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                                    FORM 10-K



                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549



                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF

                       THE SECURITIES EXCHANGE ACT OF 1934



                   For the fiscal year ended December 31, 1999



                        Commission file number 340-23520



                          QUINTILES TRANSNATIONAL CORP.

             (Exact name of registrant as specified in its charter)



     North Carolina                                   56-1714315

(State of incorporation)                 (I.R.S. Employer Identification Number)



   4709 Creekstone Drive, Suite 200

         Durham, North Carolina                                  27703-8411

(Address of principal executive office)                          (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 [ ]



         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. [ ]



         The aggregate market value of the registrant's Common Stock at February

29, 2000 held by those persons deemed by the registrant to be non-affiliates was

approximately $3,024,961,411.



         As of February 29, 2000 (the latest practicable date), there were

115,308,723 shares of the registrant's Common Stock, $.01 par value per share,

outstanding.





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                          QUINTILES TRANSNATIONAL CORP.



                             Form 10-K Annual Report



                                      INDEX



                                                                          Page

                                                                          ----

PART I

    Item 1.  Business                                                       1

    Item 2.  Properties                                                    17

    Item 3.  Legal Proceedings                                             17

    Item 4.  Submission of Matters to a Vote of Security Holders           19



PART II

    Item 5.  Market for Registrant's Common Equity and Related

               Stockholder Matters                                         20

    Item 6.  Selected Consolidated Financial Data                          21

    Item 7.  Management's Discussion and Analysis of Financial

               Condition and Results of Operations                         22

    Item 7a. Quantitative and Qualitative Disclosures about Market Risk    36

    Item 8.  Financial Statements and Supplementary Data                   36

    Item 9.  Changes in and Disagreements with Accountants on

               Accounting and Financial Disclosure                         65



PART III

    Item 10.  Directors and Executive Officers of the Registrant           66

    Item 11.  Executive Compensation                                       70

    Item 12.  Security Ownership of Certain Beneficial Owners and

                Management                                                 79

    Item 13.  Certain Relationships and Related Transactions               81



PART IV

    Item 14.  Exhibits, Financial Statement Schedules, and Reports on

                Form 8-K                                                   83







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                                     PART I



         Information set forth in this Annual Report on Form 10-K contains

various "forward looking statements" within the meaning of Section 27A of the

Securities Act of 1933, as amended, and Section 21E of the Securities Exchange

Act of 1934, as amended. Forward looking statements represent our judgment

concerning the future and are subject to risks and uncertainties that could

cause our actual operating results and financial position to differ materially.

Such forward looking statements can be identified by the use of forward looking

terminology such as "may," "will," "expect," "anticipate," "estimate,"

"believe," "continue," or "target" or the negative thereof or other variations

thereof or comparable terminology.



         We caution you that any such forward looking statements are further

qualified by important factors that could cause our actual operating results to

differ materially from those in the forward looking statements, including

without limitation, our dependence on certain industries and customers, the

risks associated with acquisitions, development and commercialization of

potential new services, competition, the loss or delay of large contracts,

dependence on key personnel, potential effects of government regulation and the

other risk factors described elsewhere in this report.



ITEM 1.  BUSINESS



GENERAL



         We are a market leader in providing a full range of integrated product

development and commercial development solutions to the pharmaceutical,

biotechnology and medical device industries. We also provide market research

solutions and strategic analyses to support healthcare decisions and healthcare

policy consulting to governments and other organizations worldwide. Supported by

our extensive information technology capabilities, we provide a broad range of

contract services to help our clients reduce the length of time from the

beginning of development to peak sales of a new drug or medical device. Our

product development services include a full range of services focused on helping

our clients through the development and regulatory approval of a new drug or

medical device. Our commercial development services, including sales and

specialized marketing support services, focus on helping our clients achieve

commercial success for a new product or medical device. We also offer healthcare

policy research and management consulting, which emphasize improving the

quality, availability and cost-effectiveness of healthcare, data analysis and

market research services, which form the core of our healthcare informatics

services.



         Since our formation in 1982, we have continued to expand the scope of

our services and our geographic presence to support the needs of our customers

on a worldwide basis. We have implemented a number of strategic initiatives to

broaden our array of services and create new opportunities for growth. As part

of this strategy, we have completed approximately 37 acquisitions over the past

five years. Our 1999 acquisitions include:



o    KANSAS CITY FACILITY - January 1, 1999. We completed the acquisition of

     substantial assets of Hoechst Marion Roussel's Kansas City-based Drug

     Innovation and Approval organization and opened a Kansas City contract

     research facility.



o    OAK GROVE TECHNOLOGIES, INC. - February 17, 1999. We acquired Chicago-based

     Oak Grove, a leader in providing current Good Manufacturing Practice, or

     cGMP, compliance services to the pharmaceutical, biotechnology and medical

     device industries.





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o    PHARMACEUTICAL MARKETING SERVICES INC. - March 29, 1999. We acquired PMSI

     which, through its Scott-Levin subsidiary in the United States, provides a

     range of information and market research services to pharmaceutical and

     healthcare companies to enable them to optimize the performance of their

     sales and marketing activities.



o    ENVOY CORPORATION - March 30, 1999. We acquired ENVOY, a leading provider

     of healthcare electronic data interchange, or EDI, and data mining services

     based in Nashville, Tennessee.



o    MEDLAB PTY LTD AND NEIHAUS AND BOTHA - March 31, 1999. We acquired Medlab

     and the assets of the Niehaus and Botha partnership, which together form a

     South Africa-based clinical laboratory.



o    MINERVA MEDICAL PLC - May 19, 1999. We acquired Minerva Medical, a

     Scotland-based clinical research organization.



o    SMG MARKETING GROUP INC. - June 3, 1999. We acquired SMG, a Chicago-based

     healthcare market information company.



o    MEDCOM, INC. - July 2, 1999. We acquired New Jersey-based Medcom, a leading

     provider of physician meetings and educational events designed to help

     pharmaceutical companies raise awareness of their products among healthcare

     professionals.



o    MEDITRAIN - July 15, 1999. We acquired the business and assets of

     MediTrain, the Netherlands' leading multimedia pharmaceutical sales

     representative training company.



o    MEDICINES CONTROL CONSULTANTS PTY LTD. - August 27, 1999. We acquired MCC,

     a South Africa-based pharmaceutical regulatory consulting group.



         On January 24, 2000, we announced a definitive agreement to sell our

EDI unit, ENVOY, to Healtheon/WebMD Corporation. Under the terms of the

agreement with Healtheon/WebMD, we will receive 35 million shares of

Healtheon/WebMD common stock and $400 million in cash from Healtheon/WebMD. We

have agreed to issue Healtheon/WebMD a warrant to purchase up to 10 million

shares of our common stock at $40 per share, exercisable for four years. In

light of the pending sale of ENVOY, we are treating ENVOY's EDI services as a

discontinued operation.



         Prior to closing this transaction, ENVOY will transfer its Synergy

Health Care informatics subsidiary to us, so Synergy will not be included in the

sale to Healtheon/WebMD.



         In connection with the closing of the acquisition of ENVOY by

Healtheon/WebMD, we plan to enter into an agreement with Healtheon/WebMD to form

a strategic alliance with Healtheon/WebMD to develop and market a Web-based

integrated suite of products and services for the pharmaceutical industry to

improve the speed and efficiency of drug development, physician detailing and

delivery of direct-to-customer healthcare information. Under this agreement,

Healtheon/WebMD will perform development services, and we will provide $100

million in funding for such services.



         In addition to these events, we have entered a number of strategic

alliances and made strategic investments that we believe will position us to

explore new opportunities and areas for potential growth.



SERVICES



         We provide globally integrated contract research, sales, marketing and

healthcare policy consulting and health information management services to the

global pharmaceutical, biotechnology, medical device and healthcare industries.

We also provide market research and strategic analysis services to support

healthcare decisions. We manage our operations through three reportable

segments, namely the Product Development Group, the Commercial Development

Group, and the QUINTERNET(TM) Informatics Group. Management has distinguished

these segments based ON our normal operations. The Product Development Group is

primarily responsible for all phases of clinical





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research and outcomes research consulting. The Commercial Development Group is

primarily responsible for sales force deployment and strategic marketing

services, as well as healthcare policy research and consulting services. The

QUINTERNET(TM) Informatics Group provides market research and healthcare

information to pharmaceutical and healthcare customers. Note 13 of the notes to

our consolidated financial statements includes financial information regarding

each segment.



         We provide our customers with a continuum of services which span across

our three segments. We believe that the broad scope of our services allows us to

help our customers rapidly assess the viability of a growing number of new

drugs, cost-effectively accelerate development of the most promising drugs,

launch new drugs to the market quickly and evaluate their impact on healthcare.

The following discussion describes our service offerings in greater detail.



PRODUCT DEVELOPMENT OFFERINGS



         Through our Product Development Group, we provide a full range of drug

development services focused on helping our clients achieve regulatory success,

from strategic planning and preclinical services to regulatory submission and

approval.



         EARLY DEVELOPMENT AND LABORATORY SERVICES



         PRECLINICAL SERVICES. Our preclinical unit provides customers with a

wide array of preclinical and toxicology services. These services are designed

to produce the data required to identify, quantify and evaluate the risks to

humans resulting from the manufacture or use of pharmaceutical and biotechnology

products, including developmental and reproductive toxicology, genetic

toxicology, neurotoxicology, carcinogenicity testing, pharmacology, analytical

chemistry, pathology, metabolism and pharmacokinetics.



         FORMULATION, MANUFACTURING AND PACKAGING SERVICES. We offer services in

the design and development of pharmaceutical dose forms as well as the

manufacture of study drugs and placebos and the appropriate packaging of these

for double blinded studies. These services can expedite the drug development

process because clinical trials are often postponed by delays in the manufacture

of study drug materials.



         PHASE I SERVICES. Phase I clinical trials involve testing a new drug on

a limited number of healthy individuals. Our Phase I services include dose

ranging, bioavailability/bioequivalence studies, pharmacokinetic/pharmacodynamic

modeling, first administration to humans, multiple dose tolerance, dose effect

relationship and metabolism studies.



         CENTRALIZED CLINICAL TRIAL LABORATORIES. In addition to providing

comprehensive safety and efficacy testing for clinical trials, our centralized

clinical trial laboratories provide site-specific study materials, customized

lab report design and specimen archival and management for study sponsors. Our

centralized laboratories offer a 48-hour turnaround time for laboratory results

and are capable of providing direct electronic integration of laboratory data

into safety and efficacy reports for NDA submissions.



         CLINICAL DEVELOPMENT SERVICES



         CLINICAL TRIAL SERVICES. We offer comprehensive clinical trial services

which are the basis for obtaining regulatory approval for drugs and medical

devices. We have specialized business units and





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extensive experience in the therapeutic areas of the central nervous system,

cardiovascular, infectious, allergic and respiratory diseases as well as in the

field of oncology. Another business unit specializes in clinical development

services for drugs used in neonatal, pediatric and adolescent care. We also have

significant clinical trials experience in the therapeutic areas of

endocrinological, gastroenterological, genitourinary and musculoskeletal

diseases, as well as in the area of stroke. We are experienced in managing large

trials involving several thousand patients at several hundred sites and in

multinational trials conducted simultaneously in the Americas, Europe, the

Asia-Pacific region and South Africa.



         We provide our customers with one or more of the following core

clinical trial services:



                  Study design. We assist our customers in preparing the study

         protocol and designing case report forms, or CRFs. The study protocol

         defines the medical issues to be examined, the number of patients

         required to produce statistically valid results, the period of time

         over which they must be tracked, the frequency and dosage of drug

         administration, and the study procedures. A study's success often

         depends on the protocol's ability to predict the requirements of the

         applicable regulatory authorities.



                  Investigator recruitment. During clinical trials, the drug is

         administered to patients by physicians, referred to as investigators,

         at hospitals, clinics or other sites. We have access to several

         thousand investigators who have conducted our clinical trials

         worldwide.



                  Patient recruitment. We assist our customers in recruiting

         patients to participate in clinical trials through investigator

         relationships, media advertising and other methods.



                  Study monitoring. We provide study monitoring services which

         include investigational site initiation, patient enrollment assistance,

         and data collection and clarification. Site visits help to assure the

         quality of the data, which are gathered according to Good Clinical

         Practice, or GCP, and to meet the sponsors' and regulatory agencies'

         requirements according to the study protocol.



                  Clinical data management and biostatistical services. We have

         extensive experience in the United States and Europe in the creation of

         scientific databases for all phases of the drug development process.

         These databases include: (1) customized databases to meet

         customer-specific formats, (2) integrated databases to support New Drug

         Application, or NDA, submissions and (3) databases in accordance with

         the United States Food and Drug Administration, or FDA, and European

         specifications.



         REGULATORY AFFAIRS SERVICES. We provide comprehensive medical and

regulatory services for our pharmaceutical and biotechnology customers. Our

medical services include medical oversight of studies, review and interpretation

of adverse experiences, medical writing of reports and study protocols and

strategic planning of drug development programs. Regulatory services for product

registration include regulatory strategy design, document preparation,

consultation and liaison with various regulatory agencies. Our regulatory

affairs professionals help to define the steps necessary to obtain registration

as quickly as possible. We are able to provide such services in numerous

countries to meet our clients' needs to launch products in multiple countries

simultaneously.



         MEDICAL DEVICE SERVICES. Our service offerings for medical devices

include (1) review of global strategies for device development and introduction,

(2) identification of regulatory requirements in targeted markets, (3) clinical

study design and planning, (4) data management, (5) statistical analysis of

report preparations, (6) global clinical trial management and monitoring

capabilities, (7) consulting on





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quality control and quality assurance issues, (8) regulatory filings, (9)

compliance with United States, European and European Union regulations relating

to medical devices, (10) long-range planning for multinational product launches,

(11) compliance with legislative requirements for market access, (12)

post-marketing requirements, (13) management of relationships with national

governments and regulatory authorities and (14) European pricing strategies.



COMMERCIAL DEVELOPMENT OFFERINGS



         Our Commercial Development Group provides sales force deployment and

strategic marketing services, as well as healthcare policy research and

consulting services designed to bring an integrated approach to outsourcing

solutions for our customers.



         QUINTILES INTEGRATED STRATEGIC SOLUTIONS



         These offerings focus on strategies and services that bridge all three

service groups.



         LATE PHASE CLINICAL STUDIES. Our late phase clinical services, designed

primarily for Phase IIIb and Phase IV clinical trials, include post-submission

studies in support of marketing claims, post-marketing surveillance and health

management support programs. In designing and implementing these services, we

use clinical and health management programs to promote a favorable environment

for new product introductions in advance of the product launch and to assist in

sales generation post-launch.



         STRATEGIC MARKETING AND COMMUNICATIONS SERVICES. We provide strategic

marketing and communications services to international pharmaceutical companies

beginning in the early stages of product development and continuing through

product launch and peak market penetration. These services include

communications strategy and planning, product positioning and branding, opinion

leader development, symposia organization, patient education and sponsored

publications. As early as Phase II trials, we begin providing marketing

information to help shape data and influence opinion leader support for a new

drug. These services represent the core competencies of Medical Actions

Communications Limited, a leading strategic medical communications consultancy

that we acquired in 1997, and Q.E.D. International Inc., a U.S. provider of

integrated product marketing and communications services that we acquired in

October 1998.



         DISEASE MANAGEMENT SERVICES. Our disease management services provide

healthcare policy research and pharmacoeconomics analysis focused on applying

healthcare outcomes analysis to the economic valuation of drugs and the

treatment of diseases. We also have expertise in developing patient registries

and designing disease management programs. Together, these services enable

regulators, healthcare providers, pharmaceutical and biotechnology companies and

others to assess the pricing and cost-effectiveness of new medical therapies.



         HEALTHCARE POLICY RESEARCH AND CONSULTING. We provide management

consulting focused on improving the quality, availability and cost-effectiveness

of healthcare. We designed our healthcare policy research and healthcare

consulting services to assist customers in evaluating healthcare programs and

policies and developing strategies for doing business in the highly regulated

and rapidly changing healthcare environment. These services include corporate

strategic planning and management, program and policy development, financial and

cost-effectiveness analysis, evaluation design, microsimulation modeling and

data analysis. We perform these services across five general practice areas:

public health and finance policy, healthcare organizations, economic analysis,

managed care and medical technology. We have access to more than 150

healthcare-related databases and have developed the expertise to





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analyze complex data to respond to our clients' needs. These services represent

the core competencies of the Lewin Group, a nationally recognized healthcare

consulting firm that we acquired in 1996.



         COMMERCIALIZATION OFFERINGS



         CONTRACT SALES. We provide sales and marketing services focused on

accelerating the commercial success of pharmaceutical, biotechnology, veterinary

and other health related products. We offer a flexible range of contract sales

services, which are delivered through dedicated and syndicated sales teams.

Dedicated sales teams are comprised of sales representatives we recruit in

accordance with customer specifications to specific sales and market share

objectives. We can manage these dedicated sales teams, or they can report

directly to the customer, depending on customer preference. In certain

circumstances, we can transfer an entire dedicated sales team to the customer

for an additional placement fee, which is agreed upon at the beginning of the

contract. Syndicated sales teams can promote a number of non-competing drugs for

different customers, and we generally manage these teams directly. Our contract

sales teams form a highly skilled network of professionals that afford customers

substantial flexibility in selecting the extent of product promotion, as well as

their level of involvement in managing the sales effort. We offer rapid

recruitment utilizing an extensive computerized candidate database, dedicated

internal staff and regionally based recruiting. In the United States, we also

offer our ITMS sales force automation system, a proprietary web-enabled

automated system for call reporting, sample accountability, territory planning

and alignment.



         TRAINING AND MARKETING. We also offer a variety of training and

marketing services to support our contract sales offerings. Our recently

acquired MediTrain subsidiary in the Netherlands offers traditional outsourced

pharmaceutical sales representative training services in addition to a number of

innovative Internet-based and multimedia training products. Through our

Innovex-Medcom Marketing Group subsidiary, acquired in July 1999, we provide

peer-to-peer educational programs, including physician meetings and other

events, as well as telemarketing and other marketing services.



         CUSTOMIZED MARKETING. We provide customized product marketing services

specifically for pharmaceutical companies aimed at influencing the decisions of

patients and physicians and accelerating the acceptance of drugs into treatment

guidelines and formularies. We can assess markets, conduct research, develop

strategies and tactics, assist in discussions with regulatory bodies, identify

distribution channels and coordinate vendors in every region in the country. The

marketing departments of pharmaceutical companies typically purchase such

services. Our team of industry experts, with experience in virtually every

therapeutic area, provides marketing insight into a wide range of geographic

markets while optimizing commercial success.



         HEALTH MANAGEMENT. We also provide teams of health professionals,

including nurses, pharmacists, and physicians, dedicated to assisting customers

with disease-management issues. Our health management services offer customized

solutions to bridge the gap between the clinical and commercial phases of

product development, providing expertise across a broad range of pre-launch,

launch, and post-launch opportunities. We believe that our commercial

orientation, clinical and promotional expertise and international experience

enable us to tailor programs to meet the diverse needs of the global

pharmaceutical industry across a wide range of disciplines and local market

conditions.



QUINTERNET(TM) INFORMATICS OFFERINGS



         Our Informatics Group provides market research and healthcare

information to pharmaceutical and healthcare customers worldwide. The group

includes Synergy Health Care, which provides real-time





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medical and pharmaceutical market information to improve the quality and

efficiency of pharmaceutical marketing and healthcare delivery, Scott-Levin,

which provides pharmaceutical and healthcare market research and information,

and SMG, which provides our customers access to and analysis of healthcare

information over the Internet. Our Informatics Group is the foundation of our

QUINTERNET(TM) strategy of providing a comprehensive electronic network to

streamliNE communications and enhance information flow throughout the healthcare

industry.



         SYNERGY SERVICE OFFERINGS. Through our healthcare information

subsidiary, Synergy, we provide the healthcare industry a continuous stream of

daily pharmaceutical and medical information to improve management of product

portfolios and healthcare decision-making. We use what we believe is the

healthcare industry's largest database combining medical and pharmaceutical

data, refreshed daily, to provide real time information about pharmaceutical

use, medical interventions and outcomes. The data used are aggregated from

medical and pharmacy transactions and do not identify individual patients. We

also provide strategic marketing information and analytic services to the

pharmaceutical industry. Our Synergy services provide customers with insights

into how their products are utilized by patients, physicians and payors, and how

their products can best be positioned. These products and services quantify the

value of pharmaceuticals in terms of cost effectiveness and outcomes, helping

pharmaceutical manufacturers to differentiate their products beyond the

traditional measures of safety and efficacy.



                  Custom studies. We use the data in our Synergy database to

         provide custom studies and syndicated reports for clients. Leveraging

         what we believe are the unique aspects of our data, such as patient

         demographics and medical information, Synergy custom studies can help

         to answer clients' most critical business questions. Clients often use

         Synergy's custom studies to gain a better understanding of how drugs

         are utilized by patients and physicians.



                  e-Health products. We are developing the QUINTERNET_ Series, a

         group of 17 internet-based decision support products that allow

         customers quick access to information and in-depth analyses on drug use

         and disease treatment patterns. Powered by an online analytical

         processing engine, the QUINTERNET_ Series helps customers to answer

         their most critical business questions in real time by using an

         interactive query tool that searches a series of large data sets to

         access information and deliver results. The first product, Rx Market

         Monitor (TM), was launched in a Beta version February 1, 2000 and is

         currently being used by four pharmaceutical clients. Full commercial

         launch for this product is scheduled for the second quarter of 2000.

         Each QUINTERNET_ Series product is targeted at a specific customer

         segment, such as pharmaceutical manufacturers, payors, providers or

         patients. Data underlying the QUINTERNET_ Series products are different

         from traditional, prescription-only data sets with respect to speed and

         level of patient information available



         PLANNED COLLABORATION WITH HEALTHEON/WEBMD. After the completion of the

proposed sale of ENVOY, we will retain exclusive rights to de-identified ENVOY

transaction data and certain other de-identified Healtheon/WebMD healthcare

data, subject to limited exceptions. We have agreed to share a royalty derived

from sales of products using the licensed data with Healtheon/WebMD. We intend

to use the data obtained under these arrangements to create and sell to our

healthcare customers analytical informatics products based upon such data. In

connection with our planned strategic alliance with Healtheon/WebMD to develop

and market a web-based integrated suite of products and services for the

pharmaceutical industry, we have agreed to provide Healtheon/WebMD with funding

to develop these products and services. We intend to target three areas of

Internet products: drug development, physician detailing and direct-to-consumer

information delivery. We will share revenues from these jointly





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developed web-based products and services with Healtheon/WebMD, and

Healtheon/WebMD will be the exclusive provider of these services.



         SCOTT-LEVIN SERVICES. Through our PMSI/Scott-Levin subsidiary, we

provide a range of pharmaceutical and healthcare information and market research

services. These services are comprised of (1) proprietary databases and

syndicated market research audits, (2) managed health care services, (3) state

government affairs services, (4) issues-oriented strategic studies and surveys

and (5) consulting services and software solutions.



                  Proprietary healthcare databases and syndicated market

         research audits. Through self-administered surveys, we maintain

         comprehensive proprietary databases that contain (1) information

         collected from physicians on their diagnoses and prescribing

         activities, (2) information regarding the incidence of, and response

         to, direct selling and other promotion activities, (3) information

         regarding healthcare legislation and key influencers in the United

         States and (4) managed care information, detailing cost containment

         measures imposed by United States managed care organizations, or MCOs,

         that influence or restrict physicians' prescribing activities. Our

         Scott-Levin databases do not hold any identifiable individual patient

         data. Pursuant to a contract with National Data Corporation, or NDC, we

         obtain prescription information which NDC collects from approximately

         34,000 pharmacies located across the United States. We create projected

         state and national data on product level prescription movement from

         which we generate the Source Prescription Audit, among other things.



                  Our syndicated market research audits are generated from

         databases containing information collected by questionnaire, diary or

         personal interview, dispensed prescriptions and secondary research. The

         results of the audits are delivered in hard copy or through PC-based

         data delivery systems. These audits include (1) the Source Prescription

         Audit, including data supplied by NDC, which analyzes pharmaceutical

         prescription activity, (2) the Physician Drug and Diagnosis Audit,

         which analyzes the pharmaceuticals prescribed by physicians relative to

         associated diagnosis, (3) the Personal Selling Audit or PSA, which

         analyzes the effectiveness of the client company's sales activities to

         office-based physicians compared with those of its competitors, (4) the

         Hospital Personal Selling Audit, which complements the PSA by

         monitoring and analyzing sales activity to hospital based physicians,

         (5) the Physician Meeting and Event Audit and Rx Link, which assesses

         the impact of this promotional activity on subsequent attendee

         prescribing, (6) the HIV Therapy Audit, which provides a projectable

         database tracking physicians who treat HIV positive patients, (7) the

         Direct-to-Consumer Advertising Audit, designed to evaluate and measure

         the impact of direct-to-consumer advertising on physicians and

         consumers, (8) the Professional Journal Audit, which provides a recap

         of advertising in medical and professional publications and (9) the

         NP/PA Promotional Audit, which measures personal selling activity to

         Nurse Practitioners and Physician Assistants.



                  Managed health care services. We provide a range of services

         designed to enable pharmaceutical companies to assess the impact of

         their promotions to the managed care and long-term care markets. These

         data also include managed care formulary status as well as prescription

         share analysis. Other services include three-tier co-pay analysis and

         tracking of pharmaceutical industry managed healthcare sales forces.



                  State government affairs. We offer a comprehensive state level

         healthcare legislation and regulation database, known as StateLine.

         This service tracks health care and health care related issues of

         interest in all 50 states, the District of Columbia and Puerto Rico. In

         addition,





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         we supply profiles of the key government officials who are involved in

         shaping state healthcare legislation and regulations.



                  Strategic studies and consulting. Services provided in this

         area include Pharmaceutical Sales Force Structures and Strategies and

         Pharmaceutical Company Image, two industry-standard reports on sales

         force activity and overall pharmaceutical company image. In addition,

         this service area offers other research services our clients use (1) to

         study specific issues and trends in the marketplace and the broader

         health care industry, (2) to evaluate the effectiveness of marketing

         programs, (3) to analyze in depth particular components of a product

         marketing program at any stage of its implementation and (4) for

         guidance on optimizing company strategy, sales and marketing activities

         and product commercialization.



         SMG SERVICES. Through our SMG Marketing Group subsidiary, acquired in

1999, we maintain proprietary regional databases covering most United States

healthcare facilities. Our SMG databases contain information on more than

200,000 healthcare facilities nationwide, including health management

organizations, preferred provider organizations, pharmacy benefit managers,

integrated health networks, group purchasing organizations, employer coalitions,

mail service pharmacies and HMO-affiliated physicians. We also provide advanced

software applications to help customers access healthcare information over the

Internet to help solve healthcare marketing business problems. For example, in

1999 we launched WebMCOInSite(TM), an Internet-based managed care data and

account management product designed to offer pharmaceutical national account

managers and sales representatives a competitive edge in managing their managed

care accounts. This product integrates data profiles of companies operating in

the managed care environment into analytical reports and interactive

applications to enable pharmaceutical marketers to achieve maximum efficiency

and sales potential in each of their managed accounts.



CUSTOMERS AND MARKETING



         We coordinate our business development efforts across our service

offerings through integrated business development functions, which direct the

activities of business development personnel in each of our United States

locations, as well as other key locations throughout Europe, Asia-Pacific,

Canada and Latin America.



         We are a market leader in providing full service contract research,

sales, marketing and healthcare policy consulting and health information

management services to the global medical device and healthcare industries. Due

to our agreement to sell ENVOY, ENVOY is being accounted for as a discontinued

operation; therefore, the results of ENVOY are not included in our net revenue

and are reported separately. We also provide insightful market intelligence and

strategic analysis to support healthcare decisions. For the year ended December

31, 1999, approximately 54.2% of our net revenue from external customers was

attributed to operations in the United States and 45.8% to operations outside

the United States. Please refer to the notes to our consolidated financial

statements included in Item 8 of this Form 10-K for further details regarding

our foreign and domestic operations. Approximately 38.83%, 39.12%, and 39.60% of

our net revenue was attributed to our clinical development services in 1999,

1998 and 1997, respectively; approximately 37.53%, 41.20% and 44.88% of our net

revenue was attributed to our commercialization services in 1999, 1998 and 1997,

respectively; and approximately 13.58%, 11.27% and 11.22% of our net revenue was

attributed to our early development and laboratory services in 1999, 1998 and

1997 respectively. Neither our integrated strategic services nor our informatics

services accounted for more than 10% of our net revenue in any of these years.





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         In the past, we have derived, and may in the future derive, a

significant portion of our net revenue from a relatively limited number of major

projects or customers. As pharmaceutical companies continue to outsource large

projects and studies to fewer full-service providers, the concentration of

business could increase. We may experience concentration in 2000 and in future

years. Although no customer accounted for more than 10% of our consolidated net

revenue in 1998 or 1997, Hoechst Marion Roussel accounted for approximately 11%

of our consolidated net revenue in 1999.



COMPETITION



         The market for our product development services is highly competitive,

and we compete against traditional contract research organizations, or CROs, and

the in-house research and development departments of pharmaceutical companies,

as well as universities and teaching hospitals. Among the traditional CROs,

there are several hundred small, limited-service providers, several medium-sized

firms, and only a few full-service companies with global capabilities.

Consolidation among CROs likely will result in greater competition among the

larger contract research providers for customers and acquisition candidates. Our

primary contract research competitors include Covance Inc., PAREXEL

International Corp. and Pharmaceutical Product Development, Inc. In commercial

development services, we compete against the in-house sales and marketing

departments of pharmaceutical companies and other contract sales organizations

in each country in which we operate. We also compete against national consulting

firms offering healthcare consulting and medical communications services,

including boutique firms specializing in the healthcare industry and the

healthcare departments of large firms. Our commercial development competitors

include Ventiv Health and Professional Detailing, Inc. Competitors for our

informatics services include IMS Health Incorporated and NDC. We believe that we

compete favorably in these areas.



         Competitive factors for product development services include (1)

previous experience, (2) medical and scientific experience in specific

therapeutic areas, (3) the quality of contract research, (4) speed to

completion, (5) the ability to organize and manage large-scale trials on a

global basis, (6) the ability to manage large and complex medical databases, (7)

the ability to provide statistical and regulatory services, (8) the ability to

recruit investigators, (9) the ability to integrate information technology with

systems to improve the efficiency of contract research, (10) an international

presence with strategically located facilities and (11) financial viability and

price. The primary competitive factors affecting commercial development services

are the proven ability to quickly assemble, train and manage large qualified

sales forces to handle broad scale launches of new drugs and price. Competitive

factors affecting healthcare consulting and medical communications services

include experience, reputation and price. Although our informatics services have

been systematically established over seventeen years, our market position may be

affected in the future by competitors' efforts to create or acquire enhanced

databases or to develop and market new information products and services. In

addition, our market position could be adversely affected if our competitors

secure exclusive rights to data that we require for our informatics services. In

addition, we believe that the synergies arising from integrating product

development services with commercial development services, supported by global

operations and information technology and supplemented by our informatics

capabilities differentiate us from our competitors.



EMPLOYEES



         As of February 29, 2000, we had approximately 20,453 employees,

comprised of approximately 10,601 in the Americas, 8,792 in Europe and Africa

and 1,060 in the Asia-Pacific region. As of February 29, 2000, our Product

Development Group





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had 8,975 employees, our Commercial Development Group had 9,779 employees, and

our QUINTERNET(TM) Informatics Group had 389 employees. In addition, 17

employees worked on our Internet capabilities, 181 were in our centralized

operations/corporate office and 1,112 worked for our ENVOY subsidiary.





BACKLOG



         We report backlog based on anticipated net revenue from uncompleted

projects which have been authorized by the customer, through a written contract

or otherwise. Once work begins on a project, net revenue is recognized over the

duration of the project. Using this method of reporting backlog, at December 31,

1999, backlog was approximately $2.2 billion, as compared to approximately $1.9

billion at December 31, 1998.



         We believe that backlog may not be a consistent indicator of future

results because it can be affected by a number of factors, including the

variable size and duration of projects, many of which are performed over several

years. Additionally, projects may be terminated by the customer or delayed by

regulatory authorities. Moreover, the scope of work can change during the course

of a project.



POTENTIAL LIABILITY



         In conjunction with our product development services, we contract with

physicians to serve as investigators in conducting clinical trials to test new

drugs on human volunteers. 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. Although we do not believe we are legally accountable for the

medical care rendered by third party investigators, it is possible that we could

be held liable for the claims and expenses 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. In

addition, as a result of our Phase I clinical trial facilities, we could be

liable for the general risks associated with a Phase I facility including, but

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 could be held liable for errors or omissions in

connection with the services we perform through each of our service groups. For

example, we could be held liable for errors or omissions or breach of contract

if one of our labs inaccurately reports or fails to report lab results or if our

informatics products violate rights of third parties. We believe that some of

our risks are reduced by one or more of the following: (1) contractual

indemnification provisions with customers and investigators, (2) insurance

maintained by customers and investigators and by us and (3) various regulatory

requirements, including the use of institutional review boards and the

procurement of each volunteer's informed consent to participate in the study.

The contractual indemnifications generally do not fully protect us against

certain of our own actions such as negligence. Contractual arrangements are

subject to negotiation with customers and the terms and scope of such

indemnification vary from customer to customer and from trial to trial.

Additionally, financial performance of these indemnities is not secured.

Therefore, we bear the risk that the indemnifying party may not have the

financial ability to fulfill its indemnification obligations. We maintain

professional liability insurance that covers worldwide territories in which we

currently do business and includes drug safety issues as well as data processing

errors and omissions. We could be materially and adversely affected if we were

required to pay damages or bear the costs of defending any claim outside the

scope of or in excess of a contractual indemnification provision or beyond the

level of insurance coverage or in the event that an indemnifying party does not

fulfill its indemnification obligations.





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GOVERNMENT REGULATION



         Our periclinical, laboratory and clinical trial supply services are

subject to various regulatory requirements designed to ensure the quality and

integrity of the data or products of these services. The industry standard for

conducting periclinical laboratory testing is embodied in the good laboratory

practice, or GLP, regulations. The requirements for facilities engaging in

clinical trial supplies preparation, labeling and distribution are set forth in

the current good manufacturing practices, or cGMP, regulations. GLP and cGMP

regulations have been mandated by the FDA and the Department of Health in the

U.K., and adopted by similar regulatory authorities in other countries. GLP and

cGMP stipulate requirements for facilities, equipment, supplies and personnel

engaged in the conduct of studies to which these regulations apply. The

regulations require adherence to written, standardized procedures during the

conduct of studies and the recording, reporting and retention of study data and

records. To help assure compliance, we have established Quality Assurance

programs at our periclinical, laboratory and clinical trial supply facilities

which monitor ongoing compliance with GLP and cGMP regulations by auditing study

data and conducting regular inspections of testing procedures. Our clinical

laboratory services are subject to the requirements of the Clinical Laboratory

Improvement Amendments of 1988.



         Good clinical practices, or GCP, regulations and guidelines contain the

industry standard for the conduct of clinical research and development studies.

The FDA and many other regulatory authorities require that study results and

data submitted to such authorities be based on studies conducted in accordance

with GCP provisions. These provisions include: (1) complying with specific

regulations governing the selection of qualified investigators, (2) obtaining

specific written commitments from the investigators, (3) ensuring the protection

of human subjects by verifying that Institutional Review Board independent

ethics committee approval and patient informed consent are obtained, (4)

instructing investigators to maintain records and reports, (5) verifying drug or

device accountability, (6) reporting of adverse events, (7) adequate monitoring

of the study for compliance with GCP requirements and (8) permitting appropriate

governmental authorities access to data for their review. Records for clinical

studies must be maintained for specified periods for inspection by the FDA

during audits. Non-compliance with GCP requirements can result in the

disqualification of data collected during the clinical trial.



         FDA regulations on electronic records and signatures set forth

requirements for data in electronic format supporting any submissions to the

FDA.



         We write our standard operating procedures related to clinical studies

in accordance with regulations and guidelines appropriate to the region where

they will be used, thus helping to ensure compliance with GCP. Within Europe, we

perform our work subject to the European Community Note for Guidance "Good

Clinical Practice for Trials on Medicinal Products in the European Community."

Studies beginning after January 17, 1997 to be submitted to the European

Medicines Evaluation Agency must meet the requirements of the International

Congress of Harmonization - GCP. In addition, FDA regulations and guidelines

serve as a basis for our North American standard operating procedures. Our

offices in the Asia-Pacific region have developed standard operating procedures

in accordance with their local requirements and in harmony with our North

American and European operations.



         Our commercial development services are subject to detailed and

comprehensive regulation in each geographic market in which we operate. Such

regulation relates, among other things, to the distribution of drug samples, the

qualifications of sales representatives and the use of healthcare professionals

in sales functions. In the United States our commercial development services are

subject to the Prescription Drug Marketing Act with regard to the distribution

of drug samples. In the U.K., they are subject to the Association of the British

Pharmaceutical Industry Code of Practice for the





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Pharmaceutical Industry, which prescribes, among other things, an examination

that must be passed by sales representatives within two years of their taking up

employment, and which prevents the employment of healthcare professionals as

sales representatives. We follow similar guidelines which are in effect in the

other countries where we offer commercial development services.



         Our United States laboratories are subject to licensing and regulation

under federal, state and local laws relating to hazard communication and

employee right-to-know regulations, the handling and disposal of medical

specimens and hazardous waste and radioactive materials, as well as the safety

and health of laboratory employees. All of our laboratories are subject to

applicable federal and state laws and regulations relating to the storage and

disposal of all laboratory specimens including the regulations of the

Environmental Protection Agency, the Nuclear Regulatory Commission, the

Department of Transportation, the National Fire Protection Agency and the

Resource Conservation and Recovery Act. The use of controlled substances in

testing for drugs of abuse is regulated by the United States Drug Enforcement

Administration, or DEA. All of our laboratories using controlled substances for

testing purposes are licensed by the DEA. The regulations of the United States

Department of Transportation, the Public Health Service and the Postal Service

apply to the surface and air transportation of laboratory specimens. Our

laboratories also are subject to International Air Transport Association

regulations, which govern international shipments of laboratory specimens.

Furthermore, when the materials are sent to a foreign country, the

transportation of such materials becomes subject to the laws, rules and

regulations of such foreign country.



         In addition to its comprehensive regulation of safety in the workplace,

the United States Occupational Safety and Health Administration has established

extensive requirements relating to workplace safety for healthcare employers

whose workers may be exposed to blood-borne pathogens such as HIV and the

hepatitis B virus. These regulations, among other things, require work practice

controls, protective clothing and equipment, training, medical follow-up,

vaccinations and other measures designed to minimize exposure to chemicals, and

transmission of blood-borne and airborne pathogens. Furthermore, certain

employees receive initial and periodic training to ensure compliance with

applicable hazardous materials regulations and health and safety guidelines.

Although we believe that we are currently in compliance in all material respects

with such federal, state and local laws, failure to comply could subject us to

denial of the right to conduct business, fines, criminal penalties and other

enforcement actions.



         Our disease management and healthcare information management services

relate to the diagnosis and treatment of disease and are, therefore, subject to

substantial governmental regulation. In addition, the confidentiality of

patient-specific information and the circumstances under which such

patient-specific records may be released for inclusion in our databases or used

in other aspects of our business are heavily regulated. Legislation has been

proposed at both the state and federal levels that may (1) require us to

implement security measures that may require substantial expenditures or (2)

limit our ability to offer some of our products and services.



         Specifically, various initiatives being considered at the federal level

could impact the manner in which we conduct our informatics business. The Health

Insurance Portability and Accountability Act of 1996, or HIPAA, requires the use

of standard transactions, standard identifiers, security and other

administrative simplification provisions and instructs the Secretary of Health

and Human Services, or HHS, to promulgate regulations regarding these standards.

Proposed regulations in each area have been published but final rules have not

been completed because of delays by HHS. Consequently, compliance dates are

unknown. The Act also requires the Secretary of HHS to develop recommendations

regarding the privacy of individually identifiable health information. On

September 11, 1997, the Secretary





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presented her recommendations, which, among other things, advised that patient

information should not be disclosed except when authorized by the patient. This

Act further established an August 1999 deadline for Congress to enact privacy

legislation and directed the Secretary to issue regulations setting privacy

standards to protect health information that is transmitted electronically in

the event that Congress missed its deadline. Congress did not meet the August

1999 deadline.



         On November 3, 1999, the Secretary of HHS issued a Notice of Proposed

Rulemaking for "Standards for Privacy of Individually Identifiable Health

Information" to implement the privacy requirements of HIPAA. These proposed

regulations would (1) impose standards for entities transmitting protected data

in electronic form with respect to the rights of individuals who are the subject

of protected health information and (2) establish procedures for (a) the

exercise of those individuals' rights and (b) the uses and disclosure of

protected health information. The comment period for these proposed rules ended

February 17, 2000. We understand generally that final regulations will be issued

no earlier than 60 days after the end of the comment period, however, HHS has

indicated that a significant delay is likely which will add additional months to

the expected date of the final rules.



         The impact of such legislation and regulations relating to health

information cannot be predicted. Such legislation or regulations could

materially affect our business. Compliance with the final regulations must be no

later than 24 months after their effective date, and we are preparing to comply

with this timetable.



         In addition, broad-based health information privacy legislation

restricting third party processors from using, transmitting or disclosing

certain patient data without specific patient consent has been introduced in the

United States Congress. If such legislation were adopted, it could prevent third

party processors from using, transmitting or disclosing certain treatment and

clinical data. It is difficult to predict the impact of the legislation and

regulations described above, but such legislation and regulations could

materially adversely affect our business.



         The Market Research Code of Conduct, a pharmaceutical

industry-promulgated code of conduct to which we adhere to in connection with

our informatics business, provides that the identity of the individual

researched may never be disclosed to the company sponsoring such research

without such individual's consent. We supply only aggregated statistics to the

sponsoring company when information is generated from market research databases.

As recommended by the board of directors of the Pharmaceutical Manufacturer's

Association, our informatics databases do not contain patient names and certain

other personal identifiers, thus preserving confidentiality.



         We are directly subject to certain restrictions on the collection and

use of data. In the United States, certain states have enacted legislation

prohibiting the use of personally identifiable prescription drug information

without consent. Because our informatics business generally does not receive

information regarding the identity of patients, we believe that such state

legislation will have no material adverse effect on our business. There can be

no assurance that future legislation or regulations will not directly or

indirectly restrict the dissemination of information regarding physicians or

prescriptions. Such legislation, if enacted, could have a material adverse

effect on our informatics operations.



DISCONTINUED OPERATION -- ENVOY EDI SERVICES



         Through our ENVOY subsidiary's EDI operations, which we have agreed to

sell to Healtheon/WebMD, we provide various EDI and transaction processing

services to participants in the healthcare market.





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         REAL-TIME TRANSACTION PROCESSING. ENVOY provides real-time transaction

processing for pharmacy claim adjudication and medical transactions for health

care providers and payors.



         A standard pharmacy transaction is the inquiry by the pharmacy, through

a point-of-service terminal or personal computer terminal, to determine whether

the patient is covered by a benefit program. After eligibility is confirmed, the

claim is settled, and the payor transmits to the pharmacy the amount and timing

of the pending payment.



         ENVOY's real-time managed care transactions between providers and

payors include (1) verification of the patient's enrollment in a program, (2)

verification that the provider is eligible to treat the patient, (3)

verification that the patient is eligible for a particular treatment, (4) filing

of encounter data, (5) referral to a specialist and (6) other ancillary

transactions. These transactions are enabled by ENVOY's network connections to

various databases.



         In addition, if the patient wishes to pay the deductible or co-payment

amounts by credit card, ENVOY's services provide the ability to obtain payment

authorization and verification at the provider's offices.



         BATCH TRANSACTION PROCESSING. ENVOY is one of the nation's largest

processors of commercial third-party payor claims with electronic connections to

a significant number of health care providers and payors across the United

States. Batch transactions are predominantly used to process reimbursement

claims in traditional fee-for-service commercial or government payor systems and

to process encounter data in capitated environments. These transactions are

neither time-sensitive nor easily processed on a real-time basis and, as a

result are processed on a collective and delayed basis, usually daily. To submit

claims, health care providers collect data throughout the day and then

electronically forward these claims in bulk to a clearinghouse. ENVOY's

clearinghouse electronically collects and verifies receipt of the claims and

performs reformatting required to conform to a particular payor's

specifications, aggregates daily transactions by payor and transmits claims to

payors based upon each payor's chosen communication protocols.



         EDI PRODUCTS AND INTERFACES. ENVOY has a range of hardware and software

products and interfaces to facilitate the adoption of EDI by its customers.

ENVOY supports industry standards of the American National Standards Institute,

X12N Subcommittee and Healthcare Financing Administration National Standards.



                  Enline(R). ENVOY's Enline family of proprietary software

         products perform all of the transactionS of a stand alone

         point-of-service terminal and have enhanced functionality to facilitate

         both batch and real-time processing. The point-of-service terminal

         product, called Enline Genesis, is designed to handle real-time

         transactions and to rapidly and cost effectively connect a significant

         number of providers into the transaction network. The point-of-service

         terminals can be accessed remotely to modify application software and

         communications parameters, allowing ENVOY the flexibility to implement

         changes in services relatively easily. Point-of-service terminals often

         are purchased from ENVOY by payors, who are sponsoring a





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         managed care network, and offered by the payors to providers free of

         charge. In addition, providers may purchase terminals from ENVOY for a

         fee.



                  ENVOY has also developed certain Enline PC-based products with

         enhanced functionality features and open Application Program

         Interfaces, or APIs. The APIs are established at the operating system

         level and are designed to enable ENVOY's software to run on a wide

         variety of operating systems including DOS, UNIX and Windows. The

         Enline PC-based products can either function as a stand alone data

         entry system or work in conjunction with physician practice management

         software. The stand alone version, Enline Companion, is offered

         directly to providers. ENline Synergy is designed for integration into

         a practice management software product. In conjunction with the

         practice management vendor, ENVOY integrates Enline Synergy into the

         practice management system for distribution by the practice management

         vendor to the provider. Enline Synergy also controls the editing and

         distribution of the information from the practice management system to

         ENVOY's network.



                  Batch Claims Processing. ENVOY also has a number of

         specialized proprietary software products for processing batch health

         care transactions. The older versions of these products, POSI-DOS and

         ACU-CLAIM, are DOS-based products designed to allow health care

         providers to process batch transactions directly with commercial

         payers. ENVOY's next generation batch claims product, called

         Xpedite(TM), incorporates the features and functionality of POSI-DOS

         and ACU-CLAIM into a Windows-based, 32 bit encryption environment which

         is designed to simplify and expand the editing and reporting

         functionality for providers.



                  Automatic eligibility verification. The technology interfaces

         with hospital and large practice management information systems to

         automatically verify patient eligibility at the time of admission or

         scheduling. Eligibility requests are obtained from ENVOY's real-time

         transaction processing network. In addition to eligibility

         verification, ENVOY's eligibility verification system provides

         statistical reporting on patient demographics for hospitals and/or

         physician practices.



                  Automatic transaction posting. This technology is used for

         automatic posting of transactions into a hospital or practice

         management information system. This technology, which has been

         integrated to work in tandem with the automatic eligibility

         verification technology, uses transactions obtained from ENVOY's

         real-time and batch processing centers to perform automated remittance

         posting, accelerated secondary billing and member update of eligibility

         information.



         PATIENT STATEMENTS. Through ENVOY's ExpressBill subsidiary, ENVOY is

able to offer automated patient billing services to the hospital and other

healthcare provider markets. ENVOY's patient statement services include

electronic data transmission and formatting, statement printing and mailing

services for healthcare providers and practice management system vendors.



         ENVOY CUSTOMERS AND MARKETING. ENVOY provides EDI services to health

care providers, such as pharmacies, physicians, hospitals, dentists, labs and

billing services, and third-party payors, such as commercial indemnity insurers,

managed care organizations and state and federal government agencies.



         ENVOY COMPETITION. Potential competition in the healthcare EDI and

transaction processing market arises not only from companies as specialized as

ENVOY, including former regional partners of





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ENVOY that have direct provider relationships, but also from companies involved

in other, more highly developed sectors of the electronic transaction processing

market. Such companies could enter into, or focus more attention on, the

healthcare transaction processing market as it develops. In addition, ENVOY

faces competition by selected providers bypassing its electronic network and

going directly to the payor. There can be no assurance that ENVOY can continue

to compete successfully with its existing and potential competitors in the

healthcare EDI and transaction processing market. Factors influencing

competition in the healthcare market include (1) compatibility with the

provider's software and inclusion in practice management software products, (2)

in the case of the pharmacy market, relationships with major retail pharmacy

chains and (3) relationships with third-party payors and managed care

organizations. ENVOY believes that the breadth, price and quality of its

services are the most significant factors in developing and maintaining

relationships with pharmaceutical chains, third-party payors and managed care

organizations.



         ENVOY GOVERNMENTAL REGULATION. Governmental regulatory policies affect

the charges for and the terms of ENVOY's access to private line and public

communications networks for its EDI business. ENVOY must obtain certification on

the applicable communications network for design innovations for

point-of-service, or POS, devices and proprietary software. Any delays in

obtaining necessary certifications with respect to future products and services

could delay their introduction. In addition, the Federal Communications

Commission requires ENVOY's EDI products and services to comply with certain

rules and regulations governing performance. ENVOY believes that its existing

products and services comply with all current rules and regulations. ENVOY can

give no assurance, however, that such rules and regulations regarding access to

communications networks will not change in the future. Changes in such rules,

regulations or policies or the adoption of legislation that makes it more costly

to communicate on networks could adversely affect the demand or the cost of

supply services in the healthcare EDI transaction processing business. ENVOY is

also subject to regulations governing privacy and the collection and use of

data, as described above.





ITEM 2.  PROPERTIES



         As of February 29, 2000 we had approximately 135 offices located in 30

countries. Our executive headquarters is located adjacent to Research Triangle

Park, North Carolina. We maintain substantial offices serving our Product

Development Group in Durham, North Carolina; Kansas City, Missouri; Smyrna,

Georgia; Bracknell, England; Irene, South Africa; Tokyo, Japan; and Singapore.

We also maintain substantial offices serving our Commercial Development Group in

Parsippany, New Jersey; Falls Church, Virginia; New York, New York and Marlow,

England. Substantial offices serving our Informatics Group are located in

Newtown, Pennsylvania and Chicago, Illinois. ENVOY's principal office facilities

are in Nashville, Tennessee. We own facilities that serve our Product

Development Group in Ledbury, England; Lenexa, Kansas; Riccarton, Scotland;

Bathgate, Scotland; Glasgow, Scotland; and Freiburg, Germany. Additionally, we

own a corporate office in London, England. All of our other offices are leased.

We believe that our facilities are adequate for our operations and that suitable

additional space will be available when needed.



ITEM 3.  LEGAL PROCEEDINGS



         On February 12, 1999, Kenneth Hodges filed a civil lawsuit in the State

Court of Fulton County Georgia naming as defendants Richard L. Borison, Bruce I.

Diamond, BASF Corporation, Pfizer, Inc., Merck & Company, Inc., Wyeth-Ayerst

Laboratories Company, Zeneca, Inc., Janssen Pharmaceutica Inc., Smithkline

Beecham Corporation, Hoechst Marion Roussel, Inc., Glaxo Wellcome, Inc., Abbott





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Laboratories, Bristol-Myers Squibb Company, Warner-Lambert Company, Monsanto

Company, Novartis Pharmaceuticals Corporation and Quintiles Laboratories

Limited, one of our subsidiaries. The complaint alleges that certain drug trials

conducted by Drs. Borison and Diamond in which Hodges alleges he participated

between 1988 and 1996 were not properly conducted or supervised, that Hodges had

violent adverse reactions to many of the drugs and that his schizophrenia was

aggravated by the drug trials. Consequently, Hodges alleges that he was subject

to severe mortification, injured feelings, shame, public humiliations,

victimization, emotional turmoil and distress. The complaint alleges claims for

battery, fraudulent inducement to participate in the drug experiments, medical

malpractice, negligence in conducting the experiments, and intentional

infliction of emotional distress. Hodges seeks to recover his actual damages in

unspecified amounts, medical expenses, litigation costs, and punitive damages.

Alleged damages are in excess of $100 million.



         The complaint does not contain any specific allegations against

Quintiles Laboratories Limited nor any specific factual connection between us

and Hodges' claims. We have denied the allegations and are vigorously defending

this action. Quintiles Laboratories Limited filed a motion to dismiss for

failure to file an expert affidavit, a motion to strike the expert affidavit

subsequently filed and a motion to dismiss based upon the statute of limitations

and the failure to plead fraud with particularity. Quintiles Laboratories

Limited has also filed a motion for summary judgment based on the contention

that it is not a proper party to the action. None of these motions has been

ruled upon. We believe that the claims alleged against us in this action are

vague and meritless and that the recovery sought is baseless.



         On September 30, 1999 a class action lawsuit was filed in the United

States District Court for the Middle District of North Carolina against us and

two of our executive officers and directors on behalf of all persons who

purchased or otherwise acquired shares of our common stock between July 16, 1999

and September 15, 1999. The complaint alleges violations of federal securities

laws, including violations of Section 10(b) of the Securities Exchange Act of

1934 and Rule10b-5 thereunder. In particular, among other claims, the complaint

alleges that the defendants made certain statements about our anticipated growth

that were misleading because they failed to disclose that the pharmaceutical

industry allegedly had reversed its trend of outsourcing clinical trials and

that we had been notified that clinical trials for a class of cardiovascular

drugs would be discontinued. The complaint seeks unspecified damages, plus costs

and expenses, including attorneys' fees and experts' fees. We believe that the

claims are without merit and intend to defend the suit vigorously.



         Since September 30, 1999, three additional class action complaints have

been filed against us in the same court. These three new actions assert

essentially the same claims and seek the same relief as the original complaint.

One of the new complaints, filed October 26, 1999, seeks to expand the class to

include a purported sub-class of persons who purchased Quintiles call options,

or sold Quintiles put options, during the class period. A group of investors in

three of the actions against us has filed a motion asking that all of the

actions be consolidated and that they be appointed as lead plaintiffs. The court

has not yet ruled on this motion. We anticipate, however, that all of the

existing lawsuits, and any additional suits that may be filed, ultimately will

be consolidated into a single action. We continue to believe that all of the

claims are without merit and intend to defend the lawsuits vigorously.



         Class action complaints were filed on each of August 20, 1998, August

21, 1998 and September 15, 1998, in the United States District Court, Middle

District of Tennessee, Nashville Division, against ENVOY and certain of its

executive officers. On December 28, 1998, the plaintiffs filed, pursuant to the

Court's instructions, a Consolidated Class Action Complaint, consolidating the

three cases into a single action. The complaint alleges, among other things,

that from February 12, 1997 to August 18, 1998, the defendants issued materially

false and misleading statements about ENVOY, its business, operations and

financial position and failed to disclose material facts necessary to make





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defendants' statements not false and misleading in violation of Sections 10(b)

and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5

promulgated thereunder, and also asserts additional claims under Tennessee

common law for fraud and negligent misrepresentation. The complaint alleges that

ENVOY failed to disclose that its financial statements were not prepared in

accordance with generally accepted accounting principles due to the improper

write-off of certain acquired in-process technology, resulting in ENVOY's stock

trading at allegedly artificially inflated prices during the relevant period.

The plaintiffs voluntarily dismissed their state law claims. On September 15,

1999, the Federal Court for the Middle District of Tennessee granted ENVOY's

motion to dismiss the Consolidated Complaint. The Court dismissed the

Consolidated Complaint without prejudice. On November 23, 1999 the plaintiffs

filed what they deemed to be an Amended Consolidated Complaint asserting the

same causes of action. Defendants moved to strike the purported Amended

Consolidated Complaint on the ground that the September 1999 dismissal order did

not grant plaintiffs leave to file an amended complaint (but does allow them to

file a new lawsuit). On January 6, 2000 the plaintiffs then moved to

administratively re-open the case, which motion the court granted on January 24,

2000, and then transferred the case to another district judge. Defendants'

motion to strike the purported Amended Consolidated Complaint is still pending

before the new district judge. The plaintiffs in this action seek unspecified

compensatory damages, attorney's fees and other relief. We believe that these

claims are without merit and intend to defend the allegations vigorously.

Neither the likelihood of an unfavorable outcome nor the amount of the ultimate

liability, if any, with respect to these claims can be determined at this time.



         We are also a party in certain other pending litigation arising in the

normal course of our business. While the final outcome of such litigation cannot

be predicted with certainty, it is the opinion of management that the outcome of

these matters would not materially affect our consolidated financial position or

results of operations.



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



         Not applicable.





                                       19



   22



                                     PART II



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



MARKET PRICES



         Our common stock is traded on The Nasdaq Stock Market under the symbol

"QTRN." The following table shows, for the periods indicated, the high and low

sale prices per share on The Nasdaq Stock Market, based on published financial

sources.



          CALENDAR PERIOD                          HIGH                LOW

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



Quarter ended March 31, 1998..............        $52.428            $34.000

Quarter ended June 30, 1998...............         53.500             42.250

Quarter ended September 30, 1998..........         52.000             33.375

Quarter ended December 31, 1998...........         56.875             41.000



Quarter ended March 31, 1999..............        $53.375            $34.625

Quarter ended June 30, 1999...............         45.500             34.750

Quarter ended September 30, 1999..........         41.938             16.875

Quarter ended December 31, 1999...........         25.031             16.000



         As of February 29, 2000, there were approximately 35,850 beneficial

owners of our common stock, including 1,204 holders of record.



DIVIDEND POLICIES



         We have never declared or paid any cash dividends on our common stock.

We do not anticipate paying any cash dividends in the foreseeable future, and we

intend to retain future earnings for the development and expansion of our

business.



RECENT SALES OF UNREGISTERED SECURITIES



         During the three months ended December 31, 1999, options to purchase

7,000 shares of our common stock were exercised at an average exercise price of

$2.3232 per share in reliance on Rule 701 under the Act. We granted these

options before we became subject to the requirements of Section 13 or 15(d) of

the Securities Exchange Act of 1934, as amended, pursuant to our Nonqualified

Employee Incentive Stock Option Plan.





                                       20







   23



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, 1999 and the

Consolidated Balance Sheet Data set forth below as of December 31, 1999 and 1998

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 1996 and 1995, and the

Consolidated Balance Sheet Data set forth below as of December 31, 1997, 1996

and 1995 are derived from our consolidated financial statements. The results of

our ENVOY Corporation subsidiary have been reported separately as a discontinued

operation in the consolidated financial statements as we have entered into an

agreement for the proposed sale of this subsidiary. Our consolidated financial

statements have been restated to reflect material acquisitions in transactions

accounted for as poolings of interests. However, the consolidated financial

statements have not been restated to reflect certain other acquisitions

accounted for as pooling of interests where we determined that the consolidated

financial data would not have been materially different if the pooled companies

had been included. For such immaterial pooling of interests transactions, which

include three transactions in 1998, one transaction in 1997 and two transactions

in 1996, our financial statements for the year of each transaction have been

restated to include the pooled companies from January 1 of that year, but the

financial statements for years prior to the year of each transaction have not

been restated because the effect of such restatement would be immaterial. 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" included elsewhere herein.





                                                                         Year Ended December 31,

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

                                                     1999            1998           1997        1996 (1,3)       1995 (1)

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

                                                                   (In thousands, except per share data)

                                                                                                  

Net revenue                                       $1,607,087      $1,221,776      $ 885,557      $ 627,251       $ 387,787

Income from operations                               136,355         129,389         91,814         46,495          25,111

Income from continuing operations before

   income taxes                                      115,910         125,567         89,439         26,864          23,368

Income from continuing operations                     73,168          85,643         58,063         11,625          14,088

Income (loss) from discontinued operation,

   net of income taxes                                36,123           2,926         (9,197)       (37,217)         (2,122)

Net income (loss) available for

   common shareholders                            $  109,291      $   88,569      $  48,866     $  (27,377)      $  11,247

                                                  ==========      ==========      =========     ==========       =========

Basic net income (loss) per share:

   Income from continuing operations              $     0.64      $     0.82      $    0.58     $     0.13       $    0.17

   Income (loss) from discontinued operation            0.32            0.03          (0.09)         (0.41)          (0.03)

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

   Basic net income (loss) per share              $     0.96      $     0.85      $    0.49     $    (0.30)      $    0.13

                                                  ==========      ==========      =========     ==========       =========



Diluted net income (loss) per share:

   Income from continuing operations              $     0.63      $     0.77      $    0.54     $     0.13       $    0.16

   Income (loss) from discontinued operation            0.31            0.03          (0.09)         (0.41)          (0.02)

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

   Diluted net income (loss) per share            $     0.94      $     0.80      $    0.46     $    (0.30)      $    0.13

                                                  ==========      ==========      =========     ==========       =========

Weighted average shares outstanding: (2)

   Basic                                             113,525         104,799         99,908         91,693          83,465

   Diluted                                           115,687         110,879        107,141         91,693          85,826







                                                                              As of December 31,

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

                                                      1999           1998           1997         1996 (1)         1995 (1)

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

                                                                     (In thousands, except employees)

                                                                                                  

Cash and cash equivalents                         $  191,653      $  128,621      $  84,597     $   76,129       $  85,585

Working capital, excluding discontinued

  operation(4)                                        69,235         197,005        166,866        103,736          73,563

Total assets                                       1,656,622       1,170,108        958,268        691,035         377,423

Long-term debt including current portion             184,784         191,601        186,972        188,027          56,763

Shareholders' equity                              $  991,759      $  646,132      $ 517,283     $  278,574       $ 183,132

Employees                                             20,496          16,732         12,717          8,998           5,553



1        Prior to our November 29, 1996 share exchange with Innovex Limited,

         Innovex had a fiscal year end of March 31 and we had (and continue to

         have) a fiscal year end of December 31. As a result, the pooled data

         presented above for 1995 include Innovex's March 31 fiscal year data in

         combination with our December 31 fiscal year data. In connection with

         the share exchange, Innovex changed its fiscal year end to December 31.

         Accordingly, the pooled data presented above for 1996 include both

         Innovex's and our data on a December 31 year end basis. Because of the

         difference between Innovex's fiscal year end in 1995 compared with

         1996, Innovex's quarter ended March 31,1996 data are included in our

         pooled data for both 1995 and 1996.



2        Restated to reflect the two-for-one stock split of our common stock

         effected in the form of a 100% stock dividend in December 1997.



3        Excluding non-recurring costs (net of tax) of $36.5 million and

         amortization of certain acquired intangible assets of $16.4 million,

         the 1996 basic and diluted net income per share (unaudited) were $0.28

         and $0.25, respectively.



4        Working capital of discontinued operation was $36.0 million in 1999,

         $42.4 million in 1998, $18.0 million in 1997, $47.5 million in 1996 and

         $10.7 million in 1995.



                                       21



   24



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

         OF OPERATIONS



Overview



Quintiles Transnational Corp. improves healthcare by bringing new medicines to

patients faster and providing knowledge-rich medical and drug data to advance

the quality and cost effectiveness of healthcare. We are a global market leader

in helping pharmaceutical, biotechnology and medical device companies market and

sell their products. We also provide insightful market research solutions and

strategic analyses to support healthcare decisions. Based on industry analyst

reports, we are the largest company in the pharmaceutical outsourcing services

industry as ranked by 1999 net revenue; the net revenue of the second largest

company was over $775 million less than our 1999 net revenue.



During 1999, we completed the following strategic acquisitions.



On January 1, 1999, we acquired substantial assets of Hoechst Marion Roussel's

Kansas City-based Drug Innovation and Approval facility for approximately $93

million in cash, most of which is expected to be paid in the first half of 2000

when the acquisition of the physical facility is completed. As part of this

transaction, we were awarded a $436 million contract for continued support and

completion of ongoing HMR development projects over a five-year period. In

addition, HMR will offer us the opportunity to provide all United States

clinical research services up to an additional $144 million over the same

period.



On February 17, 1999, we acquired Oak Grove Technologies, Inc., a leader in

providing current Good Manufacturing Practice compliance services to the

pharmaceutical, biotechnology and medical device industries. We acquired Oak

Grove in exchange for 87,948 shares of our common stock. The acquisition of Oak

Grove was accounted for as a purchase.



On March 29, 1999, we acquired Pharmaceutical Marketing Services, Inc. and its

core company, Scott-Levin, a leader in pharmaceutical market information and

research services located in the U.S. We acquired PMSI in exchange for

approximately 4,993,787 shares of our common stock. Outstanding PMSI options

became options to acquire approximately 440,426 shares of our common stock. In

addition, we agreed to pay contingent value payments to former PMSI shareholders

who deferred receipt of one-half of the shares of our common stock they were

entitled to receive in the transaction until June 14, 1999. The right to receive

contingent value payments terminated in accordance with the merger agreement.

Accordingly, no contingent value payments were made or are payable to any former

PMSI shareholder. The acquisition of PMSI was accounted for as a purchase.



On March 31, 1999, we acquired MedLab Pty Ltd. and the assets of the Niehaus &

Botha partnership collectively referred to as "N&B", a South African-based

clinical laboratory. We acquired N&B in exchange for 271,146 shares of our

common stock. The acquisition of N&B was accounted for as a pooling of

interests, and as such, all historical financial data have been restated to

include N&B.



On May 19, 1999, we acquired Minerva Medical plc, a Scotland-based clinical

research organization. We acquired Minerva in exchange for 1,143,625 shares of

our common stock. The acquisition of Minerva was accounted for as a pooling of

interests, and as such, all historical financial data have been restated to

include Minerva.



On June 3, 1999, we acquired SMG Marketing Group Inc., a Chicago-based

healthcare market information company. We acquired SMG in exchange for 1,170,291

shares of our common stock. The acquisition of SMG was accounted for as a

pooling of interests, and as such, all historical financial data have been

restated to include SMG.



On July 2, 1999, we acquired Medcom, Inc., a New Jersey-based provider of

physician meetings and educational events to help pharmaceutical companies raise

awareness of their products among healthcare professionals, for approximately

$2.5 million in cash and additional consideration if Medcom's results of

operations exceeded certain targeted levels during 1999. Based on Medcom's 1999

results of operations, we will pay approximately $9.0 million in additional

consideration to the former Medcom shareholders. This additional consideration

will be paid in cash during the first half of 2000 and has been recorded as an

accrued expense at December 31, 1999. The acquisition of Medcom was accounted

for as a purchase.





                                       22



   25



On July 15, 1999, we acquired MediTrain, a Netherlands-based multimedia

pharmaceutical sales representative training company, in exchange for 19,772

shares of our common stock. The acquisition of MediTrain was accounted for as a

purchase.



On August 27, 1999, we acquired Medicines Control Consultants Pty Ltd., a South

African-based pharmaceutical regulatory consulting group, for approximately $1

million in cash. The acquisition of MCC was accounted for as a purchase.



Discontinued Operation - ENVOY



On March 30, 1999, we acquired ENVOY Corporation, a Tennessee-based provider of

healthcare electronic data interchange and data mining services. We acquired

ENVOY in exchange for approximately 28,465,160 shares of our common stock.

Outstanding ENVOY options became options to acquire approximately 3,914,583

shares of our common stock. The acquisition of ENVOY was accounted for as a

pooling of interests, and as such, all historical financial data have been

restated to include ENVOY.



On January 24, 2000, we announced a definitive agreement to sell ENVOY to

Healtheon/WebMD Corp. Prior to the sale, ENVOY will transfer its informatics

subsidiary, Synergy Health Care, Inc., to us. Net revenues of Synergy for 1999

and 1998 were approximately $3.0 million per year. We will receive $400 million

in cash and 35 million shares of Healtheon/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. Closing is expected

to occur during the second quarter of 2000.



After the proposed sale of ENVOY, we will retain exclusive rights to

de-identified ENVOY transaction data and to certain other de-identified data

available from Healtheon/WebMD, subject to limited exceptions. We have agreed to

share with Healtheon/WebMD a royalty derived from sales of products using the

licensed data. Upon the closing of the sale of ENVOY, we plan to form a

strategic alliance with Healtheon/WebMD to develop a web-based suite of

integrated products and services for the pharmaceutical industry. We will

provide $100 million in funding for development.



ENVOY is being accounted for as a discontinued operation. Accordingly, the

operating results and balance sheet items of ENVOY have been reflected

separately from continuing operations.



Contract Revenue



We consider net revenue, which excludes reimbursed costs, our primary measure of

revenue growth. Substantially all net revenue for the product development and

commercialization service groups is earned by performing services under

contracts with various pharmaceutical, biotechnology, medical device and

healthcare companies. Many of our contracts are fixed price, with some variable

components, and range in duration from a few months to several years. We are

also party to fee-for-service and unit-of-service contracts. We recognize net

revenue based upon (1) labor costs expended as a percentage of total labor costs

expected to be expended (percentage of completion) 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.



Our commercialization service group has entered into agreements with certain

customers, whereby we provide a dedicated sales force and fund certain sales and

marketing expenses, and we receive payments based on the achievement of certain

sales levels of the promoted product. During the sales force recruitment and

training phase, we defer certain costs and will amortize those costs over the

lesser of the contractual termination period (generally one year) or the

proportion to revenue recognized.



Our contracts generally provide for price negotiation upon scope of work

changes. We recognize revenue related to these scope changes when the underlying

services are performed and realization of revenue is reasonably assured. Most

contracts are terminable upon 15 - 90 days' notice by the customer. In the event

of termination, contracts typically require payment for services rendered

through the date of termination, as well as subsequent services rendered to

close out the contract. Any anticipated losses resulting from contract

performance are charged to earnings in the period identified.





                                       23



   26



Each contract specifies billing and payment procedures. Generally, the

procedures require a portion of the contract fee to be paid at the time the

project is initiated with subsequent contract billings and payments due

periodically over the length of the project's term in accordance with

contractual provisions. Revenue recognized in excess of billings is classified

as unbilled services, while billings in excess of revenue recognized are

classified as unearned income.



We report backlog based on anticipated net revenue from uncompleted projects

which have been authorized by the customer through a written contract or

otherwise. Using this method of reporting backlog, at December 31, 1999, 1998

and 1997, our backlog was approximately $2.2 billion, $1.9 billion and $1.1

billion, respectively. We believe that backlog may not be a consistent indicator

of future results because backlog can be affected by a number of factors,

including the variable size and duration of projects, many of which are

performed over several years, loss or significant delay of contracts or a change

in the scope of a project during the course of a contract.



Results of Continuing Operations

Year Ended December 31, 1999 Compared with

Year Ended December 31, 1998



Net revenue for the year ended December 31, 1999 was $1.6 billion, an increase

of $385.3 million or 31.5% over net revenue for the year ended December 31, 1998

of $1.2 billion. Growth occurred across each of our geographic regions and each

of our major service groups. Factors contributing to the growth included an

increase of contract service offerings, the provision of increased services

rendered under existing contracts, the initiation of services under contracts

awarded subsequent to January 1, 1999 and our 1999 acquisitions accounted for

under purchase accounting which contributed approximately $36.0 million of net

revenue for the year ended December 31, 1999. Net revenue for the product

development group increased 33.9% to $948.9 million for the year ended December

31, 1999 as compared to $708.5 million for the year ended December 31, 1998.

This growth was slower than anticipated as a result of several factors,

including early termination and delays of clinical trials and utilization rates

that were lower than historical levels. Net revenue for the commercialization

group increased 23.9% to $614.7 million for the year ended December 31, 1999 as

compared to $496.2 million for the year ended December 31, 1998. The net revenue

for the year ended December 31, 1999 for the commercialization group included

approximately $6.3 million of net revenue contributed by a 1999 acquisition

accounted for as a purchase. Net revenue for the QUINTERNET(TM) informatics

group increased 154.7% to $43.5 million for the year ended December 31, 1999 as

compared to $17.1 million for the year ended December 31, 1998. The net revenue

for the year ended December 31, 1999 for the QUINTERNET(TM) informatics group

included approximately $24.6 million of net revenue contributed by a 1999

acquisition accounted for as a purchase.



Direct costs, which include compensation and related fringe benefits for

billable employees, and other expenses directly related to contracts, were

$883.3 million or 55.0% of 1999 net revenue versus $640.8 million or 52.4% of

1998 net revenue. The increase in direct costs as a percentage of net revenue

was primarily attributable to a decrease in the utilization rates during the

year ended December 31, 1999, as discussed above.



General and administrative expenses, which include compensation and fringe

benefits for administrative employees, non-billable travel, professional

services, advertising, computer and facility expenses, were $505.2 million or

31.4% of 1999 net revenue versus $394.4 million or 32.3% of 1998 net revenue.

Also included in general and administrative expenses were incremental costs

related to our Year 2000 Program of $8.8 million for the year ended December 31,

1999 as compared to $2.6 million for the year ended December 31, 1998. The

remaining $104.6 million increase in general and administrative expenses was

primarily due to an increase in personnel, facilities and locations and outside

services resulting from our growth.



Depreciation and amortization expense was $82.3 million or 5.1% of 1999 net

revenue versus $57.2 million or 4.7% of 1998 net revenue. Amortization expense

increased $4.7 million due to the goodwill amortization resulting from our 1999

acquisitions accounted for under purchase accounting. The remaining $20.4

million increase is primarily due to the increase in our capitalized asset base.





                                       24



   27



Income from operations was $136.4 million or 8.5% of 1999 net revenue versus

$129.4 million or 10.6% of 1998 net revenue. Income from operations for the

product development group increased to $83.8 million or 8.8% of 1999 net revenue

from $77.6 million or 11.0% of 1998 net revenue. The decrease as a percentage of

net revenue results from the early termination and delays of clinical programs

and lower utilization rates as discussed above and an increase of approximately

$5.6 million in incremental costs incurred related to our Year 2000 Program.

Income from operations for the commercialization group increased to $57.7

million or 9.4% of 1999 net revenue from $47.3 million or 9.5% of 1998 net

revenue. Income from operations for the QUINTERNET(TM) informatics group

decreased to a loss of $5.2 million or (11.9%) of 1999 net revenue from income

of $4.5 million or 26.2% of 1998 net revenue. This decrease results primarily

from an increase in amortization expense due to a 1999 acquisition accounted for

as a purchase and the allocation of corporate overhead costs attributable to

increased costs incurred to develop the informatics market in 1999.



Other expense, which consists primarily of transaction costs and interest,

increased to $20.4 million in 1999 from $3.8 million in 1998. Transaction costs

included in other expense were $26.3 million in 1999 versus $3.5 million in

1998. Excluding these transaction costs, other income was $5.9 million for the

year ended December 31, 1999 versus other expense of $347,000 for the year ended

December 31, 1998. The $5.5 million fluctuation was due to an increase of $3.3

million of net interest income, an increase of $645,000 of gains on foreign

currency and a $2.1 million realized gain on the sale of an investment in

marketable equity securities.



The effective income tax rate for 1999 was 36.9% versus a 31.8% rate in 1998.

Excluding transaction costs, which are not generally deductible for income tax

purposes, the effective income tax rate for 1999 would have been 30.1% versus a

30.9% rate for 1998. Since we conduct operations on a global basis, our

effective income tax rate may vary. See "--Income Taxes."





Year Ended December 31, 1998 Compared with

Year Ended December 31, 1997



Net revenue for the year ended December 31, 1998 was $1.2 billion, an increase

of $336.2 million or 38.0% over net revenue for the year ended December 31, 1997

of $885.6 million. Growth occurred across each of our geographic regions and

each of our major service groups. Factors contributing to the growth included an

increase of contract service offerings, the provision of increased services

rendered under existing contracts and the initiation of services under contracts

awarded subsequent to January 1, 1998. Net revenue for the product development

group increased 36.8% to $708.5 million for the year ended December 31, 1998 as

compared to $518.0 million for the year ended December 31, 1997. Net revenue for

the commercialization group increased 39.4% to $496.2 million for the year ended

December 31, 1998 as compared to $356.1 million for the year ended December 31,

1997. Net revenue for the QUINTERNET(TM) informatics group increased 48.6% to

$17.1 million for the year ended December 31, 1998 as compared to $11.5 million

for the year ended December 31, 1997.



Direct costs, which include compensation and related fringe benefits for

billable employees, and other expenses directly related to contracts, were

$640.8 million or 52.4% of 1998 net revenue versus $468.3 million or 52.9% of

1997 net revenue.



General and administrative expenses, which include compensation and fringe

benefits for administrative employees, non-billable travel, professional

services, advertising, computer and facility expenses, were $394.4 million or

32.3% of 1998 net revenue versus $286.8 million or 32.4% of 1997 net revenue.

The $107.7 million increase in general and administrative expenses was primarily

due to an increase in personnel, facilities and locations and outside services

resulting from our growth.



Depreciation and amortization expense was $57.2 million or 4.7% of 1998 net

revenue versus $38.7 million or 4.4% of 1997 net revenue. The $18.5 million

increase is primarily due to the increase in our capitalized asset base. In

1998, we recognized approximately $2.8 million of depreciation expense

associated with the first full year of operation for the facility in Bathgate,

Scotland and related assets.



Income from operations was $129.4 million or 10.6% of 1998 net revenue versus

$91.8 million or 10.4% of 1997 net revenue. Income from operations for the

product development group increased to $77.6 million or 11.0% of 1998 net

revenue from $52.2 million or 10.1% of 1997 net revenue. Income from operations

for the commercialization group increased to $47.3 million or 9.5% of 1998 net

revenue from $37.7 million or 10.6% of 1997 net revenue. Income from operations

for the QUINTERNET(TM) informatics group increased to $4.5 million or 26.2% of

1998 net revenue from $2.0 million or 17.1% of 1997 net revenue.





                                       25



   28



Other expense, which consists primarily of transaction costs and interest,

increased to $3.8 million in 1998 from $2.4 million in 1997. Transaction costs

included in other expense were $3.5 million in 1998 versus $2.2 million in 1997.



The effective income tax rate for 1998 was 31.8% versus a 35.1% rate in 1997.

Excluding transaction costs, which are not generally deductible for tax

purposes, the effective income tax rate for 1998 would have been 30.9% versus a

34.2% rate for 1997. The effective income tax rate reduction resulted from the

reversal of prior year valuation allowances relating to certain net operating

loss carryforwards that we now believe are more likely than not to be utilized

and profits generated in countries with favorable income tax rates. Since we

conduct operations on a global basis, our effective income tax rate may vary.

See "--Income Taxes."





Liquidity and Capital Resources



Cash flows generated from operations were $123.8 million in 1999 versus $125.6

million and $84.2 million in 1998 and 1997, respectively. Cash flows used in

investing activities in 1999 were $104.5 million, versus $76.0 million and

$156.4 million in 1998 and 1997, respectively. Of these investing activities,

capital asset purchases required $158.1 million in 1999 versus $97.0 million and

$81.3 million in 1998 and 1997, respectively. Capital asset expenditures in 1999

included approximately $35 million in connection with the acquisition of HMR's

Drug Innovation and Approval Facility. The remainder of the purchase price,

approximately $58 million, is expected to be paid in the first half of 2000 when

the acquisition of the physical facility is completed. Capital asset

expenditures in 1997 included (pound)15.8 million (approximately $26.5 million)

related to our purchase of land and construction of a facility in Bathgate,

Scotland. The remaining capital expenditures were predominantly incurred in

connection with the expansion of existing operations, the enhancement of

information technology capabilities and the opening of new offices.



Total working capital, excluding net assets of discontinued operation, decreased

$127.8 million to $69.2 million at December 31, 1999 from $197.0 million at

December 31, 1998. This decrease resulted from the $143.75 million of 4.25%

Convertible Subordinated Notes due May 31, 2000 being classified as a current

liability as of December 31, 1999 versus a long-term liability as of December

31, 1998. Trade accounts receivable and unbilled services increased 22.4% to

$377.3 million at December 31, 1999 from $308.3 million at December 31, 1998, as

a result of the growth in net revenue. Trade accounts receivable and unbilled

services, net of unearned income, increased 27.8% to $204.7 million at December

31, 1999 from $160.2 million at December 31, 1998. The number of days revenue

outstanding in trade accounts receivable and unbilled services, net of unearned

income, were 38 and 37 days at December 31, 1999 and December 31, 1998,

respectively.



During 1999, the Company invested approximately $6.2 million in Missouri Tax

Incentive Bonds. In connection with this investment, the Company entered into a

loan agreement with the Missouri Development Finance Board for approximately

$5.6 million. The bonds mature as we are required to make loan payments.



In May 1999, we signed a commercialization agreement with CV Therapeutics, a

development stage biopharmaceutical company, to commercialize one of its

products. The agreement calls for us to conduct certain pre-launch activities,

hire and train a dedicated sales force to promote the product and provide

post-launch marketing and sales services for at least three years after launch

and provide services in years four and five, if certain product sales levels are

achieved. As part of this agreement, we acquired approximately $5.0 million of

CVT common stock and will be required to provide a $10.0 million secured credit

facility to CVT if the Federal Drug Administration accepts the CVT's New Drug

Application for the product.



During 1998, we acquired a clinical trial production and warehouse facility in

Livingston, Scotland for a purchase commitment valued at (pound)1.75 million

(approximately $2.8 million), with payment due in May, 2001.



During 1995, we acquired a drug development facility in Edinburgh, Scotland.

Related to this acquisition, we entered into a purchase commitment valued at

(pound)12.5 million (approximately $20.9 million). During 1999 the payment terms

were amended, and we paid approximately (pound)6.2 million (approximately $10.1

million) of this commitment in October 1999. The remaining balance of

approximately (pound)6.3 million (approximately $10.1 million) is due in April

2000.





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We have a $150 million senior unsecured credit facility with a U.S. bank. At

December 31, 1999, we had $150 million available under this facility. Based upon

our current financing plan, we believe the $150 million facility would be

available to retire our credit arrangements and obligations, if necessary.



In May 1999, we entered into a (pound)10.0 million (approximately $16.2 million)

unsecured line of credit with a U.K. bank. We also entered into a (pound)1.5

million (approximately $2.4 million) general bank facility with the same U.K.

bank. At December 31, 1999, we had (pound)11.5 million (approximately $18.6

million) available under these agreements.



All foreign currency denominated amounts due, subsequent to December 31, 1999,

have been translated using the Wednesday, December 29, 1999 foreign exchange

rates as published in the December 30, 1999 edition of the Wall Street Journal.



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. 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.



Income Taxes



Since we conduct operations on a global basis, our effective income tax rate has

depended and will continue to depend on the amount of profits in locations with

varying income tax rates. Our results of operations will be impacted by changes

in the income tax rates of the various jurisdictions and by changes in any

applicable tax treaties. In particular, as the portion of our non-U.S. business

varies, our effective income tax rate may vary significantly from period to

period. Our effective tax rate may also depend upon the extent to which we are

allowed (and are able to use under applicable limitations) U. S. foreign tax

credits in respect of income taxes paid on its foreign operations.





Inflation



We believe the effects of inflation generally do not have a material adverse

impact on our operations or financial condition.





Impact of Year 2000 Issue



We have not experienced any immediate, adverse impact to our operations

resulting from the millennium date change or leap year change. However, we

cannot provide any assurance that our systems and business relationships have

not been impacted in a manner that is not yet apparent. We will continue to

monitor our systems in order to promptly remediate any adversely impacted

systems. The aggregate cost of our Year 2000 program, including costs stemming

from acquisitions, was approximately $16.6 million, of which approximately $5.1

million were not incremental costs but represented the redeployment of existing

resources.





Conversion to the Euro Currency



On January 1, 1999, a new currency, the euro, became the legal currency for 11

of the 15 member countries of the European Economic Community. Between January

1, 1999 and January 1, 2002, governments, companies and individuals may conduct

business in the member countries in both the euro and existing national

currencies. On January 1, 2002, the euro will become the sole currency in the

member countries. We conduct business in the member countries. We have reviewed

the issues involved with the introduction of the euro including: (1) whether we

may have to change the prices of our services in the different countries and (2)

whether we will have to change the terms of any financial instruments in

connection with our hedging activities.





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The use of the euro has not had a significant impact on our business or

operations. Based on current information, we do not expect the conversion to the

euro to have a material effect on our financial condition or results of

operations.





Recently Issued Accounting Standard



In June 1998, the Financial Accounting Standards Board issued Statement of

Financial Accounting Standards No. 133, "Accounting for Derivative Instruments

and Hedging Activities." Statement No. 133 requires that upon adoption, all

derivative instruments be recognized in the balance sheet at fair value, and

that changes in such fair values be recognized in earnings unless specific

hedging criteria are met. Changes in the values of derivatives that meet these

hedging criteria will ultimately offset related earnings effects of the hedged

items; effects of certain changes in fair value are recorded in other

comprehensive income pending recognition in earnings. We will adopt Statement

No. 133 when required to do so on January 1, 2001. Because of our limited use of

derivatives, we do not expect the application of Statement No. 133 to have a

significant impact on our financial position or results of operations.





Market Risk



Market risk is the potential loss arising from adverse changes in the 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. We do not

hold or issue derivative instruments for trading purposes. 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 45.8%, 50.9% and 51.6% of our net revenue for the years ended

December 31, 1999, 1998, and 1997, respectively, were 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 ($15.5) million at December 31, 1999 as compared to

($4.6) million at December 31, 1998.



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, 1999, our most

significant foreign currency exchange rate exposures were in the British pound,

German mark and French franc. 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. We recognize changes in value in income only when foreign

currency exchange contracts or options are settled or exercised, respectively.

There were no open foreign exchange contracts or options relating to service

contracts at December 31, 1999.



As of December 31, 1999, we had short-term obligations denominated in a foreign

currency (approximately (pound)8.0 million). Assuming a hypothetical change of

10% in year-end exchange rates (a weakening of the U.S. dollar), the fair value

of these instruments would increase by approximately $1.3 million.





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Interest Rates



At December 31, 1999, we had outstanding $143.75 million of 4.25% Convertible

Subordinated Notes due May 31, 2000. The fair value of long-term fixed interest

rate debt is subject to interest rate risk. Generally, the fair market value of

fixed interest rate debt will increase as interest rates fall and decrease as

interest rates rise. The carrying value of the Notes at December 31, 1999

approximates the fair value. A 10% increase in prevailing interest rates at

December 31, 1999 would not result in a material decrease in the fair value of

the Notes due to the short term remaining until maturity. Currently, we do not

hold any derivative instruments to manage interest rate risk.



At December 31, 1999, our investment in debt securities portfolio consists

primarily of U.S. Government Securities 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, 1999, the fair value of the investment portfolio was $109.4

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 $10.9 million.





Equity Prices



At December 31, 1999, 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, 1999, the fair value of these investments was $45.2 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 $4.5

million.





Subsequent Events



On January 26, 2000, we announced the adoption of a restructuring plan. In

connection with this plan, we anticipate recognizing a restructuring charge of

approximately $55.0 million during the first quarter of 2000. The restructuring

charge will consist primarily of severance costs related to a worldwide

workforce reduction of approximately 800 positions and lease termination costs

related to the consolidation of offices. This restructuring is targeted to

result in annualized cost savings of $40.0 million to $50.0 million, of which

$30.0 million to $35.0 million are targeted to be realized in 2000.



On February 3, 2000, the Board of Directors authorized us to repurchase up to

$200 million of our common stock from time to time over the next 12 months in

open market, block or negotiated transactions.





Risk Factors



In addition to the other information provided in our reports, 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.





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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 has grown substantially over the past decade,

and we have benefited from this trend. Some industry commentators believe that

the rate of growth of outsourcing has slowed. 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 pending 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 companies we acquire do not perform as expected or if we are unable to make

strategic acquisitions, our business could be adversely affected.



A key element of our growth strategy has depended on our ability to complete

acquisitions that complement or expand our business and successfully integrate

the acquired companies into our operations. In the past, some of our

acquisitions performed below our expectations in the short term, but we

experienced no impact to our expectations for our overall results, due in part

to the size of such acquisitions and the performance of other areas of our

business. In the future, if we are unable to operate the business of an acquired

company so that its results meet our expectations, those results could have a

negative impact on our results as a whole. The risk that our results may be

affected if we are unable to successfully operate the businesses we acquire may

increase in proportion with (1) the size of the businesses we acquire, (2) the

lines of business we acquire and (3) the number of acquisitions we complete in

any given time period. In addition, in recent months our acquisition activity

has slowed, and we have not completed an acquisition since August 1999. As a

result, we currently are not growing from acquisitions. If we do not acquire

other companies, our overall growth, when compared to historical levels, will be

adversely affected.



In 1999, we completed nine acquisitions, including PMSI and ENVOY, the largest

acquisitions we have completed to date. We are continually evaluating and

competing for new acquisition opportunities. Other risk factors we face as a

result of our acquisition strategy include the following:



     -    our ability to achieve anticipated synergies from combined operations;



     -    our ability to integrate the operations and personnel of acquired

          companies, especially those in lines of business that differ from our

          current lines of business;



     -    the ability of acquired companies to meet anticipated net revenue and

          net income targets;



     -    potential loss of the acquired companies' key employees;



     -    our ability to efficiently operate and expand the acquired companies'

          lines of business that differ from our current lines of business;



     -    the possibility that we may be adversely affected by risk factors

          present at the acquired companies;



     -    potential losses resulting from undiscovered liabilities of acquired

          companies that are not covered by the indemnification we may obtain

          from the sellers;



     -    risks of assimilating differences in foreign business practices and

          overcoming language barriers (for acquisitions of foreign companies);

          and



     -    risks experienced by companies in general that are involved in

          acquisitions.





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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.



For example, we are expanding our pharmaceutical and healthcare information and

market research services. These services involve analyzing healthcare

information to study aspects of current healthcare products and procedures for

use in developing new products and services or in analyzing sales and marketing

of existing products. In addition to the other difficulties associated with the

development of any new service, our ability to develop these services may be

limited further by contractual provisions limiting our use of the healthcare

information or the legal rights of others that may prevent or impair our use of

the healthcare information. Due to these and other limitations, we cannot assure

you that we will be able to develop this type of service successfully. Our

inability to develop new products or services or any delay in development may

adversely affect our ability to maintain our rate of growth in the future.



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

results.



Many of our contract research 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, which may

encompass global clinical trials at a number of sites and cross many service

lines. Also, recently we have observed that customers may be more willing to

delay, cancel or reduce contracts more rapidly than in the past. If this becomes

a trend, it could become more difficult for us to balance our resources with

demands for our services and our financial results could be adversely affected.



The proposed sale of ENVOY may fail to close or be delayed.



The proposed sale of ENVOY to Healtheon/WebMD is important to our strategic plan

and, if the transaction fails to close or the closing is delayed, we may not be

able to execute strategies that are critical to our continued growth as planned,

if at all. For example, we have agreed to form a strategic alliance with

Healtheon/WebMD designed to enable us to develop and market web-based products

and services relating to our informatics strategy, and Healtheon/WebMD has

agreed to give us access to data that is important to our informatics business.

Healtheon/WebMD's obligation to perform under these arrangements is contingent

upon closing of the ENVOY transaction. As a result, if the transaction does not

close, we would not be able to take advantage of the benefits of the proposed

alliance as planned, and we would need to seek other partnerships or develop

such capabilities internally. These consequences may substantially delay our

ability to execute our Internet strategy relating to our product development and

commercialization service groups and increase our costs. The sale of ENVOY is

subject to regulatory approval and other conditions that are beyond our control.



Our backlog may not be indicative of future results.



We report backlog based on anticipated net revenue from uncompleted projects

that a customer has authorized. We cannot assure you that the backlog we have

reported will be indicative of our future results. A number of factors may

affect our backlog, including:



     -    the variable size and duration of projects (some are performed over

          several years);



     -    the loss or delay of projects; and - a change in the scope of work

          during the course of a project.



Also, 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 are not indicative of the

future relationship.





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If we lose the services of Dennis Gillings or other key personnel, our business

could be adversely affected.



Our success substantially depends on the performance, contributions and

expertise of our senior management team, led by Dennis B. Gillings, Ph.D., our

Chairman of the Board of Directors and Chief Executive Officer. We maintain key

man life insurance on Dr. Gillings in the amount of $3 million. 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, 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 create a risk of liability from clinical trial

participants and the parties with whom we contract.



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.



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. 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 labs 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 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 or if our informatics products violate rights of third parties. We

maintain insurance to cover ordinary risks but any insurance might not be

adequate, and it would not cover the risk of a customer deciding not to do

business with us as a result of poor performance.



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.





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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.



Proposed regulations may increase the cost of our business or limit our service

offerings.



The confidentiality of patient-specific information and the circumstances under

which such patient-specific records may be released for inclusion in our

databases or used in other aspects of our business are subject to substantial

government regulation. Additional legislation governing the possession, use and

dissemination of medical record information and other personal health

information has been proposed at both the state and federal levels. This

legislation may (1) require us to implement security measures that may require

substantial expenditures or (2) limit our ability to offer some of our products

and services. These and other changes in regulation could limit our ability to

offer some of our products or have an impact on the business opportunities

available to us.



Industry regulation may restrict our ability to analyze and disseminate

pharmaceutical and healthcare data.



We are directly subject to certain restrictions on the collection and use of

data. Laws relating to the collection and use of data are evolving, as are

contractual rights. We cannot assure you that contractual restrictions imposed

by our customers, legislation or regulations will not, now or in the future,

directly or indirectly restrict the analysis or dissemination of the type of

information we gather and therefore materially adversely affect our operations.



Our services are subject to evolving industry standards and rapid technological

changes.



The markets for our services, particularly our QUINTERNET(TM) informatics

services, which include our data analysis 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;



     -    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; for

example, we derived approximately 45.8% of our 1999 net revenue from outside the

United States. 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. 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.





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We may be adversely affected by customer concentration.



We have one customer that accounted for 11 % of our revenues for the year ended

December 31, 1999. These revenues resulted from services provided by our product

development and commercialization service groups. If this or any future customer

of similar size decreases or terminates its relationship with us, our business,

results of operations or financial condition could be materially adversely

affected.



New healthcare legislation or regulation could restrict our informatics

business.



The Department of Health and Human Services published proposed regulations

setting privacy standards to protect health information that is transmitted

electronically in the Federal Register on November 3, 1999. The comment period

for these proposed rules ended February 17, 2000. We understand generally that

final regulations will be issued no earlier than 60 days after the end of the

comment period, however, HHS has indicated that a significant delay is likely

which will add additional months to the expected date of the final rules. While

the proposed rules, if promulgated without modification, likely would not

restrict us from de-identifying individual health information and providing such

de-identified, aggregated data to our Synergy subsidiary for purposes of

analysis, the proposed rule may be changed in response to comments and further

modification and could be preempted by legislation. Such legislative or

regulatory changes could occur as early as this year and their impact cannot be

predicted. If legislation or a more restrictive regulation is adopted, it could

inhibit third party processors in using, transmitting or disclosing health data

(even if they have been de-identified) for purposes other than facilitating

payment or performing other clearinghouse functions which would restrict our

ability to obtain data for use in our informatics services. In addition, it

could require us to establish uniform specifications for obtaining de-identified

data, so that de-identified data obtained from different sources could be

aggregated. Third party processors, under the proposed rules, or modified rules,

also may require us to provide indemnity from claims against them arising from

our use of data, even in de-identified form. While the impact of developments in

legislation, regulations or the demands of third party processors is difficult

to predict, each could materially adversely affect our informatics business.



Risks associated with discontinued operation--the ENVOY EDI business



Until the proposed sale of our ENVOY subsidiary closes, we will continue to

operate ENVOY's EDI business and will continue to be subject to the following

additional risks associated with ENVOY's EDI business.



EDI Services Are Subject to Evolving Industry Standards and Rapid Technological

Changes



The current industry standard EDI platform for processing transactions could be

replaced or supplemented by an Internet platform to handle these transactions.

Some of ENVOY's competitors in the EDI business are beginning to implement such

a platform. If others succeed in implementing an Internet platform and are able

to gain market acceptance of that platform, whether or not we develop and

execute an Internet platform, ENVOY's EDI business could be materially adversely

affected.



We Rely on Specific Data Centers for ENVOY's EDI Business



ENVOY's EDI business relies on a host computer system to perform real-time EDI

transaction processing. This host computer system is contained in a single data

facility. The host computer system does not have a remote backup data center.

Although the host computer system is insured, if there is a fire or other

disaster at the data facility, ENVOY's EDI business could be materially

adversely affected.



ENVOY's EDI business also relies on a data center operated by a third party to

perform many of ENVOY's other healthcare EDI transaction processing services.

The facility is located in Tampa, Florida and is operated by GTE Data Services

Incorporated, with whom ENVOY has contracted for such processing services.

ENVOY's EDI business relies primarily on this facility to process batch claims

and other medical EDI transaction sets. ENVOY's contract with GTE requires GTE

to maintain continuous processing capability and a "hot site" disaster recovery

system. This contract expires in December 2003. If the GTE facility's services

are disrupted or delayed, ENVOY's EDI business could be materially adversely

affected.





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We Cannot Predict the Need for Independent Healthcare EDI Processing



ENVOY's EDI business strategy anticipates that providers of healthcare services

and payors will increase their use of electronic processing of healthcare

transactions in the future. The development of the business of electronically

transmitting healthcare transactions is affected, and somewhat hindered, by the

complex nature and types of transactions that must be processed. Furthermore,

while the wide variety of processing forms used by different payors has fostered

the need for healthcare EDI and transaction processing clearinghouses such as

ENVOY to date, if such forms become standardized, through consolidation of

payors or otherwise, then the need for independent third party healthcare EDI

processing could become less prevalent. We cannot assure you that the electronic

processing of healthcare transactions will increase or that ENVOY's EDI business

will grow.



Direct Links May Bypass Need for ENVOY's EDI Services



Some third party payors provide electronic data transmission systems to

healthcare providers, thereby directly linking the payor to the provider. These

direct links bypass third party processors like us. An increase in the use of

direct links between payors and providers would materially adversely affect

ENVOY's EDI business.



Increased Competition in the Healthcare EDI Business Could Adversely Impact Our

Results



Increased competition in the healthcare EDI and transaction processing business

could force ENVOY to reduce, or even eliminate, per transaction fees, which

could adversely affect our results of operations. EDI services face different

types of competition, any or all of which could affect ENVOY's EDI business.

Some of ENVOY's competitors are similarly specialized, such as its former

regional partners that have direct provider relationships, and others are

involved in more highly developed areas of the business. In addition, some

vendors of provider information management systems include or may include, in

their offered products, their own electronic transaction processing systems. If

electronic transaction processing becomes the standard method of processing

healthcare claims and information, other companies with significant capital

resources could enter the industry.



Unauthorized Access To Data Centers Could Adversely Affect ENVOY's EDI Business



Unauthorized access to ENVOY's EDI data centers and misappropriation of our

proprietary information could have a material adverse effect on ENVOY's EDI

business and financial results. While we believe our current security measures

and the security measures used by third parties for which we process or transmit

healthcare information are adequate, such unauthorized access or

misappropriation could occur.





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   38



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



        This information is included under Item 7 of this report under the

caption "Market Risk."





ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA







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   39



                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)





                                                                      YEAR ENDED DECEMBER 31,

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

                                                               1999              1998             1997

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



                                                                                      

Net revenue                                                $ 1,607,087       $ 1,221,776       $ 885,557

Costs and expenses:

   Direct                                                      883,274           640,764         468,292

   General and administrative                                  505,166           394,432         286,760

   Depreciation and amortization                                82,292            57,191          38,691

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

                                                             1,470,732         1,092,387         793,743

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

Income from operations                                         136,355           129,389          91,814

Other income (expense):

   Interest income                                              14,391            11,646           8,575

   Interest expense                                            (11,233)          (11,810)         (8,865)

   Transaction costs                                           (26,322)           (3,475)         (2,234)

   Other                                                         2,719              (183)            149

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

                                                               (20,445)           (3,822)         (2,375)

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

Income from continuing operations before income taxes          115,910           125,567          89,439

Income taxes                                                    42,742            39,924          31,376

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

Income from continuing operations                               73,168            85,643          58,063

Income (loss) from discontinued operation, net of

   income taxes                                                 36,123             2,926          (9,197)

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

Net income                                                 $   109,291       $    88,569       $  48,866

                                                           ===========       ===========       =========



Basic net income per share:

   Income from continuing operations                       $      0.64       $      0.82       $    0.58

   Income (loss) from discontinued operation                      0.32              0.03           (0.09)

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

   Basic net income per share                              $      0.96       $      0.85       $    0.49

                                                           ===========       ===========       =========



Diluted net income per share:

   Income from continuing operations                       $      0.63       $      0.77       $    0.54

   Income (loss) from discontinued operation                      0.31              0.03           (0.09)

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

   Diluted net income per share                            $      0.94       $      0.80       $    0.46

                                                           ===========       ===========       =========



Shares used in computing net income per share:

   Basic                                                       113,525           104,799          99,908

   Diluted                                                     115,687           110,879         107,141







  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.





                                       37



   40



                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                 (IN THOUSANDS)





                                                                       DECEMBER 31,

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

                                                                 1999              1998

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

                                                                         

                  Assets

Current assets:

   Cash and cash equivalents                                 $   191,653       $   128,621

   Trade accounts receivable and unbilled services, net          377,278           308,267

   Investments                                                    32,476            32,241

   Prepaid expenses                                               37,216            26,326

   Other receivables                                              21,571            14,133

   Other current assets                                           21,888            17,747

   Net assets of discontinued operation                          122,981           130,458

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

         Total current assets                                    805,063           657,793

Property and equipment:

   Land, buildings and leasehold improvements                    182,648            94,284

   Equipment and software                                        296,843           201,458

   Furniture and fixtures                                         47,356            41,116

   Motor vehicles                                                 47,243            46,875

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

                                                                 574,090           383,733

   Less accumulated depreciation                                (174,406)         (128,402)

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

                                                                 399,684           255,331

Intangibles and other assets:

   Goodwill, net                                                 204,307            78,082

   Other intangibles, net                                          4,639             5,074

   Investments in debt securities                                 76,902            64,963

   Investments in marketable equity securities                    45,237               493

   Deferred income taxes                                          84,356            71,401

   Deposits and other assets                                      36,434            36,971

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

                                                                 451,875           256,984

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

         Total Assets                                        $ 1,656,622       $ 1,170,108

                                                             ===========       ===========







  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.





                                       38



   41



                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                        (IN THOUSANDS, EXCEPT SHARE DATA)





                                                                                          DECEMBER 31,

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

                                                                                     1999               1998

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

                                                                                             

                  Liabilities and Shareholders' Equity

Current liabilities:

   Lines of credit                                                               $        12       $       921

   Accounts payable                                                                   69,349            60,650

   Accrued expenses                                                                  165,446            80,593

   Unearned income                                                                   172,557           148,074

   Income taxes payable                                                               35,755             5,661

   Current portion of obligations held under capital leases                           14,727            12,568

   Current portion of long-term debt and obligation                                  154,178            21,126

   Other current liabilities                                                             823               737

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

         Total current liabilities                                                   612,847           330,330



Long-term liabilities:

   Obligations held under capital leases, less current portion                         8,589            12,447

   Long-term debt and obligation, less current portion                                 7,290           145,460

   Deferred income taxes                                                              31,381            30,439

   Other liabilities                                                                   4,756             5,300

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

                                                                                      52,016           193,646

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

         Total liabilities                                                           664,863           523,976



Commitments and contingencies

Shareholders' Equity:

   Preferred stock, 0 and 3,264,800 shares issued and

     outstanding at December 31, 1999 and 1998, respectively                              --                33

   Common Stock and additional paid-in capital, 115,118,347 and

     105,775,628 shares issued and outstanding at December 31,

     1999 and 1998, respectively                                                     788,247           559,496

   Retained earnings                                                                 204,062            95,618

   Accumulated other comprehensive income (loss)                                       1,677            (5,198)

   Other equity                                                                       (2,227)           (3,817)

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

       Total shareholders' equity                                                    991,759           646,132

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

       Total liabilities and shareholders' equity                                $ 1,656,622       $ 1,170,108

                                                                                 ===========       ===========







  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.





                                       39



   42



                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)





                                                                          YEAR ENDED DECEMBER 31,

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

                                                                   1999            1998             1997

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

                                                                                       

Operating activities:

    Net income                                                  $ 109,291       $  88,569       $  48,866

    (Income) loss from discontinued operation, net of

       income taxes                                               (36,123)         (2,926)          9,197

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

    Income from continuing operations                              73,168          85,643          58,063



Adjustments to reconcile net income to net cash provided

  by operating activities:

    Depreciation and amortization                                  82,292          57,191          38,691

    Non-recurring transaction costs                                26,322              --              --

    Net loss (gain) on sale of property and equipment                (355)            534             670

    Gain on sale of marketable equity securities                   (2,057)             --              --

    Provision for (benefit from) deferred income taxes             (1,448)         (1,728)         10,962

    Change in operating assets and liabilities:

        Accounts receivable and unbilled services                 (76,156)        (85,657)        (33,334)

        Prepaid expenses and other assets                         (16,493)         (5,291)        (16,236)

        Accounts payable and accrued expenses                      16,320          26,275          14,056

        Unearned income                                            13,960          49,332           3,092

        Income taxes payable and other current liabilities          7,659            (780)          8,728

    Other                                                             585              81            (519)

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

Net cash provided by operating activities                         123,797         125,600          84,173

Investing activities:

    Proceeds from disposition of property and equipment             6,535           6,297           4,642

    Purchase of investments held-to-maturity                       (6,215)             --              --

    Maturities of investments held-to-maturity                     86,683          10,593          35,579

    Purchase of investments available-for-sale                   (110,310)       (125,413)       (137,597)

    Proceeds from sale of investments available-for-sale           25,296         130,422          51,278

    Purchase of marketable equity securities                      (12,424)             --              --

    Proceeds from sale of marketable equity securities              5,913              --              --

    Purchase of other investments                                      --              --         (12,011)

    Acquisition of property and equipment                        (158,128)        (96,954)        (81,255)

    Acquisition of businesses, net of cash acquired                84,746           2,403         (11,329)

    Payment of non-recurring transaction costs                    (26,322)             --          (5,648)

    Loan to ESOP, net                                                  --          (3,429)             --

    Other                                                            (233)             85             (17)

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

Net cash used in investing activities                           $(104,459)      $ (75,996)      $(156,358)







                                       40







   43



                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                                 (IN THOUSANDS)





                                                                        YEAR ENDED DECEMBER 31,

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

                                                                 1999            1998             1997

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

                                                                                     

Financing activities:

   Increase (decrease) in lines of credit, net                $    (909)      $  (8,597)      $     660

   Proceeds from issuance of debt                                    --              --             566

   Repayment of debt                                             (4,341)           (677)         (7,302)

   Principal payments on capital lease obligations              (13,865)        (18,656)        (16,778)

   Issuance of common stock                                      19,724          24,280         110,758

   Dividend from discontinued operation                          47,070             150              --

   Dividends paid by pooled entity                               (1,089)         (3,499)         (5,397)

   Other                                                            (28)            827               2

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

Net cash provided by (used in) financing activities              46,562          (6,172)         82,509

Effect of foreign currency exchange rate changes on cash         (2,868)            592          (1,856)

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

Increase (decrease) in cash and cash equivalents                 63,032          44,024           8,468

Cash and cash equivalents at beginning of year                  128,621          84,597          76,129

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

Cash and cash equivalents at end of year                      $ 191,653       $ 128,621       $  84,597

                                                              =========       =========       =========

Supplemental Cash Flow Information:

   Interest paid                                              $  12,550       $  11,617       $   8,946

   Income taxes paid                                             32,961          22,286          16,848

Non-cash Investing and Financing Activities:

   Capitalized leases                                            12,871          19,531          23,027

   Equity impact of mergers and acquisitions                    206,275           5,046           1,134

   Equity impact from exercise of non-qualified stock

     options                                                      3,711           5,498          24,049

   Unrealized gain (loss) on marketable securities, net

     of tax                                                      17,781            (572)           (104)

   Tax effect of pooled transactions                                 --              --          62,700

   Conversion of debt to equity                               $      --       $      --       $   8,214







  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.





                                       41



   44



                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                 (IN THOUSANDS)





                                                                                                                 Employee

                                                                                                                   Stock

                                                                  Accumulated                                    Ownership

                                                                     Other                           Additional  Plan Loan

                                      Comprehensive   Retained   Comprehensive   Preferred   Common   Paid-In    Guarantee

                                         Income       Earnings   Income (Loss)     Stock      Stock   Capital     & Other   Total



                                                                                                   

Balance, December 31, 1996              $     --     $(26,830)      $   541        $ 43      $  613   $305,344   $(1,137)  $278,574

Issuance of common stock                      --           --            --          --          27    114,657        --    114,684

Principal payments on ESOP loan               --           --            --          --          --         --       536        536

Stock issued for acquisitions                 --         (445)           --          --          --        244        --       (201)

Issuance of common stock for other

  than cash                                   --           --            --          --           1         19        --         20

Conversion of debt by pooled entity           --           --            --          --           9      8,205        --      8,214

Effect due to change in fiscal year

  of pooled entity                            --       (3,775)          117          --          --         --        --     (3,658)

Tax effect of pooling of interests            --           --            --          --          --     62,700        --     62,700

Tax benefit from the exercise of

  non-qualified stock options                 --           --            --          --          --     21,367        --     21,367

Dividends paid by pooled entity               --       (5,814)           --          --          --        (72)       --     (5,886)

Two-for-one stock split                       --           --            --          --         369       (369)       --         --

Other equity transactions                     --           --            --          --          --         28        (1)        27

Comprehensive income:

   Net income                             48,866       48,866            --          --          --         --        --     48,866

   Unrealized loss on marketable

     securities, net of tax                 (104)          --          (104)         --          --         --        --       (104)

   Foreign currency adjustments           (7,856)          --        (7,856)         --          --         --        --     (7,856)

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

Comprehensive income for year ended

  December 31, 1997                       40,906

                                        ========

Balance, December 31, 1997                             12,002        (7,302)         43       1,019    512,123      (602)   517,283

Issuance of common stock                      --           --            --          --          17     24,263        --     24,280

Principal payments on ESOP loan               --           --            --          --          --         --       215        215

Loan to ESOP                                  --           --            --          --          --         --    (3,429)    (3,429)

Stock issued for acquisitions                 --         (272)           --          --          11      4,474        --      4,213

Tax benefit from the exercise of

  non-qualified stock options                 --           --            --          --          --     15,603        --     15,603

Conversion of preferred stock by

  pooled entity                               --           --            --         (10)         10         --        --         --

Dividends paid by pooled entity               --       (3,181)           --          --          --         --        --     (3,181)

Other equity transactions                     --       (1,500)           --          --          --      1,976        (1)       475

Comprehensive income:

   Net income                             88,569       88,569            --          --          --         --        --     88,569

   Unrealized loss on marketable

     securities, net of tax                 (572)          --          (572)         --          --         --        --       (572)

   Foreign currency adjustments            2,676           --         2,676          --          --         --        --      2,676

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

Comprehensive income for year ended

  December 31, 1998                       90,673

                                        ========

Balance, December 31, 1998                             95,618        (5,198)         33       1,057    558,439    (3,817)   646,132

Issuance of common stock                      --           --            --          --           8     19,716        --     19,724

Principal payments on ESOP loan               --           --            --          --          --         --       756        756

Stock issued for acquisitions                 --           --            --          --          51    206,224        --    206,275

Tax benefit from the exercise of

  non-qualified stock options                 --           --            --          --          --      3,711        --      3,711

Conversion of preferred stock by

  pooled entity                               --           --            --         (33)         33         --        --         --

Dividends paid by pooled entity               --       (1,089)           --          --          --         --        --     (1,089)

Effect due to change in fiscal year

  of pooled entity                            --          200            --          --          --         --        --        200

Other equity transactions                     --           42          (128)         --          --       (992)      834       (244)

Comprehensive income:

   Net income                            109,291      109,291            --          --          --         --        --    109,291

   Unrealized gain on marketable

     securities, net of tax               17,781           --        17,781          --          --         --        --     17,781

   Foreign currency adjustments          (10,778)          --       (10,778)         --          --         --        --    (10,778)

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

Comprehensive income for year ended

  December 31, 1999                     $116,294

                                        ========

Balance, December 31, 1999                           $204,062       $ 1,677        $ --      $1,149   $787,098   $(2,227) $ 991,759

                                                     ========       =======        ====      ======   ========   =======  =========





  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.



                                       42





   45



                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



THE COMPANY



    Quintiles Transnational Corp. (the "Company") improves healthcare by

bringing new medicines to patients faster and providing knowledge-rich medical

and drug data to advance the quality and cost effectiveness of healthcare. The

Company is a global market leader in helping pharmaceutical, biotechnology and

medical device companies market and sell their products. The Company also

provides insightful market research solutions and strategic analyses to support

healthcare decisions.



PRINCIPLES OF CONSOLIDATION



    The accompanying consolidated financial statements include the accounts and

operations of the Company and its subsidiaries. All material intercompany

accounts and transactions have been eliminated in consolidation.



USE OF ESTIMATES



    The preparation of financial statements in conformity with generally

accepted accounting principles requires management to make estimates and

assumptions that affect the amounts reported in the financial statements and

accompanying notes. Actual results could differ from those estimates.



FOREIGN CURRENCIES



    Assets and liabilities recorded in foreign currencies on the books of

foreign subsidiaries are translated at the exchange rate on the balance sheet

date. Revenues, costs and expenses are recorded at average rates of exchange

during the year. Translation adjustments resulting from this process are charged

or credited to equity. Gains and losses on foreign currency transactions are

included in other income (expense).



REVENUE RECOGNITION



     Many of the Company's contracts are fixed price, with some variable

components, and range in duration from a few months to several years. The

Company is also party to fee-for-service and unit-of-service contracts. The

Company recognizes net revenue based upon (1) labor costs expended as a

percentage of total labor costs expected to be expended (percentage of

completion) for fixed price contracts, (2) contractual per diem or hourly rate

basis as work is performed under fee-for-service contracts or (3) completion of

units of service for unit-of-service contracts.



     The Company's commercialization service group has entered into agreements

with certain customers, whereby the Company will provide a dedicated sales force

and fund certain sales and marketing expenses and receive payments based on the

achievement of certain sales levels of the promoted product. During the sales

force recruitment and training phase, the Company defers certain costs and will

amortize those costs over the lesser of the contractual termination period

(generally one year) or the proportion to revenue recognized.



    The Company's contracts provide for price renegotiation upon scope of work

changes. The Company recognizes revenue related to these scope changes when the

underlying services are performed and realization is reasonably assured. Most

contracts are terminable upon 15 - 90 days' notice by the customer. In the event

of termination, contracts typically require payment for services rendered

through the date of termination, as well as for subsequent services rendered to

close out the contract. Any anticipated losses resulting from contract

performance are charged to earnings in the period identified.





                                       43



   46



CONCENTRATION OF CREDIT RISK



    Substantially all net revenue is earned by performing services under

contracts with various pharmaceutical, biotechnology, medical device and

healthcare companies. The concentration of credit risk is equal to the

outstanding accounts receivable and unbilled services balances, less the

unearned income related thereto, and such risk is subject to the financial and

industry conditions of the Company's customers. The Company does not require

collateral or other securities to support customer receivables. Credit losses

have been immaterial and consistently within management's expectations. One

customer accounted for greater than 11% of consolidated net revenue in 1999.

These revenues were derived from both the Company's product development and

commercialization segments.



UNBILLED SERVICES AND UNEARNED INCOME



    In general, prerequisites for billings and payments are established by

contractual provisions including predetermined payment schedules, submission of

appropriate billing detail or the achievement of contract milestones, depending

on the type of contract. Unbilled services arise when services have been

rendered but customers have not been billed. Similarly, unearned income

represents prebillings for services that have not yet been rendered.



CASH EQUIVALENTS AND INVESTMENTS



     The Company considers all highly liquid investments with a maturity of

three months or less when purchased to be cash equivalents. The Company does not

report in the accompanying balance sheets cash held for customers for

investigator payments in the amount of $7.5 million and $7.3 million at December

31, 1999 and 1998, respectively, that pursuant to agreements with these

customers, remains the property of the customers.



     The Company's investments in debt and marketable equity securities are

classified as either held-to-maturity or available-for-sale. Investments

classified as held-to-maturity are recorded at amortized cost. Investments

classified as available-for-sale are measured at market value and net unrealized

gains and losses are recorded as a component of shareholders' equity until

realized. In addition, the Company has recorded $10.2 million and $19.2 million

in deposits and other assets at December 31, 1999 and 1998, respectively, that

represents investments in equity securities of and advances to companies for

which there are not readily available market values and for which the Company

does not exercise significant influence or control; such investments are

accounted for using the cost method. Any gains or losses on sales of investments

are computed by specific identification.



PROPERTY AND EQUIPMENT



     Property and equipment are carried at historical cost and are depreciated

using the straight-line method over the shorter of the asset's estimated useful

life or the lease term as follows:



     Buildings and leasehold improvements                   3 - 50 years

     Equipment and software                                 3 - 10 years

     Furniture and fixtures                                 5 - 10 years

     Motor vehicles                                         3 - 5  years



INTANGIBLE ASSETS



     Intangibles consist principally of the excess cost over the fair value of

net assets acquired ("goodwill"). Goodwill and other intangible assets are being

amortized on a straight-line basis over periods from two to 40 years.

Accumulated amortization totaled $22.3 million and $11.4 million at December 31,

1999 and 1998, respectively.



     The carrying values of intangible assets are reviewed 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 amortization period, the

Company will reduce carrying values to estimated fair value.





                                       44





   47



NET INCOME PER SHARE



     In February 1997, the Financial Accounting Standards Board ("FASB") issued

Statement No. 128, "Earnings per Share" which established new standards for

computing and presenting net income per share information. As required, the

Company adopted the provisions of Statement No. 128 in its 1997 financial

statements. Basic net income per share was determined by dividing net income by

the weighted average number of common shares outstanding during each year.

Diluted net income per share reflects the potential dilution that could occur

assuming conversion or exercise of all convertible securities and issued and

unexercised stock options. A reconciliation of the net income and number of

shares used in computing basic and diluted net income per share is in Note 5.



INCOME TAXES



     Income tax expense includes U.S. and international income taxes. Certain

items of income and expense are not reported in income tax returns and financial

statements in the same year. The income tax effects of these differences are

reported as deferred income taxes. Income tax credits are accounted for as a

reduction of income tax expense in the year in which the credits reduce income

taxes payable. Valuation allowances are provided against deferred income tax

assets which are not likely to be realized.



RESEARCH AND DEVELOPMENT COSTS



    Research and development costs relating principally to new software

applications and computer technology are charged to expense as incurred. These

expenses totaled $3.0 million, $3.5 million and $2.9 million in 1999, 1998 and

1997, respectively.



EMPLOYEE STOCK COMPENSATION



    The Company has elected to follow Accounting Principles Board Opinion No.

25, "Accounting for Stock Issued to Employees" ("APB 25") and related

interpretations in accounting for its employee stock options because the

alternative fair value accounting provided for under FASB Statement No. 123,

"Accounting for Stock-Based Compensation", requires use of option valuation

models that were not developed for use in valuing employee stock options. Under

APB 25, because the exercise price of the Company's employee stock options

equals the market price of the underlying stock on the date of grant, no

compensation expense is recognized.



FOREIGN CURRENCY HEDGING



     The Company may use foreign exchange contracts and options to hedge the

risk of changes in foreign currency exchange rates associated with contracts in

which the expenses for providing services are incurred in one currency and paid

for by the customer in another currency. The Company recognizes changes in value

in income only when contracts are settled or options are exercised. There were

no open foreign exchange contracts or options relating to service contracts open

at December 31, 1999.



COMPREHENSIVE INCOME



     In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive

Income," which requires presentation of comprehensive income, defined as net

income plus all other changes in net assets from non-owner sources. Statement

No. 130 requires foreign currency translation adjustments and unrealized gains

and losses on the Company's available-for sale securities to be included in

other comprehensive income. Accumulated other comprehensive income at December

31, 1999 was $1.7 million, consisting of ($15.5) million in foreign currency

translation adjustments and $17.2 million in unrealized gains on

available-for-sale securities.





                                       45



   48



RECENTLY ISSUED ACCOUNTING STANDARD



     In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative

Instruments and Hedging Activities." Statement No. 133 requires that upon

adoption, all derivative instruments be recognized in the balance sheet at fair

value, and that changes in such fair values be recognized in earnings unless

specific hedging criteria are met. Changes in the values of derivatives that

meet these hedging criteria will ultimately offset related earnings effects of

the hedged items; effects of certain changes in fair value are recorded in other

comprehensive income pending recognition in earnings. The Company will adopt

Statement No. 133 when required to do so on January 1, 2001. Because of its

limited use of derivatives, the Company does not expect the application of

Statement No. 133 to have a significant impact on its financial position or

results of operations.





2.   SHAREHOLDERS' EQUITY



     The Company is authorized to issue 25 million shares of preferred stock,

$.01 per share par value. At December 31, 1999, 200 million common shares of

$.01 par value were authorized.



     In November 1999, the Board of Directors declared a dividend distribution

of one preferred stock purchase right (a "Right") for each outstanding share of

the Company's Common Stock. Each Right, if activated, entitles the holder to

purchase one one-thousandth of a share of the Company's Series A Preferred Stock

at a purchase price of $150, subject to adjustment in certain circumstances.

Each one one-thousandth of a preferred share will have the same voting and

dividend rights as a share of Common Stock. The Rights become exercisable if any

person or group announces it has acquired or obtained the right to acquire 15%

or more of the outstanding shares of Common Stock or commences a tender offer or

exchange offer for more than 15% of the Common Stock, subject to limited

exceptions. In the event that any party should acquire more than 15% of the

Common Stock without the Board's approval, the rights entitle all other

shareholders to purchase shares of Common Stock at a substantial discount. In

addition, if any person holding 15% of the Common Stock acquires the Company or

substantially all of its assets, the Rights entitle all other shareholders to

purchase common stock of the acquirer at a substantial discount. The Rights

expire on November 15, 2009, unless redeemed earlier by the Company.





3.  OPERATIONS OF ENVOY



    On March 30, 1999, the Company acquired ENVOY Corporation ("ENVOY") in

exchange for 28,465,160 shares of the Company's Common Stock. Outstanding ENVOY

options became options to acquire 3,914,583 shares of the Company's Common

Stock. The acquisition of ENVOY was accounted for by the pooling of interests

method of accounting and all prior period financial information has been

restated to include ENVOY.



     On January 24, 2000, the Company announced a definitive agreement to sell

ENVOY to Healtheon/WebMD Corp. ("Healtheon/WebMD"). Following the sale, the

Company will no longer be in the electronic data interchange business. However,

prior to the sale, ENVOY will transfer its informatics subsidiary, Synergy

Health Care, Inc. ("Synergy") to the Company. Net revenues of Synergy for 1999

and 1998 were approximately $3.0 million per year. The Company will receive $400

million in cash and 35 million shares of Healtheon/WebMD common stock in

exchange for its entire interest in ENVOY and a warrant to acquire 10 million

shares of the Company's Common Stock at $40 per share, exercisable for four

years. Closing is expected to occur during the second quarter of 2000.



     After the proposed sale of ENVOY, the Company will retain exclusive rights

to de-identified ENVOY transaction data and certain other de-identified data

available from Healtheon/WebMD, subject to limited exceptions. The Company

agreed to share with Healtheon/WebMD a royalty derived from sales of products

using the licensed data. Upon the closing of the sale of ENVOY, the Company

plans to form a strategic alliance with Healtheon/WebMD to develop a web-based

suite of integrated products and services for the pharmaceutical industry. The

Company will provide $100 million in funding for development.



    ENVOY is being accounted for as a discontinued operation. The accompanying

consolidated financial statements reflect the operating results and balance

sheet items of ENVOY separately.





                                       46



   49

     The results of ENVOY have been reported separately as a discontinued

operation in the Consolidated Statement of Operations. The results of the

discontinued operation do not reflect any interest expense, management fee or

transaction costs allocated by the Company. Prior year consolidated financial

statements have been restated to present ENVOY as a discontinued operation.



    The following is a summary of income (loss) from operations of ENVOY (in

thousands):



                                               YEAR ENDED DECEMBER 31,

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

                                         1999          1998            1997

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



Net revenue                            $219,908      $181,943      $ 137,605

                                       ========      ========      =========



Income (loss) before income taxes      $ 61,438      $ 21,407      $  (2,864)

Income taxes                             25,315        18,481          6,333

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

Net income (loss)                      $ 36,123      $  2,926      $  (9,197)

                                       ========      ========      =========





         The assets and liabilities of ENVOY have been reclassified in the

accompanying consolidated balance sheets as net assets of discontinued

operation. The following is a summary of these net assets of discontinued

operation (in thousands):



                                                          DECEMBER 31,

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

                                                       1999            1998

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



Current assets                                     $  70,006       $  75,484

Other assets                                          88,794          95,789

Current liabilities                                  (33,977)        (33,050)

Long-term liabilities                                 (1,842)         (7,765)

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

         Net assets of discontinued operation      $ 122,981       $ 130,458

                                                   =========       =========



    On February 27, 1998, ENVOY acquired the Express Bill Companies pursuant to

separate agreements and plans of merger for an aggregate of 3.5 million shares

of ENVOY common stock (approximately 4.1 million shares of the Company's Common

Stock). These transactions were accounted for as poolings of interests and as

such, the historical financial data for ENVOY has been restated to include the

results of the Express Bill Companies.



    On May 6, 1998, ENVOY acquired all of the issued and outstanding capital

stock of Synergy for approximately $10.2 million in cash. ENVOY recorded

approximately $6.9 million related to the excess cost over the fair value of net

assets acquired. This acquisition was accounted for as a purchase and

accordingly, the results of Synergy have been included from the date of

acquisition.



    On October 1, 1998, ENVOY acquired substantially all of the assets of

Control-O-Fax Corporation and its wholly-owned subsidiary Control-O-Fax Systems,

Inc. (collectively, "Control-O-Fax"), for approximately $8.3 million in cash.

ENVOY recorded approximately $3.1 million related to the excess cost over the

fair value of the net assets acquired. This acquisition was accounted for as a

purchase and accordingly, the results of Control-O-Fax have been included from

the date of acquisition.



    On August 7, 1997, ENVOY acquired all of the issued and outstanding capital

stock of Healthcare Data Interchange Corporation ("HDIC"), the electronic data

interchange subsidiary of Aetna U.S. Healthcare Inc., for approximately $36.4

million in cash. ENVOY recorded approximately $38.9 million related to the

excess cost over the fair value of net assets acquired. As part of the HDIC

acquisition, ENVOY also recorded a one-time write-off of acquired in-process

technology of approximately $6.0 million. The acquisition was accounted for as a

purchase and accordingly, the results of HDIC have been included from the date

of acquisition.





                                       47





   50



4.  MERGERS AND ACQUISITIONS



    On January 1, 1999, the Company acquired substantial assets of Hoechst

Marion Roussel's ("HMR") Kansas City-based Drug Innovation and Approval facility

for approximately $93 million in cash, most of which (approximately $58 million)

is expected to be paid in the first half of 2000 when the acquisition of the

physical facility is completed. As a part of this transaction, the Company was

awarded a $436 million contract for continued support and completion of ongoing

HMR development projects over a five-year period. In addition, HMR will offer

the Company the opportunity to provide all U.S. clinical research services up to

an additional $144 million over the same period.



    On March 29, 1999, the Company acquired Pharmaceutical Marketing Services,

Inc. ("PMSI") and its core company, Scott-Levin, a leader in pharmaceutical

market information and research services in the U.S. The Company acquired PMSI

in exchange for approximately 4,993,787 shares of the Company's Common Stock.

Outstanding PMSI options became options to acquire approximately 440,426 shares

of the Company's Common Stock. In addition, the Company agreed to pay contingent

value payments to former PMSI shareholders who deferred receipt of one-half of

the shares of the Company's Common Stock they were entitled to receive in the

transaction until June 14, 1999. The right to receive contingent value payments

terminated in accordance with the merger agreement. Accordingly, no contingent

value payments were made or are payable to any former PMSI shareholder. The

total purchase price of the PMSI acquisition approximates $201.8 million. The

PMSI net assets acquired included approximately $90.0 million in cash. The

Company recorded approximately $111.5 million related to the excess cost over

the fair value of net assets acquired, which amount is being amortized over 30

years. The acquisition of PMSI has been accounted for as a purchase and

accordingly, the results of PMSI have been included from the date of

acquisition.



    On March 31, 1999, the Company acquired Medlab Pty Ltd and the assets of the

Niehaus & Botha partnership (collectively "N&B") in exchange for 271,146 shares

of the Company's Common Stock. On May 19, 1999, the Company acquired Minerva

Medical plc ("Minerva") in exchange for 1,143,625 shares of the Company's Common

Stock. On June 3, 1999, the Company acquired SMG Marketing Group, Inc. ("SMG")

in exchange for 1,170,291 shares of the Company's Common Stock. These

transactions were accounted for by the pooling of interests method and prior

period financial statements have been restated to include the results of

operations for these companies for all periods presented.



    The following is a summary of net revenue and net income from the beginning

of the year through the date of combination for companies acquired in

transactions accounted for as poolings of interests in 1999 and included in

continuing operations (in thousands):



                              N&B              Minerva               SMG

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



Net revenue                 $2,724             $1,938               $6,439



Net income                  $  535             $  290               $1,647



         On February 2, 1998, the Company acquired Pharma Networks N.V. in

exchange for 132,000 shares of the Company's Common Stock. On February 26, 1998,

the Company acquired T2A S.A. in exchange for 311,899 shares of the Company's

Common Stock. On May 31, 1998, the Company acquired Crossbox Limited t/a Cardiac

Alert in exchange for 70,743 shares of the Company's Common Stock. On August 24,

1998, the Company acquired Royce Consultancy, Limited in exchange for 664,194

shares of the Company's Common Stock. On September 9, 1998, the Company acquired

Data Analysis Systems, Inc. in exchange for 358,897 shares of the Company's

Common Stock. On October 12, 1998, the Company acquired QED International, Inc.

in exchange for 523,520 shares of the Company's Common Stock. These transactions

were accounted for by the pooling of interests method and the financial

statements of the Company have been restated to reflect the results of

operations of these acquisitions.



    On June 2, 1997, the Company acquired Butler Communications, Inc. in

exchange for 428,610 shares of the Company's Common Stock. On June 11, 1997, the

Company acquired 100% of the stock of Medical Action Communications Limited for

1,131,394 shares of the Company's Common Stock. On July 2, 1997, the Company

acquired CerebroVascular Advances, Inc. ("CVA") through an exchange of 100% of

CVA's stock for 467,936 shares of the Company's Common Stock. On August 29,

1997, the Company acquired Intelligent Imaging, Inc. ("Intelligent Imaging") in

exchange for 171,880 shares of the Company's Common Stock. On August 29, 1997,

the Company acquired Clindepharm International (Pty) Limited in exchange for

477,966 shares of the Company's Common Stock. These transactions were accounted

for by the pooling of interests method and the financial statements of the

Company have been restated to reflect the results of operations of these

acquisitions.





                                       48



   51



    In addition to the above mergers and acquisitions, the Company has completed

other mergers and acquisitions all of which are immaterial to the financial

statements. For immaterial pooling of interests transactions, the Company's

financial statements for the year of the transaction have been restated to

include the pooled companies from January 1 of that year, but the financial

statements for years prior to the year of the transaction have not been restated

because the effect of such restatement would be immaterial. For the Company's

1999 purchase transactions, the Company has not presented pro forma disclosures

because the results of operations for these transactions are not material to the

Company.





5.  NET INCOME PER SHARE



     The following table sets forth the computation of basic and diluted net

income per share (in thousands, except per share data):





                                                                                  YEAR ENDED DECEMBER 31,

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

                                                                            1999            1998           1997

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

                                                                                               

Net income:

  Income from continuing operations                                      $    73,168      $ 85,643      $  58,063

  Income (loss) from discontinued operation, net of income                    36,123         2,926         (9,197)

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

  Net income                                                             $   109,291      $ 88,569      $  48,866

                                                                         ===========      ========      =========



Weighted average shares:

  Basic weighted average shares                                              113,525       104,799         99,908

  Effect of dilutive securities:

     Stock options                                                             2,162         2,815          2,884

     Preferred Stock                                                              --         3,265          4,349

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

  Diluted weighted average shares                                            115,687       110,879        107,141

                                                                         ===========      ========      =========



  Basic net income per share:

     Income from continuing operations                                   $      0.64      $   0.82      $    0.58

     Income (loss) from discontinued operation                                  0.32          0.03          (0.09)

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

     Basic net income per share                                          $      0.96      $   0.85      $    0.49

                                                                         ===========      ========      =========



  Diluted net income per share:

     Income from continuing operations                                   $      0.63      $   0.77      $    0.54

     Income (loss) from discontinued operation                                  0.31          0.03          (0.09)

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

     Diluted net income per share                                        $      0.94      $   0.80      $    0.46

                                                                         ===========      ========      =========







     Options to purchase 6.1 million shares of common stock with exercise prices

ranging between $34.84 and $53.375 per share were outstanding during 1999 but

were not included in the computation of diluted net income per share because the

options' exercise price was greater than the average market price of the common

shares and, therefore, the effect would be antidilutive.



    The conversion of the Company's 4.25% Convertible Subordinated Notes

("Notes") into approximately 3.5 million shares of common stock was not included

in the computation of diluted net income per share because the effect would be

antidilutive.



    For additional disclosures regarding the outstanding stock options and the

Notes, see "Employee Benefit Plans" and "Credit Arrangements and Obligations."





                                       49



   52



6.  COMMITMENTS AND CONTINGENCIES



    On September 30, 1999, a class action lawsuit was filed in the United States

District Court for the Middle District of North Carolina against the Company and

two of its executive officers and directors on behalf of all persons who

purchased or otherwise acquired shares of the Company's Common Stock between

July 16, 1999 and September 15, 1999. The complaint alleges violations of

federal securities laws, including violations of Section 10(b) of the Securities

Exchange Act of 1934 and Rule 10b-5 thereunder. In particular, among other

claims, the complaint alleges that defendants made certain statements about the

Company's anticipated growth that were misleading because they failed to

disclose that the pharmaceutical industry allegedly had reversed its trend of

outsourcing clinical trials and that the Company had been notified that clinical

trials for a class of cardiovascular drugs would be discontinued. The complaint

seeks unspecified damages, plus costs and expenses, including attorneys' fees

and experts' fees.



    Since then, three additional class action complaints have been filed against

the Company in the same court. These three new actions assert essentially the

same claims and seek the same relief as the original complaint. One of the new

complaints, filed October 26, 1999, seeks to expand the class to include a

purported sub-class of persons who purchased Company call options, or sold

Company put options, during the class period. A group of investors in three of

the actions against the Company has filed a motion asking that all of the

actions be consolidated and that they be appointed as lead plaintiffs. The court

has not yet ruled on this motion. The Company anticipates that all of the

existing lawsuits, and any additional suits that may be filed, ultimately will

be consolidated into a single action. The Company continues to believe that all

of the claims are without merit and intends vigorously to defend the lawsuits.



    In February 1999, Kenneth Hodges ("Plaintiff") filed a civil lawsuit naming

as defendants Richard L. Borison, Bruce I. Diamond, 14 pharmaceutical companies

and Quintiles Laboratories Limited, a subsidiary of the Company. The complaint

alleges that certain drug trials conducted by Drs. Borison and Diamond in which

Plaintiff alleges he participated between 1988 and 1996 were not properly

conducted or supervised, that Plaintiff had violent adverse reactions to many of

the drugs and that his schizophrenia was aggravated by the drug trials.

Consequently, Plaintiff alleges that he was subject to severe mortification,

injured feelings, shame, public humiliations, victimization, emotional turmoil

and distress. The complaint alleges claims for battery, fraudulent inducement to

participate in the drug experiments, medical malpractice, negligence in

conducting the experiments, and intentional infliction of emotional distress.

Plaintiff seeks to recover damages in an amount in excess of $100 million.

Nowhere in the complaint are found any specific allegations against Quintiles

Laboratories Limited nor any specific factual connection between the Company and

the Plaintiff's claims. The Company believes the claims alleged against it are

vague and meritless, and the recovery sought is baseless. The Company intends to

vigorously defend itself against these claims.



    Three class action complaints were filed in 1998, and later consolidated

into a single action against ENVOY and certain of its executive officers. The

complaint asserted claims under Sections 10(b) and 20(a) of the Securities

Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, and

also asserted additional claims under Tennessee common law for fraud and

negligent misrepresentation (which state law claims were voluntarily dismissed

by the plaintiffs). The claims were consolidated into one Consolidated

Complaint. On September 15, 1999, the Federal Court for the Middle District of

Tennessee granted ENVOY's motion to dismiss the Consolidated Complaint. The

Court dismissed the complaint without prejudice. On November 23, 1999, the

plaintiffs filed what they deemed to be an Amended Consolidated Complaint.

Defendants moved to strike the purported Amended Consolidated Complaint on the

ground that the September 1999 dismissal order did not grant plaintiffs leave to

file an amended complaint (but does allow them to file a new lawsuit). On

January 6, 2000, the plaintiffs then moved to administratively re-open the case,

which motion the court granted on January 24, 2000, and then transferred the

case to another district judge. Defendants' motion to strike the purported

Amended Consolidated Complaint is still pending before the new district judge.

The plaintiffs in this action seek unspecified compensatory damages, attorney's

fees and other relief. The Company believes that these claims are without merit

and intend to defend the allegations vigorously. Neither the likelihood of an

unfavorable outcome nor the amount of the ultimate liability, if any, with

respect to these claims can be determined at this time.



    The Company is also a party in certain other pending litigation arising in

the normal course of business. In the opinion of management, the outcome of such

litigation currently pending will not have a material affect on the Company's

consolidated financial statements.





                                       50



   53



7.   CREDIT ARRANGEMENTS AND OBLIGATIONS



    On October 1, 1999, the Company entered into a loan agreement with the

Missouri Development Finance Board due on October 1, 2009. Net proceeds to the

Company were $5.6 million. Interest is charged at an annual rate of 6.7%.



    On May 31, 1998, the Company acquired a clinical trial supply production and

warehouse facility in Livingston, Scotland for a purchase commitment valued at

(pound)1.75 million (approximately $2.9 million), with payment due in May, 2001.



    On May 23, 1996, the Company completed a private placement of $143.75

million of 4.25% Convertible Subordinated Notes ("Notes") due May 31, 2000. Net

proceeds to the Company amounted to approximately $139.7 million. The Notes are

convertible into 3,474,322 shares of Common Stock, at the option of the holder,

at a conversion price of $41.37 per share, subject to adjustment under certain

circumstances, at any time after August 21, 1996. The Notes are redeemable, at

the option of the Company, beginning May 31, 1999. Interest is payable on the

notes semi-annually on May 31 and November 30 each year.



    The Company has a $150 million senior unsecured credit facility with a U.S.

bank. At the option of the Company, interest is charged at either the bank's

prime rate (8.5% at December 31, 1999) or LIBOR rate (5.8225% at December 31,

1999) plus an applicable rate (0.17% at December 31, 1999). No balance was

outstanding as of December 31, 1999.



    The Company has a (pound)10.0 million (approximately $16.2 million)

unsecured line of credit with a U.K. bank. Interest is charged at a base rate

(5.5% at December 31, 1999) plus 0.75%. No balance was outstanding at December

31, 1999.



    The Company has a (pound)1.5 million (approximately $2.4 million) general

banking facility with the same U.K. bank. This facility is used for the issuance

of guarantees and the bank charges a 1% per annum fee for each guarantee issued.

No balance was outstanding as of December 31, 1999.



    The Company had a (pound)5.0 million (approximately $8.4 million) unsecured

line of credit with a second U.K. bank. The line of credit had an outstanding

balance of (pound)200,000 (approximately $400,000) at December 31, 1998.

In accordance with its terms, this facility was repaid and expired in May 1999.



    In March 1995, Quintiles Scotland Limited, a wholly-owned subsidiary of the

Company, acquired assets of a drug development facility in Edinburgh, Scotland

from Syntex Pharmaceuticals Limited, a member of the Roche group based in Basel,

Switzerland for a purchase commitment valued at (pound)12.5 million

(approximately $20.9 million). During 1999 the payment terms were amended and

the Company paid approximately (pound)6.2 million (approximately $10.1 million)

in October, 1999. The remaining balance of approximately (pound)6.3 million

(approximately $10.1 million) is due in April, 2000.



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



                                                             DECEMBER 31,

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

                                                          1999          1998

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



4.25% Convertible Subordinated Notes due May 2000      $ 143,747     $ 143,747

Other notes payable                                          148           678

Obligations                                               12,940        23,830

Missouri tax incentive bonds                               5,614            --

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

                                                         162,449       168,255



       Less: current portion                             154,178        21,126

             unamortized issuance costs                      981         1,669

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

                                                       $   7,290     $ 145,460

                                                       =========     =========





                                       51



   54



Maturities of long-term debt and obligations at December 31, 1999 are as

follows (in thousands):



                      2000                       $ 154,671

                      2001                           3,315

                      2002                             446

                      2003                             467

                      2004                             499

                      Thereafter                     3,051

                                                 ---------



                                                 $ 162,449

                                                 =========



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





8.   INVESTMENTS



     The following is a summary as of December 31, 1999 of held-to-maturity

securities and available-for-sale securities by contractual maturity where

applicable (in thousands):



                                                             GROSS      GROSS

                                  AMORTIZED   UNREALIZED   UNREALIZED   MARKET

HELD-TO-MATURITY SECURITIES:        COST         GAINS       LOSSES     VALUE

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



State Securities --

   maturing in one year or less   $    798     $     --     $     --   $    798

   maturing in over five years       5,416           --           --      5,416

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

                                  $  6,214     $     --     $     --   $  6,214

                                  ========     ========     ========   ========





                                                             GROSS      GROSS

                                  AMORTIZED   UNREALIZED   UNREALIZED   MARKET

AVAILABLE-FOR-SALE SECURITIES:       COST        GAINS       LOSSES     VALUE

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



U.S. Government Securities --

  maturing in one year or less    $  5,438     $     --     $    (27)  $  5,411

  maturing between one and

    three years                     12,535           --         (315)    12,220

  maturing between three and

    five years                      58,538           --       (2,421)    56,117



State and Municipal Securities --

  maturing between one and

    three years                      1,544           --           (3)     1,541

Equity Securities                   15,523       29,714           --     45,237

Money Funds                         27,013           --         (746)    26,267

Other                                1,608           --           --      1,608

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

                                  $122,199     $ 29,714     $ (3,512)  $148,401

                                  ========     ========     ========   ========





                                       52



   55



         The following is a summary as of December 31, 1998 of held-to-maturity

securities and available-for-sale securities by contractual maturity where

applicable (in thousands):



                                                             GROSS      GROSS

                                  AMORTIZED   UNREALIZED   UNREALIZED   MARKET

HELD-TO-MATURITY SECURITIES:        COST         GAINS       LOSSES     VALUE

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



U.S. Government Securities --

   maturing in one year or less   $  2,990     $     15     $     --   $  3,005

Other                                2,333          217           --      2,550

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

                                  $  5,323     $    232     $     --   $  5,555

                                  ========     ========     ========   ========



                                                             GROSS      GROSS

                                  AMORTIZED   UNREALIZED   UNREALIZED   MARKET

AVAILABLE-FOR-SALE SECURITIES:       COST        GAINS       LOSSES     VALUE

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



U.S. Government Securities:

  maturing between one and

    three years                   $  6,506     $      2     $     (9)  $  6,499

  maturing between three and

    five years                      43,584            9         (298)    43,295

  maturing between five and

    seven years                     13,000           13          (39)    12,974

State and Municipal Securities --

  maturing in one year or less       2,000           --           --      2,000

  maturing between one and

    three years                      1,568           27           --      1,595

Equity Securities                      556           --          (63)       493

Money Funds                         25,512           --         (594)    24,918

Other                                  605           --           (5)       600

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

                                  $ 93,331     $     51     $ (1,008)  $ 92,374

                                  ========     ========     ========   ========



     The gross realized gains and losses on sales of available-for-sale

securities were $2.1 million and $1,000, respectively, in 1999, and $81,000 and

$210,000, respectively, in 1998. The net adjustment to unrealized holding gains

(losses) on available-for-sale securities included as a separate component of

shareholders' equity was $17.8 million, ($572,000) and ($104,000) in 1999, 1998

and 1997, respectively.





9.   ACCOUNTS RECEIVABLE AND UNBILLED SERVICES



     Accounts receivable and unbilled services consist of the following (in

thousands):



                                            DECEMBER 31,

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

                                        1999            1998

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

Trade:

   Billed                            $ 221,827       $ 178,874

   Unbilled services                   157,022         131,170

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

                                       378,849         310,044



Allowance for doubtful accounts         (1,571)         (1,777)

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

                                     $ 377,278       $ 308,267

                                     =========       =========





                                       53



   56



     Substantially all of the Company's trade accounts receivable and unbilled

services are due from companies in the pharmaceutical, biotechnology, medical

device, and healthcare industries and are a result of contract research, sales,

marketing, healthcare consulting and health information management services

provided by the Company on a global basis. The percentage of accounts receivable

and unbilled services by region is as follows:



                                  DECEMBER 31,

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

REGION                          1999      1998

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



Americas:

  United States                  55%       54%

  Other                           1         1

                                ---       ---

         Americas                56        55



Europe and Africa:

   United Kingdom                30        31

   Other                         11        12

                                ---       ---

         Europe and Africa       41        43



Asia - Pacific                    3         2

                                ---       ---

                                100%      100%

                                ===       ===





10.   ACCRUED EXPENSES



      Accrued expenses consist of the following (in thousands):



                                         DECEMBER 31,

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

                                      1999          1998

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



Compensation and payroll taxes      $ 51,704      $47,627

Acquisition related accruals          67,086           --

Other                                 46,656       32,966

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

                                    $165,446      $80,593

                                    ========      =======



11.   LEASES



     The Company leases certain office space and equipment under operating

leases. The leases expire at various dates through 2049 with options to cancel

certain leases at five-year increments. Some leases contain renewal options.

Annual rental expenses under these agreements were approximately $46.5 million,

$36.8 million and $26.2 million for the years ended December 31, 1999, 1998 and

1997, respectively. The Company leases certain assets, primarily vehicles, under

capital leases. Capital lease amortization is included with depreciation and

amortization expenses and accumulated depreciation in the accompanying financial

statements.



     The following is a summary of future minimum payments under capitalized

leases and under operating leases that have initial or remaining noncancelable

lease terms in excess of one year at December 31, 1999 (in thousands):



                                        CAPITAL LEASES     OPERATING LEASES



2000                                       $15,581              $ 45,903

2001                                         8,999                37,553

2002                                           106                30,611

2003                                             2                22,657

2004                                            --                18,096

Thereafter                                      --                73,098

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

Total minimum lease payments                24,688              $227,918

Amounts representing interest                1,372              ========

                                           -------

Present value of net minimum payments       23,316

Current portion                             14,727

                                           -------

Long-term capital lease obligations        $ 8,589

                                           =======





                                       54



   57



12.  INCOME TAXES



     The components of income tax expense attributable to continuing operations

are as follows (in thousands):



                                         YEAR ENDED DECEMBER 31,

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

                                   1999           1998           1997

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

Current:

   Federal                       $ 21,351       $ 26,640       $11,201

   State                            3,764          3,995         2,655

   Foreign                         10,099         12,736         7,003

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

                                   35,214         43,371        20,859

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

Deferred expense (benefit):

   Federal                         11,320         (1,068)        8,021

   Foreign                         (3,792)        (2,379)        2,496

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

                                    7,528         (3,447)       10,517

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

                                 $ 42,742       $ 39,924       $31,376

                                 ========       ========       =======





Income tax expense attributable to continuing operations excludes income tax

expense from its discontinued operation.



         The Company has allocated directly to additional paid-in capital

approximately $3.7 million in 1999, $15.6 million in 1998 and $21.4 million in

1997 related to the tax benefit from non-qualified stock options exercised.



         The differences between the Company's consolidated income tax expense

attributable to continuing operations and the expense computed at the 35% U.S.

statutory income tax rate were as follows (in thousands):







                                                                  YEAR ENDED DECEMBER 31,

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

                                                             1999          1998            1997

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



                                                                               

Federal income taxes at statutory rate                    $ 40,569       $ 43,949       $ 31,304

State and local income taxes, net of federal benefit         2,446          2,597          1,745

Non-deductible expenses and transaction costs                9,966             --             --

Foreign earnings taxed at different rates                   (4,240)          (519)           726

Utilization of net operating loss carryforwards               (461)        (2,194)          (398)

Non-taxable income                                              --           (590)        (1,521)

Other                                                       (5,538)        (3,319)          (480)

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

                                                          $ 42,742       $ 39,924       $ 31,376

                                                          ========       ========       ========







     Income before income taxes from foreign operations was approximately $27.8

million, $30.8 million and $4.7 million for the years 1999, 1998 and 1997,

respectively. Income from foreign operations was approximately $59.5 million,

$63.0 million and $35.8 million for the years 1999, 1998 and 1997, respectively.

The difference between income from operations and income before income taxes is

due primarily to intercompany charges which eliminate in consolidation.

Undistributed earnings of the Company's foreign subsidiaries amounted to

approximately $120.6 million at December 31, 1999. Those earnings are considered

to be indefinitely reinvested, and accordingly, no U.S. federal and state income

taxes have been provided thereon. Upon distribution of those earnings in the

form of dividends or otherwise, the Company would be subject to both U.S. income

taxes (subject to an adjustment for foreign tax credits) and withholding taxes

payable to the various countries.





                                       55





   58





     The tax effects of temporary differences from continuing operations that

give rise to significant portions of deferred income tax assets (liabilities)

are presented below (in thousands):



                                                             DECEMBER 31,

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

                                                        1999             1998

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



Deferred income tax liabilities:

   Depreciation and amortization                     $ (25,834)      $ (29,077)

   Prepaid expenses                                     (6,274)         (1,835)

   Unrealized gain on equity investments                (9,297)             --

   Other                                               (11,386)         (3,693)

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

Total deferred income tax liabilities                  (52,791)        (34,605)

Deferred income tax assets:

   Net operating loss carryforwards                     29,398          24,456

   Accrued expenses and unearned income                 15,469          13,434

   Goodwill,  net of amortization                       87,304          94,432

   Other                                                14,778           5,902

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

                                                       146,949         138,224

Valuation allowance for deferred income tax assets     (56,224)        (52,685)

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

Total deferred income tax assets                        90,725          85,539

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

Net deferred income tax assets                       $  37,934       $  50,934

                                                     =========       =========



     The increase in the Company's valuation allowance for deferred income tax

assets to $56.2 million at December 31, 1999 from $52.7 million at December 31,

1998 is primarily due to the uncertainty related to the deferred income tax

asset for certain acquisition costs offset by the reduction of prior year

valuation allowances relating to net operating loss carryforwards that more

likely than not will be available for utilization in the future. In connection

with the Innovex acquisition, the Company established an initial deferred income

tax asset of $108 million to reflect the income tax benefits arising from the

deductibility of goodwill recorded for tax purposes. The Innovex business

combination was accounted for as a pooling of interests for financial reporting

purposes, and no goodwill was recorded. In addition, the Company recorded a

$45.3 million valuation allowance related to this taxable goodwill to reflect

uncertainties that might affect the realization of this deferred income tax

asset. These uncertainties include the projection of future taxable and foreign

source income, the interplay of U.S. income tax statutes and the Company's

ability to minimize foreign tax credit limitations. Based on its analysis, the

Company believes it is more likely than not that a portion of the deferred

income tax asset related to this taxable goodwill will not be recognized. The

resulting net asset of $62.7 million was recorded as an increase to additional

paid-in capital.



     The Company's deferred income tax expense (benefit) results from the

following (in thousands):



                                                  YEAR ENDED DECEMBER 31,

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

                                              1999        1998         1997

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



Excess (deficiency) of income tax over

  financial reporting:

  Depreciation and amortization             $ 8,322     $ 10,326     $ 14,936

  Net operating loss carryforwards              795       (6,816)      (6,057)

  Valuation allowance reduction              (2,120)      (2,194)        (636)

  Accrued expenses and unearned income       (2,397)      (6,611)        (874)

  Other items, net                            2,928        1,848        3,148

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

                                            $ 7,528     $ (3,447)    $ 10,517

                                            =======     ========     ========





     The U.K. subsidiaries qualify for Scientific Research Allowances (SRAs) for

100% of capital expenditures on certain assets under the Inland Revenue Service

guidelines. For 1999, 1998 and 1997, these allowances were $9.7 million, $23

million and $28 million, respectively, which helped to generate net operating

loss carryforwards of $5.0 million to be used to offset taxable income in that

country. Assuming the U.K. subsidiaries continue to invest in qualified capital

expenditures at an adequate level, the portion of the deferred income tax

liability relating to the U.K. subsidiaries may be deferred indefinitely. The

Company recognizes a deferred income tax benefit for foreign generated operating

losses at the time of the loss, as the Company believes it is more likely than

not that the benefit will be realized. The Company has net operating loss

carryforwards of approximately $53.7 million in various entities within the

United Kingdom which have no expiration date and has over $16 million of net

operating loss carryforwards from various foreign jurisdictions which have

different expiration periods. In addition, the Company has approximately

$800,000 of U.S. state operating loss carryforwards which expire through 2014

and has approximately $17.9 million of U.S. federal operating loss carryforwards

which begin to expire in 2005.





                                       56



   59



13. EMPLOYEE BENEFIT PLANS



    The Company has numerous employee benefit plans, which cover substantially

all eligible employees in the countries where the plans are offered.

Contributions are primarily discretionary, except in some countries where

contributions are contractually required. Plans include Approved Profit Sharing

Schemes in the U.K. and Ireland that are funded with Company stock, a defined

contribution plan funded by Company stock in Australia, Belgium, Singapore and

Canada, defined contribution plans in Belgium, Holland, Sweden, and Great

Britain, a profit sharing scheme in France, and defined benefit plans in Germany

and the U.K. The defined benefit plan in Germany is an unfunded plan, which is

provided for in the balance sheet. In addition, the Company sponsors a

supplemental non-qualified deferred compensation plan, covering certain

management employees.



    Effective May 1, 1999, the Company merged, for administrative purposes only,

its leveraged employee stock ownership plan (the "ESOP") and employee savings

and investment plan (the "401(k)"). The eligibility requirements and benefits

offered to employees under each plan were not affected by the merger.



    In 1992, the Company loaned the ESOP approximately $2.0 million to purchase

413,222 shares of the Company's Common Stock. As of December 31, 1997, the loan

was repaid. In connection with its acquisition of BRI, the Company merged the

existing BRI ESOP, also a leveraged plan, into the Company's ESOP effective

September 1, 1997. During 1998, the ESOP borrowed approximately $4.0 million

from the Company to purchase 100,000 shares of the Company's Common Stock. The

ESOP's trustee holds such shares in suspense and releases them for allocation to

participants as the loan is repaid. The Company's contributions to the ESOP are

used to repay the loan principal and interest.



    The amount of ESOP expense recognized is equal to the cost of the shares

allocated to plan participants and the interest expense on the leveraged loans

for the year. ESOP expense totaled $1.3 million, $1.7 million and $568,000 in

1999, 1998 and 1997, respectively. As of December 31, 1999, 1998 and 1997,

1,510,654, 1,520,950 and 1,773,000 shares, respectively, were allocated to

participants. Shares unallocated and held in suspense as of December 31, 1999,

totaled 111,748 and had a fair value of $2.1 million. All ESOP shares are

considered outstanding for net income per share calculations.



    Under the 401(k), the Company matches employee deferrals at varying

percentages, set at the discretion of the Board of Directors. For the years

ended December 31, 1999, 1998 and 1997, the Company expensed $4.3 million, $3.4

million and $2.1 million, respectively, as matching contributions.



    The Company has an employee stock purchase plan (the "Purchase Plan"), which

is intended to provide eligible employees an opportunity to acquire the

Company's Common Stock. Participating employees have the option to purchase

shares at 85% of the lower of the closing price per share of common stock on the

first or last day of the calendar quarter. The Purchase Plan is intended to

qualify as an "employee stock purchase plan" under Section 423 of the Internal

Revenue Code of 1986, as amended. During 1999, 1998 and 1997, 414,971, 141,727

and 84,522 shares, respectively, were purchased under the Purchase Plan. At

December 31, 1999, 2,355,767 shares were available for issuance under the

Purchase Plan.



     The Company has stock option plans to provide incentives to eligible

employees, officers and directors in the form of incentive stock options,

non-qualified stock options, stock appreciation rights and restricted stock. The

Board of Directors determines the option price (not to be less than fair market

value for incentive options) at the date of grant. Options, particularly those

assumed or exchanged as a result of acquisitions, have various vesting schedules

and expiration periods. The majority of options granted under the Executive

Compensation Plan typically vest 25% per year over four years expiring ten years

from the date of grant.





                                       57





   60



     Stock option activity during the periods indicated is as follows:



                                                     Weighted-Average

                                          Number      Exercise Price

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



Outstanding at December 31, 1996        8,734,788       $   12.62

   Granted                              3,206,831           31.69

   Exercised                           (2,075,369)           6.76

   Canceled                              (530,734)          20.77

                                       ----------

Outstanding at December 31, 1997        9,335,516           20.02

   Granted                              3,148,054           43.26

   Exercised                           (1,535,542)          12.38

   Canceled                              (728,087)          25.40

                                       ----------

Outstanding at December 31, 1998       10,219,941           27.99

   Granted                              9,064,319           27.56

   Exercised                             (530,872)          20.21

   Canceled                              (868,908)          36.69

                                       ----------

Outstanding at December 31, 1999       17,884,480       $   27.59

                                       ==========





     Pro forma information regarding net income and net income per share is

required by Statement No. 123 and has been determined as if the Company had

accounted for its employee stock options under the fair value method of

Statement No. 123. The per share weighted-average fair value of stock options

granted during 1999, 1998 and 1997 was $9.05, $16.07 and $12.64 per share,

respectively, on the date of grant using the Black-Scholes option pricing model

with the following weighted-average assumptions:







                                                  Employee Stock Options         Employee Stock Purchase Plan

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

                                              1999        1998        1997       1999        1998         1997

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



                                                                                       

Expected dividend yield                          0%          0%          0%          0%          0%          0%



Risk-free interest rate                        5.8%        4.8%        5.9%        4.7%        4.9%        5.1%



Expected volatility                           40.0%       42.0%       41.0%       40.0%       40.0%       34.4%



Expected life (in years from vesting)          1.40        1.35        1.20        0.25        0.25        0.25







     The Black-Scholes option pricing model was developed for use in estimating

the fair value of traded options that have no vesting restrictions and are

transferable. All available option pricing models require the input of highly

subjective assumptions including the expected stock price volatility. Because

the Company's employee stock options have characteristics significantly

different from those of traded options and changes in the subjective input

assumptions can materially affect the fair value estimate, in management's

opinion, the existing models do not necessarily provide a reliable single

measure of the fair value of its employee stock options.



     The Company's pro forma information (which includes expense related to

discontinued operation of approximately $5.0 million in 1999, $4.5 million in

1998 and $2.2 million in 1997) follows (in thousands, except for net income per

share information):



                                                   YEAR ENDED DECEMBER 31,

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

                                                 1999       1998        1997

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



Pro forma net income                           $81,793     $70,252    $36,773



Pro forma basic net income per share              0.72        0.67       0.37



Pro forma diluted net income per share            0.71        0.63       0.34





                                       58



   61



Selected information regarding stock options as of December 31, 1999 follows:







                              OPTIONS OUTSTANDING                                    OPTIONS EXERCISABLE

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

 Number of                               Weighted-Average   Weighted-Average     Number of     Weighted-Average

  Options         Exercise Price Range    Exercise Price     Remaining Life       Options       Exercise Price

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



                                                                               

 2,207,989         $  0.20  -  $  8.58       $   6.87             3.9            1,859,169       $    6.57

 7,391,595         $  8.75  -  $ 24.01          19.50             8.6            1,188,752           18.86

 3,472,851         $ 24.56  -  $ 37.75          33.83             7.9            1,213,040           31.92

 3,366,009         $ 37.81  -  $ 52.13          41.44             8.3            1,508,460           40.15

 1,446,036         $ 53.38  -  $ 56.25          53.38             9.0              754,935           53.38

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

17,884,480                                   $  27.59             7.9            6,524,356       $   26.70

==========                                                                       =========









14.  OPERATIONS BY GEOGRAPHIC LOCATION



     The table below presents the Company's operations by geographical location.

The Company attributes revenues to geographical locations based upon (1)

customer service activities, (2) operational management, (3) business

development activities and (4) customer contract coordination. The Company's

operations within each geographical region are further broken down to show each

country which accounts for 10% or more of the totals (in thousands):



                                    1999             1998          1997

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

Net revenue:

  Americas:

     United States               $  870,559      $  599,757      $428,920

     Other                           23,987          15,078         7,325

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

          Americas                  894,546         614,835       436,245



  Europe and Africa:

     United Kingdom                 378,099         346,090       256,371

     Other                          260,096         232,047       170,248

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

          Europe and Africa         638,195         578,137       426,619



  Asia-Pacific                       74,346          28,804        22,693

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

                                 $1,607,087      $1,221,776      $885,557

                                 ==========      ==========      ========

Long-lived assets:

  Americas:

     United States               $  214,503      $   78,599      $ 55,072

     Other                            2,211           1,544         1,130

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

          Americas                  216,714          80,143        56,202



  Europe and Africa:

     United Kingdom                 156,067         149,101       117,407

     Other                           20,473          20,713        15,330

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

          Europe and Africa         176,540         169,814       132,737



  Asia-Pacific                        6,430           5,374         2,414

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

                                 $  399,684      $  255,331      $191,353

                                 ==========      ==========      ========





                                       59



   62



15.  SEGMENTS



     The following table presents the Company's operations by reportable

segment. The Company is managed through three reportable segments, namely, the

product development service group, the commercialization service group and the

QUINTERNET(TM) informatics service group. Management has distinguished these

segments based on the normal operations of the Company. The product development

group is primarily responsible for all phases of clinical research and outcomes

research consulting. The commercialization group is primarily responsible for

sales force deployment and strategic marketing services. The QUINTERNET(TM)

informatics group is primarily responsible for providing market research

solutions and strategic analyses to support healthcare decisions. The

QUINTERNET(TM) informatics group has been restated to exclude the electronic

data interchange operations of ENVOY, which has been treated as a discontinued

operation. The Company does not include non-recurring costs, interest income

(expense) and income tax expense (benefit) in segment profitability. Overhead

costs are allocated based upon management's best estimate of efforts expended in

managing the segments. There are not any significant intersegment revenues (in

thousands):







                                                    1999             1998           1997

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

                                                                         

Net revenue:

  Product development                           $   948,905       $  708,508      $517,993

  Commercialization                                 614,660          496,178       356,064

  QUINTERNET(TM) informatics                         43,522           17,090        11,500

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

                                                $ 1,607,087       $1,221,776      $885,557

                                                ===========       ==========      ========



Income (loss) from operations:

  Product development                           $    83,842       $   77,605      $ 52,167

  Commercialization                                  57,683           47,298        37,685

  QUINTERNET(TM) informatics                         (5,170)           4,486         1,962

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

                                                $   136,355       $  129,389      $ 91,814

                                                ===========       ==========      ========



Total assets:

  Product development                           $   940,274       $  754,129      $614,234

  Commercialization                                 290,356          267,091       213,519

  QUINTERNET(TM) informatics                        303,011           18,430         5,433

  Net assets of discontinued operation              122,981          130,458       125,082

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

                                                $ 1,656,622       $1,170,108      $958,268

                                                ===========       ==========      ========



Expenditures to acquire long-lived assets:

  Product development                           $   130,616       $   77,587      $ 68,877

  Commercialization                                  22,150           18,349        11,510

  QUINTERNET(TM) informatics                          5,362            1,018           868

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

                                                $   158,128       $   96,954      $ 81,255

                                                ===========       ==========      ========



Depreciation and amortization expense:

  Product development                           $    49,391       $   33,341      $ 20,463

  Commercialization                                  26,268           22,681        17,864

  QUINTERNET(TM) informatics                          6,633            1,169           364

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

                                                $    82,292       $   57,191      $ 38,691

                                                ===========       ==========      ========







                                       60



   63



16.  QUARTERLY FINANCIAL DATA (UNAUDITED)



     The following is a summary of unaudited quarterly results of operations (in

thousands, except per share amounts):







                                                               YEAR ENDED DECEMBER 31, 1999

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

                                               FIRST            SECOND              THIRD             FOURTH

                                              QUARTER           QUARTER            QUARTER            QUARTER

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



                                                                                        

Net revenue                                $   359,705        $   402,276        $   402,497        $   442,609

Income from operations                          38,517             42,455             27,997             27,386

Income from continuing operations                3,364             25,139             20,500             24,165

Income from discontinued operation,

   net of taxes                                  5,250             10,041             10,679             10,153

Net income                                 $     8,614        $    35,180        $    31,179        $    34,318

                                           ===========        ===========        ===========        ===========

Basic net income per share:

   Income from continuing operations       $      0.03        $      0.22        $      0.18        $      0.21

   Income from discontinued operation             0.05               0.09               0.09               0.09

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

   Basic net income per share              $      0.08        $      0.31        $      0.27        $      0.30

                                           ===========        ===========        ===========        ===========

Diluted net income per share:

   Income from continuing operations       $      0.03        $      0.21        $      0.18        $      0.21

   Income from discontinued operation             0.05               0.09               0.09               0.09

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

   Diluted net income per share            $      0.08        $      0.30        $      0.27        $      0.30

                                           ===========        ===========        ===========        ===========



Range of stock prices                   $ 34.625 - 53.375  $34.750 - 45.500   $ 16.875 - 41.938   $ 16.000 - 25.031











                                                               YEAR ENDED DECEMBER 31, 1998

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

                                               FIRST            SECOND              THIRD             FOURTH

                                              QUARTER           QUARTER            QUARTER            QUARTER

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



                                                                                        

Net revenue                                $   272,546        $   297,947        $   315,558        $   335,725

Income from operations                          30,565             30,250             32,152             36,422

Income from continuing operations               21,139             19,921             20,105             24,478

Income from discontinued operation,

  net of taxes                                      75                497              1,880                474

Net income                                 $    21,214        $    20,418        $    21,985        $    24,952

                                           ===========        ===========        ===========        ===========

Basic net income per share:

   Income from continuing operations       $      0.20        $      0.19        $      0.19        $      0.23

   Income from discontinued operation             0.00               0.00               0.02               0.00

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

   Basic net income per share              $      0.20        $      0.20        $      0.21        $      0.24

                                           ===========        ===========        ===========        ===========

Diluted net income per share:

   Income from continuing operations       $      0.19        $      0.18        $      0.18        $      0.22

   Income from discontinued operation             0.00               0.00               0.02               0.00

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

   Diluted net income per share            $      0.19        $      0.18        $      0.20        $      0.22

                                           ===========        ===========        ===========        ===========



Range of stock prices                   $ 34.000 - 52.428  $ 42.250 - 53.500  $ 33.375 - 52.000  $ 41.000 - 56.875







                                       61



   64





17.   SUBSEQUENT EVENTS



         On January 26, 2000, the Company announced the adoption of a

restructuring plan. In connection with this plan, the Company anticipates

recognizing a restructuring charge of approximately $55 million during the first

quarter of 2000. The restructuring charge will consist primarily of severance

costs related to a worldwide workforce reduction of approximately 800 positions

and lease termination costs related to the consolidation of offices.



         On February 3, 2000, the Board of Directors authorized the Company to

repurchase up to $200 million of the Company's Common Stock from time to time

over the next 12 months in open market, block or negotiated transactions.





                                       62





   65



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS





To Quintiles Transnational Corp.:



We have audited the accompanying consolidated balance sheets of Quintiles

Transnational Corp. (a North Carolina corporation) and subsidiaries as of

December 31, 1999 and 1998, and the related consolidated statements of

operations, shareholders' equity and cash flows for each of the two years in the

period then ended. These financial statements are the responsibility of the

Company's management. Our responsibility is to express an opinion on these

financial statements based on our audits. We did not audit the December 31, 1998

consolidated financial statements of ENVOY Corporation, a company acquired

during 1999 in a transaction accounted for as a pooling of interests, as

discussed in Note 3. Such statements are included in the consolidated financial

statements of Quintiles Transnational Corp., and reflect total assets and total

net income of 11 percent and 2 percent, respectively, of the related

consolidated totals. These statements were audited by other auditors whose

report has been furnished to us and our opinion, insofar as it relates to the

amounts included for ENVOY Corporation, is based solely upon the report of the

other auditors.



We conducted our audits in accordance with generally accepted auditing

standards. Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis, evidence supporting

the amounts and disclosures in the financial statements. An audit also includes

assessing the accounting principles used and significant estimates made by

management, as well as evaluating the overall financial statement presentation.

We believe that our audits and the report of other auditors provide a reasonable

basis for our opinion.



In our opinion, based upon our audits and the report of the other auditors, the

consolidated financial statements referred to above present fairly, in all

material respects, the financial position of Quintiles Transnational Corp. and

subsidiaries as of December 31, 1999 and 1998, and the results of their

operations and their cash flows for each of the two years in the period then

ended, in conformity with generally accepted accounting principles.







                                              Arthur Andersen LLP







Raleigh, North Carolina,

January 26, 2000, except

with respect to the matter

discussed in Note 17, as to

which the date is February 3, 2000.





                                       63





   66



REPORT OF INDEPENDENT AUDITORS



The Board of Directors and Shareholders of Quintiles Transnational Corp.



We have audited the accompanying consolidated statements of operations,

shareholders' equity, and cash flows of Quintiles Transnational Corp. (formed as

a result of the consolidation of Quintiles Transnational Corp. and the companies

identified in Notes 3 and 4 of the consolidated financial statements) for the

year ended December 31, 1997. The consolidated financial statements give

retroactive effect to the merger of Quintiles Transnational Corp. and the

companies identified in Notes 3 and 4, which have been accounted for using the

pooling of interests method as described in the notes to the consolidated

financial statements. These financial statements are the responsibility of the

management of Quintiles Transnational Corp. Our responsibility is to express an

opinion on these financial statements based on our audit.



We conducted our audit in accordance with auditing standards generally accepted

in the United States. Those standards require that we plan and perform the audit

to obtain reasonable assurance about whether the financial statements are free

of material misstatement. An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the financial statements. An audit

also includes assessing the accounting principles used and significant estimates

made by management, as well as evaluating the overall financial statement

presentation. We believe that our audit provides a reasonable basis for our

opinion.



In our opinion, the financial statements referred to above present fairly, in

all material respects, the consolidated results of the operations and cash flows

of Quintiles Transnational Corp. for the year ended December 31, 1997, after

giving retroactive effect to the merger of the companies identified in Notes 3

and 4 to the consolidated financial statements, in conformity with accounting

principles generally accepted in the United States.







                                             Ernst & Young LLP







Raleigh, North Carolina

January 26, 1998,

except for Notes 3 and 4, as to which the date is

January 24, 2000.







                                       64









   67





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

         FINANCIAL DISCLOSURE



         Not applicable.





                                       65



   68





                                    PART III



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



         DIRECTORS AND EXECUTIVE OFFICERS



         Set forth below is certain information with respect to each of our

directors and executive officers who serve in such capacities as of the filing

date of this Form 10-K. There are no family relationships between any of our

directors or executive officers.



         Name                Age   Position with the Company

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

James L. Bierman              47   Chief Financial Officer

Robert C. Bishop, Ph.D.       57   Director

E.G.F. Brown                  56   Director

Vaughn D. Bryson              61   Director

Santo J. Costa                54   Vice Chairman and Director

Chester W. Douglass, Ph.D.    60   Director

William E. Ford               38   Director

Dennis B. Gillings, Ph.D.     56   Chairman of the Board of Directors and

                                     Chief Executive Officer

Fred C. Goad                  59   Director

Jim D. Kever                  47   Director and Chief Executive Officer of ENVOY

Arthur M. Pappas              52   Director

John S. Russell               45   Senior Vice President and General Counsel

Eric J. Topol, M.D.           45   Director

Virginia V. Weldon, M.D.      64   Director





         JAMES L. BIERMAN became Chief Financial Officer in February 2000 and

served as our Senior Vice President, Corporate Development since 1998.

Previously, Mr. Bierman spent 22 years with Arthur Andersen L.L.P. As a partner

of this international professional services organization, he worked with a

diversified broad-base of companies solving complex business problems. His

experience ranges from applying knowledge of complex business processes to

improve operational efficiency and effectiveness while reducing risk to

researching and developing leading-edge accounting issues. He has been a

frequent speaker at various industry trade group-sponsored symposiums on various

financial and accounting topics. He has authored several articles, the latest of

which was published in Bank Director White Paper Mergers and Acquisitions:

Strategies and Trends Shaping the Industry. The article is titled "Mergers of

Equals vs. Acquisition: Strategies for Success." Mr. Bierman received his B.A.

degree in Economics/History from Dickinson College in Carlisle, Pennsylvania,

and attended Cornell University's Johnson Graduate School of Management, where

he received his M.B.A.



         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 for AutoImmune,

Inc., a biotechnology company. From May 1992 to December 1999, Dr. Bishop served

as President, Chief Executive Officer and director of AutoImmune, Inc. From

February 1991 to April 1992, Dr. Bishop served as President of Allergan

Therapeutics Group, a division of Allergan, Inc., an eye and skin care company.

From August 1989 to February 1991, Dr. Bishop served as President of Allergan

Pharmaceuticals, a division of Allergan, 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 microelectronics

and biopharmaceutical industries. Dr. Bishop received an M.B.A. from the

University of Miami and a Ph.D. in Biochemistry from the University of Southern

California.





                                       66



   69



         E. G. F. BROWN has served as a director since January 1998. Mr. Brown

is Chairman-Mainland Europe of Tibbett & Britten Group plc. Mr. Brown was

previously an Executive Director of T.D.G. PLC, a European logistics company,

and a director of Datrontech PLC, a distributor of personal computer components.

Prior to joining TDG in 1996, Mr. Brown served as Operations Director for NFC

PLC, a supply chain logistics company. Mr. Brown was educated at Exeter and

Reading Universities and the London Business School.



         VAUGHN D. BRYSON has served as a director since March 1997. Mr. Bryson

is President of Life Science Advisors, LLC, a consulting firm focused on

assisting biopharmaceutical and medical device firms in building shareholder

value. Mr. Bryson was a 32 year employee of Eli Lilly & Co. ("Lilly"), a global

research-based pharmaceutical corporation, where he served as President and

Chief Executive Officer from 1991 until June 1993; he was Executive Vice

President from 1986 until 1991. He served as a director of Lilly from 1984 until

his retirement in 1993. From April 1994 to December 1996, Mr. Bryson served as

Vice Chairman of Vector Securities International, Inc., an investment banking

firm. Mr. Bryson is a director of Ariad Pharmaceuticals, Inc., a developer of

pharmaceuticals that targets intracellular signaling pathways in order to alter

the course of disease; Chiron Corporation, a global healthcare company with

biopharmaceutical businesses; Fusion Medical Technologies, Inc., a company

developing and commercializing proprietary collagen gel-based products for use

in controlling bleeding during surgery; and Amylin Pharmaceuticals, Inc., a

developmental stage biopharmaceutical company focusing on metabolic disorders.



         SANTO J. COSTA became Vice Chairman in November 1999 and has been a

director since April 1994. Mr. Costa served as our President and Chief Operating

Officer from April 1994 to November 1999. From July 1993 to March 1994, Mr.

Costa directed the affairs of his own consulting firm, Santo J. Costa &

Associates, which focused on pharmaceutical and biotechnology companies. Prior

to July 1993, Mr. Costa served seven years at Glaxo, Inc., a pharmaceutical

company, as Senior Vice President Administration and General Counsel and a

member of the Board of Directors. Mr. Costa serves as a director of NPS

Pharmaceuticals Inc., a pharmaceutical company engaged in the discovery and

development of small molecule drugs that address a variety of diseases. Mr.

Costa received a law degree from St. John's University.



         CHESTER W. DOUGLASS, PH.D. has served as a director since 1983. Dr.

Douglass is 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. Dr.

Douglass has served over 30 years in various academic appointments at Temple

University, the University of North Carolina at Chapel Hill and Harvard

University. Dr. Douglass received a D.M.D. from the Temple University School of

Dentistry, an M.P.H. from the University of Michigan School of Public Health and

a Ph.D. from the University of Michigan Rackham School of Graduate Studies.



         WILLIAM E. FORD has served as a director since June 1999. He was

appointed a director of ENVOY in March 1996 and served as a director until we

acquired ENVOY in March 1999. Mr. Ford has served as a managing member of

General Atlantic Partners LLC, a private equity firm that invests globally in

information technology companies, since 1991. Mr. Ford is also a director of

Priceline.com Incorporated, a publicly traded buyer-driven e-commerce company

whose "demand collection system" enables consumers to use the Internet to save

money on a wide range of products and services; E*Trade Group, Inc., a provider

of online investing services for self-directed investors; Tickets.com, a

provider of entertainment tickets, event information and related products and

services through retail stores, telephone sales centers, interactive voice

response systems and the Internet; LHS Group, Inc., a publicly-traded





                                       67



   70



billing solutions software company; Eclipsys Corporation, a provider of

clinical, financial and administrative software solutions to the health care

industry; and several private software companies in which General Atlantic

Partners, LLC or one of its affiliates is an investor.



         FRED C. GOAD, JR. has served as a director since June 1999. He served

as the Chairman and Co-Chief Executive Officer of ENVOY from August 1995 until

we acquired ENVOY in March 1999, and as a director from Envoy's incorporation in

August 1994 through March 1999. Prior to that time, he served as ENVOY's

President from the date of incorporation until assuming the title of Chairman

and Co-Chief Executive Officer in August 1995. Mr. Goad served as Chief

Executive Officer and a director of ENVOY Corporation, a Delaware corporation

and former parent corporation to ENVOY, from September 1985 through June 1995.

Mr. Goad is a director of Performance Food Group Company, a food distribution

company.



         DENNIS B. GILLINGS, PH.D. founded Quintiles in 1982 and has served as

Chief Executive Officer and Chairman of the Board of Directors since its

inception. From 1972 to 1988, Dr. Gillings served as a professor in the

Department of Biostatistics at the University of North Carolina at Chapel Hill.

During his tenure as a professor, he was active in statistical consulting for

the pharmaceutical industry. Dr. Gillings currently serves on the Dean's

Advisory Council of the University of North Carolina School of Public Health.

Dr. Gillings has been published widely in scientific and medical journals. Dr.

Gillings serves as a director of Triangle Pharmaceuticals, Inc., a company

engaged in the development of new drug candidates primarily in the antiviral

area. Dr. Gillings received a Diploma in Mathematical Statistics from the

University of Cambridge and a Ph.D. in Mathematics from the University of

Exeter.



         JIM D. KEVER has served as a director since June 1999. He has served as

Chief Executive Officer of ENVOY, since we acquired ENVOY in March 1999. Mr.

Kever served as President and Co-Chief Executive Officer of ENVOY from August

1995 until March 1999 and as a director from Envoy's incorporation in August

1994 until March 1999. Prior to such time, he served as Envoy's Executive Vice

President, Secretary and General Counsel from the date of incorporation. Mr.

Kever had served as a director and Secretary, Treasurer and General Counsel of

ENVOY's former parent corporation since 1981 and as Executive Vice President

since 1984. Mr. Kever also is a director of Transaction System Architects, Inc.,

a supplier of electronic payment software products and network integration

solutions, 3D Systems Corporation, a manufacturer of technologically advanced

solid imaging systems and prototype models, and Tyson Foods, where he also

serves on the audit and ethics committees.



         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 consulting, investment and venture company that works with

life science companies, products and related technologies. Prior to founding A.

M. Pappas & Associates in 1994, Mr. Pappas was a director on the main board of

Glaxo Holdings plc with executive responsibilities for operations in Asia

Pacific, Latin America, and Canada. In this capacity, he served as Chairman and

Chief Executive of Glaxo Far East (Pte) Ltd. and Glaxo Latin America Inc., as

well as Chairman of Glaxo Canada Inc. Mr. Pappas has held various senior

executive positions with Abbott Laboratories International Ltd., Merrell Dow

Pharmaceuticals, and the Dow Chemical Company, in the United States and

internationally. Mr. Pappas is a director of Valentis Inc., a gene therapy

research company; Embrex Inc., a research and development company specializing

in poultry in-the-egg delivery systems; and KeraVision, Inc., a company

developing products for reversible vision correction surgery. He is also a

director of privately-held AtheroGenics Inc. and ArgoMed, Inc. Mr. Pappas

received a B.S. in biology from Ohio State University and an M.B.A. in finance

from Xavier University.





                                       68



   71



         JOHN S. RUSSELL serves as Senior Vice President and General Counsel and

Head of Global Human Resources. He is also the Corporate Secretary. Mr. Russell

joined Quintiles Transnational Corp. in 1998 after 12 years in private practice

as a partner in the Raleigh office of the Moore and Van Allen law firm, where he

was head of the Corporate Practice group. Prior to that time, he was an editor

in the trade books division of Houghton Mifflin Company in New York City. Mr.

Russell has served as Director of the North Carolina Railroad Company as well as

several nonprofit concerns. He has spoken and published widely on legal and

literary topics. His novel, Favorite Sons, was published by Algonquin Books in

1992. Mr. Russell received a B.A. degree from the University of North Carolina

at Chapel Hill, his M.A. from Columbia University and a J.D. degree from Harvard

Law School.



         ERIC J. TOPOL, M.D. has served as a director since November 1997. Dr.

Topol is the Chairman of the Department of Cardiology and co-director of the

Heart Center at The Cleveland Clinic Foundation. He has served as Study Chairman

for clinical trials of well over 100,000 patients over the past decade. Dr.

Topol was a faculty member of the University of Michigan from 1985 until 1991

before moving to his current post. He has authored more than 500 publications in

leading peer-review medical journals and is the editor of more than 10 books.

Dr. Topol has been elected to the American Society of Clinical Investigation and

the American Association of Physicians. He previously served as a director for

Rhone Poulenc Rorer, a leading life sciences company, specializing in

innovations in human, plant and animal health. Dr. Topol received his M.D. at

the University of Rochester and completed post-doctoral training at the

University of California, San Francisco and the Johns Hopkins Medical Center.



         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 October 1993

until her retirement in March 1998. Previously, she was Professor of Pediatrics,

Vice Chancellor for Medical Affairs and Vice President of the Medical Center at

Washington University in St. Louis. Dr. Weldon has received recognition from

numerous medical, scientific and educational organizations, among them the

Association of American Medical Colleges, of which she served as Chairman. In

1994, Dr. Weldon was one of 18 individuals appointed to the President's

Committee of Advisors on Science and Technology. More recently, she became a

member of the California Institute of Technology Board of Trustees. Dr. Weldon

received her medical degree from the State University of New York at Buffalo.

She also completed post-doctoral studies at the Johns Hopkins University.



         SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE



         Section 16(a) of the Securities Exchange Act of 1934, as amended,

requires our executive officers and directors to file reports of ownership and

changes in ownership with the Securities and Exchange Commission. Based on a

review of the report forms that were filed, we believe that during 1999 all

filing requirements applicable to our executive officers and directors were

complied with except that each of Santo J. Costa, Greg Porter and David White

reported late to the Securities and Exchange Commission the acquisition or sale

of certain shares of our common stock.





                                       69



   72



ITEM 11. EXECUTIVE COMPENSATION



         The following tables show annual and long-term compensation that we

paid or accrued for services rendered for the fiscal years indicated by our

Chief Executive Officer and the next four most highly compensated executive

officers (the "named executive officers") whose total salary and bonus exceeded

$100,000 individually during the year ended December 31, 1999.



                           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             1999        $568,749 (1)  $    --        $       (2)     169,316  (3)      $ 472,070  (4)

    Chairman of the Board of   1998         474,996 (5)       --                (2)      25,048  (6)        349,236  (7)

    Directors and Chief        1997         447,400 (8)       --                         24,013  (9)        231,009 (10)

    Executive Officer



Santo J. Costa                 1999        $474,453      $     --       $        (2)    201,650 (11)      $   5,853 (12)

    Vice Chairman              1998         450,000            --                (2)     22,553 (13)        760,552 (14)

                               1997         425,000            --        43,981 (15)    119,338 (16)      2,336,090 (17)



Ludo J. Reynders               1999        $341,253      $     --        $       (2)     46,521 (18)      $   4,566 (19)

    Chief Executive Officer,   1998         315,000            --                (2)     23,803 (20)          6,837 (21)

    Clinical Development       1997         301,415            --                (2)     64,477 (22)         11,781 (23)

    Services



Rachel R. Selisker             1999        $265,125      $     --        $       (2)     55,385 (24)      $   5,626 (25)

    Senior Consultant,         1998         237,000            --                (2)     12,771 (26)          9,225 (27)

    Global Shared Services     1997         225,000            --                (2)     34,378 (28)         17,620 (29)



Jim D. Kever                   1999 (30)   $196,500      $178,500 (31)   $       (2)    127,871 (32)      $   4,053 (33)

    Chief Executive Officer,

    ENVOY





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



(1)      Includes $284,375 deferred during 1999 pursuant to our Elective

         Deferred Compensation Plan.



(2)      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.



(3)      Includes 12,792 shares subject to options granted pursuant to the 1999

         bonus.



(4)      Includes contributions to our 401(k) Plan on behalf of Dr. Gillings in

         the amount of $2,375, the estimated value of contributions made to our

         ESOP on Dr. Gillings' behalf in the amount of $1,038, the present value

         of the benefit to Dr. Gillings of the premiums we paid under a

         split-dollar life insurance arrangement in the amount of $463,583 (see

         "Employment Agreements" below for a description of this arrangement),

         and other life insurance premiums that we paid in the amount of $5,074.



(5)      Includes $236,348 deferred during 1998 pursuant to our Elective

         Deferred Compensation Plan.



(6)      Includes 6,053 shares subject to options granted pursuant to the 1998

         bonus.



(7)      Includes contributions to our 401(k) Plan on behalf of Dr. Gillings in

         the amount of $2,364, the estimated value of contributions made to our

         ESOP on Dr. Gillings' behalf in the amount of $6,031, the present value

         of the benefit to Dr. Gillings of the premiums we paid under a

         split-dollar life insurance arrangement in the amount of $335,686 (see

         "Employment Agreements"





                                       70



   73

         below for a description of this arrangement), and other life insurance

         premiums that we paid in the amount of $5,155.



(8)      Includes $55,925 deferred during 1997 pursuant to our Elective Deferred

         Compensation Plan.



(9)      Includes 7,042 shares subject to options granted pursuant to the 1997

         bonus.



(10)     Includes contributions to our 401(k) Plan on behalf of Dr. Gillings in

         the amount of $2,237, the value of contributions made to our ESOP on

         Dr. Gillings' behalf in the amount of $16,473, the present value of the

         benefit to Dr. Gillings of the premiums that we paid under a

         split-dollar life insurance arrangement in the amount of $207,144 (see

         "Employment Agreements" below for a description of this arrangement),

         and other life insurance premiums that we paid in the amount of $5,155.



(11)     Includes 9,443 shares subject to options granted pursuant to the 1999

         bonus.



(12)     Includes $1,038, which represents the estimated value of contributions

         made to our ESOP on behalf of Mr. Costa. Also includes $4,815

         representing the value of life insurance premiums paid in 1999.



(13)     Includes 5,299 shares subject to options granted pursuant to the 1998

         bonus.



(14)     Includes $749,625, which represents the appreciation of incentive stock

         options exercised, and $6,031, which represents the estimated value of

         the contributions made to our ESOP on behalf of Mr. Costa. Also

         includes $4,896 representing the value of life insurance premiums paid

         in 1998.



(15)     Amount represents the value of financial planning and legal costs that

         we paid on behalf of Mr. Costa.



(16)     Includes 5,549 shares subject to options granted pursuant to the 1997

         bonus.



(17)     Includes $2,317,260, which represents the appreciation of incentive

         stock options exercised, and $14,510 which represents the estimated

         value of the contributions made to our ESOP on behalf of Mr. Costa.

         Also includes $4,320 representing the value of life insurance premiums

         paid in 1997.



(18)     Includes 5,259 shares subject to options granted pursuant to the 1999

         bonus.



(19)     Includes $2,375 in contributions to our 401(k) Plan on behalf of Mr.

         Reynders, life insurance premiums that we paid in the amount of $1,153

         and $1,038 representing the estimated value of contributions made to

         our ESOP on behalf of Mr. Reynders.



(20)     Includes 3,514 shares subject to options granted pursuant to the 1998

         bonus.



(21)     Includes $806 in contributions to our 401(k) Plan on behalf of Mr.

         Reynders and $6,031 representing the estimated value of contributions

         made to our ESOP on behalf of Mr. Reynders.



(22)     Includes 2,810 shares subject to options granted pursuant to the 1997

         bonus.



(23)     Amount represents the value of contributions to the Quintiles (UK)

         Limited Approved Profit Sharing Scheme on behalf of Dr. Reynders.



(24)     Includes 4,123 shares subject to options granted pursuant to the 1999

         bonus.



(25)     Includes $2,604 in contributions to our 401(k) Plan on behalf of Ms.

         Selisker, life insurance premiums that we paid in the amount of $896

         and $1,038 representing the estimated value of contributions made to

         our ESOP on behalf of Ms. Selisker.



(26)     Includes 2,482 shares subject to options granted pursuant to the 1998

         bonus.



(27)     Includes contributions to our 401(k) Plan on behalf of Ms. Selisker in

         the amount of $2,430, the estimated value of contributions made to our

         ESOP on Ms. Selisker's behalf in the amount of $5,931 and life

         insurance premiums that we paid in the amount of $864.



(28)     Includes 2,711 shares subject to options granted pursuant to the 1997

         bonus.



(29)     Includes $2,400 in contributions to our 401(k) Plan on behalf of Ms.

         Selisker, life insurance premiums that we paid in the amount of $691

         and $14,529 representing the estimated value of contributions made to

         our ESOP on behalf of Ms. Selisker.



(30)     Mr. Kever is Chief Executive Officer of ENVOY, which became our

         wholly-owned subsidiary following our acquisition of ENVOY in March

         1999. After completion of our pending agreement to sell ENVOY, Mr.

         Kever will no longer be one of our executive officers.



                                       71



   74



(31)     Amount represents payments made in 2000 pursuant to Mr. Kever's current

         employment contract with ENVOY.



(32)     Includes 64,271 shares subject to options granted pursuant to the 1999

         bonus.



(33)     Includes $1,875 representing the value of contributions made to our

         401(k) Plan on behalf of Mr. Kever in 1999 and $2,345 which represents

         the value of life insurance premiums paid for Mr. Kever in 1999.





         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 our Equity Compensation

Plan and Nonqualified Stock Option Plan. No stock appreciation rights were

granted to the named executive officers during 1999. 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 ten 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 expire three years

after the date of such termination.







                                       72



   75







                                                                                           POTENTIAL REALIZABLE VALUE

                                                                                             AT ASSUMED ANNUAL RATES

                                                                                                  OF STOCK PRICE

                                                                                               APPRECIATION FOR OPTION

                                                 INDIVIDUAL GRANTS                                   TERM (1)

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

                            NUMBER OF      PERCENT OF

                            SECURITIES   TOTAL OPTIONS

                           UNDERLYING      GRANTED TO        EXERCISE OR

                             OPTIONS      EMPLOYEES IN       BASE PRICE      EXPIRATION

       NAME                  GRANTED    FISCAL YEAR (2)     PER SHARE ($)       DATE         5% ($)        10% ($)

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



                                                                                       

Dennis B. Gillings          2,356 (3)         0.0%              42.44        06/07/2009      62,879         159,347

                           21,470 (4)         0.2%              42.44        06/07/2009     573,007       1,452,112

                            3,664 (5)         0.0%              42.44        06/07/2009      97,787         247,813

                            5,940 (6)         0.1%              35.88        08/15/2009     134,015         339,623

                           33,630 (7)         0.4%              35.88        08/15/2009     758,746       1,922,812

                            3,188 (8)         0.0%              22.00        11/15/2009      44,108         111,779

                           45,697 (9)         0.5%              22.00        11/15/2009     632,249       1,602,243

                           53,371(10)         0.6%              42.44        06/07/2009   1,424,403       3,609,718



Santo J. Costa              2,356 (3)         0.0%              42.44        06/07/2009      62,879         159,347

                           14,322(11)         0.2%              42.44        06/07/2009     382,236         968,661

                            2,874 (5)         0.0%              42.44        06/07/2009      76,703         194,381

                            4,003 (6)         0.0%              35.88        08/15/2009      90,314         228,874

                           23,541 (7)         0.3%              35.88        08/15/2009     531,123       1,345,969

                            2,566 (8)         0.0%              22.00        11/15/2009      35,502          89,970

                           31,988 (9)         0.4%              22.00        11/15/2009     442,576       1,121,574

                           90,000(10)         1.0%              42.44        06/07/2009   2,401,984       6,087,100

                           30,000(12)         0.3%              40.19        03/14/2009     758,211       1,921,456



Ludo J. Reynders            2,356 (3)         0.0%              42.44        06/07/2009      62,879         159,347

                            7,175(13)         0.1%              42.44        06/07/2009     191,492         485,277

                            1,700 (5)         0.0%              42.44        06/07/2009      45,371         114,979

                            2,228 (6)         0.0%              35.88        08/15/2009      50,267         127,387

                           13,452 (7)         0.1%              35.88        08/15/2009     303,499         769,125

                            1,331 (8)         0.0%              22.00        11/15/2009      18,415          46,668

                           18,297 (9)         0.2%              22.00        11/15/2009     252,902         640,904



Rachel R. Selisker          2,356 (3)         0.0%              42.44        06/07/2009      62,879         159,347

                            7,175(13)         0.1%              42.44        06/07/2009     191,492         485,277

                            1,189 (5)         0.0%              42.44        06/07/2009      31,733          80,417

                            1,788 (6)         0.0%              35.88        08/15/2009      40,295         102,115

                           13,452 (7)         0.1%              35.88        08/15/2009     303,499         769,125

                            1,148 (8)         0.0%              22.00        11/15/2009      15,883          40,252

                           18,279 (9)         0.2%              22.00        11/15/2009     252,902         640,904

                           10,000(14)         0.1%              50.88        02/04/2009     319,950         810,816



Jim D. Kever               64,271(15)         0.7%              18.69        12/31/2009     755,343       1,914,187

                           63,600(16)         0.7%              18.94        11/05/2009     757,456       1,919,543





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



(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 10 year 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 $82.87 and $131.96 per share,

         respectively, for the options expiring February 4, 2009, $69.13 and

         $110.07 per share, respectively, for the options expiring June 7, 2009,

         $58.44 and $93.05 per share, respectively, for the options expiring

         August 15,





                                       73



   76



         2009, $35.84 and $57.06 per share, respectively, for the options

         expiring November 15, 2009, $30.85 and $49.12 per share, respectively,

         for the options expiring November 5, 2009, $65.46, $104.24 per share,

         respectively, for the options expiring March 14, 2009, and $30.44 and

         $48.47 per share, respectively, for the options expiring December 31,

         2009.



(2)      Options to purchase an aggregate of 9,095,779 shares were granted to

         employees during 1999.



(3)      Incentive stock options granted June 7, 1999. Number of options granted

         as incentive stock options to extent of annual $100,000 cap; options in

         excess of the cap granted as nonqualified options. Shares subject to

         the options granted vest June 7, 2003.



(4)      Nonqualified stock options granted June 7, 1999. Shares subject to the

         options granted vest over the next four years, with 28% of such shares

         vesting on June 7 of each of 2000, 2001 and 2002 and 16% vesting on

         June 7, 2003.



(5)      Nonqualified stock options granted June 7, 1999. Shares subject to the

         options granted vest on May 15, 2000.



(6)      Nonqualified stock options granted August 15, 1999. Shares subject to

         the options granted vest on May 15, 2000.



(7)      Nonqualified stock options granted August 15, 1999. Shares subject to

         the options granted vest over the next four years, with 25% of such

         shares vesting on August 15 of each year beginning August 15, 2000.



(8)      Nonqualified stock options granted November 15, 1999. Shares subject to

         the options granted vested on May 15, 2000.



(9)      Nonqualified stock options granted November 15, 1999. Shares subject to

         the options granted vest over the next four years, with 25% of such

         shares vesting on November 15 of each year beginning November 15, 2000.



(10)     Nonqualified stock options granted June 7, 1999. Shares subject to the

         options granted vested immediately.



(11)     Nonqualified stock options granted June 7, 1999. Shares subject to the

         options vest over the next four years with 29% of such shares vesting

         on June 7 of each of 2000, 2001 and 2002 and 13% vesting on June 7,

         2003.



(12)     Nonqualified stock options granted March 14, 1999. Shares subject to

         the options granted vested immediately.



(13)     Nonqualified stock options granted June 7, 1999. Shares subject to the

         options vest over the next four years with 33% of such shares vesting

         on June 7 of each of 2000, 2001 and 2002 and 1% vesting on June 7,

         2003.



(14)     Nonqualified stock options granted February 4, 1999. Shares subject to

         the options granted vest over two years, with 50% of such shares

         vesting on December 31 of each year beginning December 31, 1999.



(15)     Nonqualified stock options granted December 31, 1999. Shares subject to

         the options granted vest over the next four years, with 25% of such

         shares vesting on December 31 of each year beginning December 31, 2000.

         In connection with our sale of ENVOY, Mr. Kever will participate in a

         Special Program, which means that the shares subject to these options

         vest immediately upon, and the options expire three years from, the

         date of our sale of ENVOY.



(16)     Nonqualified stock options granted November 5, 1999. Shares subject to

         the options granted vest over the next two years, with 50% of such

         shares vesting on November 5 of each year beginning November 5, 2000.

         In connection with our sale of ENVOY, Mr. Kever will participate in a

         Special Program, which means that the shares subject to these options

         vest immediately upon, and the options expire three years from, the

         date of our sale of ENVOY.





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   77



                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR

                        AND FISCAL YEAR END OPTION VALUES



         The following table provides information about the stock options held

by the named executive officers on December 31, 1999.







                                                               NUMBER OF SECURITIES          VALUE OF UNEXERCISED IN-THE

                        SHARES ACQUIRED       VALUE           UNDERLYING UNEXERCISED                MONEY OPTIONS

        NAME            ON EXERCISE(#)      REALIZED ($)       OPTIONS AT FY-END                    AT FY-END (1)

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

                                                            EXERCISABLE   UNEXERCISABLE   EXERCISABLE($)   UNEXERCISABLE($)

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

                                                                                         

Dennis B. Gillings            --              --             183,370        143,051           775,835             --

Santo J. Costa                --              --             280,493        107,072           107,198             --

Ludo J. Reynders              --              --             112,971         70,070           315,602             --

Rachel R. Selisker            --              --              81,005         67,377           364,032             --

Jim D. Kever                  --              --             635,470        139,486         6,474,078             --





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



 (1)     The value of the options is based upon the difference between the

         exercise price and the closing price per share on December 31, 1999,

         $18.6875.



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, 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. Beginning in 2000, committee

chairs will also receive an extra $5,000 per year in compensation for their

additional responsibilities. We reimburse each director for out-of-pocket

expenses incurred in connection with the rendering of services as a director.

Certain other financial relationships with directors are described in "Certain

Transactions."



EMPLOYMENT AGREEMENTS



         We have entered into employment agreements with Dr. Gillings, Mr.

Costa, Dr. Reynders, Ms. Selisker and Mr. Kever. 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

our 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 us if Dr. Gillings

becomes permanently disabled, upon notice by us 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

our material breach or improper termination of the employment agreement and upon

notice by Dr. Gillings if Dr. Gillings is not elected as our Chairman of the

Board and Chief Executive Officer. 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 us,

or for a change in position. In the





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   78



event of termination by Dr. Gillings due to permanent disability, breach or

improper termination by us or for a change in position, we 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 us without cause within 18 months

following a change in control, we 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

retirement plan of ours. In addition, upon a change in control, all options held

by Dr. Gillings will become fully vested and exercisable. We are not obligated

to make any 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 us in any geographic area in

which we do business and cannot solicit or interfere with our relationship with

any person or entity doing business with us, or offer employment to any person

employed by us 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 us.



         We entered into split-dollar life insurance agreements as of May 16,

1996 with certain trusts created by Dr. Gillings, pursuant to which we 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 we pay the remaining premiums. We 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, we are entitled to repayment of an amount equal to the cumulative

premiums previously paid by us thereunder, with all remaining amounts going to

the trust. Upon any surrender of a policy, the liability of the related trust to

us is limited to the cash value of the policy. See footnotes (4), (7) and (10)

to the "Summary Compensation Table" above for additional information on premium

payments that we made under the policies.



         Effective November 29, 1999, Mr. Costa ceased to be our President and

Chief Operating Officer and became our Vice Chairman. His amended and restated

employment agreement, dated November 30, 1999, extends through December 31,

2001. The agreement terminates upon the death of Mr. Costa, upon notice by us if

Mr. Costa becomes permanently disabled, upon notice by us for cause, upon notice

by Mr. Costa in the event of a change in control, as defined in his employment

agreement (provided Mr. Costa terminates his employment within 18 months

following such change in control) and upon notice by Mr. Costa in the event of

our material breach. The agreement provides for severance payments and

continuation of benefits in the event Mr. Costa's employment is terminated prior

to expiration of the agreement. In the event of termination by Mr. Costa for

reasons other than a change in control, we must pay Mr. Costa his full base

salary until December 31, 2001, any annual bonus, prorated to the date of

termination, and other benefits under the agreement, subject to certain

limitations and exceptions. In the event that Mr. Costa terminates his

employment or is terminated by us without cause within 18 months after a change

in control, we must make a severance payment equal to 2.99 times the annual

average amount of Mr. Costa's compensation for the two most recent fiscal years,

including executive compensation plan benefits as well as continue his other

benefit plans for eighteen months and make a lump sum payment of any amounts

held by Mr. Costa in any retirement plan of ours. In addition, upon a change in

control, all options held by Mr. Costa will become fully vested and exercisable.

We are not obligated to make any payments or provide benefits to Mr. Costa if

the termination is for cause. The agreement includes a one year non-compete

provision following termination of employment and prohibits disclosure of

confidential information.





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   79



         Dr. Reynders' employment agreement, which was amended and restated on

March 17, 2000, calls for Dr. Reynders to serve as Chief Executive Officer,

Quintiles CRO Service Group. The agreement automatically renews for successive

one year terms, unless either party provides 90 days notice prior to the renewal

date of intent to terminate. The agreement is terminable by us for cause. Either

party may terminate the agreement at any time by providing the other party with

90 days written notice. If Dr. Reynders terminates the employment relationship

as a result of our failure to cure a material breach of the agreement after 30

days notice of such breach, he is entitled to an amount equal to his then

current salary for 12 months. In the event that Dr. Reynders terminates his

employment or is terminated by us without cause within 18 months after a change

in control, as defined in the agreement, we must make a severance payment equal

to 2.99 times the amount of his base salary and executive compensation plan

benefits for the year of termination, continue his other benefit plans for

eighteen months and make a lump sum payment of any amounts held by Dr. Reynders

in any retirement plan of ours. In addition, upon a change in control, all

options held by Dr. Reynders will become fully vested and exercisable. The

agreement includes a one year non-compete provision following termination of

employment and prohibits disclosure of confidential information.



         Ms. Selisker's employment agreement, dated January 1, 1995, extends for

successive one year intervals unless terminated by either party with 90 days

written notice. This employment agreement was amended on October 25, 1999 to

provide more detailed change in control provisions. Ms. Selisker has resigned

her position as Chief Financial Officer and will serve as a senior consultant in

the creation of our global shared services centers for finance and human

resources. Her employment agreement, however, remains in effect until superseded

by a replacement agreement. The January 1, 1995 agreement, as amended,

terminates automatically upon Ms. Selisker's attaining the age of 65, her death,

total and permanent disability, a material breach of her employment agreement

that is not cured within 30 days of written notice, acts of dishonesty,

commission of certain crimes or failure to perform her duties under the

agreement. The agreement provides for severance payments and continuation of

benefits in the event that either we voluntarily terminate the agreement by

giving notice of our intention not to renew, in the event of Ms. Selisker's

total and permanent disability or if Ms. Selisker terminates after a material

breach by us which we fail to cure within 30 days. In the event that Ms.

Selisker terminates her employment or is terminated by us without cause within

18 months following a change in control, as defined in the agreement, we must

make a severance payment equal to 2.99 times the amount of Ms. Selisker'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 Ms. Selisker in any retirement plan of ours. In addition,

upon a change in control, all options held by Ms. Selisker will become fully

vested and exercisable. The agreement includes a one year non-compete provision

and prohibits Ms. Selisker from soliciting or interfering with our relationship

with any person doing business with us or offering employment to any person

employed by us in the one year period prior to Ms. Selisker's termination of

employment.



         Mr. Kever's employment agreement terminates three years from March 30,

1999. This employment agreement was amended on November 23, 1999 to provide more

detailed change in control provisions. The agreement gives us the ability to

terminate Mr. Kever's employment at any time for any reason, and Mr. Kever may

resign at any time. Upon termination by ENVOY or resignation by Mr. Kever for

any reason other than in connection with change in control, as defined in the

agreement, of Quintiles Transnational Corp., Mr. Kever is entitled to receive

his base salary and cash bonus, as defined in the agreement, for the remainder

of the term of the agreement, payable in the same amounts and at the same times

as if the employment had not terminated. In the event that Mr. Kever terminates

his employment or is terminated by us without cause within 18 months following a

change in control we must make a severance payment equal to 2.99 times the

amount of Mr. Kever's base salary and executive





                                       77



   80



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. Kever in any retirement plan of ours. In addition, upon a change in control,

all options held by Mr. Kever will become fully vested and exercisable. The

agreement includes a non-compete that extends from the later of (1) the last day

of the employment agreement's three year term or (2) 18 months following Mr.

Kever's termination or resignation. This non-compete provision prohibits Mr.

Kever from competing against us in any geographical area in which we do business

or soliciting or hiring any of our employees. Mr. Kever's employment agreement

prohibits disclosure of any confidential information acquired in the course of

his employment.





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   81



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



SHARE OWNERSHIP OF MANAGEMENT



         The following table provides information, as of February 29, 2000,

regarding shares of our common stock owned of record or known to us to be owned

beneficially by each director, each executive officer named in the Summary

Compensation Table in Item 11 and all current directors and executive officers

as a group. 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

                                                       Beneficially   Percent

                       Name                               Owned(1)    of Class

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



Dennis B. Gillings, Ph.D. (2)                           6,112,530       5.3%

Santo J. Costa (3)                                        308,612         *

Ludo Reynders (4)                                         227,085         *

Rachel R. Selisker (5)                                    171,382         *

William E. Ford (6)                                     2,818,421       2.4%

Fred C. Goad (7)                                          963,447         *

Jim D. Kever (8)                                        1,018,226         *

Robert C. Bishop, Ph.D. (9)                                36,345         *

Chester W. Douglass, Ph.D. (10)                           367,693         *

Arthur M. Pappas (11)                                      79,943         *

Vaughn D. Bryson (12)                                      15,585         *

Virginia V. Weldon, M.D. (13)                               9,601         *

Eric J. Topol, M.D. (14)                                    8,727         *

E.G.F. Brown (15)                                          14,493         *



All current directors and executive officers as a      11,776,174      10.0%

group (14 persons) (16)



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

*Less than one percent



(1)      Pursuant to the rules of the Securities and Exchange Commission,

         certain shares of our 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 our ESOP or Approved Profit Sharing Scheme has sole voting power

         over the shares held in his or her account, but shares investment power

         over the shares with the Trustee.



(2)      Includes 183,370 shares subject to presently exercisable stock options

         and 161,219 shares held by our ESOP for Dr. Gillings' account. Includes

         6,739 shares owned by Dr. Gillings' daughter, 180,000 shares owned by

         the Gillings Family Limited Partnership, of which Dr. Gillings and his

         wife are the general partners, 7,200 shares held by the GFEF Limited

         Partnership, of which Dr. Gillings is the general partner, 198,618

         shares owned by Dr. Gillings' wife and 834,766 shares owned by a

         Grantor Retained Annuity Trust under which Dr. Gillings is the

         beneficiary.





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   82



         Dr. Gillings shares voting power over 392,557 shares and shares

         investment power over 1,388,542 shares. Dr. Gillings disclaims

         beneficial ownership of all shares owned by his wife and daughter, all

         shares in the Gillings Family Limited Partnership, all shares owned by

         the GFEF Limited Partnership and all shares in the GRAT, except to the

         extent of his interest therein.



(3)      Includes 281,917 shares subject to presently exercisable stock options

         and 3,645 shares held by our ESOP for Mr. Costa's account.



(4)      Includes 112,971 shares subject to presently exercisable stock options,

         702 shares held by Quintiles (UK) Limited Approved Profit Sharing

         Scheme for Dr. Reynders' account and 166 shares held by our ESOP for

         Dr. Reynders' account.



(5)      Includes 81,949 shares subject to presently exercisable stock options

         and 44,069 shares held by our ESOP for Ms. Selisker's account.



(6)      Includes 8,622 shares subject to presently exercisable stock options.



(7)      Includes 658,790 shares subject to presently exercisable stock options.



(8)      Includes 635,470 shares subject to presently exercisable stock options

         and 63,960 shares in a trust for the benefit of Mr. Kever's minor

         children.



(9)      Includes 33,845 shares subject to presently exercisable stock options.



(10)     Includes 36,593 shares subject to presently exercisable stock options.

         Includes 93,600 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.



(11)     Includes 33,843 shares subject to presently exercisable stock options.



(12)     Includes 12,585 shares subject to presently exercisable stock options.



(13)     Includes 8,601 shares subject to presently exercisable stock options.



(14)     Includes 8,727 shares subject to presently exercisable stock options.



(15)     Includes 6,493 shares subject to presently exercisable stock options.



(16)     Does not include shares beneficially owned by named executive officers

         who are not executive officers as of the date of this report. Includes

         1,930,550 shares subject to presently exercisable stock options and

         165,198 shares held by our ESOP for the accounts of individual

         executive officers.





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   83



STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS



         The following table provides information regarding shares of our common

stock known to be beneficially owned by persons holding more than five percent

of our outstanding common stock (other than directors and executive officers

shown in the preceding table) as of February 29, 2000.



                                            SHARES BENEFICIALLY     PERCENT OF

NAME AND ADDRESS OF BENEFICIAL OWNER               OWNED              CLASS

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



Capital Group International, Inc. (1)            22,264,870            19.4%

   Capital Guardian Trust Company

11100 Santa Monica Blvd

Los Angeles, California  90025



Capital Research and Management Company (2)       9,292,560             8.1%

333 South Hope Street

Los Angeles, California  90071



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



(1)      Based on a Schedule 13G filed with the Securities and Exchange

         Commission on February 14, 2000. Capital Group International, a holding

         company, reports sole dispositive power over the shares held by its

         subsidiaries. Capital Guardian Trust Company, a bank subsidiary of

         Capital Group International, reports sole voting power over 10,541,450

         shares and sole dispositive power over 13,375,100 shares. Both Capital

         Group International and Capital Guardian Trust disclaim beneficial

         ownership of the shares.



(2)      Based on a Schedule 13G filed with the Securities and Exchange

         Commission on February 14, 2000. Capital Research and Management

         Company has sole dispositive power over the shares, but does not have

         voting power over the shares and disclaims beneficial ownership of the

         shares.





ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



         On March 30, 1999, we acquired all of the outstanding shares of ENVOY

in exchange for approximately 28,465,160 shares of our common stock. Fred C.

Goad, Jim D. Kever and William E. Ford served as directors of ENVOY prior to the

share exchange and currently serve as our directors. In addition, Mr. Goad

served as ENVOY's Chairman and Co-Chief Executive Officer and Mr. Kever served

as ENVOY's President and Co-Chief Executive Officer. As a result of the share

exchange, Mr. Goad received 209,715 shares of our common stock and fully vested

stock options covering 711,260 shares of our common stock. In addition, a trust

of which Mr. Goad is the trustee and a sole beneficiary received 89,432 shares

of our common stock and Mr. Goad's wife received 15,304 shares of our common

stock. Mr. Kever received 468,181 shares of our common stock and fully vested

stock options covering 635,470 shares of our common stock. In addition, a trust

of which Mr. Kever is the trustee and the sole beneficiary received 69,960

shares of our common stock. GAP 25, whose general partner is GAP LLC, of which

Mr. Ford is a managing member, received 2,818,421 shares of our common stock and

GAPCO, of which Mr. Ford is a general partner, received 446,378 shares of our

common stock. Mr. Ford received fully vested stock options covering 4,464 shares

of our common stock. All of the stock options received in the share exchange by

Messrs. Goad, Kever and Ford became exercisable immediately.





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   84



         In connection with the ENVOY share exchange, Mr. Goad resigned as

ENVOY's Chairman and Co-Chief Executive Officer which entitled him to receive

certain payments under the terms of his Amended and Restated Employment

Agreement with ENVOY dated January 1, 1994. Pursuant to that agreement, ENVOY

paid Mr. Goad a lump sum payment of $1,132,463. Mr. Goad is also entitled to

receive reimbursement for certain expenses and benefits, including reimbursement

for excise taxes, if any, that may be incurred by Mr. Goad in connection with

the lump sum payment or acceleration of stock options under that agreement. Mr.

Goad remains subject to non-competition restrictions contained in that

agreement.



         Effective March 15, 1995, A.M. Pappas & Associates, LLC, or AMP&A,

entered into a consulting agreement with us. The 1995 Consulting Agreement

superseded the July 11, 1994 consulting agreement. In compliance with the terms

of the 1995 Consulting Agreement, we granted Mr. Pappas stock options on March

15, 1995 covering 40,000 shares of our common stock at an exercise price of

$8.75 per share which vested 50% on March 15, 1995, 75% on March 15, 1996 and

100% on March 15, 1997. Fifty percent of the fees invoiced during any

twelve-month period are deemed satisfied by the stock options granted on March

15, 1995 as described above up to a maximum of $100,000 per twelve-month period.

Between the expiration of the 1995 consulting agreement in March 1998 and the

execution of a replacement agreement on January 1, 2000, AMP&A continued to

provide us with consulting services substantially in accordance with the terms

of the 1995 agreement. In 1999, we paid consulting fees of $195,385 in cash. On

January 1, 2000, we entered into a new consulting agreement with AMP&A. The 2000

consulting agreement calls for a minimum aggregate consulting fee (exclusive of

expenses) per year of $200,000, and AMP&A has agreed not to invoice us for more

than $220,000 per year without our prior consent. We have agreed to reimburse

AMP&A for all reasonable out-of-pocket and administrative expenses incurred by

AMP&A in connection with performing its services.



         We are a limited partner in TechAMP International, L.P., a fund

organized to make venture capital investments in the equity securities of

private companies in the life science sector. TechAMP is managed by its general

partner, AMP&A Management, LLC, an affiliate of AMP&A. We have committed to

invest an aggregate of $8,000,000 in TechAMP. As a limited partner, we will make

capital contributions under this commitment from time to time at the request of

the fund's general partner. In 1999, we made capital contributions of $2,424,000

to TechAMP.



         In November 1997, we signed a preferred provider agreement with The

Cleveland Clinic Foundation, pursuant to which The Cleveland Clinic will work

with us as a preferred provider for investigator services in certain therapeutic

areas, including cardiology, AIDS, cancer and molecular genetics, and we will

work with The Cleveland Clinic as a preferred provider for contract drug

development services. Dr. Topol is Chairman of the Department of Cardiology and

a co-director of the Heart Center at The Cleveland Clinic. In 1999, pursuant to

the 1997 preferred provider agreement, we incurred fees of $192,604, all of

which were paid in 1999.





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                                     PART IV



ITEM 14.  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 this report.



                 Financial Statements                             Form 10-K Page

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



Consolidated Statements of Income for the years ended

  December 31, 1999, 1998 and 1997



Consolidated Balance Sheets as of December 31, 1999 and 1998



Consolidated Statements of Cash Flows for the years ended

  December 31, 1998, 1998 and 1997



Consolidated Statements of Shareholders' Equity for the years

  ended December 31, 1999, 1998 and 1997



Notes to Consolidated Financial Statements



Report of Independent Public Accountants



Report of Independent Auditors



(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.





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   86



                                  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(3)        Indenture, dated as of May 17, 1996, between Quintiles

               Transnational Corp. and Marine Midland Bank, as Trustee, with

               respect to our 4.25% Convertible Subordinated Notes due May 31,

               2000



4.02           Amended and Restated Articles of Incorporation, as amended (see

               Exhibit 3.01)



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



4.04(4)        Specimen certificate for Common Stock, $0.01 par value per share



4.05(5)        Form of 4.25% Convertible Subordinated Notes in Unrestricted

               Global Form



4.06(5)        Form of 4.25% Convertible Subordinated Notes in Certificated Form



4.07(6)        Rights Agreement, dated as of November 5, 1999 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(4)(7)    Employment Agreement, dated February 22, 1994, by and between Dr.

               Dennis B. Gillings and Quintiles Transnational Corp.



10.02(7)       Amendment to Contract of Employment, dated October 26, 1999, by

               and between Dr. Dennis B. Gillings and Quintiles Transnational

               Corp.



10.03(7)       Amended and Restated Executive Employment Agreement, dated

               November 30, 1999, by and between Santo J. Costa and Quintiles

               Transnational Corp.



10.04(7)(8)    Employment Agreement, dated January 1, 1995, by and between

               Rachel R. Selisker and Quintiles Transnational Corp.



10.05(7)       Amendment to Contract of Employment, dated October 25, 1999 by

               and between Rachel R. Selisker and Quintiles Transnational Corp.



10.06(7)       Amended and Restated Executive Employment Agreement, dated March

               17, 2000, by and between Dr. Ludo Reynders and Quintiles, Inc.



10.07(7)       Amended and Restated Employment Agreement, dated March 30, 1999

               by and between Jim D. Kever and Envoy Corporation





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   87



Exhibit        Description

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



10.08(7)       Amendment to Executive Employment Agreement, dated November 23,

               1999, by and between Jim D. Kever and Envoy Corporation



10.09(7)       Executive Employment Agreement, dated June 16, 1998, by and

               between James L. Bierman and Quintiles Transnational Corp.



10.10(7)       Executive Employment Agreement, dated December 3, 1998, by and

               between John S. Russell and Quintiles Transnational Corp.



10.11(7)       Amendment to Executive Employment Agreement, dated October 26,

               1999, by and between John S. Russell and Quintiles Transnational

               Corp.



10.12(4)(7)    Quintiles Transnational Corp. Non-Qualified Employee Incentive

               Stock Option Plan



10.13(7)       Quintiles Transnational Corp. Equity Compensation Plan, as

               amended and restated on November 4, 1999



10.14(7)       Quintiles Transnational Corp. Elective Deferred Compensation

               Plan, as amended and restated



10.15(7)       Quintiles Transnational Corp. Nonqualified Stock Option Plan



10.16(7)       Amended and Restated Envoy Corporation 1995 Employee Stock

               Incentive Plan



10.17(9)       Sublease, dated January 18, 1996, by and between Legent

               Corporation and Innovex, Inc.



10.18(10)      Underlease, dated November 28, 1997, by and between PDFM Limited

               and Quintiles (UK) Limited and guaranteed by the Company



10.19          Consulting Agreement dated as of January 1, 2000 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 separately with the Securities and Exchange Commission.]



10.20(11)      Agreement for the Provision of Research Services and Lease of

               Business Assets dated as of March 3, 1995, between Syntex

               Pharmaceuticals Limited, Quintiles Scotland Limited, Quintiles

               (UK) Limited, and Roche Products Limited



10.21(12)      Merger Agreement, dated as of December 14, 1998, among Quintiles

               Transnational Corp., QTRN Acquisition Corp., and Pharmaceutical

               Marketing Services Inc.



10.22(13)      Amended and Restated Agreement and Plan of Merger, dated December

               15, 1998, among Quintiles Transnational Corp., QELS Corp., and

               ENVOY Corporation



10.23(14)      Credit Agreement dated as of August 7, 1998





                                       85



   88



Exhibit        Description

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



10.24(15)      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.



10.25(16)      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.



21             Subsidiaries



23.01          Consent of Arthur Andersen LLP



23.02          Consent of Ernst & Young LLP



23.03          Consent of Ernst & Young LLP



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



27.01          Restated Financial Data Schedule year ended 12/31/97 (for SEC use

               only)



27.02          Restated Financial Data Schedule 3 months ended 3/31/98 (for SEC

               use only)



27.03          Restated Financial Data Schedule 6 months ended 6/30/98 (for SEC

               use only)



27.04          Restated Financial Data Schedule 9 months ended 9/30/98 (for SEC

               use only)



27.05          Restated Financial Data Schedule year ended 12/31/98 (for SEC use

               only)



27.06          Restated Financial Data Schedule 3 months ended 3/31/99 (for SEC

               use only)



27.07          Restated Financial Data Schedule 6 months ended 6/30/99 (for SEC

               use only)



27.08          Restated Financial Data Schedule 9 months ended 9/30/99 (for SEC

               use only)



27.09          Financial Data Schedule year ended 12/31/99 (for SEC use only)



99.01          Report of Independent Auditors



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



         (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.





                                       86



   89



         (3)      Exhibit to our Quarterly Report on Form 10-Q, as filed with

                  the Securities and Exchange Commission on August 14, 1996, and

                  incorporated herein by reference.



         (4)      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.



         (5)      Exhibit to our Registration Statement on Form S-3, as amended,

                  as filed with the Securities and Exchange Commission (File No.

                  333-19009) effective February 1, 1997, and incorporated

                  herein by reference.



         (6)      Exhibit to our Registration Statement on Form 8-A, as filed

                  with the Securities and Exchange Commission on November 5,

                  1999, and incorporated herein by reference.



         (7)      Executive compensation plans and arrangements.



         (8)      Exhibit to our Annual Report on Form 10-K for the fiscal year

                  ended December 31, 1994, as filed with the Securities and

                  Exchange Commission on March 30, 1995, and incorporated herein

                  by reference.



         (9)      Exhibit to our Annual Report on Form 10-K for the fiscal year

                  ended December 31, 1996, as filed with the Securities and

                  Exchange Commission on March 25, 1997, 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 6, 1995,

                  as filed with the Securities and Exchange Commission on March

                  20, 1995, and incorporated herein by reference.



         (12)     Exhibit to our Current Report on Form 8-K dated December 16,

                  1998, as filed with the Securities and Exchange Commission on

                  December 16, 1998, and incorporated herein by reference.



         (13)     Exhibit to our Current Report on Form 8-K dated December 16,

                  1998, as filed with the Securities and Exchange Commission on

                  December 17, 1998, and incorporated herein by reference.



         (14)     Exhibit to our Quarterly Report on Form 10-Q dated November

                  16, 1998, as filed with the Securities and Exchange Commission

                  on November 16, 1998, and incorporated herein by reference.



         (15)     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.





                                       87



   90



         (16)     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.



(b) Reports on Form 8-K.



         We filed a Current Report on Form 8-K dated October 5, 1999, reporting

the filing of a class action lawsuit against us on September 30, 1999 in the

United States District Court for the Middle District of North Carolina.



         We filed a Current Report on Form 8-K dated October 20, 1999, including

as an exhibit a press release regarding our financial results for the three

month period ended September 30, 1999.



         We filed a Current Report on Form 8-K dated November 5, 1999 (1)

reporting the distribution of one preferred stock purchase right for each

outstanding share of our common stock pursuant to a Rights Agreement that we

entered into with First Union National Bank, as rights agent, and (2) attaching

as exhibits (a) the Rights Agreement, dated November 5, 1999 and (b) our Amended

and Restated Bylaws, as amended March 13, 1996 and November 4, 1999.





                                       88



   91



                                   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 30th day of March, 2000.



                                      QUINTILES TRANSNATIONAL CORP.





                                      By: /s/Dennis B. Gillings

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

                                          Dennis B. Gillings, Ph.D.

                                          Chairman of the Board of Directors and

                                          Chief Executive Officer





                                       89



   92



                        SIGNATURES AND POWER OF ATTORNEY



         KNOW ALL MEN BY THESE PRESENTS, that each person whose signature

appears below constitutes and appoints Dennis B. Gillings and James L. Bierman

and each of them, each with full power to act without the other, his true and

lawful attorneys-in-fact and agents, with full powers of substitution and

resubstitution, for him and in his name, place and stead, in any and all

capacities, to sign any or all amendments to this report, and to file the same,

with all exhibits thereto, and other documents in connection therewith, with the

Securities and Exchange Commission, granting unto said attorneys-in-fact and

agents full power and authority to do and perform each and every act and thing

requisite and necessary to be done in and about the premises, as fully for all

intents and purposes as he or she might or could do in person, hereby ratifying

and confirming all that said attorneys-in-fact and agents, or their substitutes,

may lawfully do or cause to be done by virtue hereof.



         Pursuant to the requirements of the Securities Exchange Act of 1934,

this report has been signed below by the following persons on behalf of the

registrant in the capacities and on the dates indicated.



Signature                      Title                              Date

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



/s/  Dennis B. Gillings        Chairman of the Board of           March 30, 2000

- ----------------------------   Directors and Chief

Dennis B. Gillings, Ph.D.      Executive Officer



/s/ James L. Bierman           Chief Financial Officer            March 30, 2000

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

James L. Bierman



/s/ Robert C. Bishop           Director                           March 30, 2000

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

Robert C. Bishop, Ph.D.



/s/ E. G. F. Brown             Director                           March 30, 2000

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

E. G. F. Brown



/s/ Vaughn D. Bryson           Director                           March 30, 2000

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

Vaughn D. Bryson



                               Vice-Chairman and Director         March __, 2000

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

Santo J. Costa



/s/ Chester W. Douglass        Director                           March 30, 2000

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

Chester W. Douglass, Ph.D.



/s/ William E. Ford            Director                           March 30, 2000

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

William E. Ford



/s/ Fred C. Goad               Director                           March 30, 2000

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

Fred C. Goad



/s/ Jim D. Kever               Director and Chief Executive       March 30, 2000

- ----------------------------   Officer of ENVOY

Jim D. Kever



/s/ Arthur M. Pappas           Director                           March 30, 2000

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

Arthur M. Pappas



/s/ Eric J. Topol              Director                           March 30, 2000

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

Eric J. Topol, M.D.



/s/ Virginia V. Weldon         Director                           March 30, 2000

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

Virginia V. Weldon, M.D.







                                       90















   93



                                  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(3)        Indenture, dated as of May 17, 1996, between Quintiles

               Transnational Corp. and Marine Midland Bank, as Trustee, with

               respect to our 4.25% Convertible Subordinated Notes due May 31,

               2000



4.02           Amended and Restated Articles of Incorporation, as amended (see

               Exhibit 3.01)



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



4.04(4)        Specimen certificate for Common Stock, $0.01 par value per share



4.05(5)        Form of 4.25% Convertible Subordinated Notes in Unrestricted

               Global Form



4.06(5)        Form of 4.25% Convertible Subordinated Notes in Certificated Form



4.07(6)        Rights Agreement, dated as of November 5, 1999 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(4)(7)    Employment Agreement, dated February 22, 1994, by and between Dr.

               Dennis B. Gillings and Quintiles Transnational Corp.



10.02(7)       Amendment to Contract of Employment, dated October 26, 1999, by

               and between Dr. Dennis B. Gillings and Quintiles Transnational

               Corp.



10.03(7)       Amended and Restated Executive Employment Agreement, dated

               November 30, 1999, by and between Santo J. Costa and Quintiles

               Transnational Corp.



10.04(7)(8)    Employment Agreement, dated January 1, 1995, by and between

               Rachel R. Selisker and Quintiles Transnational Corp.



10.05(7)       Amendment to Contract of Employment, dated October 25, 1999 by

               and between Rachel R. Selisker and Quintiles Transnational Corp.



10.06(7)       Amended and Restated Executive Employment Agreement, dated March

               17, 2000, by and between Dr. Ludo Reynders and Quintiles, Inc.



10.07(7)       Amended and Restated Employment Agreement, dated March 30, 1999

               by and between Jim D. Kever and Envoy Corporation







   94



Exhibit        Description

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



10.08(7)       Amendment to Executive Employment Agreement, dated November 23,

               1999, by and between Jim D. Kever and Envoy Corporation



10.09(7)       Executive Employment Agreement, dated June 16, 1998, by and

               between James L. Bierman and Quintiles Transnational Corp.



10.10(7)       Executive Employment Agreement, dated December 3, 1998, by and

               between John S. Russell and Quintiles Transnational Corp.



10.11(7)       Amendment to Executive Employment Agreement, dated October 26,

               1999, by and between John S. Russell and Quintiles Transnational

               Corp.



10.12(4)(7)    Quintiles Transnational Corp. Non-Qualified Employee Incentive

               Stock Option Plan



10.13(7)       Quintiles Transnational Corp. Equity Compensation Plan, as

               amended and restated on November 4, 1999



10.14(7)       Quintiles Transnational Corp. Elective Deferred Compensation

               Plan, as amended and restated



10.15(7)       Quintiles Transnational Corp. Nonqualified Stock Option Plan



10.16(7)       Amended and Restated Envoy Corporation 1995 Employee Stock

               Incentive Plan



10.17(9)       Sublease, dated January 18, 1996, by and between Legent

               Corporation and Innovex, Inc.



10.18(10)      Underlease, dated November 28, 1997, by and between PDFM Limited

               and Quintiles (UK) Limited and guaranteed by the Company



10.19          Consulting Agreement dated as of January 1, 2000 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 separately with the Securities and Exchange Commission.]



10.20(11)      Agreement for the Provision of Research Services and Lease of

               Business Assets dated as of March 3, 1995, between Syntex

               Pharmaceuticals Limited, Quintiles Scotland Limited, Quintiles

               (UK) Limited, and Roche Products Limited



10.21(12)      Merger Agreement, dated as of December 14, 1998, among Quintiles

               Transnational Corp., QTRN Acquisition Corp., and Pharmaceutical

               Marketing Services Inc.



10.22(13)      Amended and Restated Agreement and Plan of Merger, dated December

               15, 1998, among Quintiles Transnational Corp., QELS Corp., and

               ENVOY Corporation



10.23(14)      Credit Agreement dated as of August 7, 1998







   95



Exhibit        Description

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



10.24(15)      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.



10.25(16)      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.



21             Subsidiaries



23.01          Consent of Arthur Andersen LLP



23.02          Consent of Ernst & Young LLP



23.03          Consent of Ernst & Young LLP



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



27.01          Restated Financial Data Schedule year ended 12/31/97 (for SEC use

               only)



27.02          Restated Financial Data Schedule 3 months ended 3/31/98 (for SEC

               use only)



27.03          Restated Financial Data Schedule 6 months ended 6/30/98 (for SEC

               use only)



27.04          Restated Financial Data Schedule 9 months ended 9/30/98 (for SEC

               use only)



27.05          Restated Financial Data Schedule year ended 12/31/98 (for SEC use

               only)



27.06          Restated Financial Data Schedule 3 months ended 3/31/99 (for SEC

               use only)



27.07          Restated Financial Data Schedule 6 months ended 6/30/99 (for SEC

               use only)



27.08          Restated Financial Data Schedule 9 months ended 9/30/99 (for SEC

               use only)



27.09          Financial Data Schedule (for SEC use only)



99.01          Report of Independent Auditors



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



         (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.







   96



         (3)      Exhibit to our Quarterly Report on Form 10-Q, as filed with

                  the Securities and Exchange Commission on August 14, 1996, and

                  incorporated herein by reference.



         (4)      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.



         (5)      Exhibit to our Registration Statement on Form S-3, as amended,

                  as filed with the Securities and Exchange Commission (File No.

                  333-19009) effective February 1, 1997, and incorporated

                  herein by reference.



         (6)      Exhibit to our Registration Statement on Form 8-A, as filed

                  with the Securities and Exchange Commission on November 5,

                  1999, and incorporated herein by reference.



         (7)      Executive compensation plans and arrangements.



         (8)      Exhibit to our Annual Report on Form 10-K for the fiscal year

                  ended December 31, 1994, as filed with the Securities and

                  Exchange Commission on March 30, 1995, and incorporated herein

                  by reference.



         (9)      Exhibit to our Annual Report on Form 10-K for the fiscal year

                  ended December 31, 1996, as filed with the Securities and

                  Exchange Commission on March 25, 1997, 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 6, 1995,

                  as filed with the Securities and Exchange Commission on March

                  20, 1995, and incorporated herein by reference.



         (12)     Exhibit to our Current Report on Form 8-K dated December 16,

                  1998, as filed with the Securities and Exchange Commission on

                  December 16, 1998, and incorporated herein by reference.



         (13)     Exhibit to our Current Report on Form 8-K dated December 16,

                  1998, as filed with the Securities and Exchange Commission on

                  December 17, 1998, and incorporated herein by reference.



         (14)     Exhibit to our Quarterly Report on Form 10-Q dated November

                  16, 1998, as filed with the Securities and Exchange Commission

                  on November 16, 1998, and incorporated herein by reference.



         (15)     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.







   97



         (16)     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.