INVERESK RESEARCH GROUP, INC.

Approximate date of commencement of the proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o


(1)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, based on the average of the high and low prices of shares of the Company’s common stock as reported on The Nasdaq Stock Market’s National Market on February 14, 2003.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

We are selling 3,000,000 shares of common stock and the selling stockholders listed under “Principal and Selling Stockholders” are selling 7,350,000 shares of common stock. We will not receive any of the proceeds from the shares sold by the selling stockholders.

Our common stock is quoted on The Nasdaq Stock Market’s National Market under the symbol “IRGI.” The last reported sale price for our common stock on The Nasdaq Stock Market’s National Market on February 14, 2003 was $17.95 per share.

See “Risk Factors” beginning on page 9 to read about certain risks you should consider before buying our shares.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

Certain of the selling stockholders have granted a 30-day over-allotment option to the underwriters to purchase up to an aggregate of 1,552,500 additional shares of common stock at the public offering price less the underwriting discount.

The underwriters are severally underwriting the shares being offered. The underwriters expect to deliver the shares against payment in New York, New York on , 2003.

While this summary highlights what we believe is the most important information contained in this prospectus, you should read carefully this entire prospectus, especially the section “Risk Factors” and our financial statements and the notes to those statements, for a more complete understanding of the offering and our business. Unless otherwise indicated, all references to “Inveresk Research,” “Inveresk Research Group,” “we,” “us” and “our” refer to Inveresk Research Group, Inc. and its consolidated subsidiaries.

We are a leading provider of drug development services to companies in the pharmaceutical and biotechnology industries. Through our pre-clinical and clinical business segments, we offer a broad range of drug development services, including pre-clinical safety and pharmacology evaluation services, laboratory sciences services and clinical development services. We are one of a small number of drug development services companies currently providing a comprehensive range of pre-clinical and clinical development services on a worldwide basis. Our client base includes major pharmaceutical companies in North America, Europe and Japan, as well as many biotechnology and specialty pharmaceutical companies. We completed our initial public offering of common stock in July 2002.

Below is a summary of our financial results in 2002, adjusted to reflect the impact of certain charges recorded in the first and second quarters of 2002 which we do not expect to recur. We believe this non-GAAP adjusted financial data more clearly reflects our underlying financial and operational performance and provides a more appropriate basis for comparison (i) to historical and future financial performance, and (ii) to the reported results of comparable businesses.

The adjustment to our reported 2002 financial results set forth above comprises: (i) a non-cash charge of $4.5 million arising from the amendment and exercise of an employee’s stock options; (ii) a non-cash compensation charge of $48.5 million incurred at the time of our initial public offering in respect of stock options and other equity-based compensation arrangements; and (iii) a $1.5 million charge for stamp duty taxes in respect of the change of our ultimate parent company that we completed shortly before and in connection with our initial public offering.

Our 2002 net income (loss) is also net of $11.7 million of interest expense and a $1.6 million extraordinary item.

Pre-clinical. Our pre-clinical development business was established over 35 years ago, employs approximately 1,830 people and operates from two principal facilities, one located in Tranent, Scotland and the other in Montreal, Canada. This business segment provides pre-clinical safety and pharmacology evaluation and laboratory sciences services (including clinical support services). In 2002 our pre-clinical business segment generated net service revenue of $142.2 million and income from operations of $43.5 million. Based upon net service revenue, we estimate that we are the third largest provider of pre-clinical safety evaluation services in the world. Our pre-clinical business has a diverse client base, with no single client representing more than 7.5% of our net service revenue in 2002. More than 85% of the 2002 net service revenue from our pre-clinical business was generated from repeat clients.

We anticipate continued growth in demand for our pre-clinical development services. During 2001 and 2002 we invested over $35 million in our pre-clinical facilities in Montreal, Canada and Tranent, Scotland.

We intend to make significant additional investments in both facilities in 2003 and 2004. We expect to fund this expansion primarily with cash generated from our operations.

Clinical. Our clinical development business was established in 1988 and operates from 15 facilities located across the United States and Europe, employing approximately 720 people. This business segment conducts Phase I clinical trials and provides Phase II-IV clinical trials management services (including medical data sciences services and regulatory support). In 2002 our clinical development business segment generated net service revenue of $80.3 million and income from operations of $9.0 million. Our 62-bed clinic in Edinburgh conducts a wide range of Phase I clinical trials and has completed an average of 11 first-in-man studies annually over the past five years. The global infrastructure of our clinical development business permits us to offer our clients multi-country Phase II-IV clinical trials, as well as smaller single-country projects.

Prior to 1999 we operated as a division of SGS Société Générale de Surveillance SA. In September 1999 we were acquired in a management buyout supported by Candover Investments PLC. As a result of that transaction, Candover Investments PLC and certain of its affiliated entities became our principal stockholders and Inveresk Research Group Limited, a newly created Scottish company, became the ultimate holding company for the Inveresk Research group of companies. In April 2001 we acquired a Nasdaq-traded company, ClinTrials Research Inc., for $115.1 million, net of cash acquired of $5.7 million. ClinTrials provided drug development services, with significant pre-clinical operations in Canada and clinical operations primarily in the United States and Europe. We subsequently implemented a major restructuring of ClinTrials’ clinical business and, since the time we acquired it, its profitability has improved significantly.

On June 25, 2002 we changed our ultimate parent company from a company organized in Scotland to a corporation organized in Delaware. This was accomplished through a share exchange transaction in which all the shareholders of Inveresk Research Group Limited (our former ultimate parent company) exchanged their shares for shares of common stock of Inveresk Research Group, Inc. (the current ultimate parent company) and all of the holders of options to purchase shares of Inveresk Research Group Limited exchanged those options for options to purchase shares of Inveresk Research Group, Inc. With the exception of the incurrence of U.K. stamp duty charges of $1.545 million, this transaction had no impact on our consolidated assets or liabilities.

On July 3, 2002, we completed our initial public offering of 12 million shares of common stock, at a price of $13.00 per share. At the same time, we put in place a new bank credit facility. The net proceeds from the offering, together with drawings under our new bank credit facility and existing cash resources, were used to repay all of the outstanding principal and interest under our former bank facility and our 10% unsecured subordinated loan stock due 2008. As a result, our aggregate outstanding indebtedness was reduced from approximately $223 million to approximately $74 million.

Every drug must undergo extensive evaluation and regulatory review to determine that it has the required quality and is both safe and effective for its intended purpose. Discovery and development of new drugs is a lengthy and complex process and is becoming increasingly expensive. The Tufts Center for the Study of Drug Development estimates the current average cost to develop an approved drug to be $802 million, more than three times the estimated cost in 1987.

Most pharmaceutical and biotechnology companies depend on the development of a steady succession of new drugs for their future profitability. Accordingly, these companies invest extensively in the research and development of new drugs. There are major risks associated with the research and development process, given the high cost of developing new drugs and the significant possibility that a drug candidate will not succeed. Pharmaceutical and biotechnology companies are seeking in many cases to manage these risks by pursuing the parallel development of multiple compounds with similar potential applications (to

mitigate the risk of product failure), while at the same time pursuing strategies to contain costs. Further, since the profitability of a drug is greatest while it enjoys market exclusivity, pharmaceutical and biotechnology companies continually seek ways to shorten the time from drug discovery to marketing.

In response to these trends, pharmaceutical companies are increasingly relying on independent drug development services companies, such as Inveresk Research, to supplement their internal drug development activities. The greater role of biotechnology and specialty pharmaceutical companies in the drug discovery and development area has also increased demand for the services of independent drug development services companies, like Inveresk Research, particularly because they often do not have the expertise or capital to build the internal capability required to undertake pre-clinical and clinical development of their drug candidates.

According to Frost & Sullivan, the pharmaceutical and biotechnology industries spent approximately $50.6 billion on global research and development in 2001, of which approximately $9.8 billion is estimated to be outsourced to providers of drug development services. We believe that the needs of pharmaceutical and biotechnology companies for outsourced drug development services will continue to increase, based on the following trends:


	•	demand for new drugs based on changing population demographics;

	•	escalating research and development expenditures by pharmaceutical companies;

	•	the growth of the biotechnology industry;

	•	the emergence of new research and development technologies such as genomics and proteomics;

	•	the need for improved productivity making outsourcing attractive as a cost-effective alternative to in-house development activities;

	•	the increasingly complex and demanding regulatory environment requiring extensive expertise in drug development services and regulatory affairs; and

	•	globalization of clinical research requiring drug development expertise across global markets.

We believe the increasing demand for outsourced drug development services will provide us with opportunities to continue to grow our pre-clinical and clinical businesses profitably. Our strategy is to build upon our core pre-clinical and clinical development expertise and to further our reputation as a provider of a comprehensive range of high quality, value-added drug development services. Our aim is to become the leading research and development partner to the pharmaceutical and biotechnology industries. We anticipate achieving this strategy primarily through:


	•	continuing to invest in our pre-clinical facilities in Tranent and Montreal to provide us with greater capacity to meet anticipated increases in demand for our pre-clinical development services;

	•	maintaining and enhancing the ability of our Phase I clinical operations in Edinburgh to provide high quality, value-added services while leveraging its experience and expertise in seeking to expand these services geographically;

	•	continuing to position our Phase II-IV clinical development business as a provider of higher value-added services; and

	•	further leveraging the cross-selling opportunities between our two business segments.

We also intend to seek to augment our pre-clinical and clinical development capabilities and market share by making strategic acquisitions to the extent appropriate opportunities become available. By completing this offering, we will further increase our financial flexibility, which will better position us to exploit appropriate acquisition opportunities as they arise.

We believe our approach to acquisitions is a disciplined one that seeks to focus on businesses that are a sound strategic fit and that offer the prospect of enhancing stockholder value. While we continuously consider various acquisition prospects, we do not at present have any definitive plans or agreements for specific acquisitions.

Our headquarters are located at 11000 Weston Parkway, Suite 100, Cary, North Carolina 27513. Our telephone number is (919) 460-9005. We maintain sites on the World Wide Web at www.inveresk.com and www.ctbr.com; however, the information found on our websites is not a part of this prospectus.

1 Includes 333,904 shares (371,484 shares if the underwriters’ over-allotment option is exercised in full) which we expect to be issued upon exercise of stock options by certain of the selling stockholders and resold by such stockholders in this offering.

The summary condensed consolidated financial data presented below for each of the three years ended December 31, 2002, December 30, 2001 and December 31, 2000 derive from the audited consolidated financial statements of Inveresk Research Group, Inc. included elsewhere in this prospectus. You should read the summary condensed consolidated financial information presented below in conjunction with the audited consolidated financial statements and the notes to those statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus. Information for the year ended December 30, 2001 includes the results of operations of ClinTrials from April 5, 2001.

The unaudited pro forma statement of operations and earnings per share data presented below for the year ended December 31, 2002 give effect to the completion both of our initial public offering and of this offering, including the use of proceeds from the two offerings to repay debt, as if both offerings had occurred on January 1, 2002. The pro forma balance sheet data is presented as if this offering had been completed on December 31, 2002.

The unaudited pro forma financial data is provided for illustrative purposes only. It does not purport to represent what our actual results of operations or financial position would have been had the transactions occurred on the respective dates assumed. It is also not necessarily indicative of our future operating results or consolidated financial position.

Effective as of the beginning of 2002, our fiscal years end consistently on December 31 and our fiscal quarters end consistently on the last calendar day in the quarter. Before 2002, our fiscal years ended on the last Sunday on or prior to December 31 and our fiscal quarters ended on the last Sunday on or prior to the relevant quarter end.

In the presentation below, as more fully described in Note 4 to our consolidated financial statements, which are presented in this prospectus beginning on page F-1, historical earnings per share have been calculated as if the historical outstanding shares in Inveresk Research Group Limited had been converted to common stock in Inveresk Research Group, Inc., using a weighted average of the conversion ratios applicable to the change in ultimate parent company completed immediately preceding the completion of our initial public offering.

As a consequence of the adoption of FAS 142 with effect from January 1, 2002, the amortization expense shown for 2002 is not on a consistent basis of accounting with earlier periods. The impact of this is shown in Note 4 to our audited consolidated financial statements, which are presented in this prospectus beginning on page F-1.


(1)	Net cash provided by operating activities in 2002 of $29,785 is after deducting the payment of $21,454 of accumulated interest on 10% unsecured subordinated loan stock due 2008 following our initial public offering.

An investment in the common stock offered by this prospectus involves a substantial risk of loss. You should carefully consider the risks described below and the other information in this prospectus, including our financial statements and the related notes, before you purchase any of our shares of common stock. Additional risks and uncertainties, including those generally affecting the market in which we operate or that we currently deem immaterial, may also impair our business. If any such risks actually occur, our business, financial condition and operating results could be adversely affected. In such case, the trading price of our common stock could decline and you may lose all or part of your investment.

We could be adversely affected if the companies in the pharmaceutical and biotechnology industries to whom we offer our services reduce their research and development activities or reduce the extent to which they outsource pre-clinical and clinical development.

We are a global provider of drug development services to pharmaceutical and biotechnology clients. As such, our ability to grow and win new business is dependent upon the ability and willingness of companies in the pharmaceutical and biotechnology industries to continue to spend on research and development at rates close to or at historical levels and to outsource the services we provide. We are therefore subject to risks, uncertainties and trends that affect companies in these industries. For example, we have benefited to date from the increasing tendency of pharmaceutical and biotechnology companies to outsource both small and large pre-clinical and clinical development projects. Any general downturn in the pharmaceutical or biotechnology industries, any reduction in research and development spending by companies in these industries or any expansion of their in-house development capabilities could have a material adverse effect on our business, financial condition and operating results.

The process for approval of a drug candidate is subject to strict government regulation, especially in North America, Europe and Japan. Any material changes in government regulations, whether involving a relaxation or a strengthening of regulation, could adversely affect us. A relaxation in regulatory requirements or the introduction of simplified drug approval procedures, for instance, could have a material adverse effect on the demand for our services, which could adversely affect our business, financial condition and operating results. At the same time, an increase in regulatory requirements could require us to change the manner in which we conduct our operations or could require us to incur significant capital expenditures in order to effect those changes. For example, in Europe new regulations have recently been adopted that will require clinical trials in healthy volunteers to be pre-approved by a national regulatory authority. Other changes in governmental regulations could result in a change in the type and amount of capital expenditures required to conduct our business and as a result could have a material adverse effect on our business, financial condition and operating results.

Our exposure to exchange rate fluctuations could adversely affect our results of operations.

We derived approximately 84% of our consolidated net service revenue in 2002 from our operations outside of the United States, primarily from our operations in Canada and the United Kingdom, where significant amounts of our revenues and expenses are recorded in local (non-U.S.) currency. Our financial statements are presented in U.S. dollars. Accordingly, changes in currency exchange rates, particularly between the pound sterling, the Canadian dollar and the U.S. dollar, will cause fluctuations in our reported financial results, which fluctuations could be material.

In addition, our contracts with our clients are frequently denominated in currencies other than the currency in which we incur expenses related to those contracts. This is particularly the case with respect to our Canadian operations, where our contracts generally provide for invoicing clients in U.S. dollars but our expenses are generally incurred in Canadian dollars. Where expenses are incurred in currencies other than

We could be adversely affected by tax law changes in the United Kingdom or Canada.

Our operations in the United Kingdom and Canada currently benefit from favorable corporate tax arrangements. We receive substantial tax credits in Canada from both the Canadian federal and Quebec governments and we benefit from tax credits and accelerated tax depreciation allowances in the United Kingdom. Any reduction in the availability or amount of these tax credits or allowances would be likely to have a material adverse effect on our profits and cash flow from either or both of our Canadian and United Kingdom operations.

Our quarterly operating results may vary, which could negatively affect the market price of our common stock.

Our results of operations in any quarter can fluctuate depending upon, among other things, the number of weeks in the quarter, the number and scope of ongoing client engagements, the commencement, postponement and termination of engagements in the quarter, the mix of revenue, the extent of cost overruns, employee hiring, holiday patterns, severe weather conditions, exchange rate fluctuations and other factors. Because we generate a large portion of our revenue from services provided on the basis of an hourly recovery charge, our net service revenue in any period is directly related to the number of employees and the number of billable hours worked during that period. We have only limited ability to compensate for periods of underutilization during one part of a fiscal period by augmenting revenues during another part of that period. We may also, in any given quarter, be required to make U.K. National Insurance contributions in connection with the exercise of options by certain of our U.K. resident employees. We believe that operating results for any particular quarter are not necessarily a meaningful indication of the health of our business or of future results. Nonetheless, fluctuations in our quarterly operating results could negatively affect the market price of our common stock.

We depend on our senior management team, and the loss of any member of the team may adversely affect our business.

We believe our success will depend on the continued employment of our senior management team. If one or more members of our senior management team were unable or unwilling to continue in their present positions, those persons could be difficult to replace and our business could be harmed. If any of our key employees were to join a competitor or to form a competing company, some of our clients might choose to use the services of that competitor or new company instead of our own. Furthermore, clients or other companies seeking to develop in-house capabilities may hire away some of our senior management or key employees.

If we are unable to recruit and retain qualified personnel we may not be able to expand our business and remain competitive.

Because of the specialized scientific nature of our business, we are highly dependent, in both our pre-clinical and clinical operations, upon qualified scientific, technical and managerial personnel. There is intense competition for qualified personnel in the pharmaceutical and biotechnology fields. Therefore, although traditionally we have experienced a relatively low turnover in our staff, in the future we may not be able to attract and retain the qualified personnel necessary for the conduct and further development of our businesses. The loss of the services of existing personnel, as well as the failure to recruit additional key scientific, technical and managerial personnel in a timely manner, could have a material adverse effect on our ability to expand our businesses and remain competitive in the industries in which we participate.

Our contracts are generally terminable on little or no notice. Termination of a large contract for services or multiple contracts for services could adversely affect our revenue and profitability.

In general, our agreements with clients provide that the client can terminate the agreements or reduce the scope of services under the agreements upon little or no notice. Clients may elect to terminate their agreements with us for various reasons, including:


	•	unexpected or undesired study results;

	•	inadequate patient enrollment or investigator recruitment;

	•	production problems resulting in shortages of the drug being tested;

	•	adverse patient reactions to the drug being tested; or

	•	the client’s decision to forego or terminate a particular study.

If a client terminates its contract with us we are generally entitled under the terms of the contract to receive revenue earned to date as well as certain other costs. In both our pre-clinical and clinical businesses, cancellations of any large contract or simultaneous cancellation of multiple contracts could materially adversely affect our business, financial condition and operating results.

Because most of our clinical development net service revenue is from long-term fixed-fee contracts, we would lose money in performing these contracts if our costs of performing those contracts were to exceed the fixed fees payable to us.

Because most of our clinical development net service revenue is from long-term fixed price contracts, we bear the risk of cost overruns under these contracts. If the costs of completing these projects exceed the fixed fees for these projects, for example if we underprice these contracts or if there are significant cost overruns under these contracts, our business, financial condition and operating results could be adversely affected.

Although the majority of our contracts with our pre-clinical clients are also fixed price contracts, we typically have more flexibility under those contracts to adjust the price to be charged if we are asked to provide additional services. These contracts also tend to have shorter terms than our clinical contracts. Therefore, we have less risk of underpricing or incurring significant cost overruns under our pre-clinical contracts. However, if we did have to bear significant costs of underpricing or cost-overruns under our pre-clinical contracts, our business, financial condition and operating results could be adversely affected.

Our future profitability could be reduced if we incur liability for failure to properly perform our obligations under our contracts with our clients.

We are liable to our clients for any failure to conduct their studies properly according to the agreed upon protocol and contract. If we fail to conduct a study properly in accordance with the agreed upon procedures, we may have to repeat the study at our expense, reimburse the client for the cost of the study and pay additional damages.

At our Phase I clinic in Edinburgh, we study the effects of drugs on healthy volunteers. In addition, in our clinical business we, on behalf of our clients, contract with physicians who render professional services, including the administration of the substance being tested, to participants in clinical trials, many of whom are seriously ill and are at great risk of further illness or death as a result of factors other than their participation in a trial. As a result, we could be held liable for bodily injury, death, pain and suffering, loss of consortium, or other personal injury claims and medical expenses arising from a clinical trial.

To reduce our potential liability, informed consent is sought from each volunteer and we obtain indemnity provisions in our contracts with clients. These indemnities generally do not, however, protect us against certain of our own actions such as those involving negligence or misconduct. Our business, financial condition and operating results could be materially and adversely affected if we were required to pay

damages or incur defense costs in connection with a claim that is not indemnified, that is outside the scope of an indemnity or where the indemnity, although applicable, is not honored in accordance with its terms.

We maintain errors and omissions professional liability insurance in amounts we believe to be appropriate. This insurance provides coverage for vicarious liability due to negligence of the investigators who contract with us, as well as claims by our clients that a clinical trial was compromised due to an error or omission by us. If our insurance coverage is not adequate, or if our insurance coverage does not continue to be available on terms acceptable to us, our business, financial condition and operating results could be materially and adversely affected.

Our clients retain us on an engagement-by-engagement basis, which reduces the predictability of our revenues and our profitability.

Our clients generally retain us on an engagement-by-engagement basis. Costs of switching drug development services companies are not significant and after we complete a project for a client we do not know whether the same client will retain us in the future for additional projects. A client that accounts for a significant portion of our revenues in a given period may not generate a similar amount of revenues, if any, in subsequent periods. This makes it difficult for us to predict revenues and operating results. Since our operating expenses are relatively fixed and cannot be reduced on short notice to compensate for unanticipated variations in the number or size of engagements in progress, we may continue to incur costs and expenses based on our expectations of future revenues. This could have an adverse effect on our business, financial condition and operating results.

Our backlog is subject to reduction and cancellation and our failure to replace completed or cancelled backlog could reduce our future revenues and profitability.

For our internal purposes, we periodically calculate backlog. Backlog represents the aggregate price of services that our clients have committed to purchase by signed contract or other written evidence of a firm commitment. Our aggregate backlog at December 31, 2002 was approximately $210 million. Our backlog is subject to fluctuations and is not necessarily indicative of future backlog or revenues. Cancelled contracts are removed from backlog. Our failure to replace items of backlog that have been completed, reduced in scope or cancelled could result in lower revenues.

If we are unable to implement our business strategy effectively we may not be able to expand our business and compete effectively.

A significant aspect of our business strategy for our pre-clinical operations is to increase the capacity and broaden the service capability of these operations through continued capital investment and, to a lesser extent, through strategic acquisitions. If we fail to implement our expansion strategy for our pre-clinical development operations successfully, we may not be able to grow or remain competitive in this area.

A significant aspect of our business strategy for our clinical operations is to emphasize our scientific and medical input, to maximize the number of value-added services that we provide and, to a lesser extent, to grow through strategic acquisitions. If we are not successful in implementing this strategy we may not be able to expand our clinical trials operations or remain competitive in this area.

In addition, any acquisitions we undertake in implementing our business strategy may involve a number of special risks, including:


	•	diversion of management’s attention;

	•	potential failure to retain key acquired personnel;

	•	assumptions of unanticipated legal liabilities and other problems; and

	•	difficulties integrating systems, operations and corporate cultures.

We could be adversely affected if we fail to comply with regulatory standards.

Many of the regulations that govern the pre-clinical and clinical development services industries empower regulatory authorities to compel an entity conducting pre-clinical or clinical operations to cease all or a portion of its activities if it fails to comply with regulatory standards. If we fail to comply with any existing or future government regulations, our non-complying facilities could be forced to cease operations, which could have a material adverse effect on our business, financial condition and operating results. Our failure to comply with regulatory standards could also result in the termination of ongoing research or the disqualification of data for submission to regulatory authorities, either of which could have a material adverse effect on our business, financial condition and operating results. For example, if we were to fail to verify that informed consent is obtained from patient participants in connection with a particular clinical trial, 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 client, but at substantial cost to us.

We compete in a highly competitive market and if we do not compete successfully our business could be seriously harmed.

The competitive landscape for our two core businesses varies. Nevertheless, both businesses primarily compete with in-house departments of pharmaceutical companies, other drug development services organizations, universities and teaching hospitals.

We believe we are the third largest provider of pre-clinical safety evaluation services in the world, based on net service revenue. Our primary pre-clinical competitor on a global basis is Covance, although we also face competition from publicly traded companies such as Charles River Laboratories, Life Sciences Research and MDS Pharma, as well as from a number of privately-held companies. Certain of these competitors are also expanding their pre-clinical operations.

The clinical development services market is highly fragmented, with participants ranging from hundreds of small, limited-service providers to a few full service drug development services organizations with global operations. We believe that we compete with a number of publicly traded companies, primarily Quintiles, PPD, Covance, MDS Pharma, Parexel, ICON and Kendle, as well as with a number of privately-held companies.

In contrast to the pre-clinical drug development industry, the clinical drug development industry has few barriers to entry. Newer, smaller companies with specialty focuses, such as those aligned to a specific disease or therapeutic area, may compete aggressively against larger companies for clients.

Increased competition might lead to price and other forms of competition that may adversely affect our operating results. Providers of outsourced drug development services compete on the basis of many factors, including the following:


	•	reputation for on-time quality performance;

	•	expertise, experience and stability;

	•	scope of service offerings;

	•	how well services are integrated;

	•	strength in various geographic markets;

	•	technological expertise and efficient drug development processes;

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

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

We have traditionally competed effectively on the basis of the factors noted above, but we may not be able to continue to do so. If we fail to compete successfully, our business could be seriously harmed.

Health care industry reform could reduce or eliminate our business opportunities.

The health care industry is subject to changing political, economic and regulatory influences that may affect the pharmaceutical and biotechnology industries. In recent years, several comprehensive health care reform proposals were introduced in the United States Congress. The intent of the proposals was, generally, to expand health care coverage for the uninsured and reduce the growth of total health care expenditures. While none of the proposals were adopted, the United States Congress may again address health care reform. In addition, foreign governments may also undertake health care reforms in their respective countries. Business opportunities available to us could decrease if the implementation of government health care reform adversely affects research and development expenditures by pharmaceutical and biotechnology companies.

Our business may be impaired by negative attention from special interest groups.

Research activities with animals have been the subject of adverse attention, particularly in the United Kingdom. This has involved on-site protests and other demonstrations at facilities operated by certain of our competitors, clients and suppliers. Any negative attention or threats directed against our animal research activities in the future could impair our ability to operate our business efficiently and effectively. In addition, if regulatory authorities were to mandate a significant reduction in safety testing procedures which utilize laboratory animals (as has been advocated by certain groups), the impact upon our business would be negative. However, we believe that this is unlikely as there are currently no acceptable alternatives to animal testing which would provide the scientific information necessary to obtain regulatory approval for pharmaceuticals.

Our largest stockholders will continue to have significant control over us after this offering, and they may make decisions with which you disagree.

Upon consummation of this offering, our management, Candover Investments PLC, together with Candover (Trustees) Limited (a wholly-owned subsidiary of Candover Investments PLC) and certain investment funds indirectly controlled by Candover Investments PLC will continue to own an aggregate of approximately 39% of our outstanding shares of common stock (35% if the underwriters’ over-allotment option is exercised in full). See “Principal and Selling Stockholders.” The interests of those Candover stockholders and our management could differ from those of other stockholders. Although they will no longer have majority voting control, as a result of their share ownership Candover Investments PLC and our management will continue to have significant control over us and any decisions relating to:


	•	elections to our board of directors;

	•	amendments to our certificate of incorporation;

	•	our management and policies;

	•	the outcome of any corporate transaction or other matter submitted to our stockholders for approval, including mergers, consolidations and the sale of all or substantially all our assets; and

	•	a change in control of our company (which may have the effect of discouraging third party offers to acquire our company).

The market price of our shares of common stock could fluctuate significantly, and you may not be able to sell your common stock at a favorable price or at all.

In recent years, the stock market has experienced significant price and volume fluctuations that are often unrelated to the operating performance of specific companies. Wide fluctuations in the trading price or volume of our shares of common stock could be caused by many factors, including factors relating to our company or to investor perception of our company (including changes in financial estimates and recommendations by financial analysts who follow us) but also factors relating to (or relating to investor perception of) the drug development services industry, the pharmaceutical and biotechnology industries or the economy in general.

The sale of a substantial number of our shares of common stock in the public market could adversely affect the market price of our shares, which in turn could negatively impact your investment in us.

Future sales of substantial amounts of our shares of common stock in the public market (or the perception that such sales may occur) could adversely affect market prices of our common stock prevailing from time to time and could impair our ability to raise capital through future sales of our equity securities. Upon completion of this offering, we will have 39,351,359 shares of common stock issued and outstanding (including 333,904 shares which we expect to be issued upon exercise of stock options by certain of the selling stockholders and resold in this offering). All of the shares we and the selling stockholders are selling in this offering, plus any shares sold upon the exercise of the underwriters’ over-allotment option, will be freely tradeable without restriction under the Securities Act of 1933, unless purchased by our affiliates. A number of our other shares also are freely tradeable. Upon completion of this offering, 15,283,868 of our shares of common stock will be restricted or control securities within the meaning of Rule 144 under the Securities Act of 1933 (13,790,087 shares of common stock if the underwriters’ over-allotment option is exercised in full). The rules affecting the sale of these securities are summarized under “Shares Eligible for Future Sale.” Following this offering, without giving effect to the over-allotment option, stockholders that collectively own 15,295,955 shares of our common stock will have registration rights with respect to their shares. See “Principal and Selling Stockholders — Registration Rights Agreement.” Upon any sale of those shares pursuant to an effective registration statement, the shares would be freely tradeable without restriction.

Subject to certain exceptions described under the caption “Underwriting,” we and all of our directors and executive officers and certain of our stockholders have agreed not to offer, sell or agree to sell, directly or indirectly, any shares of common stock without the permission of Bear, Stearns & Co. Inc. for a period of 90 days from the date of this prospectus. When this period expires we and our locked-up stockholders will be able to sell our shares in the public market. Sales of a substantial number of such shares upon expiration, or early release, of the lock-up (or the perception that such sales may occur) could cause our share price to fall.

Our principal stockholders hold (and following completion of this offering will continue to hold) shares of our common stock in which they have a very large unrealized gain, and these stockholders may wish, to the extent they may permissibly do so, to realize some or all of that gain relatively quickly by selling some or all of their shares.

We also may issue our shares of common stock from time to time as consideration for future acquisitions and investments. If any such acquisition or investment is significant, the number of shares that we may issue may in turn be significant. In addition, we may also grant registration rights covering those shares in connection with any such acquisitions and investments.

You will be immediately and substantially diluted if you purchase shares in this offering because the per share price in this offering is substantially higher than the net tangible book value of existing shares of common stock.

If you purchase shares in this offering, you will pay more for your shares than the net tangible book value of existing shares of common stock. As a result, you will experience an immediate and substantial dilution in the net tangible book value of your shares of $16.22 per share, based on an assumed offering

price of $17.95 per share. See “Dilution.” In addition, if outstanding options to purchase shares of common stock are exercised, there could be substantial additional dilution. See “Management — Executive Compensation” for information regarding outstanding stock options and additional stock options which we may grant.

We have implemented certain provisions that could make any change in our board of directors or in control of our company more difficult.

Our certificate of incorporation, our bylaws and Delaware law contain provisions, such as provisions authorizing, without a vote of stockholders, the issuance of one or more series of preferred stock that could make it difficult or expensive for a third party to pursue a tender offer, change in control or takeover attempt that is opposed by our management and board of directors. We also have a staggered board of directors that makes it difficult for stockholders to change the composition of our board of directors in any one year. These anti-takeover provisions could substantially impede the ability of public stockholders to change our management and board of directors.

This prospectus contains forward-looking statements under the captions “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere.

When used in this prospectus, the terms “believe,” “anticipate,” “estimate,” “expect,” “seek,” “intend,” “could,” “will,” “predict,” “plan,” “potential,” “continue,” and “may” or other similar terminology, or the negative of these terms, are generally intended to identify “forward-looking statements.” Our forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. We discuss these factors in more detail elsewhere in this prospectus, including under the captions “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” You should not place undue reliance on our forward-looking statements. We do not intend to update any of these factors or to publicly announce the result of any revisions to any of these forward-looking statements.

We estimate that the net proceeds we will realize from the sale of the shares of common stock that we are offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $50.3 million. We will not receive any of the proceeds from the sale of the shares of our common stock by the selling stockholders.

We intend to use these net proceeds from this offering received by us to repay a portion of our outstanding bank debt and for general corporate purposes, including funding the continued growth and development of our business, selective acquisitions and working capital requirements.

The amount of bank debt we expect to repay out of the net offering proceeds received by us is $15.0 million. At December 31, 2002, $50.0 million of our bank debt was outstanding under a term loan and $17.5 million of our bank debt was outstanding under a revolving credit facility. Both the term loan and the revolving credit facility borrowings presently bear interest at a rate equal to LIBOR plus 1.25%. Our term loan is repayable in semi-annual installments commencing June 2004, with the final installment due in June 2007. All revolving credit facility borrowings are due and payable not later than June 24, 2005. Our existing bank debt was incurred to refinance part of our indebtedness at the time of our initial public offering.

Our management will have broad discretion to allocate the net proceeds from this offering. Pending application of the net proceeds from this offering to be received by us, we intend to invest the proceeds in investment-grade, short-term, interest-bearing investments.

Our common stock is quoted on The Nasdaq Stock Market’s National Market under the symbol “IRGI.” Public trading of our common stock commenced on June 28, 2002. Prior to that time, there was no public trading market for our common stock. The following table sets forth the high and low sales prices for our common stock, as reported by Nasdaq, for the periods indicated:

On February 14, 2003, the last reported sale price or our common stock on The Nasdaq Stock Market’s National Market was $17.95 per share. As of February 12, 2003, there were approximately 25 holders of record of our common stock.

We have not paid any dividends in the past and currently do not expect to pay cash dividends or make any other distributions in the foreseeable future. We expect to retain our future earnings, if any, for use in the operation and expansion of our business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results, capital requirements and such other factors as our board deems relevant. In addition, our ability to declare and pay dividends on our shares of common stock will be restricted by (i) covenants in our bank credit facility and (ii) our current corporate organizational structure, which imposes a significant tax burden on intercompany dividends and distributions of earnings to us by our operating subsidiaries.

The following table sets forth our capitalization as of December 31, 2002 and a pro forma presentation in which our capitalization as of December 31, 2002 has been adjusted to give effect to the sale of 3,000,000 of our shares of common stock in this offering, as if that sale had been completed on December 31, 2002.

We estimate that the net proceeds to us from this offering, based on an assumed offering price of $17.95 per share and after deducting underwriting discounts and commissions and estimated offering expenses, will be approximately $50.3 million. For purposes of the following table, we have assumed these proceeds will be used to repay $15 million of our outstanding bank debt (which at December 31, 2002 amounted to a total of $67.5 million, all of which was included in long-term debt) and for general corporate purposes.

You should read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the accompanying notes included in this prospectus beginning on page F-1.

The preceding table does not give effect to (i) the issuance of the 5,365,589 shares that have been authorized and reserved for issuance under our 2002 stock option plan as of the date of this prospectus (of which 2,600,399 shares are reserved for issuance under options already issued or exercised) or (ii) the receipt of the exercise price from selling stockholders exercising stock options in connection with their resale of shares in this offering.

Our net tangible book value as of December 31, 2002, before giving effect to this offering, was approximately $17.4 million, or $0.48 per share.

Purchasers of shares in this offering will experience dilution in net tangible book value per share equal to the difference between the amount per share paid by those purchasers in this offering and the net tangible book value per share immediately following this offering.

After giving effect to the issuance of the 3,000,000 shares of common stock that we are selling in this offering at an assumed offering price of $17.95 per share, and after deducting underwriting discounts and commissions and estimated offering expenses that we will incur in connection with this offering, our pro forma net tangible book value as of December 31, 2002 would have been $67.6 million, or $1.73 per share. This represents an immediate increase in net tangible book value of $1.25 per share to existing stockholders. This also represents an immediate dilution of $16.22 per share to new investors purchasing shares from us in this offering. The following table illustrates this dilution per share:

The following table summarizes as of December 31, 2002, on a pro forma basis, the number of shares purchased from us, the total consideration paid to us and the average price per share paid by our existing stockholders and by the investors purchasing common stock from us in this offering at the offering price of $17.95 per share, before deducting underwriting discounts and commissions and estimated offering expenses:

The analysis presented in this table does not take into account (i) the 2,366,217 shares underlying stock options granted as of December 31, 2002 or (ii) the receipt of the exercise price from selling stockholders exercising stock options in connection with their resale of shares in this offering.

You should read the selected consolidated financial information presented below in conjunction with the audited and unaudited consolidated financial statements appearing elsewhere in this prospectus and the notes to those statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The financial information presented below for the three years ended December 31, 2002, December 30, 2001 and December 31, 2000 and for the period from September 20, 1999 to December 26, 1999 reflects the financial position and results of operations of Inveresk Research Group, Inc. and Inveresk Research Group Limited, which became our direct subsidiary immediately before our initial public offering. The financial information presented for the period from December 28, 1998 to September 19, 1999 and for the year ended December 27, 1998 reflects the financial position and results of operations of our business while it was operated as a division of SGS Société Générale de Surveillance SA. The financial information presented for the year ended December 30, 2001 includes the results of operations of ClinTrials Research Inc. from April 5, 2001.

The selected consolidated financial data presented below for the year ended December 31, 2002 were derived from the audited consolidated financial statements of Inveresk Research Group, Inc., which we prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, and which we present in this prospectus beginning on page F-1. The selected consolidated financial data presented below for each of the two years ended December 30, 2001 and December 31, 2000 and the periods from September 20, 1999 to December 26, 1999 and from December 28, 1998 to September 19, 1999 were derived from the audited consolidated financial statements of Inveresk Research Group Limited, which we prepared in accordance with U.S. GAAP but which we do not present in this prospectus. The summary consolidated financial data presented below for the year ended December 27, 1998 were derived from unaudited financial statements prepared on the basis of data furnished by SGS Société Générale de Surveillance SA. Those unaudited financial statements, which SGS Société Générale de Surveillance SA prepared in accordance with U.S. GAAP, are not included in this prospectus.

As a consequence of the adoption of FAS 142 with effect from January 1, 2002, the amortization expense shown for 2002 is not on a consistent basis of accounting with earlier periods. The impact of this is shown in Note 4 to our audited financial statements, which are presented in this prospectus beginning on page F-1.


(1)	Effective as of the beginning of 2002, our fiscal years end consistently on December 31 and our fiscal quarters end consistently on the last calendar day in the quarter. Before 2002, our fiscal years ended on the last Sunday on or prior to December 31 and our fiscal quarters ended on the last Sunday on or prior to the relevant quarter end.

(2)	Prior to September 20, 1999, our businesses were operated as a division of SGS Société Générale de Surveillance Holdings SA. Per share data for these periods is not meaningful and has not been presented.

(3)	As more fully described in note 4 to our audited financial statements, which are presented in this prospectus beginning on page F-1, historical earnings per share have been calculated as if the historical outstanding shares in Inveresk Research Group Limited had been converted to common stock in Inveresk Research Group, Inc., using a weighted average of the conversion ratios applicable to the change in ultimate parent company described elsewhere in this prospectus.

(4)	We have completed two significant acquisitions during the period covered by the selected consolidated financial information. These are the management buyout completed on September 20, 1999 and the acquisition of ClinTrials completed on April 5, 2001. A description of these acquisitions is given in the overview to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus. The accounting adopted and the effects of the acquisitions are discussed in note 3 to our audited financial statements, which are presented in this prospectus beginning on page F-1.

(5)	The information presented above for the year ended December 31, 2002 reflects the adoption of FAS 142 with effect from January 1, 2002. A summary of the effect of this accounting change is included in note 4 to our audited financial statements, which are presented in this prospectus beginning on page F-1.

On July 3, 2002, we completed our initial public offering of 12 million shares of common stock at a price of $13 per share. The net proceeds from the initial public offering were used to repay $90.0 million of outstanding borrowings under our former bank facility and $52.4 million of our 10% unsecured subordinated loan stock due 2008.

The share offering adjustments made to the unaudited pro forma condensed consolidated financial information reflect the anticipated net proceeds to us from this offering, calculated after deducting underwriting discounts and commissions and estimated offering expenses, of $3.6 million, and further reflect the application of $15.0 million of these net offering proceeds to the repayment of bank debt.

The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2002 gives effect to the completion of our initial public offering and this offering, as if they had occurred on January 1, 2002. The unaudited pro forma condensed consolidated balance sheet data as of December 31, 2002 set forth below is presented as if this offering had been completed (and the proceeds applied to repayment of debt as described above) on December 31, 2002.

The unaudited pro forma condensed consolidated information presented below does not reflect the exercise of stock options by any of the selling stockholders in connection with their resale of shares in this offering.

The adjustments reflected in the following unaudited pro forma condensed consolidated financial information reflect estimates and assumptions made by our management that it believes to be reasonable. The following information should be read in conjunction with our consolidated financial statements, which are presented in this prospectus beginning on page F-1.

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2002

(1) The adjustments for our initial public offering described above reflect an adjustment of $5.6 million to eliminate the actual interest expense recorded prior to July 5, 2002 associated with the indebtedness repaid out of the proceeds of our initial public offering. That indebtedness consisted of (i) bank debt with a principal balance of $90.0 million bearing interest at 6.4% per year (an interest expense for 186 days of $2.9 million) and (ii) $52.4 million principal amount of 10% unsecured subordinated loan stock due 2008 bearing interest at 10% per year (an interest expense for 186 days of $2.7 million).

(2) The increase in income tax expense arising because of the reduction in interest expense of $5.6 million is $1.7 million. This reflects the U.K. tax rate of 30% applied to the increase in taxable income of $5.6 million.

(3) The adjustments for this offering described above reflect an adjustment of $0.6 million to interest expense to reflect the elimination of interest expense at 4.0% associated with the $15.0 million of proceeds from the offering used to repay long-term bank debt. We expect there to be additional interest income arising on the remainder of the proceeds from the offering, but no adjustment has been made to reflect any such income in the above pro forma condensed consolidated statement of operations.

(4) The increase in income tax expense arising because of the reduction in interest expense of $0.6 million is $0.2 million. This reflects the U.K. tax rate of 30% applied to the increase in taxable income of $0.6 million.

Pro forma unaudited earnings per share are based on the pro forma unaudited net income (loss) from continued operations divided by 38,768,744 shares of common stock. The number of shares of common stock is the weighted average number of shares outstanding during 2002, calculated as if this offering was completed on January 1, 2002.

Unaudited Pro Forma Condensed Consolidated Balance Sheet at December 31, 2002

(1) The share offering adjustments reflect an increase in shareholders’ equity of $50.3 million, consisting of $53.9 million of new share capital less $3.6 million of costs relating to the offering.

(2) Reflects $15.0 million of the net proceeds being used to repay bank debt classified as long-term debt.

(3) Reflects the balance of the net proceeds of $35.3 million being used to increase cash and cash equivalents.

The following discussion should be read in conjunction with our consolidated financial statements and our unaudited pro forma condensed consolidated financial data, including the related notes, contained elsewhere in this prospectus.

On September 20, 1999, we completed a management buyout supported by Candover Investments PLC. In that transaction, Inveresk Research Group Limited, a newly created Scottish company, acquired the businesses that comprise our European pre-clinical operations, our Phase I clinical trials operations located in Edinburgh and the original Inveresk Research Phase II-IV clinical development services operations. As part of the transaction, we also acquired Inveresk Research North America, Inc., which operated a small Phase II-IV clinical development services business located in the United States. The total acquisition cost was $78.8 million, net of cash acquired of $9.1 million. In connection with financing this acquisition we received a $0.8 million equity investment from Candover Investments PLC, Candover (Trustees) Limited (a wholly-owned subsidiary of Candover Investments PLC), certain investment funds indirectly controlled by Candover Investments PLC and management, borrowed $43.8 million from certain of these Candover entities by issuing to them 10% unsecured subordinated loan stock due 2008 and borrowed $41.4 million under bank credit facilities.

The financial information in this document divides the 1999 financial year into two periods — the period prior to September 20, 1999, when the original Inveresk Research businesses were under the ownership and control of its previous parent company, and the post acquisition period from September 20, 1999 to December 26, 1999.

On April 5, 2001, we completed the acquisition of ClinTrials. The total acquisition cost was $115.1 million, net of cash acquired of $5.7 million. To finance this acquisition we received a $0.4 million additional equity investment from Candover Investments PLC, Candover (Trustees) Limited and certain investment funds indirectly controlled by Candover Investments PLC, borrowed $64.8 million from certain of these Candover entities by issuing to them an additional 10% unsecured subordinated loan stock due 2008 and borrowed $93.7 million under bank credit facilities, $38.3 million of which was used to repay loans under other credit facilities.

Effective June 25, 2002, we changed our ultimate parent company from a company organized in Scotland to a corporation organized in Delaware.

On July 3, 2002, we completed our initial public offering of 12 million shares of common stock at a price of $13 per share. The net proceeds from the offering, together with drawings under our new bank credit facility and existing cash resources, were used to repay all of the outstanding principal and interest under our former bank facility and our 10% unsecured subordinated loan stock due 2008.

We were highly leveraged from the time of our management buyout in 1999 until the completion of our initial public offering. This leverage was due in part to the structure of our management buyout and in part to the incurrence of additional significant indebtedness in connection with our acquisition of ClinTrials in 2001. Our interest expense has therefore been high in relation to our income before taxes. We believe that, because of the size of our interest expense during the period preceding the completion of our initial public offering, our income from operations (i.e., before interest income and interest expenses) is a better measure of the past performance of our businesses than income (or loss) before income taxes or net income (loss). We intend to use a portion of the net proceeds from this offering to repay some of the indebtedness under our existing credit facility.

We operate in two segments for financial reporting purposes: pre-clinical and clinical. The following table shows, for the periods indicated, a summary of our financial performance by business segment.


(1)	FAS 142 was adopted with effect from January 1, 2002. As a consequence, there is no amortization of goodwill in 2002. The effect of adoption of FAS 142 is shown in Note 4 to our audited financial statements, which are presented in this prospectus beginning on page F-1.

The following table summarizes the above results of operations as a percentage of net service revenue:

Net service revenue. We recognize revenue as costs are incurred and include estimated earned fees or profits calculated on the basis of the relationship between costs incurred and total estimated costs (cost-to-cost type of percentage-of-completion method of accounting). We recognize revenue related to contract modifications when realization is assured and the amounts can be reasonably determined. When estimated contract costs indicate that a loss will be incurred on a contract, the entire loss is provided for in such period.

Costs associated with contracting with third party investigators are excluded from net service revenue where they are the direct responsibility of the clients and are passed through to our clients without any mark-up.

Once a contract for a pre-clinical or clinical trial has been signed, the commencement date may vary depending upon the preparedness of the client’s drug candidate and our capacity availability.

Direct costs excluding depreciation. These comprise the costs of the direct work force, laboratory consumables and other direct costs associated with the studies we perform for clients.

Selling, general and administrative expenses. These comprise administration costs, marketing expenditure and overhead costs such as the costs of running our facilities that are not allocated to direct

costs. These expenses also include corporate overhead costs that are not directly attributable to our operating businesses and include certain costs related to group management, insurance, marketing, professional fees and property.

Depreciation and amortization. Depreciation represents the depreciation charged on our tangible fixed assets in accordance with the accounting policies set out in Note 4 of our consolidated financial statements included herein, Summary of Significant Accounting Policies — Property, Plant and Equipment. Amortization represents the amortization of goodwill and other intangible assets over their estimated useful lives. As described in Note 4 of our consolidated financial statements included herein, Summary of Significant Accounting Policies — Intangible Assets, the accounting policy relating to amortization of goodwill changed with effect from January 1, 2002 such that, unless it is necessary to record an impairment of the goodwill, no amortization of the goodwill is recorded after January 1, 2002.

Interest expense (net). Prior to completion of our initial public offering in July 2002 this included interest on our bank debt and our 10% unsecured subordinated loan stock due 2008. The bank debt bore interest at rates that ranged between LIBOR plus 2.25% and LIBOR plus 2.75%. The unsecured subordinated loan stock due 2008 accumulated interest at a fixed rate of 10%. We entered into an interest rate cap and collar transaction in 1999 on borrowings in connection with our management buyout. In 2001 we entered into two interest rate swap arrangements in connection with the incremental borrowings used to fund the ClinTrials acquisition. These swaps had the effect of fixing the LIBOR rate at 6.03% on the pounds sterling borrowings and 5.41% on the Canadian dollar borrowings. In years prior to 2001, interest expense included the amortization of costs associated with the cap and collar transaction, in line with the accounting standards then in force. In 2001, interest expense included the cost of recording the cap and collar transaction and the interest rate swaps at their fair values.

Shortly after the completion of our initial public offering, we used the net proceeds from the offering, together with borrowings under our new bank credit facility and existing cash resources, to repay all of the outstanding principal and interest under our former bank facility and our 10% unsecured subordinated loan stock due 2008. The interest rate hedges entered into in connection with our previously outstanding bank borrowings were subsequently terminated.

At February 15, 2003 we had bank borrowings of $65.0 million outstanding under the credit facility that we put in place at the time of our initial public offering. These bank borrowings bear interest at floating LIBOR based rates. We have entered into two interest swap arrangements related to these borrowings. The first arrangement is an interest rate swap that has a notional amount of $50 million and expires on October 5, 2005. Under this arrangement the interest rate on $50 million of our debt due under our credit facility is fixed at 4.23%. The second arrangement is an interest rate swap that has a notional amount of $10 million and expires on October 5, 2004. Under this arrangement the interest rate on $10 million of our debt due under our credit facility is fixed at 3.77%. The interest expense in the fourth quarter of 2002 included the cost of marking the value of these swaps to their market value at December 31, 2002.

Our significant accounting policies are described in Note 4 to our consolidated financial statements, which are presented in this prospectus beginning on page F-1. We believe our most critical accounting policies include revenue recognition and cost estimation on certain contracts for which we use a percentage-of-completion method of accounting. In addition, the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A discussion of our critical accounting policies and areas where significant estimates are made is set forth in the following paragraphs.

The majority of our revenues are recorded from fixed-price contracts on a percentage-of-completion basis based on assumptions regarding the estimated cost of completion of the work. Each month costs are accumulated on each project and compared to the budget for that particular project. This determines the percentage-of-completion on the project. This percentage is multiplied by the contract value to determine the amount of revenue that can be recognized. Each month or each quarter, management reviews the budget on each project to determine if the assumptions within the budget are still correct and budgets are adjusted accordingly. As the work progresses, original estimates might be deemed incorrect due to revisions in the scope of work or other factors and a contract modification might be negotiated with the customer to cover additional costs. We bear the risk of cost overruns. In the past, we have had to commit unanticipated resources to complete projects, resulting in lower gross margins on those projects. We might experience similar situations in the future. Should our estimated costs on fixed price contracts prove to be low in comparison to actual costs, future margins could be reduced, absent our ability to negotiate a contract modification. We accumulate information on each project to refine our bidding process. Historically, the majority of our estimates and assumptions have been materially correct, but these estimates might not continue to be accurate. Clients generally may terminate a study at any time, which might cause unplanned periods of excess capacity and reduced revenues and earnings. To offset the effects of early terminations of significant contracts, we attempt to negotiate the payment of an early termination fee as part of the original contract.

We have a reserve for losses on contracts which is split between “Unbilled Receivables, net” and “Accrued Expenses” on our Consolidated Balance Sheets. This reflects the fact that our revenue recognition process involves a significant element of judgement in order to estimate the outcome of each contract and that there may be instances where the estimated costs are not covered by the estimated contract revenues. In such instances, we accrue for the whole of the estimated loss on the contract as soon as the estimated loss is identified. We believe our reserve for losses on contracts was adequate as of December 31, 2002 based on our experience of performing contractual work for clients. However, no assurances can be given that actual losses will not exceed the recorded reserve.

Certain of our U.K. based subsidiaries maintain a defined benefit pension plan. This plan provides benefits to substantially all employees and former employees of these subsidiaries in the U.K. On December 31, 2002 this plan was closed to new entrants but it will continue to provide benefits to existing beneficiaries (including existing employees who have not yet retired).

The net periodic pension charge for the defined benefit pension plan was $3.5 million for the year ended December 31, 2002, $2.8 million for the 52 weeks ended December 30, 2001 and $2.4 million for the 53 weeks ended December 31, 2000. These charges have been calculated based upon a number of actuarial assumptions. These include an expected long-term rate of return on our plan assets, expected long-term rates of compensation increase, price inflation, expected rates of increase for pensions in payment and the discount rate applicable to the plan liabilities.

We review these assumptions annually. At December 31, 2002 the assumptions were as follows:

If experience were to differ from these assumptions there would be an impact on our pension liability.

Our pension plan assets are valued at their market value at the end of each year. The allocation of our pension plan assets is approximately 80% equities and 20% fixed interest securities. The expected rate of return established at December 30, 2001 and used during 2002 was 6%. As a result of the negative return on investments actually achieved in 2002 we believe that there is greater potential for growth than was the case a year ago and our long term expected rate of return on plan assets at December 31, 2002 is 7.5%. This change of 1.5% will, in isolation, reduce our 2003 pension expense before taxes by approximately $0.6 million.

The discount rate is set as the yield on AA- rated corporate bonds. The discount rate was 6.0% at December 30, 2001 and this rate was used to determine the interest cost element of our pension expense in 2002. At December 31, 2002 the discount rate has reduced to 5.6%. This change, in the absence of any other factors, increases our projected benefit obligation by approximately $6.6 million. Such an increase would lead to additional amortization expense in 2003 of approximately $0.4 million. However there are other factors, including the negative return in 2002 on the pension plan assets which will impact our 2003 amortization expense and the actual anticipated increase in the 2003 amortization expense is described in the following paragraph.

The projected benefit obligations under our defined benefit plan exceed the fair value of the pension plan assets at December 31, 2002 by $24.3 million. This deficit has increased by $14.9 million during 2002 from $9.4 million at the start of the year. The deficit is of a magnitude that Statement of Financial Accounting Standards (“FAS”) 87 requires us to record additional amortization of the deficit through our income statement in 2003 amounting to $0.8 million. The additional amortization expense through 2002 was $0.1 million and thus we anticipate that in 2003 the amortization of the deficit element of our pension expense will increase by $0.7 million.

Our actuaries also calculate the accumulated benefit obligation of the plan at the end of each year and we are required to record an additional liability if the value of the plan assets and the net liabilities recognized is less than the accumulated benefit obligation. In consequence, at December 30, 2001 we recorded an additional liability of $1.6 million and at December 31, 2002 we recorded a further $8.0 million to bring the total additional liability recorded to $9.6 million.

This additional charge is recorded through other comprehensive income net of deferred taxes and does not affect the income statement. However, it does reduce shareholders’ equity. Shareholders’ equity is used as one figure in the covenant calculations set out in our bank facility agreement and while we are currently in compliance with our covenants, if the deterioration of the funding position of the pension plan continues in the future and we are required to record further liabilities in future years, this could impact compliance with our bank covenants.

The statement of operations for the year ended December 31, 2002 does not include any expenses in respect of the amortization of goodwill and intangibles. FAS No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”), which became effective on January 1, 2002, altered the treatment of goodwill. Goodwill is no longer subject to amortization through the statement of operations. Instead, goodwill is subject to impairment testing on at least an annual basis. The following table contains a presentation of our income before extraordinary items, net income (loss) and related per share amounts, calculated as if FAS 142 had been in effect throughout the periods presented.

In accordance with FAS 128 there is no dilution shown in the above table in relation to the share options outstanding in the years ended December 30, 2001 and December 31, 2000. This is because exercise of all the options concerned was conditional upon completion of a listing of our shares on a recognized stock exchange and this condition had not been satisfied at either year end.

Earnings Charges in Respect of the Change in Ultimate Parent Company and in Respect of Equity-Based Compensation

The transactions through which we changed our ultimate parent company had several effects that required us to take charges against earnings in 2002. These charges comprised:


	(i) Stamp Duty Taxes. As a result of the change in our ultimate parent company we were required to pay stamp duty taxes to the U.K. Inland Revenue. The aggregate amount of the stamp duty taxes paid by us in connection with this transaction was $1.5 million.

	(ii) A Compensation Charge in Respect of a Change in the Relative Equity Ownership of Certain Members of Management. Under the terms of a management incentive scheme originally put in place at the time of our leveraged buy-out in 1999, management’s percentage ownership of our common stock increased as a consequence of the change in our ultimate parent company. We were required under applicable accounting rules to record a compensation expense, or charge, equal to the increase in value of the equity ownership position of management resulting from the increase in their percentage ownership of us. This compensation expense amounted to $29.1 million.

	(iii) A Compensation Charge in Respect of Certain Outstanding Employee Stock Options. Due to certain features of the stock options granted by us prior to the initial public offering, we were required to record a compensation expense in connection with the offering of $19.4 million. In addition, we recorded a further charge of $4.5 million for compensation expense on the amendment and exercise of share options in the first quarter of 2002.

In addition to the above, we also expect to incur compensation-related charges when certain of our U.K.-based employees exercise stock options issued before the date of our initial public offering. This is because we will be required to pay U.K. National Insurance contributions at the time of exercise based on the profit realized when the option is exercised.

If all the relevant options were exercised when our shares were trading at our initial public offering price of $13 per share, the compensation charge would be $1.3 million. If all the relevant options were exercised when our shares were trading at $25 per share, the charge would increase to $1.5 million. In the

period from our initial public offering to December 31, 2002, we incurred compensation charges related to U.K. National Insurance Contributions on the exercise of these stock options amounting to $0.1 million. In this offering, some of the selling stockholders will sell shares they will acquire by exercising options. We expect to incur compensation charges related to U.K. National Insurance Contributions of approximately $0.4 million at the time of exercise of these options.

Our consolidated financial statements are prepared in U.S. dollars. Our principal businesses are based in the United States, the United Kingdom and Canada. Our United Kingdom and Canadian operations record their transactions in local currencies. Accordingly, fluctuations in the pound sterling and Canadian dollar exchange rates will impact the results of operations reported in U.S. dollars.

The results of our non-U.S. operations have been translated from pounds sterling and Canadian dollars using the following average exchange rates:


(1)	Average for the period from April 5, 2001, the date we acquired ClinTrials, to December 30, 2001.

The following table sets forth the percentage of our net service revenue arising in the United Kingdom and Canada:

Our Canadian business invoices a significant proportion of its revenues in U.S. dollars, although its costs are largely in Canadian dollars. This can result in transaction exchange gains or losses that are reflected in its statement of operations. The foreign currency gains or losses recognized in the statement of operations and included in “Selling, general and administrative expenses” were a loss of $0.4 million for the fiscal year ended December 31, 2002, a gain of $1.2 million for the fiscal year ended December 30, 2001 and a loss of less than $0.1 million for the fiscal year ended December 31, 2000.

Net service revenue. Our aggregate net service revenue in 2002 was $222.5 million, an increase of $66.2 million, or 42%, over 2001 net service revenue of $156.3 million.

Pre-clinical. Net service revenue in 2002 was $142.2 million, an increase of $47.0 million, or 49%, over revenues of $95.2 million in 2001. The Canadian pre-clinical operations of ClinTrials, which we acquired in April 2001, contributed $84.6 million to net revenue in 2002 compared to $48.2 million for the nine month post acquisition period in 2001. Net service revenue for the (non-ClinTrials) balance of our pre-clinical business increased by $10.6 million, or 23% (17% when expressed in local currency). Net service revenue from the pre-clinical operations of ClinTrials increased by $21.2 million, or 33%, in 2002 compared to 2001 (including the period prior to April 6, 2001 when we acquired ClinTrials). Movements in exchange rates did not have a material impact on the net service revenue of these operations in 2002.

Our pre-clinical business experienced exceptional demand for its services in 2002, both for toxicology and laboratory sciences services. As a consequence of this, and particularly the high levels of utilization in

our toxicology facilities, in 2002 we focused on shifting this business segment’s revenue mix further towards higher value-added, higher margin specialty services, such as inhalation and infusion toxicology studies. In parallel with this shift, our laboratory sciences business benefited in 2002 from increased demand in connection with the provision of specialty toxicology services by us, as well as through increased demand for its services independent of our toxicology services business, reflecting our continuing strategy to increase the proportion of our revenues generated by our laboratory science services business within our pre-clinical business segment.

Clinical. Net service revenue from our clinical operations in 2002 was $80.3 million, an increase of $19.2 million, or 31%, over revenues of $61.1 million in 2001. The clinical operations of ClinTrials contributed $55.7 million to net revenue in 2002 compared to $40.4 million for the nine month post acquisition period in 2001. Net service revenue for the (non-ClinTrials) balance of our clinical business increased by $3.9 million or 19% (14% when expressed in local currency). Net service revenue from the ClinTrials clinical operations increased by $6.3 million, or 13%, in 2002 compared to 2001 (including the period prior to April 6, 2001 when we acquired ClinTrials), or 11% when expressed in local currency.

The Phase II-IV business experienced a 16% increase in net service revenues in 2002 compared to 2001 (including the period prior to April 5, 2001 for the acquired ClinTrials businesses) reflecting higher activity levels in those operations and improved hourly revenue recovery rates as we replaced old, less profitable ClinTrials contracts with more appropriately priced new business. Our Phase I clinic experienced growth in net service revenues of 9% in 2002 compared to 2001.

Direct costs excluding depreciation. In 2002 direct costs excluding depreciation totaled $110.1 million, an increase of $26.1 million, or 31%, from $84.0 million in 2001. Direct costs were 49% of net service revenue in 2002 compared to 54% in 2001.

Pre-clinical. Direct costs excluding depreciation of our pre-clinical business in 2002 were $63.0 million, an increase of $18.0 million, or 40%, over costs of $45.0 million in 2001. In 2002, these costs were 44% of net service revenue, compared to 47% in 2001. This improvement in gross margins reflects a continued emphasis by management of our pre-clinical business on cost control and improved business processes at a time when demand for our higher value-added, higher margin toxicology and laboratory sciences services have increased significantly.

Clinical. Direct costs excluding depreciation of our clinical business in 2002 were $47.1 million, an increase of $8.1 million, or 21% over costs of $39.0 million in 2001. In 2002 these costs were 59% of net service revenues compared to 64% in 2001 reflecting the continued focus of the management of our clinical business on improved contract pricing and cost control, particularly in the former ClinTrials businesses.

Selling, general and administrative expenses. In 2002 selling, general and administrative expenses totaled $111.0 million as compared to $41.9 million in 2001. In 2002, an aggregate of $54.6 million of these expenses consisted of charges associated with our initial public offering and related change in ultimate parent company. Excluding these charges, selling, general and administrative expenses represented 25% of net service revenues in 2002, compared with 27% in 2001.

Pre-clinical. Selling, general and administrative costs in 2002 were $27.8 million, an increase of $5.9 million, or 27%, from $21.9 million in 2001. Approximately $1.5 million of this increase was attributable to transaction exchange losses, which realized a loss of $0.3 million in 2002 as compared to a gain of $1.2 million in 2001. When expressed as a percentage of net service revenue, selling, general and administrative costs declined to 20% in 2002, from 23% in 2001, reflecting a continued emphasis by the management of our pre-clinical business on cost control and improved business processes at a time when revenues increased significantly.

Clinical. Selling, general and administrative costs in 2002 were $21.7 million, an increase of $6.1 million, or 39%, from $15.6 million in 2001. When expressed as a percentage of net service revenue, selling, general and administrative costs were 27% in 2002, compared to 26% in 2001. The principal reason

for this increase is the inclusion of the higher costs (relative to net service revenue) of the acquired ClinTrials businesses for the whole of 2002 compared to only nine months in 2001.

Corporate overhead. Corporate overhead in 2002 includes a compensation charge of $23.9 million in respect of stock options, a charge of $29.1 million in respect of other equity-based compensation and a charge of $1.5 million relating to stamp duty taxes payable on the change of ultimate parent company effected by us immediately before our initial public offering. Other corporate overhead amounted to $7.0 million. The increase in other corporate overhead of $2.5 million, or 58%, over 2001 is due primarily to the additional costs associated with becoming a publicly listed company.

Amortization of intangible assets. Pursuant to the requirements of FAS 142 which took effect from January 1, 2002, our 2002 results reflect no amortization of goodwill or intangible assets. Amortization of intangible assets in 2001 amounted to $7.9 million.

Income from operations. In 2002 the loss from operations amounted to $9.0 million after giving effect to compensation expenses and stamp duty costs of $54.6 million. Income from operations in 2001 amounted to $22.4 million, or 14% of net service revenue, after excluding from the calculation an amortization expense incurred in that year of $7.9 million.

Pre-clinical. Income from operations in our pre-clinical business increased to $43.5 million in 2002 compared to $18.0 million in 2001.

Clinical. Income from operations in our clinical business was $9.0 million in 2002 compared to $0.9 million in 2001.

Interest expense. Interest expense in 2002 was $11.3 million, a reduction of $5.8 million, or 34%, from $17.1 million in 2001. In the first half of 2002, interest expense increased by $3.3 million compared to the equivalent period in 2001. This increase was due principally to increases in borrowings used to finance the acquisition of ClinTrials in April 2001. Immediately following our initial public offering, at the start of the third quarter of 2002, we refinanced our outstanding bank borrowings and our 10% unsecured subordinated loan stock due 2008 using proceeds from the offering, borrowings under a new bank credit facility and our existing cash resources. As a result, our total debt declined from $223.1 million to $74.3 million at July 31, 2002. Principally as a result of this reduction in total debt our interest expense for the six months ended December 31, 2002 was $9.1 million lower than our interest expense for the corresponding period in 2001. In the fourth quarter of 2002, our interest expense includes a charge of $1.1 million, reflecting a mark-to-market revaluation of the interest rate swaps we entered into during the third quarter of 2002. The interest expense of $17.1 million that we incurred in 2001 included a charge of $2.1 million, reflecting a mark-to-market revaluation of our previous interest rate hedges.

Provision for income taxes. Our provision for income taxes in 2002 was $6.1 million, or 18% of adjusted income before taxes of $34.3 million (calculated without giving effect to the compensation expense and stamp duty taxes of $54.6 million). U.K. and Canadian Federal research and development tax credits amounted to $7.5 million, or 22% of adjusted income before taxes. In 2001 our provision for taxes was $2.0 million on losses before income taxes of $2.7 million. This provision in 2001 was required because, even though we reported a loss on a consolidated basis for that year, a number of our subsidiaries were profitable.

Extraordinary items. The extraordinary item of $1.6 million we reported for 2002 relates to the write-off of deferred debt issue costs on our 10% unsecured subordinated loan stock due 2008 and on the bank credit facility we terminated and replaced following our initial public offering. This amount is net of a tax benefit of $0.4 million. The extraordinary item reflected in our statement of operations for 2001 was the write-off of deferred debt issue costs on a bank facility that was cancelled and replaced at the time of the ClinTrials acquisition in April 2001.

Net service revenue. Net service revenue in 2001 was $156.3 million, an increase of $90.8 million, or 138%, over 2000 net service revenue of $65.5 million.

Pre-clinical. Net service revenue in 2001 was $95.2 million, an increase of $50.1 million, or 111%, over revenues of $45.1 million in 2000. The acquisition of the Canadian pre-clinical operations of ClinTrials in April 2001 increased net service revenue in 2001 by $48.2 million, or 107%. Net service revenue for the original Inveresk Research pre-clinical operations increased by $1.9 million, or 4%. Net service revenue for the original Inveresk Research pre-clinical operations when expressed in local currency, pounds sterling, grew by 10% in 2001. Net service revenue from our acquired Canadian pre-clinical operations increased by $5.0 million, or 12%, for the period from April 6, 2001 (the date we acquired ClinTrials) to December 30, 2001 over revenues of $43.2 million in the comparable period from April 2000 to December 31, 2000 when such operations were under prior ownership. Net service revenue for our Canadian pre-clinical operations when expressed in local currency, Canadian dollars, grew by 16% in 2001. Both of our pre-clinical facilities experienced strong demand for their services in 2001. The utilization rates in both of our operations also increased in 2001, permitting the pre-clinical segment to further improve its business mix by increasing the proportion of its revenues represented by higher value-added safety and pharmacology evaluation services. Our laboratory sciences and clinical support operations also continued to experience increased revenue levels in 2001.

Clinical. Net service revenue in 2001 was $61.1 million, an increase of $40.7 million, or 200%, over revenues of $20.4 million in 2000. The acquisition of ClinTrials in April 2001 increased net service revenue in 2001 by $40.3 million, or 198%. Net service revenue at the original Inveresk Research clinical development operations increased by $0.4 million, or 2%. Net service revenue for the original Inveresk Research clinical operations when expressed in local currency, pounds sterling, grew by 7% in 2001. Net service revenue in the acquired ClinTrials clinical trials operations increased by $2.1 million, or 5%, over revenues of $38.3 million in the comparable period from April 2000 to December 31, 2000. Our clinical trials management business experienced stronger demand for its services in 2001. Our Phase I clinical trials operation benefited from expanded capacity for the whole of 2001 and improved business mix. Our Phase II-IV revenues increased as the result of a full year’s revenues from the opening of our offices in Prague and Warsaw in 2000 and from increased stability in the client base at the acquired ClinTrials clinical operations.

Direct costs excluding depreciation. In 2001 direct costs excluding depreciation totaled $84.0 million, an increase of $47.9 million, or 132%, from $36.1 million in 2000. These costs were 53.7% of net service revenue in 2001 compared to 55.1% in 2000.

Pre-clinical. Direct costs excluding depreciation in 2001 were $45.0 million, an increase of $22.3 million, or 98%, over costs of $22.7 million in 2000. In 2001 these costs were 47.2% of net service revenue, compared to 50.2% in 2000. Both of our pre-clinical facilities contributed to improved margins in 2001. This was attributable to more efficient use of our facilities, an improvement in the business mix and continuing attention to cost control.

Clinical. Direct costs excluding depreciation in 2001 were $39.0 million, an increase of $25.6 million, or 190%, over costs of $13.5 million in 2000. In 2001 these costs were 63.8% of net service revenue, compared to 66.0% in 2000. The margin improvement in 2001 was due primarily to stronger demand for our services, improved pricing and continuing attention to cost control, as well as restructuring measures undertaken within the acquired ClinTrials clinical operations.

Selling, general and administrative expenses. In 2001 selling, general and administrative expenses totaled $41.9 million, an increase of $28.1 million, or 203%, from $13.8 million in 2000. Selling, general and administrative expenses in 2001 were 26.8% of net service revenue in 2001 compared to 21.1% in 2000.

Pre-clinical. Selling, general and administrative costs in 2001 were $21.9 million, an increase of $12.1 million, or 122%, over costs of $9.8 million in 2000. Selling general and administrative costs

increased from 21.8% of net service revenue in 2000 to 23.0% in 2001. The increased level of costs was associated with additional investment in infrastructure, including quality assurance and information technology, to support the growth of our pre-clinical business. This was offset partially by transaction exchange gains totaling $1.2 million arising mainly in our Canadian operations.

Clinical. Selling, general and administrative costs in 2001 were $15.6 million, an increase of $13.3 million, or 586%, over costs of $2.3 million in 2000. Selling, general and administrative expenses increased from 11.2% of net service revenue in 2000 to 25.6% in 2001. This increase is wholly attributable to the higher cost structure levels in the acquired ClinTrials clinical development operations. The selling, general and administrative costs in our original Inveresk Research clinical operations, as a percentage of net service revenues, marginally declined from 2000 levels. The clinical development operations acquired with ClinTrials were unprofitable at the time they were acquired, which resulted primarily from an excessive overhead cost structure. We have successfully implemented a restructuring plan in the acquired ClinTrials European clinical business. This resulted in a reduction in head count and the relocation of certain operations from Maidenhead in England to more cost-effective locations in Scotland. Additional cost reduction measures were undertaken in the ClinTrials U.S. clinical development operations.

Corporate overhead. The 160% increase in these costs during 2001 is attributable to the increased corporate overhead following the ClinTrials acquisition.

Amortization of intangible assets. In 2001 amortization of intangible assets totaled $7.9 million ($4.3 million relating to our pre-clinical business and $3.6 million relating to our clinical business), an increase of $4.6 million, or 141%, from $3.3 million in 2000. The increase was due to the additional amortization resulting from the ClinTrials acquisition in April 2001. As described in the notes to the consolidated financial statements included in this prospectus beginning on page F-1, our accounting policy relating to amortization of goodwill changed from January 1, 2002 such that, unless it is necessary to record an impairment of the goodwill values, we will not record any amortization of goodwill for any period beginning on or after January 1, 2002.

Income from operations. Income from operations in 2001 was $14.4 million, an increase of $6.7 million, or 86%, from $7.8 million in 2000. Income from operations in 2001 was 9.2% of net service revenue, compared to 11.9% in 2000.

Pre-clinical. Income from operations increased by $11.9 million, or 194%, from $6.1 million in 2000 to $18.0 million in 2001 for the reasons set forth above.

Clinical. Income from operations decreased by $2.5 million, or 73%, from $3.4 million in 2000 to $0.9 million in 2001, for the reasons set forth above.

Interest expense. Interest expense in 2001 was $17.1 million, an increase of $9.6 million or 127% from $7.5 million in 2000. The main reason for this increase was the additional borrowings that were used to finance the ClinTrials acquisition in April 2001.

Provision for income taxes. Provision for income taxes in 2001 was $2.0 million on losses before income taxes of $2.7 million. In 2000, the provision for income taxes was $0.7 million on profits before income taxes of $0.3 million.

Extraordinary item. The extraordinary item reflected in our statement of operations for 2001 was the write off of deferred debt issue costs on bank facilities cancelled and replaced at the time of the ClinTrials acquisition in April 2001. There were no extraordinary items in 2000.

Certain of our operations have experienced, and may continue to experience, period-to-period fluctuations in net service revenue and results from operations. Because we generate a large proportion of our revenue from services billed at hourly rates, our net service revenue in any period is directly related to the number of employees and the number of hours worked by those employees during that period. Our results of operations in any one quarter can fluctuate depending upon, among other things, the number of

weeks in the quarter, the number and scope of ongoing client engagements, the commencement, postponement and termination of engagements in the quarter, the mix of revenue, the extent of cost overruns, employee hiring, holiday patterns, severe weather conditions, exchange rate fluctuations and other factors. We may also, in any given quarter, be required to make U.K. National Insurance contributions in connection with the exercise of options issued prior to our initial public offering by certain of our U.K. resident employees. We have only limited ability to compensate for periods of underutilization during one part of a fiscal period by augmenting revenues during another part of that period. We believe that operating results for any particular quarter are not necessarily a meaningful indication of the health of our business or of future results.

The following table sets out the unaudited quarterly consolidated financial data for the four quarters in the period January 1, 2002 to December 31, 2002 and the four quarters from January 1, 2001 to December 30, 2001. The unaudited quarterly consolidated financial data has been prepared on a basis consistent with the audited consolidated financial data, which are presented in this prospectus beginning on page F-1. In the opinion of management they reflect all adjustments of a normal and recurring nature which are necessary to present fairly the results of operations for the quarterly periods.

Cash and cash equivalents totaled $19.9 million at December 31, 2002 compared with $16.1 million at December 30, 2001. Our principal sources of liquidity are cash flow from operations, borrowings under our credit facility and proceeds raised from the sale of our capital stock.

On July 3, 2002, we completed our initial public offering of 12 million shares of common stock at a price of $13 per share. The net proceeds of the offering, together with drawings under our new bank credit facility and existing cash resources, were used to repay all of the outstanding principal and interest under our former bank facility and our 10% unsecured subordinated loan stock due 2008.

At December 31, 2002, our bank credit facility provided us with an aggregate of up to $75 million through $50 million of term loans in U.S. dollars and up to $25 million of multi-currency revolving loans. At December 31, 2002, we had drawn approximately $67.5 million in term and revolving loans under the facility. Of that amount, $50 million has been drawn as a five year term loan with repayments commencing in June 2004 and ending in June 2007, and approximately $17.5 million was drawn pursuant to the multi-currency revolver portion of the facility. The approximately $17.5 million drawn under the revolver is repayable on or prior to June 20, 2005. This facility bears interest at floating, LIBOR-based rates. However, we have limited our exposure to interest rate fluctuations on the loans drawn under this facility through a series of interest rate swaps. Our credit facility subjects us to significant affirmative, negative and financial covenants, is guaranteed by us and our significant subsidiaries and is secured by liens on substantially all of our assets.

We intend to use $15.0 million of the net proceeds from this offering to repay some of the indebtedness under our bank credit facility.

Working capital balances which arise from our contracts with customers comprise accounts receivable, unbilled receivables and advance billings. A summary of these balances at December 31, 2002, September 30, 2002, June 30, 2002, March 31, 2002 and December 31, 2001 together with the number of days billings that they represent is set forth below.


Delaware	8731	43-1955097
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)






		Proposed Maximum	Proposed Maximum
Title Of Each Class Of	Amount To Be	Offering Price	Aggregate	Amount of
Securities To Be Registered	Registered	Per Share	Offering Price(1)	Registration Fee


Common stock, par value $0.01 per share	11,902,500	$17.335	$206,329,840	$18,983


	Year Ended					Year Ended
	December 31, 2002					December 31, 2002
	Reported			Adjustment		Adjusted


	(Dollars in thousands)
Net service revenue	$	222,462		$	—	$	222,462
Income (loss) from operations		(8,972	)		54,565		45,593
Net income (loss) before extraordinary item		(26,428	)		54,565		28,137
Net income (loss)		(28,009	)		54,565		26,556


Common stock offered by us		3,000,000 shares

Common stock offered by the selling stockholders		7,350,000 shares (8,902,500 shares if the underwriters’ over-allotment option is exercised in full)

Common stock to be outstanding after the offering		39,351,359 shares (39,388,939 shares if the underwriters’ over-allotment option is exercised in full)(1)

Use of proceeds		We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and the estimated offering expenses payable by us, will be approximately $50.3 million. We will not receive any of the proceeds from the sale of our common stock by the selling stockholders. We intend to use the net proceeds of this offering received by us to repay a portion of our outstanding bank debt and for general corporate purposes, including funding the continued growth and development of our business, selective acquisitions and working capital requirements.

NASDAQ symbol		IRGI



		Inveresk Research Group

		Pro Forma
		Year			Year			52 Weeks			53 Weeks
		Ended			Ended			Ended			Ended
		December 31,			December 31,			December 30,			December 31,
		2002			2002			2001			2000


		(Dollars in thousands, except share and per share data)
Net service revenue		$	222,462		$	222,462		$	156,296		$	65,540
Direct costs excluding depreciation			(110,099	)		(110,099	)		(83,975	)		(36,133	)

			112,363			112,363			72,321			29,407
Selling, general and administrative expenses:
Compensation expense in respect of share options and management equity incentives			(53,020	)		(53,020	)		—			—
U.K. stamp duty taxes arising on change of ultimate parent company			(1,545	)		(1,545	)		—			—
Other selling, general and administrative expenses			(56,455	)		(56,455	)		(41,934	)		(13,825	)

Total selling, general and administrative expenses			(111,020	)		(111,020	)		(41,934	)		(13,825	)
Depreciation			(10,315	)		(10,315	)		(8,028	)		(4,513	)
Amortization of goodwill and intangibles			—			—			(7,910	)		(3,281	)

Income (loss) from operations			(8,972	)		(8,972	)		14,449			7,788
Interest income (expense), net			(5,107	)		(11,312	)		(17,101	)		(7,522	)

Income (loss) before income taxes and extraordinary items			(14,079	)		(20,284	)		(2,652	)		266
Provision for income taxes			(8,006	)		(6,144	)		(2,049	)		(682	)

Net income (loss) before extraordinary items		$	(22,085	)		(26,428	)		(4,701	)		(416	)

Extraordinary items						(1,581	)		(419	)		—

Net income (loss)					$	(28,009	)	$	(5,120	)	$	(416	)

Earnings (loss) per share before extraordinary items:
	Basic	$	(0.57	)	$	(0.89	)	$	(0.22	)	$	(0.03	)
	Diluted	$	(0.57	)	$	(0.89	)	$	(0.22	)	$	(0.03	)
Earnings (loss) per share after extraordinary items:
	Basic		N/A			(0.94	)	$	(0.24	)	$	(0.03	)
	Diluted		N/A			(0.94	)	$	(0.24	)	$	(0.03	)
Weighted average number of common shares outstanding:
	Basic		38,768,744			29,735,957			21,489,571			15,803,724
	Diluted		38,768,744			29,735,957			21,489,571			15,803,724
Dividends per share		$	—			—			—			—


John A. Healy Karl A. Roessner Clifford Chance US LLP 200 Park Avenue New York, New York 10166 (212) 878-8000		Jeffrey E. Cohen Coudert Brothers LLP 1114 Avenue of the Americas New York, New York 10036 (212) 626-4400


		High		Low

2003:
	First quarter (through February 14)	$	21.65	$	16.67
2002:
	Fourth quarter		22.12		16.55
	Third quarter		19.05		8.67
	Second quarter (from June 28)		13.15		12.96



		As of December 31, 2002

					Inveresk Research
		Inveresk Research			Group, Inc.
		Group, Inc.			Pro Forma


		(Dollars in thousands)
Total long-term debt		$	67,985		$	52,985
Shareholders’ equity:
Common stock			360			390
Additional paid-in capital			191,618			241,849
Accumulated deficit			(33,793	)		(33,793	)
Accumulated other comprehensive income (loss)			(5,782	)		(5,782	)

Total shareholders’ equity			152,403			202,664

	Total capitalization	$	220,388		$	255,649



	Per Share

Offering price			$	17.95
Net tangible book value per share prior to this offering	$	0.48
Increase in pro forma net tangible book value per share attributable to new investors		1.25

Pro forma net tangible book value per share after giving effect to the offering				1.73

Dilution in pro forma net tangible book value to new investors			$	16.22



	Shares Purchased					Total consideration
											Average Price
	Number		Percent			Amount		Percent			per share

Existing stockholders		36,004,777		92.3	%	$	157,773,499		74.6	%	$	4.38
New investors		3,000,000		7.7	%		53,850,000		25.4	%		17.95

Total		39,004,777		100.0	%	$	211,623,499		100.0	%	$	5.43



	Inveresk Research Group(1)(4)												Predecessor

	Year			52 Weeks			53 Weeks			September 20,			December 28,			52 Weeks
	Ended			Ended			Ended			to			1998 to			Ended
	December 31,			December 30,			December 31,			December 26,			September 19,			December 27,
	2002			2001			2000			1999			1999			1998


	(Dollars in thousands, except share and per share data)
Net service revenue	$	222,462		$	156,296		$	65,540		$	16,832		$	47,088		$	58,219
Direct costs excluding depreciation		(110,099	)		(83,975	)		(36,133	)		(9,645	)		(27,177	)		(31,816	)

		112,363			72,321			29,407			7,187			19,911			26,403
Selling, general and administrative expenses:
Compensation expense in respect of share options and management equity incentives		(53,020	)		—			—			—			—			—
U.K. stamp duty taxes arising on change of ultimate parent company		(1,545	)		—			—			—			—			—
Other selling, general and administrative expenses		(56,455	)		(41,934	)		(13,825	)		(3,275	)		(9,013	)		(12,746	)

Total selling, general and administrative expenses		(111,020	)		(41,934	)		(13,825	)		(3,275	)		(9,013	)		(12,746	)
Depreciation		(10,315	)		(8,028	)		(4,513	)		(809	)		(3,731	)		(4,268	)
Amortization of goodwill and intangibles(5)		—			(7,910	)		(3,281	)		(973	)		(242	)		(345	)

Income (loss) from operations		(8,972	)		14,449			7,788			2,130			6,925			9,044
Interest income (expense), net		(11,312	)		(17,101	)		(7,522	)		(2,004	)		(560	)		195

Income (loss) before income taxes and extraordinary items		(20,284	)		(2,652	)		266			126			6,365			9,239
Provision for income taxes		(6,144	)		(2,049	)		(682	)		(325	)		(2,308	)		(2,465	)

Net income (loss) before extraordinary items		(26,428	)		(4,701	)		(416	)		(199	)		4,057			6,774
Extraordinary items		(1,581	)		(419	)		—			—			—			—

Net income (loss)	$	(28,009	)	$	(5,120	)	$	(416	)	$	(199	)	$	4,057		$	6,774

Earnings (loss) per share before extraordinary items(2)(3):
Basic	$	(0.89	)	$	(0.22	)	$	(0.03	)	$	(0.01	)		N/A			N/A
Diluted	$	(0.89	)	$	(0.22	)	$	(0.03	)	$	(0.01	)
Earnings (loss) per share after extraordinary items:(2)(3):
Basic	$	(0.94	)	$	(0.24	)	$	(0.03	)	$	(0.01	)		N/A			N/A
Diluted	$	(0.94	)	$	(0.24	)	$	(0.03	)	$	(0.01	)
Weighted average number of common shares outstanding:
Basic		29,735,957			21,489,571			15,803,724			15,803,724			N/A			N/A
Diluted		29,735,957			21,489,571			15,803,724			15,803,724
Dividends per share	$	—		$	—		$	—		$	—

Other Data:
Depreciation and amortization	$	10,315		$	15,938		$	7,794		$	1,782		$	3,973		$	4,613
Capital expenditures	$	25,497		$	11,145		$	6,792		$	1,307		$	5,305		$	6,725


		Inveresk			Initial Public			This Share
		Research			Offering			Offering
		Group			Adjustments			Adjustments			Pro Forma


		(Dollars in thousands, except share and per share data)
Net service revenues		$	222,462		$	—		$	—		$	222,462
Direct costs excluding depreciation			(110,099	)		—			—			(110,099	)

			112,363			—			—			112,363
Selling, general and administrative expenses:
	Compensation expense in respect of share options and management equity incentives		(53,020	)		—			—			(53,020	)
	U.K. stamp duty taxes arising on change of ultimate parent company		(1,545	)		—			—			(1,545	)
	Other selling, general and administrative expenses		(56,455	)		—			—			(56,455	)

Total selling, general and administrative expenses			(111,020	)		—			—			(111,020	)
Depreciation			(10,315	)		—			—			(10,315	)

Income (loss) from operations			(8,972	)		—			—			(8,972	)
Interest expense, net			(11,312	)		5,605	(1)		600	(3)		(5,107	)

Income (loss) before income taxes			(20,284	)		5,605			600			(14,079	)
Provision (benefit) for income taxes			(6,144	)		(1,682	)(2)		(180	)(4)		(8,006	)

Net income (loss) from continuing operations		$	(26,428	)	$	3,923		$	420		$	(22,085	)

Earnings (loss) per share
	Basic	$	(0.89	)							$	(0.57	)
	Diluted	$	(0.89	)							$	(0.57	)
Number of shares used in calculating earnings (loss) per share
	Basic		29,735,957									38,768,744
	Diluted		29,735,957									38,768,744


	Inveresk		Share
	Research		Offering
	Group		Adjustments			Pro Forma


	(Dollars in thousands)
Current assets
Cash and cash equivalents	$	19,909	$	35,261	(3)	$	55,170
Other current assets		68,418		—			68,418

Total current assets		88,327		35,261			123,588
Property, plant and equipment		108,570		—			108,570
Intangible assets		135,043		—			135,043
Other assets		527		—			527

	$	332,467	$	35,261		$	367,728

Current liabilities
Current portion of long-term debt		217		—			217
Other current liabilities		76,681		—			76,681

Total current liabilities		76,898		—			76,898
Deferred income taxes		22,139		—			22,139
Long-term debt		67,768		(15,000	)(2)		52,768
Pension obligation		13,259		—			13,259
Shareholders’ equity
Total shareholders’ equity		152,403		50,261	(1)		202,664

	$	332,467	$	35,261		$	367,728


Expected return on plan assets			7.5%
Rate of compensation increase			3.5%
Rate of increase in pensions			2.0%
Price inflation			2.0%
Discount rate			5.6%


		Year ended			52 weeks ended		53 weeks ended
		December 31,			December 30,		December 31,
		2002			2001		2000


		(Dollars in thousands except
		share and per share amounts)
Net income (loss) before extraordinary items		$	(26,428	)	$	2,378	$	2,529

Net income (loss)		$	(28,009	)	$	1,959	$	2,529

Earnings (loss) per share before extraordinary items:
	Basic	$	(0.89	)	$	0.11	$	0.16
	Diluted	$	(0.89	)	$	0.11	$	0.16
Earnings (loss) per share after extraordinary items:
	Basic	$	(0.94	)	$	0.09	$	0.16
	Diluted	$	(0.94	)	$	0.09	$	0.16
Weighted average number of common shares outstanding:
	Basic		29,735,957			21,489,571		15,803,724
	Diluted		29,735,957			21,489,571		15,803,724


Bear, Stearns & Co. Inc.	UBS Warburg


SG Cowen	Jefferies & Company, Inc.


		Year ended			Year ended			Year ended
		December 31,			December 30,			December 31,
		2002			2001			2000

Net service revenue:
Pre-clinical			100.0	%		100.0	%		100.0	%
Clinical			100.0	%		100.0	%		100.0	%
Total			100.0	%		100.0	%		100.0	%
Direct costs excluding depreciation:
Pre-clinical			44.3	%		47.2	%		50.2	%
Clinical			58.7	%		63.8	%		66.0	%
Total			49.5	%		53.7	%		55.1	%
Selling, general and administrative expenses:
Pre-clinical			19.5	%		23.0	%		21.8	%
Clinical			27.1	%		25.6	%		11.2	%
Total(1)			49.9	%		26.8	%		21.1	%
Depreciation:
Pre-clinical			5.6	%		6.4	%		9.2	%
Clinical			3.0	%		3.2	%		1.7	%
Total			4.6	%		5.1	%		6.9	%
Amortization of goodwill and intangibles:
Pre-clinical			0.0	%		4.5	%		5.2	%
Clinical			0.0	%		5.9	%		4.5	%
Total			0.0	%		5.1	%		5.0	%
	Income (loss) from operations:
	Pre-clinical		30.6	%		18.9	%		13.5	%
	Clinical		11.3	%		1.5	%		16.6	%
	Total(1)		(4.0	)%		9.2	%		11.9	%
Interest expense, net			(5.1	)%		(10.9	)%		(11.5	)%
Income (loss) before income taxes and extraordinary items			(9.1	)%		(1.7	)%		0.4	%


(1)	Including corporate overhead.


	U.S. Dollars per		U.S. Dollars per
Fiscal Year	Pound Sterling		Canadian Dollar

2000	$	1.5156		N/ A
2001		1.4405	$	0.6428	(1)
2002		1.5032		0.6368


Fiscal year	United Kingdom		Canada

2000		98%		0%
2001		54%		31%
2002		46%		38%


		Quarter ended			Quarter ended			Quarter ended			Quarter ended
		December 31,			September 30,			June 30,			March 31,
		2002			2002			2002			2002


		(Dollars in thousands except share and per share data)
Net service revenue
Pre-clinical		$	36,092		$	35,236		$	36,367		$	34,479
Clinical			21,735			20,687			19,182			18,684

		$	57,827		$	55,923		$	55,549		$	53,163

Income (loss) from operations
Pre-clinical		$	10,927		$	10,839		$	11,356		$	10,382
Clinical			3,107			2,786			2,381			770
Corporate overhead including compensation expense and stamp duty			(2,056	)		(1,930	)		(51,614	)		(5,920	)

		$	11,978		$	11,695		$	(37,877	)	$	5,232

Net income (loss)		$	9,403		$	7,339		$	(44,337	)	$	(414	)

Earnings (loss) per share before extraordinary items:
	Basic	$	0.26		$	0.25		$	(1.87	)	$	(0.02	)
	Diluted	$	0.25		$	0.24		$	(1.87	)	$	(0.02	)
Earnings (loss) per share after extraordinary items:
	Basic	$	0.26		$	0.21		$	(1.87	)	$	(0.02	)
	Diluted	$	0.25		$	0.20		$	(1.87	)	$	(0.02	)
Weighted average number of common shares outstanding:
	Basic		35,984,350			35,570,449			23,770,595			23,485,654
	Diluted		37,796,452			37,385,219			23,770,595			23,485,654