercise price of $13.09 on June 15, 2002; 6,701 shares of Common Stock at an exercise price of $9.76 on September 16, 2002; and 5,343 shares of Common Stock at an exercise price of $12.11 on December 16, 2002. The Company affords Dr. Barker customary employee benefits.

On January 1, 2001, the Company entered into a new consulting agreement with A.M. Pappas & Associates, LLC, or AMP&A, which superseded the consulting agreement dated January 1, 2000. The 2001 consulting agreement requires the Company to pay AMP&A specified fees for each day of services provided by AMP&A under the agreement. The Company has agreed to reimburse AMP&A for all reasonable out-of-pocket and administrative expenses incurred by AMP&A in connection with performing its services. In 2002, the Company paid AMP&A consulting fees of approximately $171,500

in cash and reimbursed AMP&A for approximately $3,050 in expenses pursuant to the consulting agreement entered into with AMP&A in January 2001. The Company terminated the January 1, 2001 consulting agreement in January 2003.

The Company is a limited partner in A. M. Pappas Life Science Ventures I, LP (formerly TechAMP International, L.P.) and A. M. Pappas Life Science Ventures II, LP (formerly A. M. Pappas TechAMP II, L.P.), funds organized to make venture capital investments in the equity securities of private companies in the life science sector. A. M. Pappas Life Science Ventures I and A. M. Pappas Life Science Ventures II are managed by their general partner, AMP&A Management, LLC and AMP&A Management II, LLC, respectively, affiliates of AMP&A. The Company has committed to invest an aggregate of $18.0 million in A. M. Pappas Life Science Ventures I and A. M. Pappas Life Science Ventures II. As a limited partner, the Company will make capital contributions under this commitment from time to time at the request of the fund’s general partner. In 2002, the Company made capital contributions of $800,000 to A. M. Pappas Life Science Ventures I and $2.1 million to A. M. Pappas Life Science Ventures II.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) Financial Statements. The following financial statements and supplementary data are included in Item 8 of the Annual Report on Form 10-K filed on February 24, 2003.


Financial Statements	Form 10-K Page

Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000		46
Consolidated Balance Sheets as of December 31, 2002 and 2001		47
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000		48
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2002, 2001 and 2000		49
Notes to Consolidated Financial Statements		50
Report of Independent Public Accountants, PricewaterhouseCoopers LLP, dated January 29, 2003		87
Report of Independent Public Accountants, Arthur Andersen LLP, dated January 23, 2002 (previously issued and not reissued)		88

(a)(2) Financial Statement Schedules. All applicable financial statement schedules required under Regulation S-X have been included in the Notes to the Consolidated Financial Statements.

(a)(3) Exhibits. The exhibits required by Item 601 of Regulation S-K are listed below.


Exhibit		Description

3.01(1)		Amended and Restated Articles of Incorporation, as amended

3.02(2)		Amended and Restated Bylaws, as amended

4.01		Amended and Restated Articles of Incorporation, as amended (see Exhibit 3.01)

4.02		Amended and Restated Bylaws, as amended (see Exhibit 3.02)

4.03(3)		Specimen certificate for Common Stock, $0.01 par value per share

4.04(4)		Amended and Restated Rights Agreement, dated as of November 5, 1999 and amended and restated as of May 4, 2000 between Quintiles Transnational Corp. and First Union National Bank, including form of Articles of Amendment of Amended and Restated Articles of Incorporation, form of Rights Certificate and the Summary of Rights to Purchase Preferred Stock

10.01(5)(6)		Employment Agreement, dated March 13, 2001, by and between Dr. Pamela J. Kirby and Quintiles Transnational Corp.

10.02(5)(7)		Employment Agreement, dated February 22, 1994, by and between Dr. Dennis B. Gillings and Quintiles Transnational Corp.

10.03(5)(8)		Amendment to Contract of Employment, dated October 26, 1999, by and between Dr. Dennis B. Gillings and Quintiles Transnational Corp.

10.04(5)(9)		Second Amendment to Contract of Employment, dated April 1, 2002, by and between Dr. Dennis B. Gillings and Quintiles Transnational Corp.

10.05(5)(8)		Executive Employment Agreement, dated June 16, 1998, by and between James L. Bierman and Quintiles Transnational Corp.

10.06(5)(8)		Executive Employment Agreement, dated December 3, 1998, by and between John S. Russell and Quintiles Transnational Corp.

10.07(5)(8)		Amendment to Executive Employment Agreement, dated October 26, 1999, by and between John S. Russell and Quintiles Transnational Corp.

10.08(5)(9)		Quintiles Transnational Corp. Equity Compensation Plan, as amended and restated on January 1, 2001

10.09(5)(8)		Quintiles Transnational Corp. Elective Deferred Compensation Plan, as amended and restated

10.10(5)(9)		Quintiles Transnational Corp. Nonqualified Stock Option Plan, amended January 1, 2001

10.11*		Quintiles Transnational Corp. 2002 Stock Option Plan


Exhibit		Description


10.12*		Quintiles Transnational Corp. Special Bonus Plan

10.13(10)		Underlease, dated November 28, 1997, by and between PDFM Limited and Quintiles (UK) Limited and guaranteed by the Company

10.14(11)		Agreement for the Provision of Research Services and Purchase of Business Assets, dated as of January 1, 1999, between Hoescht Marion Roussel, Inc. and Quintiles, Inc.

10.15(12)		Agreement and Plan of Merger, dated as of January 22, 2000, among Quintiles Transnational Corp., Healtheon/WebMD Corporation, Pine Merger Corp., Envoy Corp. and QFinance, Inc.

10.16(13)		Settlement Agreement, dated October 12, 2001, between Quintiles Transnational Corp. and WebMD Corporation.

10.17(9)		Master Services Agreement dated as of January 1, 2001 between Quintiles Transnational Corp. and A.M. Pappas & Associates, LLC. [Note: Certain confidential portions of this exhibit have been omitted as indicated in the exhibit with an asterisk (*), and filed with the Securities and Exchange Commission.]

10.18(5)		Amendment to Executive Employment Agreement, dated March 31, 2003, by and between James L. Bierman and Quintiles Transnational Corp.

16.01(14)		Letter regarding change in the Company’s certifying accountant dated May 17, 2002

18.01*		Letter regarding change in accounting principle

21*		Subsidiaries

23.01*		Consent of PricewaterhouseCoopers LLP, dated February 21, 2003

23.02*		Information Regarding the Consent of Arthur Andersen LLP

24.01*		Power of Attorney (included on the signature page hereto)

99.01*		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002

99.02*		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002


Exhibit		Description

99.03		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 dated April 29, 2003. Furnished in accordance with the Commission’s guidance published in SEC Rel. No. 34-47551. This exhibit shall not be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934.

99.04		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 dated April 29, 2003. Furnished in accordance with the Commission’s guidance published in SEC Rel. No. 34-47551. This exhibit shall not be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934.

*		Previously filed with the Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 24, 2003 for the fiscal year ended December 31, 2002.

(1)		Exhibit to our Quarterly Report on Form 10-Q for the period ended September 30, 1999, as filed with the Securities and Exchange Commission on November 15, 1999, and incorporated herein by reference.

(2)		Exhibit to our Current Report on Form 8-K dated November 5, 1999, as filed with the Securities and Exchange Commission on November 5, 1999 and incorporated herein by reference.

(3)		Exhibit to our Registration Statement on Form S-8 as filed with the Securities and Exchange Commission (File No. 333-92987) effective December 17, 1999, and incorporated herein by reference.

(4)		Exhibit to our Registration Statement on Form 8-A/A, Amendment No. 1 (File No. 000-23520), as filed with the Securities and Exchange Commission on May 10, 2000, and incorporated herein by reference.

(5)		Executive compensation plans and arrangements

(6)		Exhibit to our Quarterly Report on Form 10-Q for the period ended March 31, 2001, as filed with the Securities and Exchange Commission on May 15, 2001, and incorporated herein by reference.

(7)		Exhibit to our Registration Statement on Form S-1, as amended, as filed with the Securities and Exchange Commission (File No. 33-75766) effective April 20, 1994, and incorporated herein by reference.

(8)		Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as filed with the Securities and Exchange Commission on March 30, 2000, and incorporated herein by reference.

(9) Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2001, as filed with the Securities and Exchange Commission on March 22, 2002, and incorporated herein by reference.

(10) Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 1997, as filed with the Securities and Exchange Commission on March 30, 1998, and incorporated herein by reference.

(11) Exhibit to our Current Report on Form 8-K dated March 3, 1999, as filed with the Securities and Exchange Commission on March 3, 1999, and incorporated herein by reference.

(12) Exhibit to our Current Report on Form 8-K, dated January 25, 2000, as filed with the Securities and Exchange Commission on January 25, 2000, and incorporated herein by reference.

(13) Exhibit to our Quarterly Report on Form 10-Q for the period ended September 30, 2001, as filed with the Securities and Exchange Commission on November 1, 2001, and incorporated herein by reference.

(14) Exhibit to our Current Report on Form 8-K dated May 17, 2002, as filed with the Securities and Exchange Commission on May 22, 2002, and incorporated herein by reference.

(b) Reports on Form 8-K.

We furnished the following four Current Reports on Form 8-K between October 1, 2002 and December 31, 2002:

On October 15, 2002, we furnished a Current Report on Form 8-K attaching a press release announcing that an entity wholly owned by Dennis Gillings, our Chairman of the Board and Founder, had made a non-binding proposal to acquire all of our outstanding shares. The Current Report on Form 8-K dated October 15, 2002 was furnished pursuant to Regulation FD. This report shall not be deemed to be incorporated by reference into this Form 10-K or filed hereunder for purposes of liability under the Securities Exchange Act of 1934.

On October 17, 2002, we furnished a Current Report on Form 8-K reporting the commencement of several purported class action lawsuits seeking to enjoin the consummation of the transaction contemplated by the non-binding proposal made by Pharma Services Company, a newly formed company wholly owned by Dennis B. Gillings, Ph.D., to acquire all of our outstanding shares for $11.25 per share in cash. The Current Report on Form 8-K dated October 17, 2002 was furnished pursuant to Regulation FD. This report shall not be deemed to be incorporated by reference into this Form 10-K or filed hereunder for purposes of liability under the Securities Exchange Act of 1934.

On October 28, 2002, we furnished a Current Report on Form 8-K attaching a press release updating the activities of the Special Committee of our Board of Directors and identifying the members of the Special Committee. The Current Report on Form 8-K dated October 28, 2002 was furnished pursuant to Regulation FD. This report shall not be deemed to be incorporated by reference into this Form 10-K or filed hereunder for purposes of liability under the Securities Exchange Act of 1934.

On November 12, 2002, we furnished a Current Report on Form 8-K attaching a press release in which the Special Committee of our Board of Directors announced that it had rejected the proposal by Pharma Services Company, an entity wholly owned by Dennis B. Gillings, Ph.D., our Chairman of the Board and Founder, to acquire all of our outstanding shares. The Current Report on Form 8-K dated November 12, 2002 was furnished pursuant to Regulation FD. This report shall not be deemed to be incorporated by reference into this Form 10-K or filed hereunder for purposes of liability under the Securities Exchange Act of 1934.

See (a)(3) above.

(d) Financial Statements and Schedules.

See (a)(2) above.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Durham, North Carolina, on the 29th day of April, 2003.


	QUINTILES TRANSNATIONAL CORP.

	By:	/s/ Dennis B. Gillings

		Dennis B. Gillings, Ph.D. Chairman of the Board of Directors

CERTIFICATIONS

I, Dennis B. Gillings, Ph.D., certify that:

1. I have reviewed this annual report, as amended, on Form 10-K/A of Quintiles Transnational Corp.;

2. Based on my knowledge, this annual report, as amended, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report, as amended;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, as amended, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report, as amended;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report, as amended, is being prepared;

b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report, as amended (the “Evaluation Date”); and

c. presented in this annual report, as amended, our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report, as amended, whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date: April 29, 2003
		/s/ Dennis B. Gillings

		Dennis B. Gillings, Ph.D. Chairman

I, James L. Bierman, certify that:

a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report, as amended, is being prepared;

b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c. presented in this annual report, as amended, our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


Date: April 29, 2003

		/s/ James L. Bierman

		James L. Bierman Chief Financial Officer

EXHIBIT INDEX


Exhibit		Description

3.01(1)		Amended and Restated Articles of Incorporation, as amended

3.02(2)		Amended and Restated Bylaws, as amended

4.01		Amended and Restated Articles of Incorporation, as amended (see Exhibit 3.01)

4.02		Amended and Restated Bylaws, as amended (see Exhibit 3.02)

4.03(3)		Specimen certificate for Common Stock, $0.01 par value per share

4.04(4)		Amended and Restated Rights Agreement, dated as of November 5, 1999 and amended and restated as of May 4, 2000 between Quintiles Transnational Corp. and First Union National Bank, including form of Articles of Amendment of Amended and Restated Articles of Incorporation, form of Rights Certificate and the Summary of Rights to Purchase Preferred Stock

10.01(5)(6)		Employment Agreement, dated March 13, 2001, by and between Dr. Pamela J. Kirby and Quintiles Transnational Corp.

10.02(5)(7)		Employment Agreement, dated February 22, 1994, by and between Dr. Dennis B. Gillings and Quintiles Transnational Corp.

10.03(5)(8)		Amendment to Contract of Employment, dated October 26, 1999, by and between Dr. Dennis B. Gillings and Quintiles Transnational Corp.

10.04(5)(9)		Second Amendment to Contract of Employment, dated April 1, 2002, by and between Dr. Dennis B. Gillings and Quintiles Transnational Corp.

10.05(5)(8)		Executive Employment Agreement, dated June 16, 1998, by and between James L. Bierman and Quintiles Transnational Corp.

10.06(5)(8)		Executive Employment Agreement, dated December 3, 1998, by and between John S. Russell and Quintiles Transnational Corp.

10.07(5)(8)		Amendment to Executive Employment Agreement, dated October 26, 1999, by and between John S. Russell and Quintiles Transnational Corp.

10.08(5)(9)		Quintiles Transnational Corp. Equity Compensation Plan, as amended and restated on January 1, 2001

10.09(5)(8)		Quintiles Transnational Corp. Elective Deferred Compensation Plan, as amended and restated

10.10(5)(9)		Quintiles Transnational Corp. Nonqualified Stock Option Plan, amended January 1, 2001


Exhibit		Description


10.11*		Quintiles Transnational Corp. 2002 Stock Option Plan

10.12*		Quintiles Transnational Corp. Special Bonus Plan

10.13(10)		Underlease, dated November 28, 1997, by and between PDFM Limited and Quintiles (UK) Limited and guaranteed by the Company

10.14(11)		Agreement for the Provision of Research Services and Purchase of Business Assets, dated as of January 1, 1999, between Hoescht Marion Roussel, Inc. and Quintiles, Inc.

10.15(12)		Agreement and Plan of Merger, dated as of January 22, 2000, among Quintiles Transnational Corp., Healtheon/WebMD Corporation, Pine Merger Corp., Envoy Corp. and QFinance, Inc.

10.16(13)		Settlement Agreement, dated October 12, 2001, between Quintiles Transnational Corp. and WebMD Corporation.

10.17(9)		Master Services Agreement dated as of January 1, 2001 between Quintiles Transnational Corp. and A.M. Pappas & Associates, LLC. [Note: Certain confidential portions of this exhibit have been omitted as indicated in the exhibit with an asterisk (*), and filed with the Securities and Exchange Commission.]

10.18(5)		Amendment to Executive Employment Agreement, dated March 31, 2003, by and between James L. Bierman and Quintiles Transnational Corp.

16.01(14)		Letter regarding change in the Company’s certifying accountant dated May 17, 2002

18.01*		Letter regarding change in accounting principle

21*		Subsidiaries

23.01*		Consent of PricewaterhouseCoopers LLP, dated February 21, 2003

23.02*		Information Regarding the Consent of Arthur Andersen LLP

24.01*		Power of Attorney (included on the signature page hereto)

99.01*		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002

99.02*		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002


Exhibit		Description

99.03		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 dated April 29, 2003. Furnished in accordance with the Commission’s guidance published in SEC Rel. No. 34-47551. This exhibit shall not be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934.

99.04		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 dated April 29, 2003. Furnished in accordance with the Commission’s guidance published in SEC Rel. No. 34-47551. This exhibit shall not be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934.

*		Previously filed with the Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 24, 2003 for the fiscal year ended December 31, 2002.

(1)		Exhibit to our Quarterly Report on Form 10-Q for the period ended September 30, 1999, as filed with the Securities and Exchange Commission on November 15, 1999, and incorporated herein by reference.

(2)		Exhibit to our Current Report on Form 8-K dated November 5, 1999, as filed with the Securities and Exchange Commission on November 5, 1999 and incorporated herein by reference.

(3)		Exhibit to our Registration Statement on Form S-8 as filed with the Securities and Exchange Commission (File No. 333-92987) effective December 17, 1999, and incorporated herein by reference.

(4)		Exhibit to our Registration Statement on Form 8-A/A, Amendment No. 1 (File No. 000-23520), as filed with the Securities and Exchange Commission on May 10, 2000, and incorporated herein by reference.

(5)		Executive compensation plans and arrangements

(6)		Exhibit to our Quarterly Report on Form 10-Q for the period ended March 31, 2001, as filed with the Securities and Exchange Commission on May 15, 2001, and incorporated herein by reference.

(7)		Exhibit to our Registration Statement on Form S-1, as amended, as filed with the Securities and Exchange Commission (File No. 33-75766) effective April 20, 1994, and incorporated herein by reference.

(8)		Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as filed with the Securities and Exchange Commission on March 30, 2000, and incorporated herein by reference.

63 EX-10.18 3 g82359aexv10w18.txt AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT Exhibit 10.18 AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT This Amendment to Executive Employment Agreement ("Amendment") is made and entered into this the 31st day of March, 2003, by and between QUINTILES TRANSNATIONAL CORP., a North Carolina Corporation (hereinafter the "Company"), and JAMES L. BIERMAN (hereinafter the "Executive"). WHEREAS, the Company and Executive are parties to an Executive Employment Agreement dated as of June 16, 1998 (the "Employment Agreement"); and WHEREAS, the Company and Executive desire to amend the Employment Agreement; NOW, THEREFORE, in consideration of the mutual agreements set forth herein, the legal sufficiency and adequacy of which are hereby acknowledged, the parties agree to amend the Employment Agreement as follows: 1. The Employment Agreement is amended by deleting Section 3.9 thereof in its entirety and inserting the following Section 19 at the end thereof: 19. CHANGE IN CONTROL. 19.1 For purposes of this Agreement, a "Change in Control" shall mean the occurrence of any one of the following 19.1(1) An acquisition (other than directly from the Company) of any voting securities of the Company by any "Person" (as such term is used in Sections 3(a)(9), 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act")), after which such Person, together with its "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act), becomes the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of more than one-third (33.33%) of the total voting power of the Company's then outstanding voting securities, but excluding any such acquisition by the Company, any Person of which a majority of its voting power or its voting equity securities or equity interests is owned, directly or indirectly, by the Company (for purposes hereof, a "Subsidiary"), any employee benefit plan of the Company or any of its Subsidiaries (including any Person acting as trustee or other fiduciary for any such plan), or Dennis B. Gillings; 19.1(2) The shareholders of the Company approve a merger, share exchange, consolidation or reorganization involving the Company and any other corporation or other entity that is not controlled by the Company, as a result of which less than two-thirds (66.66%) of the total voting power of the outstanding voting securities of the Company or of the successor corporation or entity after such transaction are held in the aggregate by the holders of the Company's voting securities immediately prior to such transaction; 19.1(3) The shareholders of the Company approve a liquidation or dissolution of the Company, or approve the sale or other disposition by the Company of all or substantially all of the Company's assets to any Person (other than a transfer to a Subsidiary of the Company); 19.1(4) During any period of twenty-four (24) consecutive months, the individuals who constitute the Board of Directors of the Company at the beginning of such period (the "Incumbent Directors") cease for any reason to constitute at least two-thirds (66.66%) of the Board of Directors; provided, however, that a director who is not a director at the beginning of such period shall be deemed to be an Incumbent Director if such director is elected or recommended for election by at least two-thirds (66.66%) of the directors who are then Incumbent Directors. 19.2 TERMINATION FOLLOWING CHANGE IN CONTROL. After the occurrence of a Change in Control, Executive shall be entitled to receive payments and benefits pursuant to this Agreement if his employment is terminated pursuant to Section 19.2(1) or (2) below. 19.2(1) Within eighteen (18) months following a Change in Control, Executive terminates his employment with Company by giving written notice of such termination to Company. 19.2(2) Within eighteen (18) months following a Change in Control, Company terminates Executive's employment other than for any of the reasons described in Section 4.3 of this Agreement. 19.3 SEVERANCE PAY AND BENEFITS. If Executive's employment with the Company terminates under circumstances as described in Section 19.2 above, Executive shall be entitled to receive all of the following: 19.3(1) all accrued compensation through the termination date, plus any Bonus for which the Executive otherwise would be eligible in the year of termination, prorated through the termination date, payable in cash. For purposes of Sections 19.3(1) and 19.3(2), "Bonus" shall be defined as any benefits for which Executive would be eligible under the ECP described in Section 3.2 of this Agreement. The amount of such Bonus shall be paid in cash and, for purposes of Sections 19.3(1) and 19.3(2), shall be calculated as if Executive had achieved 100% of Executive's performance goals for that year. 19.3(2) a severance payment equal to two and ninety-nine hundredths (2.99) times the amount of Executive's most recent annual compensation, including the amount of his most recent annual Bonus. The severance amount shall be paid (i) in cash in thirty-four (34) equal monthly installments commencing one month after the termination date, or (ii) in a lump sum, within one month after the termination date, at the sole option of Executive. 19.3(3) the Company shall maintain in full force and effect, for eighteen (18) months after the termination date, all life insurance, health, accidental death and dismemberment, disability plans and other benefit programs in which Executive is entitled to participate immediately prior to the termination date, provided that Executive's continued participation is possible under the general terms and provisions of such plans and programs. Executive's continued participation in such plans and programs shall be at no greater cost to Executive than the cost he bore for such participation immediately prior to the termination date. If Executive's participation in any such plan or program is barred, Company shall arrange upon comparable terms, and at no greater cost to Executive than the cost be bore for such plans and programs prior to the termination date, to provide Executive with benefits substantially similar to, or greater than, those which he is entitled to receive under any such plan or program; and 19.3(4) a lump sum payment (or otherwise as specified by Executive to the extent permitted by the applicable plan) of any and all amounts contributed to a Company pension or retirement plan which Executive is entitled to under the terms of any such plan through the date of termination. 19.4 STOCK OPTIONS. 19.4(1) Upon a Change in Control, all options ("Options") to purchase Common Stock of the Company held by Executive as of the date of the Change in Control shall become fully vested and exercisable. 19.4(2) If Executive's employment with the Company terminates pursuant to Section 19.2, then the Options shall remain exercisable until the later of: (i) the expiration of the applicable period for exercise following termination of employment set forth in the Option agreements (or in any other agreement between Executive and the Company that supersedes the Option agreements); or (ii) three (3) years after the date of termination (to the extent of the terms of the Options); provided, however, that any "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), that are exercised more than ninety (90) days after the date of termination pursuant Section 19.2 shall be treated for tax purposes as nonqualified stock options. 19.5 EXCISE TAX PAYMENTS. 19.5(1) If any payment or benefit (within the meaning of Section 280G(b)(2) of the Code), to Executive or for his benefit pursuant to this Agreement (a "Payment") is subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the amount of the Payment net of all taxes other than the Excise Tax (the "Net Amount") shall be calculated. Executive shall then receive, in addition to the Payment, an additional payment (the "Gross-Up Payment"), which shall be an amount such that, after payment of all taxes (including the Excise Tax) on the Payment and the Gross-Up Payment, Executive shall retain an amount equal to the Net Amount. 19.5(2) An initial determination as to whether a Gross-Up Payment is required pursuant to this Agreement and the amount of such Gross-Up Payment shall be made at Company's expense by an accounting firm selected by Company and reasonably acceptable to Executive which is designated as one of the five largest accounting firms in the United States (the "Accounting Firm"). The Accounting Firm shall provide its determination (the "Determination"), together with detailed supporting calculations and documentation to Company and Executive within ten (10) days of the date Executive's employment terminates if applicable, or such other time as requested by Company or by Executive (provided Executive reasonably believes that any of the Payments may be subject to the Excise Tax) and if the Accounting Firm determines that no Excise Tax is payable by Executive with respect to a Payment, it shall furnish Executive with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to any such Payment. Within ten (10) days of the delivery of the Determination to Executive, Executive shall have the right to dispute the Determination (the "Dispute"). The Gross-Up Payment, if any, as determined pursuant to this Section 19.5 shall be paid by Company to Executive within five (5) days of the receipt of the Accounting Firm's determination. The existence of the Dispute shall not in any way affect Executive's right to receive the Gross-Up Payment in accordance with the Determination. Upon the final resolution of a Dispute, Company shall promptly pay to Executive any additional amount required by such resolution. If there is no Dispute, the Determination shall be binding, final and conclusive upon Company and Executive subject to the application of Section 19.5(3) below. 19.5(3) Notwithstanding anything in this Amendment to the contrary, in the event that, according to the Determination, an Excise Tax will be imposed on any Payment, Company shall pay to the applicable government taxing authorities as Excise Tax withholding, the amount of the Excise Tax that the Company has actually withheld from the Payment and the Gross-Up Payment, as applicable. 19.5(4) If Executive is subject to taxation under a non-United States taxing authority and an excise tax similar to the Excise Tax is imposed on any Payment by such non-United States taxing authority, then Executive shall be entitled to receive a Gross-Up Payment as calculated pursuant to Section 19.5(1) above, based upon the lesser of such non-United States excise tax imposed and the Excise Tax that would have been imposed had the Payment been subject to United States taxation. 2. Except as herein set forth, the Employment Agreement is not modified or amended and the parties hereto reaffirm and agree to all of the terms and provisions of the Employment Agreement, as herein amended, in all respects. IN WITNESS WHEREOF, the parties have executed this Amendment to Executive Employment Agreement as of the day and year first written above. /s/ James L. Bierman ------------------------------------ JAMES L. BIERMAN QUINTILES TRANSNATIONAL CORP. By: /s/ Beverly L. Rubin -------------------------------- Name: Beverly L. Rubin Title: Vice President, Deputy General Counsel EX-99.03 4 g82359aexv99w03.txt SECTION 906 CERTIFICATION OF THE CEO Exhibit 99.03 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Quintiles Transnational Corp. (the "Company") on Form 10-K, as amended by Amendment No. 1 on Form 10-K/A, for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dennis B. Gillings, Chairman of the Company certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Dennis B. Gillings ---------------------- Dennis B. Gillings Chairman April 29, 2003 ---------------------- Date 65 EX-99.04 5 g82359aexv99w04.txt SECTION 906 CERTIFICATION OF THE CFO Exhibit 99.04 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Quintiles Transnational Corp. (the "Company") on Form 10-K, as amended by Amendment No. 1 on Form 10-K/A, for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James L. Bierman, Executive Vice President and Chief Financial Officer of the Company certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ James L. Bierman ----------------------------------- James L. Bierman Executive Vice President and Chief Financial Officer April 29, 2003 ----------------------------------- Date 66 -----END PRIVACY-ENHANCED MESSAGE-----

	•		Service revenues were $1.87 billion for 2002 compared to $1.86 billion for 2001. Service revenues less reimbursed service costs, or net service revenues, for 2002 were $1.47 billion, a decrease of $125.4 million or (7.9%) over net service revenues of $1.59 billion in 2001. Included in net service revenues for 2002 was $20.3 million from our informatics group as compared to $58.2 million from that group for 2001. Our informatics group was transferred to a joint venture during May 2002, therefore revenues for this group are not included in our net service revenues since the date of transfer. Net service revenues for 2002 were positively impacted by approximately $15.2 million due to the effect of foreign currency fluctuations. The positive foreign currency fluctuation due to the weakening of the US Dollar relative to the euro and the British pound was partially offset by the strengthening of the US Dollar relative to the South African Rand and the Japanese yen. Net service revenues increased in the Asia Pacific region $29.4 million or 18.0% to $193.2 million, which was negatively impacted by $2.2 million due to the effect of foreign currency fluctuations. Net service revenues increased $67.9 million or 11.5% to $658.7 million in the Europe and Africa region, which was positively impacted by $18.2 million due to the effect of foreign currency fluctuations. Net service revenues decreased $222.7 million or (26.5%) to $616.8 million in the Americas region primarily as a result of the decline in the commercial services group revenues.

	•		Commercial rights and royalties revenues, which include product revenues, royalties and commissions, for 2002 were $110.4 million, an increase of $84.6 million over 2001 commercial rights and royalties revenues of $25.8 million. Commercial rights and royalties revenues were positively impacted by approximately $3.8 million due to the effect of foreign currency fluctuations related to the weakening of the US Dollar relative to the euro. These revenues include products for which we have acquired certain commercial rights, such as the dermatology products, Solaraze™ and ADOXA™. Also included are royalties or commissions on product sales that we receive in exchange for providing commercial or product development services. The $84.6 million increase is primarily the result of our

			acquisition of certain assets of Bioglan Pharma, Inc., and its suite of dermatology products, a new risk sharing contract in Europe with a large pharmaceutical customer and our contracts with Scios Inc. and Kos Pharmaceuticals, Inc. In December 2002, we agreed to permit Scios to hire the sales force we had previously provided under contract to them, effective December 31, 2002 in return for (1) Scios reimbursing us for the operating profit that we would have earned between December 31, 2002 and the first date on which Scios would have been permitted to hire the sales force under the contract terms and (2) advancing from May 31, 2003 to December 31, 2002, our ability to exercise the remaining unexercisable warrants. The early settlement of our service obligation resulted in an accelerated recognition of revenues of approximately $9.3 million in the fourth quarter of 2002. For the year ended December 31, 2002, approximately 55.5% of our commercial rights and royalties revenues was attributable to the contracts with Scios and Kos, approximately 17.2% was attributable to the risk sharing contract in Europe, approximately 20.3% was attributable to the suite of dermatology products and the remaining 7.0% was attributable to miscellaneous contracts and activities.

	•		Investment revenues related to our PharmaBio Development group’s financing arrangements, which include gains and losses from the sale of equity securities and impairments from other than temporary declines in the fair values of our direct and indirect investments, for 2002 were $13.7 million versus $611,000 for 2001. Included in 2002 and 2001 are $4.3 million and $14.0 million, respectively, of impairment losses on investments whose decline in fair value was considered to be other than temporary.

	•		Reimbursed service costs were $399.7 million and $263.4 million for 2002 and 2001, respectively. It was impracticable to identify and reclassify certain commercialization reimbursed service costs, and accordingly, the 2001 results have not been restated for these costs. These commercialization reimbursed service costs totaled approximately $60.4 million for 2002.

	•		Service costs, which include compensation and benefits for billable employees, and certain other expenses directly related to service contracts, were $775.4 million or 52.8% of 2002 net service revenues versus $931.0 million or 58.4% of 2001 net service revenues. This reduction is primarily a result of the continued effect of our process enhancements and cost reduction efforts.

	•		Commercial rights and royalties costs, which include compensation and related benefits for employees, amortization of commercial rights, infrastructure costs of the PharmaBio Development group and other expenses directly related to commercial rights and royalties, were $106.1 million for 2002 versus $26.8 million for 2001. These costs include services and

			products provided by third parties, as well as services provided by our other service groups totaling approximately $54.5 million for 2002 and $12.9 million for 2001. The year 2002 also includes costs to launch and market Solaraze™ and ADOXA™ and expenses relating to the risk sharing contract in Europe.

	•		Investment costs, which include costs directly related to direct and indirect investments in our customers or other strategic partners as part of the PharmaBio Development group’s financing arrangements, were $320,000 in 2002 versus $1.9 million in 2001.

	•		Depreciation and amortization, which include depreciation of our property and equipment and amortization of our definite-lived intangible assets except commercial rights, decreased to $86.1 million for 2002 versus $95.1 million for 2001. This decrease is primarily due to the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” which requires that all goodwill and indefinite-lived intangible assets no longer be amortized but reviewed at least annually for impairment. In addition, depreciation expense decreased $2.9 million as a result of the transfer of our informatics group to Verispan. During 2002, we completed the goodwill transitional impairment test as of January 1, 2002, as required, and the annual impairment test as of July 31, 2002, in which no goodwill impairment was deemed necessary at either date.

	•		Service revenues were $1.86 billion for 2001 compared to $1.86 billion for 2000. Net service revenues for 2001 were $1.59 billion, a decrease of $55.6 million or (3.4%) over net service revenues of $1.65 billion in 2000. However, there was a negative impact of approximately $49.0 million due to the effect of foreign currency fluctuations related to the strengthening of the US Dollar relative to the euro, other European currencies and the Japanese yen combined with the effects of the devaluation of several currencies including the South African Rand. Net service revenues for the commercial services group decreased $113.6 million or (15.2%) as a result of large contracts that were terminated or converted in-house by our customers instead of being renewed. The decrease was partially offset by an increase of approximately $11.7 million from our Phase I development services and an increase of approximately $76.6 million from our clinical development services, primarily Phase II and III services. Net service revenues increased in the Asia Pacific region $44.0 million or 36.7% to $163.8 million but decreased $116.7 million or (12.2%) to $839.5 million in the Americas region primarily resulting from the decline in the commercial services segment. Net service revenues in the Europe and Africa region increased $20.3 million or 3.5% to $601.8 million.

	•		Commercial rights and royalties revenues, which include product revenues, royalties and commissions, for 2001 were $25.8 million, an increase of $15.6 million over 2000 commercial rights and royalties revenues of $10.2 million. The increase was primarily attributable to the contract with Scios which was operational by the third quarter of 2001.

	•		Investment revenues related to our PharmaBio Development group’s financing arrangements, which include gains and losses from the sale of equity investments and impairments from other than temporary declines in the fair values of our direct and indirect investments, for 2001 were $611,000 versus $579,000 for 2000. Included in 2001 and 2000 are $14.0 million and $5.5 million, respectively, of impairment losses on investments whose decline in fair value was considered to be other than temporary.

	•		Reimbursed service costs were $263.4 million and $210.6 million for 2001 and 2000, respectively.

	•		Service costs, which include compensation and benefits for billable employees, and certain other expenses directly related to service contracts, were $931.0 million or 58.4% of 2001 net service revenues versus $986.3 million or 59.8% of 2000 net service revenues. This reduction is primarily a result of the continued effect of our process enhancements and cost reduction efforts.

	•		Commercial rights and royalties costs, which include compensation and related benefits for employees, amortization of commercial rights, infrastructure costs of the PharmaBio Development group and other expenses directly related to commercial rights and royalties, were $26.8 million for 2001 versus $9.4 million for 2000. These costs include services and products provided by third parties, as well as services provided by our other service groups totaling approximately $12.9 million for 2001.

	•		Investment costs, which include costs directly related to direct and indirect investments in our customers or other strategic partners as part of the PharmaBio Development group’s financing arrangements, were $1.9 million in 2001, the initial year of the group’s operations.

	•		Depreciation and amortization, which include depreciation of our property and equipment and amortization of our definite-lived intangible assets except commercial rights, increased to $95.1 million for 2001 versus $91.2 million for 2000. Depreciation expense increased $4.2 million due to the increase in our capitalized asset base while amortization expense decreased $300,000 primarily as a result of the write-off of goodwill.

	-		the variable size and duration of projects,

	-		the loss or delay of projects, and

	-		a change in the scope of work during the course of a project.

•	its ability to obtain continuous access to de-identified healthcare data from third parties in sufficient quantities to support its informatics products;

•	its ability to process and use the volume of data received from a variety of data providers;

•	its ability to attract customers, besides Quintiles and McKesson, to purchase its products and services;

•	the risk of changes in healthcare information privacy laws and regulations that could create a risk of liability, increase the cost of Verispan’s business or limit its service offerings;

•	the risk that industry regulation may restrict Verispan’s ability to analyze and disseminate pharmaceutical and healthcare data; and

•	the risk that it will not be able to effectively and cost-efficiently replace services previously provided to the contributed businesses by the former parent corporations.

	•		enhance our existing services;

	•		introduce new services on a timely and cost-effective basis to meet evolving customer requirements;

	•		integrate new services with existing services;

	•		achieve market acceptance for new services; and

	•		respond to emerging industry standards and other technological changes.

	-		Foreign Currency Translation Risk. The revenue and expenses of our foreign operations are generally denominated in local currencies.

	-		Foreign Currency Transaction Risk. Our service contracts may be denominated in a currency other than the currency in which we incur expenses related to such contracts.

(3)		Perquisites and other personal benefits received did not exceed the lesser of $50,000 or 10% of salary and bonus compensation for the named executive officer.

(4)		In 2002, with the use of his own plane, Dr. Gillings provided extensive business-related travel services for himself and other Company employees. The Human Resources and Compensation Committee approved reimbursing Dr. Gillings for these services by authorizing cash payments up to approximately $1.4 million, which is in addition to the amounts shown in this table. The Company also granted options to Dr. Gillings with an aggregate Black-Scholes value of approximately $1.4 million in quarterly installments with an exercise price on March 31, 2002 of $17.75 per share; on June 15, 2002 of $13.09 per share; on September 16, 2002 of $9.76 per share; and on December 16, 2002 of $12.11 per share. These options to purchase 190,250 shares are not included in the table as they were not treated as long-term compensation. (see “Certain Relationships and Related Transactions” for additional information).

(5)		Includes contributions to the Company’s 401(k) Plan on behalf of Dr. Gillings in the amount of $1,688, the estimated value of forfeitures allocated by the ESOP on behalf of Dr. Gillings in the amount of $158, the present value of the benefit to Dr. Gillings of the premiums the Company paid under a split-dollar life insurance arrangement in the amount of $843,255 (see “Employment Agreements” below for a description of this arrangement), and other life insurance premiums that the Company paid in the amount of $2,321.

(6)		Includes $540,000 deferred during 2001 pursuant to the Company’s Elective Deferred Compensation Plan.

(7)		Includes $31,875 relating to bonus payable for 2001 deferred during 2002 pursuant to the Company’s Elective Deferred Compensation Plan.

(8)		Includes 8,281 shares subject to options granted pursuant to the 2001 bonus. In 2001, with the use of his own plane, Dr. Gillings provided extensive business-related travel services for himself and other Company employees. The Human Resources and Compensation Committee approved reimbursing Dr. Gillings for these services by authorizing cash payments up to $1.4 million, which is in addition to the amounts shown in this table. The Company also granted options to Dr. Gillings with an aggregate Black-Scholes value of $1.4 million in quarterly installments with an exercise price on March 31, 2001 of $18.875 per share; on June 30, 2001 of $25.25 per share; on September 30, 2001 of $14.60 per share; and on December 31, 2001 of $16.05 per share. These options are included in the table as long-term compensation.

(9)		Includes contributions to the Company’s 401(k) Plan on behalf of Dr. Gillings in the amount of $2,700, the estimated value of forfeitures allocated by the ESOP on behalf of Dr. Gillings in the amount of $869 and interest in the amount of $1,228, the present value of the benefit to Dr. Gillings of the premiums the Company paid under a split-dollar life insurance arrangement in the amount of $717,199 (see “Employment Agreements” below for a description of this arrangement), and other life insurance premiums that the Company paid in the amount of $2,322.

(10)		Includes $300,000 deferred during 2000 pursuant to the Company’s Elective Deferred Compensation Plan.

(11)		Includes 166,708 shares subject to options granted pursuant to the 2000 bonus. In 2000, with the use of his own plane, Dr. Gillings provided extensive business-related travel services for himself and other Company employees. The Compensation Committee approved reimbursing Dr. Gillings for these services by authorizing cash payments up to $1.4 million, which is in addition to the amounts shown in this table. The Company also granted options to Dr. Gillings with a Black-Scholes value of $1.4 million at an exercise price of $13.44 per share. These options are included in the table as long-term compensation.

		the Gillings Family Limited Partnership, and all shares owned by the GFEF Limited Partnership, except to the extent of his interest therein.

(3)		Includes 544,562 shares subject to presently exercisable stock options and 104 shares held by the ESOP for Dr. Kirby’s account. Includes 2,918 shares owned by Dr. Geoffrey Barker, Dr. Kirby’s husband, 1,296 shares subject to presently exercisable stock options owned by Dr. Barker and 76 shares held by the ESOP for Dr. Barker’s account. Dr. Kirby disclaims beneficial ownership of all shares owned by her husband.

(4)		Includes 402,014 shares subject to presently exercisable stock options and 473 shares held by the ESOP for Mr. Bierman’s account.

(5)		Includes 190,118 shares subject to presently exercisable stock options and 473 shares held by the ESOP for Mr. Russell’s account.

(6)		Includes 65,246 shares subject to presently exercisable stock options.

(7)		Includes 79,994 shares subject to presently exercisable stock options. Includes 117,000 shares owned by the Douglass Family Limited Partnership, of which Dr. Douglass is the sole general partner. Dr. Douglass disclaims beneficial ownership of the shares held by the limited partnership except to the extent of his pecuniary interest therein.

(8)		Includes 77,244 shares subject to presently exercisable stock options.

(9)		Includes 43,986 shares subject to presently exercisable stock options.

(10)		Includes 52,002 shares subject to presently exercisable stock options. Includes 1,000 shares held in a trust under which Dr. Weldon is a beneficiary and a trustee.

(11)		Includes 52,002 shares subject to presently exercisable stock options. Includes 8,000 shares owned by Mr. Brown’s wife. Mr. Brown disclaims beneficial ownership of the shares held by his wife.

(12)		Includes 13,730 shares subject to presently exercisable stock options.

(13)		Includes 2,631,260 shares subject to presently exercisable stock options and 162,658 shares held by the ESOP for the accounts of individual executive officers and Dr. Barker.

		• 1994 Plan – 343,993 shares;

		• 2002 Plan – 3,106,471 shares and

		• ESPP – 957,573 shares.

		Although the 1994 Plan includes an “evergreen” share replenishment feature described below, no shares were added on January 1, 2003 because there was no increase in the authorized and issued shares outstanding during 2002.

		• 1990 Nonqualified Stock Option Plan — 46,000 shares, with a weighted exercise price of $4.3175;

		• Action International Marketing Services Limited Nonqualified Stock Option Plan — 105,828 shares, with a weighted exercise price of $34.2187;

		• Quintiles BRI Nonqualified Stock Option Plan — 225,401 shares, with a weighted exercise price of $28.1726;

		• Envoy 1990 Officer and Employee Stock Option Plan — 29,853 shares, with a weighted exercise price of $3.3060;

		• Envoy 1995 Stock Option Plan — 176,218 shares, with a weighted exercise price of $10.5883;

		• Envoy 1998 Stock Incentive Plan — 291,500 shares, with a weighted exercise price of $6.6500;

		• 1998 Synergy Stock Option Plan — 87,450 shares, with a weighted exercise price of $34.3100;

		• Innovex Limited 1996 Unapproved Executive Share Option Scheme — 115,502 shares, with a weighted exercise price of $19.5134;

		• Quintiles Lewin Nonqualified Stock Option Plan — 92,650 shares, with a weighted exercise price of $36.7340;

		• 1997 Plan — 26,531,026 shares, with a weighted exercise price of $19.8223 and

		• Professional Pharmaceutical Marketing Services (Proprietary) Limited Nonqualified Stock Option Plan — 5,762 shares, with a weighted exercise price of $40.5000.

		Although the 1997 Plan includes an “evergreen” share replenishment feature described below, no shares were added on January 1, 2003 because there was no increase in the authorized and issued shares outstanding during 2002.

		The Action International Marketing Services Limited Nonqualified Stock Option Plan, Quintiles BRI Nonqualified Stock Option Plan, Innovex Limited 1996 Unapproved Executive Share Option Scheme, Quintiles Lewin Nonqualified Stock Option Plan and Professional Pharmaceutical Marketing Services (Proprietary) Limited Nonqualified Stock Option Plan were adopted so that substitute stock options could be granted to employees of companies acquired by the Company. In connection with its acquisition of Envoy Corporation, the Company assumed outstanding options granted under the Envoy 1990 Officer and Employee Stock Option Plan, Envoy 1995 Stock Option Plan, Envoy 1998 Stock Incentive Plan, and 1998 Synergy Stock Option Plan but did not adopt those plans.

(5)		Includes 107,461 shares remaining for future issuance under the 1997 Plan.

1.		I have reviewed this annual report, as amended, on Form 10-K/A of Quintiles Transnational Corp.;

2.		Based on my knowledge, this annual report, as amended, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report, as amended;

3.		Based on my knowledge, the financial statements, and other financial information included in this annual report, as amended, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report, as amended;

4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a.		designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report, as amended, is being prepared;

	b.		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report, as amended (the “Evaluation Date”); and

	c.		presented in this annual report, as amended, our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

	a.		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b.		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and