ACCREDO HEALTH INC, S-3/A, 2000-08-02

ACCREDO HEALTH INC
S-3/A, 2000-08-02
MISC HEALTH & ALLIED SERVICES, NEC

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 2000

REGISTRATION NO. 333-42386

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 1

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

<TABLE>
<S> <C> <C>
DELAWARE 62-1642871
(State or other Jurisdiction of (I.R.S. Employer
Incorporation) Identification No.)
</TABLE>

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1640 CENTURY CENTER PARKWAY, SUITE 101
MEMPHIS, TENNESSEE 38134
(901) 385-3688

(Address, including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)

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

DAVID D. STEVENS
CHIEF EXECUTIVE OFFICER
ACCREDO HEALTH, INCORPORATED
1640 CENTURY CENTER PARKWAY, SUITE 101
MEMPHIS, TENNESSEE 38134
(901) 385-3688

(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)

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

COPIES TO:

<TABLE>
<S> <C>
STEVEN L. POTTLE, ESQ. JOHN J. EGAN III, P.C.
JOHN B. SHANNON, ESQ. DAVID A. CIFRINO, P.C.
ALSTON & BIRD LLP MCDERMOTT, WILL & EMERY
1201 WEST PEACHTREE STREET 28 STATE STREET
ATLANTA, GEORGIA 30309-3424 BOSTON, MASSACHUSETTS 02109-1775
(404) 881-7000 (617) 535-4000
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable on or after the effective date of this Registration Statement.
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. [ ]
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. [ ]
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 number of the earlier effective registration statement for the same
offering. [ ]
If delivery of this prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [ ]

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.

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<PAGE> 2

INFORMATION CONTAINED IN THIS 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 PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES, AND WE
ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES, IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED AUGUST 2, 2000

PROSPECTUS

2,000,000 SHARES

ACCREDO HEALTH, INCORPORATED LOGO
COMMON STOCK

We are offering 2,000,000 shares of our common stock. Our common stock is
listed on the Nasdaq National Market under the symbol "ACDO." The last reported
sale price of our common stock on the Nasdaq National Market on July 28, 2000
was $34.625 share.

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

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Accredo, before offering expenses............... $ $
</TABLE>

We have granted the underwriters the right to purchase up to an additional
300,000 shares to cover over-allotments. The underwriters expect to deliver the
shares against payment on August , 2000.

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

INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

CHASE H&Q SUNTRUST EQUITABLE SECURITIES
BANC OF AMERICA SECURITIES LLC
FIRST UNION SECURITIES, INC.

August , 2000

<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 3
Risk Factors................................................ 7
Forward-Looking Statements.................................. 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Price Range of Common Stock................................. 17
Capitalization.............................................. 18
Selected Financial Information.............................. 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 32
Management.................................................. 50
Principal Stockholders and Beneficial Ownership of
Management................................................ 53
Description of Capital Stock................................ 55
Shares Eligible for Future Sale............................. 58
Underwriting................................................ 60
Legal Matters............................................... 62
Experts..................................................... 62
Incorporation of Certain Information By Reference........... 62
Where You Can Find More Information......................... 63
Index to Financial Statements............................... F-1
</TABLE>

2
<PAGE> 4

SUMMARY

This summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, including the information under "Risk Factors" beginning
on page 7 and the financial statements beginning on page F-1 before making any
investment decision.

ACCREDO HEALTH, INCORPORATED

We provide specialized contract pharmacy services on behalf of
biopharmaceutical manufacturers to patients with chronic and potentially life
threatening diseases. We help these patients meet the challenges of often
difficult medication regiments by ensuring that their drugs and related supplies
are delivered securely and on time and that patients have the information and
support they need to take their medication as prescribed. Our services help
increase the revenues of biopharmaceutical manufacturers of the drugs we handle
by accelerating patient acceptance of new drugs, increasing patient compliance
with prescribed treatments and compiling valuable clinical information about
drug effectiveness. Our principal focus is on providing drugs and services for
drugs that are used by chronic patients on a recurring basis, administered
through injection, and require temperature control or other specialized
handling. These drugs are expensive, with annual costs generally ranging from
approximately $8,000 to $200,000 per patient. The following table lists the
disease categories we serve and the drugs we dispense to patients with these
diseases.

<TABLE>
<CAPTION>
DISEASE CATEGORIES DRUGS
------------------ -----
<S> <C>
Multiple Sclerosis................................. AVONEX(R)
Gaucher Disease.................................... Ceredase(R) and Cerezyme(R)
Hemophilia and Autoimmune Disorders................ Clotting factor and intravenous immunoglobulin
Growth Hormone-Related Disorders................... Protropin(R), Nutropin(R), Nutropin AQ(R) and
Nutropin Depot(TM)
Crohn's Disease.................................... REMICADE(TM)
Rheumatoid Arthritis............................... REMICADE(TM)
Respiratory Syncytial Virus........................ Synagis(R)
</TABLE>

We have existing preferred relationships with Biogen, Inc., Centocor, Inc.,
Genentech, Inc. and Genzyme Corporation, as well as a national distribution
agreement with MedImmune, Inc. Although our preferred relationships are not
exclusive, our preferred status generally means that we are a recommended
provider of the manufacturer's drug to patients and physicians. These agreements
with Biogen, Centocor and Genentech also contain preferred drug pricing from the
manufacturer to compensate us for our specialized services. These agreements
provide that their terms may be adjusted periodically in the event of changed
market conditions or required service levels.

We provide overnight, temperature-controlled delivery of all drugs and
supplies necessary for patients to self-administer their drugs safely and
effectively. Our pharmacists and customer service staff talk frequently with
patients over the telephone, help them comply with prescribed treatments and
educate them about ways to manage their complex diseases more effectively. In
addition, our reimbursement specialists manage the complicated paperwork that is
required to collect payment for the patient's medication from insurance
companies and managed care plans. Because these specialized drugs are so
expensive to develop and to purchase, efficient reimbursement management is
important to both the manufacturer and the patient.

We believe our business will benefit from the large number of specialized
drugs that are being developed to treat chronic diseases. We monitor the
clinical development of new drugs and potential new treatments for chronic
diseases to identify opportunities where our services can add value to
manufacturers and patients. As of April 2000, industry sources estimated that
there were

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<PAGE> 5

more than 300 biopharmaceutical products in late stage development.
Biopharmaceutical manufacturers face many challenges as they try to bring these
drugs to market, such as limited internal resources, an unpredictable drug
approval process, limits on patent protections, drug acceptance by physicians
and consumers and competition with rival drugs. Traditional pharmacy
distribution channels often lack the specialized knowledge needed to manage
chronic disease patients. We believe that biopharmaceutical manufacturers will
increasingly recognize the benefits of outsourcing product development, launch
and specialized pharmacy services as the biopharmaceutical market matures and
competition increases.

Our goal is to be the leading provider of specialized contract pharmacy
services to biopharmaceutical manufacturers. In addition to expanding revenues
from our current product lines, key elements of our strategy include:

- increasing the number of chronic diseases that we serve;

- expanding our service offerings;

- establishing additional relationships with academic medical centers and
children's hospitals;

- increasing our number of payor contracts; and

- making selective acquisitions of similar or complementary businesses.

RECENT DEVELOPMENTS

Since our initial public offering in April 1999, we have entered into two
joint ventures and completed two acquisitions:

- On October 1, 1999, we entered into a joint venture with Children's
National Medical Center in Washington, D.C. to market and distribute
Synagis(R) and growth hormone and related services and supplies.

- On October 20, 1999, we acquired two pharmacies located in Florida and
California from a subsidiary of Home Medical of America, Inc. Both
pharmacies focus on pharmaceutical care for patients with chronic
diseases.

- On December 1, 1999, we acquired the outstanding stock of Sunrise Health
Management, Inc., a provider of specialty pharmacy services to patients
with chronic diseases. Sunrise serves patients throughout the Southeast
from its headquarters in Norcross, Georgia and specializes in providing
intravenous immunoglobulin, commonly referred to as IVIG, to patients
with autoimmune disorders. Sunrise also provides pharmacy services to
patients with hemophilia and growth hormone-related disorders.

- On January 1, 2000, we entered into a joint venture agreement with
Specialized Pharmaceutical Services, Inc. to market, sell, provide and
distribute IVIG products and related services and supplies in 13
northeastern and eastern states.

Effective April 1, 2000, we purchased an additional interest in Children's
Hemophilia Services, increasing our ownership from 50% to 80%.

Effective May 1, 2000, Aetna U.S. Healthcare(R) selected us as one of three
preferred providers of injectable medications to Aetna U.S. Healthcare(R)
members and participating physicians.

4
<PAGE> 6

THE OFFERING

Common stock offered by us.............. 2,000,000 shares

Common stock to be outstanding after the
offering 16,106,968 shares

Use of proceeds......................... We intend to use the proceeds to
repay approximately $40 million
of indebtedness and for working
capital and other general
corporate purposes, including
possible acquisitions.

Nasdaq National Market symbol........... ACDO

The number of shares of common stock to be outstanding after the offering
does not include 1,187,287 shares of common stock subject to outstanding options
at June 30, 2000 with a weighted average exercise price of $5.95 per share.

Unless otherwise stated, all information contained in this prospectus gives
effect to a three-for-two stock split in the form of a 50% stock dividend issued
to stockholders on February 21, 2000 and assumes no exercise of the
underwriters' over-allotment option.

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

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

Accredo Health, Incorporated(SM) is a service mark of Accredo and Nova
Factor(R) is a trademark of Accredo. All other service marks, trademarks and
trade names referred to in this prospectus are the property of their respective
owners.

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<PAGE> 7

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The table below provides a summary of our financial data for the three
fiscal years ended June 30, 1999, the nine months ended March 31, 1999 and 2000
and as of March 31, 2000. You should read this summary financial data together
with our financial statements and the notes to those financial statements
appearing elsewhere in this prospectus and the information under "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Net patient service revenue....................... $106,143 $170,002 $244,158 $176,816 $241,413
Other revenue..................................... 8,049 9,806 12,277 8,861 11,483
Equity in net income of joint ventures............ 1,017 1,150 1,919 1,230 1,722
-------- -------- -------- -------- --------
Total revenues............................... 115,209 180,958 258,354 186,907 254,618
Operating expenses:
Cost of services.................................. 101,080 154,046 220,517 159,198 217,450
General and administrative........................ 5,939 12,489 17,637 12,907 17,089
Bad debts......................................... 2,977 3,165 4,739 3,420 4,549
Depreciation and amortization..................... 4,877 3,861 3,911 3,003 2,404
-------- -------- -------- -------- --------
Total operating expenses..................... 114,873 173,561 246,804 178,528 241,492
-------- -------- -------- -------- --------
Operating income.................................... 336 7,397 11,550 8,379 13,126
Interest expense, net............................... 984 3,552 3,165 2,653 1,498
-------- -------- -------- -------- --------
Income (loss) before income taxes and extraordinary
item.............................................. (648) 3,845 8,385 5,726 11,628
Income tax expense.................................. 1,502 2,420 4,003 2,843 4,580
-------- -------- -------- -------- --------
Income (loss) before extraordinary item............. (2,150) 1,425 4,382 2,883 7,048
Extraordinary item for early extinguishment of debt,
net of income tax benefit......................... -- -- (1,254) -- --
-------- -------- -------- -------- --------
Net income (loss)................................... $ (2,150) $ 1,425 $ 3,128 $ 2,883 $ 7,048
Mandatorily redeemable cumulative preferred stock
dividends......................................... (2,043) (2,043) (1,617) (1,532) --
-------- -------- -------- -------- --------
Net income (loss) to common stockholders............ $ (4,193) $ (618) $ 1,511 $ 1,351 $ 7,048
======== ======== ======== ======== ========
Net income (loss) per share to common stockholders--
diluted(1)........................................ $ (0.54) $ (0.07) $ 0.14 $ 0.15 $ 0.48
======== ======== ======== ======== ========
Weighted average number of shares and dilutive
equivalents outstanding........................... 8,127 9,061 10,432 9,322 14,741
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 2000
-------------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 8,500 $ 31,864
Working capital........................................... 36,744 60,108
Total assets.............................................. 201,392 224,756
Long-term debt............................................ 41,500 --
Stockholders' equity...................................... 74,224 139,088
</TABLE>

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

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

(2) Reflects the receipt of the estimated net proceeds from the sale of
2,000,000 shares of common stock by us in this offering at an assumed
offering price of $34.625 per share.

6
<PAGE> 8

RISK FACTORS

You should carefully consider the risks and uncertainties described below
before making an investment decision. Our business, financial condition and
results of operations could be adversely affected by any of the following
factors, in which event the trading price of our common stock could decline, and
you could lose part or all of your investment.

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

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

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

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

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

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------- NINE MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1999 MARCH 31, 2000
------------- ------------- -----------------
<S> <C> <C> <C>
Multiple Sclerosis.............................. 23% 31% 37%
Gaucher Disease................................. 46% 37% 31%
Hemophilia and Autoimmune Disorders............. 23% 21% 20%
Growth Hormone-Related Disorders................ 7% 6% 7%
Crohn's Disease................................. -- 1% 1%
Respiratory Syncytial Virus..................... -- 1% 2%
</TABLE>

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

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<PAGE> 9

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

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

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

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

- a recall of a drug;

- adverse reactions caused by a drug;

- the expiration or challenge of a drug patent;

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

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

- the cure of a disease we service; or

- the death of a high-revenue patient.

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

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

- other specialty pharmacy distributors;

- specialty pharmacy divisions of wholesale drug distributors;

- pharmacy benefit management companies;

- hospital-based pharmacies;

- retail pharmacies;

- home infusion therapy companies;

- comprehensive hemophilia treatment centers; and

- other alternative site health care providers.

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

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

Recent revisions to how the average wholesale price (or AWP) is determined
will result in reduced prices and profit margins for some drugs that we handle.
Many government payors, including Medicare and Medicaid pay us directly or
indirectly at the drug's AWP or at a percentage off AWP. We have also contracted
with a number of private payors to sell drugs at AWP or at a percentage off AWP.
AWP for most drugs is compiled and published by a private company, First
DataBank, Inc. Various federal and state government agencies have been
investigating whether the

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<PAGE> 10

reported AWP of many drugs, including some that we sell, is an appropriate or
accurate measure of the market price of the drugs. As recently reported in the
Wall Street Journal, there are also several whistleblower lawsuits pending
against various drug manufacturers. These government investigations and lawsuits
involve allegations that manufacturers reported artificially inflated AWP prices
of various drugs to First DataBank. Bayer AG, one of the Company's suppliers of
clotting factor, announced on May 9, 2000, that it is engaged in settlement
discussions with the government regarding these charges. In February 2000, First
DataBank published a Market Price Survey of 437 drugs. The First DataBank Survey
significantly reduces reimbursement to us for a number of the clotting factor
products and IVIG that we sell.

A number of state Medicaid agencies now pay us for clotting factor at the
prices shown on the Market Price Survey or at a percentage discount off those
prices. Other states have not changed their pricing structure or have changed
back to their pre-Market Price Survey reimbursement rates. The Health Care
Financing Administration (or HCFA) has also announced that effective October 1,
2000 Medicare intermediaries should calculate the amount that they pay for
clotting factor and 49 other drugs by using the lower prices on the First
DataBank Market Price Survey. It is expected that all of the Medicare
intermediaries will adopt the lower pricing.

We estimate that reimbursement by Medicare and state Medicaid agencies make
up approximately 2% and 7%, respectively, of our gross patient service revenues
from drugs we handle that are covered by the Market Price Survey. We have seen
an overall reduction in pricing and margins for clotting factor that we sell.
However, we cannot predict the eventual results of the government investigations
and the changes made by First DataBank. If the reduced average wholesale prices
published by First DataBank for the drugs that we sell are ultimately adopted as
the standard by which we are paid by government payors or private payors, this
could have a material adverse effect on our business, financial condition and
results of operation, including reducing the pricing and margins on certain of
our products.

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

We have significant relationships with six medical centers that provide
services primarily related to hemophilia, growth hormone-related disorders and
respiratory syncytial virus. For the fiscal years ended June 30, 1998 and 1999
and the nine-month period ended March 31, 2000, we received approximately 30%,
23% and 15%, respectively, of our earnings before income taxes and extraordinary
item from equity in the net income from our joint ventures. Our joint venture
with Children's Home Care, Inc. represented approximately 11% of our earnings
before income taxes and extraordinary item for the fiscal year ended June 30,
1999.

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

- changes caused by consolidation within the hospital industry;

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

- restrictive changes to regulatory requirements.

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

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

We are not eligible to participate directly in the federal pricing program
of the Public Health Service, commonly known as PHS, which allows hospitals and
hemophilia treatment centers to

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<PAGE> 11

obtain discounts on clotting factor. The federal Health Resources and Services
Administration recently issued a notice we expect will broaden the number of
facilities purchasing PHS priced clotting factor. Increased competition from
hospitals and hemophilia treatment centers may reduce our profit margins.

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

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

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

- difficulty in assimilating the new operations;

- increased transaction costs;

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

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

- increased debt; and

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

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

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

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

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

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

- price and term adjustments with our drug suppliers;

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

- product shortages;

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

- the timing and integration of our acquisitions;

- changes in governmental regulations;

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

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

- physician prescribing patterns; and

- general economic conditions.

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<PAGE> 12

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

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

- supply shortages;

- adverse drug reactions;

- drug recalls;

- increased competition among biopharmaceutical companies;

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

- a decline in product research, development or marketing;

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

- changes in the FDA approval process; or

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

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

The biopharmaceutical industry is susceptible to product shortages. Some of
the products that we distribute, such as IVIG and blood-related products, are
collected and processed from human donors. Accordingly, the supply of these
products is highly dependant on human donors and their availability have been
constrained from time to time. If these products, or any of the other drugs that
we distribute, are in short supply for long periods of time, our business could
be harmed.

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

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

- Cerezyme(R) expires May 2001;

- AVONEX(R) expires May 2003; and

- REMICADE(TM) expires September 2005.

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

11
<PAGE> 13

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

Our ability to continue to service AVONEX(R) could also be affected by a
pending challenge by Berlex Laboratories, Inc. that Biogen is infringing on a
Berlex patent in the production of AVONEX(R). Berlex is seeking, among other
things, a permanent injunction restraining Biogen from manufacturing AVONEX(R).
If the permanent injunction is granted or if Biogen is unable to continue to
supply AVONEX(R) on terms favorable to us, our business could be harmed. Biogen
has disclosed that it expects a trial to occur in the second half of 2000.

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

Changes in the Medicare, Medicaid or similar government programs or the
amounts paid by those programs for our services may adversely affect our
earnings. For example, these programs could revise their pricing based on new
methods of calculating the AWP for drugs we handle. We estimate that
approximately 20% of our gross patient service revenues for the fiscal year
ended June 30, 1998 and 18% of our gross patient service revenue for both the
fiscal year ended June 30, 1999 and for the nine months ended March 31, 2000
consisted of reimbursements from federal and state programs, excluding sales to
private physicians whose ultimate payor is typically Medicare. Any reductions in
amounts reimbursable by government programs for our services or changes in
regulations governing such reimbursements could materially and adversely effect
our business, financial condition and results of operations.

OUR BUSINESS WILL SUFFER IF WE LOSE RELATIONSHIPS WITH PAYORS.

We are highly dependent on reimbursement from non-governmental payors. For
the fiscal years ended June 30, 1998 and 1999 and nine-month period ended March
31, 2000, we derived approximately 80%, 82% and 82%, respectively, of our gross
patient service revenue from non-governmental payors (including self-pay), which
included 7%, 6% and 5%, respectively, from sales to private physician practices
whose ultimate payor is typically Medicare.

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

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

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

- any significant increase in shipping rates;

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

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

12
<PAGE> 14

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

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

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

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

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

Our formation and our acquisitions of Southern Health Systems, Inc. and
Hemophilia Health Services, Inc., and most recently Sunrise Health Management,
Inc. and the specialty pharmacy businesses of Home Medical of America, Inc.
resulted in the recording of a significant amount of goodwill on our financial
statements. The goodwill was recorded because the book value of the tangible and
intangible assets owned by those companies at the time they were acquired was
less than the purchase price. We have determined that the goodwill recorded as a
result of those acquisitions will benefit us for a period of no less than 40
years and, as a result, we amortize this goodwill evenly over a 40-year period.
There can be no assurance that we will realize the full value of this goodwill.
We evaluate on an on-going basis whether events and circumstances indicate that
all or some of the carrying value of goodwill is no longer recoverable, in which
case we would write off the unrecoverable goodwill in a charge to our earnings.

If the amortization period for a material portion of goodwill is overly
long, it causes an overstatement of earnings in periods immediately following
the transaction in which the goodwill was recorded. In later periods, it causes
earnings to be understated because of an amortization charge for an asset that
no longer provides a corresponding benefit. Earnings in later periods could also
be significantly affected if the remaining balance of goodwill is impaired and
written off as a charge against earnings. We are not presently aware of any
persuasive evidence that any material portion of our goodwill will be impaired
and written off against earnings. As of March 31, 2000, we had goodwill, net of
accumulated amortization, of approximately $66.4 million, or 33% of total assets
and 89% of stockholders' equity.

Since our growth strategy may involve the acquisition of other companies,
we may record additional goodwill in the future. The amortization and possible
write-off of this goodwill could negatively impact our future earnings. Also, in
future acquisitions we will be required to allocate a portion of the purchase
price to the value of non-competition agreements, patient base and contracts
that are acquired. The value of any amounts allocated to these items could be
amortized over a period much shorter than 40 years. As a result, our earnings
and market price of our common stock could be negatively impacted.

13
<PAGE> 15

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

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

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

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

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

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

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

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

- The Department of Health and Human Services recently proposed regulations
implementing the Administrative Simplification provision of HIPAA
concerning the maintenance and transmission and security of electronic
health information, particularly individually identifiable information.
The new regulations, when enacted, will require the development and
implementation of security and transaction standards for all electronic
health information and impose significant use and disclosure obligations
on entities that send or receive individually identifiable electronic
health information. Failure to comply with these regulations, or wrongful
disclosure of confidential patient information could result in the
imposition of administrative or criminal sanctions, including exclusion
from the Medicare and state Medicaid programs. In addition, if we choose
to distribute drugs through new
14
<PAGE> 16

distribution channels such as the Internet, we will have to comply with
government regulations that apply to those distribution channels, which
could have a material adverse effect on our business.

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

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

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

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

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

For a more detailed discussion of these government regulations, see
"Business -- Government Regulation."

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

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

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

- changes in government regulations;

- overall volatility of the stock market;

- changes in earnings estimates by analysts; and

- changes in operating results from quarter to quarter.

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

15
<PAGE> 17

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

Our certificate of incorporation, our bylaws and Delaware law contain
provisions that could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. See "Description of
Capital Stock -- Preferred Stock" and "-- Special Provisions of the Certificate
of Incorporation, Bylaws and Delaware Law" for further information relating to
these provisions.

FORWARD-LOOKING STATEMENTS

This prospectus and the documents incorporated herein by reference contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended. We intend for these forward-looking statements to be covered by the
safe harbor for forward-looking statements in these sections. These
forward-looking statements include, without limitation, statements about our
market opportunity, strategies, competition, expected activities and
investments, and the adequacy of our available cash resources. These
forward-looking statements are usually accompanied by words such as "believe,"
"anticipate," "plan," "seek," "expect," "intend," and similar expressions. The
forward-looking information is based on various factors and was derived using
numerous assumptions. Our actual results could be materially different or worse
from those expressed or implied by these forward-looking statements as a result
of various factors including the risk factors described above and elsewhere in
this prospectus.

16
<PAGE> 18

USE OF PROCEEDS

We expect to receive net proceeds of approximately $64,864,000 from the
sale of 2,000,000 shares of common stock by us in this offering, or $74,706,000
if the underwriters' over-allotment option is exercised in full, assuming a
public offering price of $34.625 per share and after deducting underwriting
discounts and commissions and the estimated offering expenses payable by us. We
intend to use the proceeds of this offering as follows:

- approximately $40.0 million will be used to prepay our existing debt
under our revolving line of credit, which matures on December 1, 2001 and
bears interest at approximately 7.50%; and

- the balance of the net proceeds will be used for working capital and
other general corporate purposes.

We may use a portion of the net proceeds of this offering to acquire or invest
in businesses, products or services complementary to our business, through
mergers, acquisitions, joint ventures or otherwise. However, we currently have
no specific agreements or commitments with any third party regarding any such
potential acquisition or investment. Pending such uses, the net proceeds will be
invested in short-term, interest-bearing investment grade securities.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock. We
intend to retain any future earnings to finance the growth and development of
our business and therefore do not anticipate paying any cash dividends in the
foreseeable future. Our revolving line of credit prohibits us from paying
dividends without the prior written consent of our lenders. The payment of cash
dividends in the future will be at the discretion of our Board of Directors and
will depend upon factors such as our earnings, capital requirements, financial
condition and other factors deemed relevant by our Board of Directors. There can
be no assurance that we will pay any dividends in the future. For a discussion
of the restrictive covenants relating to our revolving line of credit, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

PRICE RANGE OF COMMON STOCK

Our common stock began trading publicly on the Nasdaq National Market on
April 16, 1999 and is traded under the symbol "ACDO." The following table shows
the range of the high and low per share sales prices of the common stock as
reported by the Nasdaq National Market for the periods indicated.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fourth Quarter ended June 30, 1999.......................... $21.83 $12.71
First Quarter ended September 30, 1999...................... 24.58 18.00
Second Quarter ended December 31, 1999...................... 22.17 17.75
Third Quarter ended March 31, 2000.......................... 39.38 19.25
Fourth Quarter ended June 30, 2000.......................... 37.75 18.38
First Quarter ended September 30, 2000 (through July 28,
2000)..................................................... 40.25 32.00
</TABLE>

On July 28, 2000, the last sales price for the common stock on the Nasdaq
National Market was $34.625 per share. As of July 28, 2000, there were
approximately 47 record holders of our common stock.

17
<PAGE> 19

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2000:

- on an actual basis; and

- on an as adjusted basis to reflect our sale of 2,000,000 shares of common
stock hereby at an assumed offering price of $34.625 per share, the
receipt of the estimated net proceeds of such sale after deducting
underwriting discounts and commission and estimated offering expenses,
and the application of net proceeds as described in "Use of Proceeds."

This table should be read in conjunction with our consolidated financial
statements and notes thereto included elsewhere in this prospectus.

<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Long-term notes payable..................................... $ 41,500 $ --
-------- --------
Stockholders' equity:
Undesignated Preferred Stock, 5,000,000 shares authorized,
no shares issued....................................... -- --
Non-voting common stock, $.01 par value 2,500,000 shares
authorized, no shares issued and outstanding actual, no
shares issued and outstanding as adjusted.............. -- --
Common Stock, $.01 par value; 30,000,000 shares
authorized, 14,076,324 issued and outstanding actual,
16,076,324 shares issued and outstanding as adjusted... 141 161
Additional paid-in capital................................ 66,365 131,209
Retained earnings......................................... 7,718 7,718
-------- --------
Total stockholders' equity........................ 74,224 139,088
-------- --------
Total capitalization.............................. $115,724 $139,088
======== ========
</TABLE>

The outstanding share information shown in the table excludes:

- options to purchase 1,187,287 shares of common stock granted under our
Amended and Restated Stock Option and Restricted Stock Purchase Plan and
1999 Long-Term Incentive Plan at a weighted average exercise price of
$5.95 per share; and

- 717,605 shares of common stock available for future issuance under our
Amended and Restated Stock Option and Restricted Stock Purchase Plan,
1999 Long-Term Incentive Plan and 1999 Employee Stock Purchase Plan.

18
<PAGE> 20

SELECTED FINANCIAL DATA

You should read the following selected financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our predecessor's and our financial statements and the notes
thereto included elsewhere in this prospectus. The selected financial data with
respect to (a) Nova Factor (Predecessor) as of and for the fiscal year ended
June 30, 1995, and as of May 31, 1996 and for the period July 1, 1995 through
May 31, 1996, and (b) Accredo as of June 30, 1996 and for the period from
inception (May 24, 1996) through June 30, 1996, and as of and for the fiscal
years ended June 30, 1997, 1998 and 1999 have been derived from our audited
financial statements and the audited financial statements of our predecessor.
The selected financial data at March 31, 2000 and for the nine months ended
March 31, 1999 and 2000 has been derived from our unaudited financial
statements, which, in our opinion, include all adjustments (consisting of only
normal recurring adjustments) necessary for a fair presentation of the
information set forth therein. The information set forth below is not
necessarily indicative of the results of future operations.
<TABLE>
ACCREDO(1)
-------------------------------------------------------
PREDECESSOR(1) NINE
----------------- MAY 24, MONTHS
YEAR JULY 1, 1996 ENDED
ENDED 1995 (INCEPTION) MARCH
JUNE THROUGH THROUGH YEAR ENDED JUNE 30, 31,
30, MAY 31, JUNE 30, ------------------------------ --------
1995 1996 1996 1997(3) 1998 1999 1999
------- ------- ----------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Net patient service revenue.................. $71,513 $68,585 $6,647 $106,143 $170,002 $244,158 $176,816
Other revenue................................ 6,710 6,346 597 8,049 9,806 12,277 8,861
Equity in net income (loss) of joint
ventures................................... 646 (139) 49 1,017 1,150 1,919 1,230
------- ------- ------ -------- -------- -------- --------
Total revenues........................... 78,869 74,792 7,293 115,209 180,958 258,354 186,907
Operating expenses:
Cost of services............................. 68,273 65,867 6,450 101,080 154,046 220,517 159,198
General and administrative................... 2,714 2,753 627 5,939 12,489 17,637 12,907
Bad debts.................................... 1,322 1,860 251 2,977 3,165 4,739 3,420
Depreciation and amortization................ 76 104 456 4,877 3,861 3,911 3,003
Corporate overhead allocation(2)............. 1,900 4,206 -- -- -- -- --
------- ------- ------ -------- -------- -------- --------
Total operating expenses................. 74,285 74,790 7,784 114,873 173,561 246,804 178,528
------- ------- ------ -------- -------- -------- --------
Operating income (loss)........................ 4,584 2 (491) 336 7,397 11,550 8,379
Interest expense net........................... 943 266 106 984 3,552 3,165 2,653
------- ------- ------ -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item........................... 3,641 (264) (597) (648) 3,845 8,385 5,726
Income tax expense (benefit)................... 1,387 (72) (28) 1,502 2,420 4,003 2,843
------- ------- ------ -------- -------- -------- --------
Income (loss) before extraordinary item........ $2,254 $ (192) (569) (2,150) 1,425 4,382 2,883
======= =======
Extraordinary item for early extinguishment of
debt, net of income tax benefit.............. -- -- -- (1,254) --
------ -------- -------- -------- --------
Net income (loss).............................. (569) (2,150) 1,425 3,128 2,883
Mandatorily redeemable cumulative preferred
stock dividends.............................. (170) (2,043) (2,043) (1,617) (1,532)
------ -------- -------- -------- --------
Net income (loss) to common stockholders....... $ (739) $ (4,193) $ (618) $ 1,511 $ 1,351
====== ======== ======== ======== ========
Net income (loss) per share to common
stockholders -- diluted(4)................... $ (.10) $ (.54) $ (.07) $ .14 $ 0.15
====== ======== ======== ======== ========
Cash dividends declared on common stock........ $ -- $ -- $ -- $ -- $ --
====== ======== ======== ======== ========
Weighted average number of shares and dilutive
equivalents outstanding...................... 7,661 8,127 9,061 10,432 9,322
====== ======== ======== ======== ========

--------
NINE
MONTHS
ENDED
--------
2000
--------
(IN
THOUSANDS,
EXCEPT PER
SHARE
DATA)
<S> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Net patient service revenue.................. $241,413
Other revenue................................ 11,483
Equity in net income (loss) of joint
ventures................................... 1,722
--------
Total revenues........................... 254,618
Operating expenses:
Cost of services............................. 217,450
General and administrative................... 17,089
Bad debts.................................... 4,549
Depreciation and amortization................ 2,404
Corporate overhead allocation(2)............. --
--------
Total operating expenses................. 241,492
--------
Operating income (loss)........................ 13,126
Interest expense net........................... 1,498
--------
Income (loss) before income taxes and
extraordinary item........................... 11,628
Income tax expense (benefit)................... 4,580
--------
Income (loss) before extraordinary item........ 7,048
Extraordinary item for early extinguishment of
debt, net of income tax benefit.............. --
--------
Net income (loss).............................. 7,048
Mandatorily redeemable cumulative preferred
stock dividends.............................. --
--------
Net income (loss) to common stockholders....... $ 7,048
========
Net income (loss) per share to common
stockholders -- diluted(4)................... $ 0.48
========
Cash dividends declared on common stock........ $ --
========
Weighted average number of shares and dilutive
equivalents outstanding...................... 14,741
========
</TABLE>

19
<PAGE> 21

<TABLE>
<CAPTION>
PREDECESSOR(1) ACCREDO(1)
----------------- ----------------------------------------------------
JUNE JUNE 30,
30, MAY 31, ---------------------------------------- MARCH 31,
1995 1996 1996 1997 1998 1999 2000
------- ------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 645 $1,995 $ 3,576 $ 3,676 $ 5,087 $ 5,542 $ 8,500
Working capital................................ 13,523 1,148 1,384 16,894 23,377 28,906 36,744
Total assets(5)................................ 44,808 27,538 72,036 113,309 114,049 146,746 201,392
Long-term debt................................. 4,000 -- -- 35,195 36,418 20,500 41,500
Mandatorily redeemable cumulative preferred
stock........................................ -- -- 25,706 27,749 29,792 -- --
Stockholders' equity........................... 11,315 3,327 14,583 12,790 12,801 64,127 74,224
</TABLE>

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

(1) We were incorporated on May 24, 1996. On May 31, 1996, we acquired all of
the outstanding common stock of Southern Health Systems, Inc., a holding
company, and its wholly-owned subsidiary, Nova Factor, Inc., our
Predecessor. Since we were newly formed at May 24, 1996, and because our
Predecessor had been in existence for several years, we are considered the
successor to the Predecessor's operations. The balance sheet data of the
Predecessor represents the historical cost basis of the Predecessor's assets
and liabilities prior to its acquisition by us. Our acquisition of the
Predecessor resulted in a new basis of accounting such that the
Predecessor's assets and liabilities were recorded at their fair value in
our consolidated balance sheet upon consummation of the acquisition.
Additionally, we acquired Hemophilia Health Services, Inc. on June 1, 1997.
Accordingly, the selected Financial Data are not strictly comparable for the
periods presented. See Notes 1 and 3 of Notes to our consolidated financial
statements included elsewhere in this prospectus.

(2) The Predecessor has been allocated expenses for some services provided by
its parent, Southern Health Systems, Inc., including cash management, tax
reporting, risk management and executive management services. Charges for
these services were based upon a general allocation methodology determined
by Southern Health Systems, Inc. (used to allocate all corporate overhead
expenses to Southern Health Systems, Inc. subsidiaries), and were not
necessarily allocated based on specific identification of expenses. We
believe the allocation methodology is reasonable, and results in amounts
that approximate the amounts that would have been incurred on a stand-alone
basis.

(3) On June 1, 1997, we acquired all of the stock of Hemophilia Health Services,
Inc.

(4) Historical diluted loss per share for the periods ended June 30, 1996, 1997
and 1998 have been calculated using the same denominator as used for basic
loss per share because the inclusion of dilutive securities in the
denominator would have an anti-dilutive effect.

(5) In May 1996, the Predecessor settled various intercompany accounts with
related subsidiaries of Southern Health Systems, Inc.

20
<PAGE> 22

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this prospectus. The
following discussion contains forward-looking statements. Our actual results may
differ significantly from those projected in the forward-looking statements.
Factors that might cause future results to differ materially from those
projected in the forward-looking statements include, but are not limited to,
those discussed in "Risk Factors" and elsewhere in this prospectus.

OVERVIEW

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

The following table presents the percentage of our total revenue generated
from sales and services provided with respect to the diseases that we service
for the time periods shown.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS
----------------------------- ENDED
JUNE 30, 1998 JUNE 30, 1999 MARCH 31, 2000
------------- ------------- --------------
<S> <C> <C> <C>
Multiple Sclerosis.................................. 23% 31% 37%
Gaucher Disease..................................... 46% 37% 31%
Hemophilia and Autoimmune Disorders................. 23% 21% 20%
Growth Hormone-Related Disorders.................... 7% 6% 7%
Respiratory Syncytial Virus......................... -- 1% 2%
Crohn's Disease..................................... -- 1% 1%
Rheumatoid Arthritis................................ -- -- --
</TABLE>

Sales and services with respect to Multiple Sclerosis, Gaucher Disease,
growth hormone-related disorders, Crohn's Disease and rheumatoid arthritis are
dependent upon our preferred relationships with Biogen, Genzyme, Genentech and
Centocor.

Our agreements with these manufacturers describe the services to be
provided by us, including contract pharmacy, information, clinical,
reimbursement and customized delivery services. These agreements generally:

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

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

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

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

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

We recognize revenue at the time we ship drugs or when we have performed
the contractual service. While we may experience revenue changes from price
fluctuations on our existing product

21
<PAGE> 23

lines, our revenue growth will depend principally on the introduction of new
drugs and, to a lesser extent, on volume growth in existing drug lines.

We have five joint venture agreements with various medical centers (or
their affiliates) in which we own 50% of each venture and one joint venture
agreement with a medical center affiliate in which we increased our ownership
from 50% to 80% effective April 1, 2000. Many of our patient populations have
diseases that are discovered before or during adolescence and require ongoing
care from physician specialists, many of whom are based at pediatric, academic
and other acute care medical centers. To date, these ventures have primarily
derived revenues from the treatment of patients with hemophilia, growth
hormone-related disorders and respiratory syncytial virus. We share profits and
losses with our joint venture partners in equal proportion to our respective
equity ownership. We account for our interests in the net income or loss in our
50% owned joint ventures under the equity method of accounting, and in our 80%
owned joint venture under the consolidated method of accounting. Our equity
interest in the net income of these joint ventures represented approximately 15%
and 23% of our income before income taxes for the nine-month period ended March
31, 2000 and the fiscal year ended June 30, 1999, respectively. In addition to
joint venture relationships, we have a management agreement with one medical
center for the provision of specialized contract pharmacy services. We receive a
management fee for these services which we classify as other revenue.

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

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

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

A number of state Medicaid agencies now pay us for clotting factor at the
prices shown on the Market Price Survey or at a discount off those prices. Other
states have not changed their pricing structure or have changed back to their
pre-Market Price Survey reimbursement rates. HCFA has also announced that
effective October 1, 2000, Medicare intermediaries should calculate the amount
that they pay for clotting factor and 49 other drugs by using the lower prices
on the First DataBank Market Price Survey. We estimate that reimbursements by
Medicare and state Medicaid agencies make up approximately 2% and 6%,
respectively, of our gross patient service revenues from drugs we handle that
are covered by the Market Price Survey.

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<PAGE> 24

We do not have agreements with manufacturers of clotting factor to adjust
our product acquisition costs and we have experienced reduced reimbursement in
our sales of clotting factor to patients who are insured by Medicaid in a number
of states. While we cannot predict the eventual results of the changes being
considered by the various government agencies, we expect that we will receive
less reimbursement from our sales of clotting factor to patients insured by
Medicare and Medicaid.

RECENT TRANSACTIONS

- On June 30, 2000 we increased our ownership in Children's Hemophilia
Services from 50% to 80%.

Effective April 1, 2000, we purchased an additional interest in Children's
Hemophilia Services, increasing our ownership from 50% to 80%.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------- ----------------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Net patient service revenue....................... 92.1% 94.0% 94.5% 94.6% 94.8%
Other revenue..................................... 7.0 5.4 4.8 4.7 4.5
Equity in net income of joint ventures............ 0.9 0.6 0.7 0.7 0.7
----- ----- ----- ----- -----
Total revenues............................ 100.0 100.0 100.0 100.0 100.0
Operating Expenses:
Cost of services.................................. 87.7 85.1 85.4 85.2 85.4
General and administrative........................ 5.2 6.9 6.8 6.9 6.7
Bad debts......................................... 2.6 1.8 1.8 1.8 1.8
Depreciation and amortization..................... 4.2 2.1 1.5 1.6 0.9
----- ----- ----- ----- -----
Total operating expenses.................. 99.7 95.9 95.5 95.5 94.8
----- ----- ----- ----- -----
</TABLE>

23
<PAGE> 25

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------- ----------------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Operating income.................................... 0.3 4.1 4.5 4.5 5.2
Interest expense, net............................... 0.9 2.0 1.3 1.4 0.6
----- ----- ----- ----- -----
Income (loss) before income taxes and extraordinary
item.............................................. (0.6) 2.1 3.2 3.1 4.6
Income tax expense.................................. 1.3 1.3 1.5 1.6 1.8
----- ----- ----- ----- -----
Income (loss) before extraordinary item............. (1.9) 0.8 1.7 1.5 2.8
Extraordinary item, net of income tax benefit....... -- -- (0.5) -- --
----- ----- ----- ----- -----
Net income (loss)......................... (1.9)% 0.8% 1.2% 1.5% 2.8%
===== ===== ===== ===== =====
</TABLE>

NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO NINE MONTHS ENDED MARCH 31, 1999

Revenues. Total revenues increased 36% from $186.9 million to $254.6
million from the nine-month period ended March 31, 1999 to the nine-month period
ended March 31, 2000. Approximately $36.8 million, or 54%, of this increase was
attributable to our increased sales of AVONEX(R). Our Cerezyme(R) and
Ceredase(R) drug sales increased approximately $8.8 million, or 13% of the
revenue increase. Approximately $7.6 million, or 11% of this increase, was
attributable to increased hemophilia revenue. Approximately $6.2 million, or 9%,
of the increase was attributable to the increased sales of growth hormone
products. Synagis(R) drug sales increased approximately $2.5 million, or 4% of
the increase, as a result of increased patients. Approximately $2.4 million, or
4%, of the increase was attributable to the sale of IVIG products we began
distributing in December 1999. The remaining $3.4 million, or 5%, of our revenue
increase was primarily attributable to increased sales of other ancillary drugs
that we dispense as part of the patient's primary therapy or under contractual
obligations within some managed care contracts and an increase of approximately
$492,000 from our equity in net income of joint ventures. Total revenues
included approximately $8.3 million of revenues from companies that we acquired
during the nine-month period ended March 31, 2000.

Cost of Services. Cost of services increased 37% from $159.2 million to
$217.5 million from the nine-month period ended March 31, 1999 to the nine-month
period ended March 31, 2000. This increase is commensurate with the increase in
our revenues. As a percentage of revenues, cost of services increased from 85.2%
to 85.4% from the nine-month period ended March 31, 1999 to the same period in
2000. The increase is primarily the result of changes in the revenue mix by
therapy type and increased pharmacy and warehouse costs included in cost of
services.

General and Administrative. General and administrative expenses increased
from $12.9 million to $17.1 million, or 33%, from the nine-month period ended
March 31, 1999 to the nine-month period ended March 31, 2000. This increase was
primarily the result of increased salaries and benefits associated with the
expansion of our reimbursement, sales, marketing, administrative and support
staffs due to existing product line revenue growth, new product line launches
and the two acquisitions we made during the nine-month period ended March 31,
2000. General and administrative expenses represented 6.9% and 6.7% of our
revenues for the nine-months ended March 31, 1999 and 2000, respectively.

Bad Debts. Bad debts increased from $3.4 million to $4.5 million, or 32%,
from the nine-month period ended March 31, 1999 to the nine-month period ended
March 31, 2000. Bad debt expense was 1.8% of revenues for the nine-months ended
March 31, 1999 and 2000.

Depreciation and Amortization. Depreciation expense increased from
$430,000 to $750,000 from the nine-month period ended March 31, 1999 to the
nine-month period ended March 31, 2000 as a

24
<PAGE> 26

result of purchases of property and equipment associated with our revenue growth
and the expansion of our leasehold facility improvements. Amortization expense
associated with goodwill and other intangible assets decreased from $2,573,000
to $1,654,000 from the nine-month period ended March 31, 1999 to the nine-month
period ended March 31, 2000 due to some contract intangibles and a non-compete
covenant that were fully amortized by the end of the fiscal year ended June 30,
1999. Amortization expense attributable to the acquisitions made during the
nine-month period ended March 31, 2000 amounted to approximately $325,000.

Interest Expense, Net. Interest expense, net, decreased from $2,653,000 to
$1,498,000 from the nine-month period ended March 31, 1999 to the nine-month
period ended March 31, 2000. This decrease was due to lower interest and margin
rates payable under our existing revolving line of credit agreement with our
lenders, lower fixed interest rate payments associated with our interest rate
swap agreement, and a reduced level of debt resulting from the early payoff of a
significant portion of our debt with a portion of the proceeds from our initial
public offering completed in April 1999. We had interest income of approximately
$114,000 and $157,000 in the nine-months ended March 31, 1999 and 2000,
respectively.

Income Tax Expense. Our effective tax rate decreased from 49.6% to 39.4%
from the nine-month period ended March 31, 1999 to the nine-month period ended
March 31, 2000 as a result of the increase in income before taxes while
nondeductible amortization expense decreased. The difference between the
recognized effective tax rate and the statutory tax rate is primarily attributed
to approximately $1,845,000 and $612,000 of nondeductible amortization expense
in the nine-months ended March 31, 1999 and 2000, respectively, and state income
taxes.

FISCAL YEAR ENDED JUNE 30, 1999 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1998

Revenues. Total revenues increased from $181.0 million to $258.4 million,
or 43%, from fiscal year 1998 to fiscal year 1999. Approximately $39.5 million,
or 51%, of this increase was attributable to our increased sales volume of
AVONEX(R). Approximately $14.2 million, or 18%, of this increase was
attributable to the increased hemophilia revenue associated with increased
patient volume and wholesale sales. Our Cerezyme(R) and Ceredase(R) drug sales
increased approximately $12.6 million, or 16% of the revenue increase, as a
result of increased patient volume. Approximately $2.4 million, or 3%, of the
increase was attributable to the sale of the new drug REMICADE(TM) for the
treatment of Crohn's Disease and approximately $2.3 million, or 3%, of the
increase was attributable to the sale of Synagis(R), a drug used in the
treatment of respiratory syncytial virus in pediatric patients. The remaining
$6.4 million, or approximately 9%, of our revenue increase was primarily
attributable to increased sales of growth hormone, service fees associated with
our sales of Ceredase(R), Cerezyme(R), and AVONEX(R), increased sales of other
ancillary drugs we dispense as part of a patient's primary therapy or under
contractual obligations within some managed care contracts and an increase of
approximately $769,000 from our equity in net income of joint ventures.

Cost of Services. Cost of services increased from $154.0 million to $220.5
million, or 43%, from fiscal year 1998 to fiscal year 1999. This increase was
commensurate with the increase in our sales referred to above. As a percentage
of revenues, cost of services increased from 85.1% to 85.4% from fiscal year
1998 to fiscal year 1999. This increase is primarily as a result of an increase
in hemophilia factor acquisition costs without an associated increase in selling
price during fiscal year 1999 in addition to changes in our volume of net
patient service revenue by therapy type.

General and Administrative. General and administrative expenses increased
from $12.5 million to $17.6 million, or 41%, from fiscal year 1998 to fiscal
year 1999. This increase was primarily the result of increased salaries and
benefits associated with the expansion of our reimbursement, sales, marketing,
administrative and support staffs due to existing product line revenue growth
and new product line launches. General and administrative expenses represented
6.9% and 6.8% of our revenues for the fiscal years 1998 and 1999, respectively.

25
<PAGE> 27

Bad Debts. Bad debts increased from $3.2 million to $4.7 million from
fiscal year 1998 to fiscal year 1999. Bad debt expense was 1.8% of our revenue
in both periods.

Depreciation and Amortization. Depreciation expense increased from
$430,000 to $614,000 from fiscal year 1998 to fiscal year 1999 as a result of
$1.5 million in purchases of property and equipment in fiscal year 1999
associated with our revenue growth and expansion of our leasehold facility
improvements. Amortization expense associated with the goodwill and other
intangible assets decreased from $3.4 million to $3.3 million from fiscal year
1998 to fiscal year 1999 due to contract intangibles and a non-compete covenant
that were fully amortized by the end of fiscal year 1999.

Interest Expense, Net. Interest expense, net, decreased from $3.6 million
to $3.2 million from fiscal year 1998 to fiscal year 1999 due to lower interest
and margin rates payable under our existing revolving line of credit agreement
with our lenders, lower fixed interest rate payments associated with our
renegotiated interest rate swap agreement, and a reduced level of debt resulting
from the early payoff of a significant portion of our debt with a portion of the
proceeds from our initial public offering completed in April 1999. We generated
interest income of approximately $181,000 in fiscal year 1999 and $169,000 in
fiscal year 1998 as a result of cash management programs which utilized our
increased short-term excess cash balances.

Income Tax Expense. Our effective tax rate decreased from 62.9% to 47.7%
from fiscal year 1998 to fiscal year 1999 as a result of the increase in income
before taxes while nondeductible amortization expense decreased. The difference
between the recognized tax rate and the statutory tax rate was primarily
attributed to approximately $2.5 million and $2.3 million of nondeductible
amortization expense in fiscal year 1998 and 1999, respectively, and state
income taxes.

Extraordinary Item. We incurred an extraordinary charge of approximately
$1.3 million, net of tax, in connection with the re-payment of the senior
subordinated notes with the offering proceeds of our initial public offering in
April 1999.

FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997

Revenues. Total revenues increased from $115.2 million to $181.0 million,
or 57%, from fiscal 1997 to fiscal 1998. Approximately $25.1 million, or 38%, of
this increase was attributed to our increased sales volume of AVONEX(R), which
was launched in May 1996. Approximately $30.0 million, or 46%, of the increase
was attributed to the increased hemophilia revenue associated with our
acquisition of Hemophilia Health Services in June 1997 and increased patient
volume. The remaining $10.7 million, or 16% of the revenue increase, was
attributable primarily to growth in our Ceredase(R) and Cerezyme(R) drug sales
and associated service fees. Our equity in net income of joint ventures
increased from approximately $1.0 million to approximately $1.2 million from
fiscal 1997 to fiscal 1998.

Cost of Services. Cost of services increased from $101.1 million to $154.0
million, or 52%, from fiscal 1997 to fiscal 1998. This increase was attributable
primarily to the expanded revenue volume of AVONEX(R), hemophilia clotting
factor and Ceredase(R) and Cerezyme(R) along with personnel and other direct
expenses associated with this growth. As a percentage of revenues, cost of
services decreased from 87.7% to 85.1% from fiscal 1997 to fiscal 1998 primarily
as a result of an increase in revenue from drugs with lower acquisition costs as
a percentage of revenue.

General and Administrative. General and administrative expenses increased
from $5.9 million to $12.5 million, or 112%, from fiscal 1997 to fiscal 1998.
Approximately $4.2 million, or 66%, of this increase was associated with our
acquisition of Hemophilia Health Services in June 1997. The remaining $2.4
million of this increase was primarily the result of increased salaries and
benefits associated with the expansion of our reimbursement, sales, marketing,
administrative and support staffs in anticipation of revenue growth and new
strategic sales, marketing efforts and approximately $138,000 in compensation
expense recognized primarily due to stock that we sold to one of our

26
<PAGE> 28

directors at less than estimated fair value. As a percentage of revenues,
general and administrative expenses increased from 5.2% to 6.9% from fiscal 1997
to fiscal 1998 primarily as a result of our acquisition of Hemophilia Health
Services, which involves a more cost intensive service model than that of our
other drug therapies.

Bad Debts. Bad debts increased from $3.0 million to $3.2 million from
fiscal 1997 to fiscal 1998. As a percentage of revenue, bad debt expense
decreased from 2.6% to 1.8% from fiscal 1997 to fiscal 1998 primarily as a
result of the increased percentage of our revenues being reimbursed by
prescription benefit managers and other payors, which reduced our exposure to
the uncollectability of patient co-payments.

Depreciation and Amortization. Depreciation expense increased from
$231,000 to $430,000 from fiscal 1997 to fiscal 1998. Of this increase, $94,000
was attributable to the assets acquired as a result of our acquisition of
Hemophilia Health Services in June 1997. The remaining increase is a result of
approximately $992,000 of capital expenditures made in fiscal 1998 for the
purchases of property and equipment associated with our revenue growth and
expansion of our leasehold facility improvements. Amortization expense decreased
from $4.6 million in fiscal 1997 to $3.4 million in fiscal 1998. This decrease
was primarily attributable to several significant contract intangibles that were
fully amortized by the end of fiscal year 1997. Additional amortization expense
was recognized as a result of the acquisition of Hemophilia Health Services in
June 1997, which resulted in approximately $24.4 million of goodwill and other
intangible assets. Approximately $804,000 of additional amortization was
attributable to Hemophilia Health Services intangibles in fiscal year 1998.
Amortization expense attributable to Nova Factor intangibles decreased from $4.6
million in fiscal 1997 to $2.5 million in fiscal 1998.

Interest Expense, Net. Interest expense, net, increased from $984,000 to
$3.6 million from fiscal 1997 to fiscal 1998 primarily as a result of the
issuance of $27.5 million of long-term notes payable and $10.0 million of senior
subordinated notes payable issued as part of our acquisition of Hemophilia
Health Services in June 1997. We generated interest income of approximately
$169,000 in fiscal 1998 and $100,000 in fiscal 1997 resulting from cash
management programs which utilized our increased short-term excess cash
balances.

Income Tax Expense. Our effective tax rate decreased from over 100% to
62.9% from fiscal 1997 to fiscal 1998 as a result of increased income before
income taxes while nondeductible amortization expense decreased substantially.
The difference between the recognized effective tax rate and the statutory tax
rate is primarily attributed to approximately $4.6 million and $2.5 million of
nondeductible amortization expense in fiscal 1997 and 1998, respectively, and
state income taxes.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2000, June 30, 1999 and June 30, 1998, we had working
capital of $36.7 million, $28.9 million and $23.4 million, respectively. Our net
cash provided by operating activities was approximately $6.1 million for the
nine-month period ended March 31, 2000 and $4.1 million for the fiscal year
ended June 30, 1999. These increases are due primarily to our revenue growth and
the timing of the collection of receivables, inventory purchases and payments of
accounts payable.

At March 31, 2000, our joint venture partner in Children's Hemophilia
Services owed us approximately $2.0 million for product and fees. This amount
has been outstanding for more than 360 days. Our joint venture partner's ability
to satisfy this amount depends in part on its ability to collect on claims filed
by it with the State of California's MediCal program. We believe that we have
sufficient reserves for any bad debt resulting from the failure to collect these
receivables. These receivables have reduced the amount of cash that would have
otherwise been provided by operations during that period.

Net cash used by investing activities was $27.1 million for the nine-month
period ended March 31, 2000 and $4.3 million for the fiscal year ended June 30,
1999. Cash used by investing

27
<PAGE> 29

activities in the nine-month period ended March 31, 2000 consisted primarily of
$22.5 million for acquisitions, $2.9 million for purchases of property and
equipment and $1.7 million of undistributed earnings from our joint ventures.
Cash used by investing activities in fiscal 1999 consisted primarily of $1.3
million for the acquisition of a 50% interest in two California partnerships,
$1.5 million for purchases of property and equipment and $1.5 million of
undistributed earnings from our joint ventures.

Net cash provided by financing activities was $24.0 million for the
nine-month period ended March 31, 2000 and $0.6 million for the fiscal year
ended June 30, 1999. Cash provided by financing activities for the nine-month
period ended March 31, 2000 consisted primarily of $21.0 million of net
borrowings on our revolving line of credit to finance our acquisitions and $3.0
million from the proceeds of stock option exercises and the tax benefit
associated with the disqualifying disposition of a portion of those shares. In
April 1999, we completed our initial public offering of 5,175,000 shares of
common stock. The aggregate net proceeds from that offering of approximately
$51.3 million were used to pay expenses of the offering ($1.7 million), redeem
all outstanding shares of Series A preferred stock plus accrued dividends ($31.4
million), prepay in full all principal and accrued interest on our senior
subordinated notes ($11.2 million) and reduce the outstanding balance of our
revolving line of credit ($7.0 million). During fiscal year 1999, we also
received approximately $0.2 million from the private sale of our common stock.

Historically, we have funded our operations and continued internal growth
through cash provided by operations. Capital expenditures amounted to $1.5
million in fiscal year 1999 and $2.9 million in the nine-month period ended
March 31, 2000. We anticipate that our capital expenditures for the fiscal year
ending June 30, 2000 will consist primarily of additional leasehold
improvements, equipment and software systems for the continuing expansion of our
leasehold and to enhance our computer systems to meet the needs of our growth.
We expect the cost of our capital expenditures in fiscal year 2000 to be
approximately $5.0 million, exclusive of any acquisitions of businesses, and
expect to fund these expenditures through cash provided by operating activities,
proceeds from the offering and/or borrowings under the revolving credit
agreement with our bank. In addition, in connection with three of our
acquisitions that were completed in 1998 and 1999, we may be obligated to make
up to $2.5 million in earn-out payments during the next twelve months.

We have a $60.0 million revolving credit facility under the terms of our
existing credit agreement. The credit agreement contains a $20.0 million
sub-limit for working capital loans and letters of credit and is subject to a
borrowing base limit that is based on our cash provided by operations. All
outstanding principal and interest on loans made under the credit agreement are
due and payable on December 1, 2001. Interest on loans under the credit
agreement accrues at a variable rate index, at our option, based on the prime
rate or London Inter Bank Offered Rate for one, two, three or six months (as
selected by us), plus, in each case, a margin depending on the amount of our
debt to cash flow ratio as defined by the credit agreement and measured at the
end of each quarter for prospective periods. During the nine-month period ended
March 31, 2000, we paid margin rates of 0.75% to 1.50%.

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

The credit agreement contains operating and financial covenants, including
requirements to maintain a minimum debt to equity ratio and minimum leverage and
debt service coverage ratios. In addition, the credit agreement includes
customary affirmative and negative covenants, including covenants relating to
transactions with affiliates, use of proceeds, restrictions on subsidiaries,
limitations on indebtedness, limitations on liens, limitations on capital
expenditures, limitations on mergers, acquisitions and sales of assets,
limitations on investments, prohibitions on payment of

28
<PAGE> 30

dividends and stock repurchases, and limitations on debt payments (including
payment of subordinated indebtedness) and other distributions. The credit
agreement also contains customary events of default, including events relating
to changes in control of our company.

We are also a guarantor of a bank loan made to Children's Hemophilia
Services, a California general partnership in which we own an 80% interest. The
original line of credit amounted to $1.5 million. The payment schedule requires
that all outstanding principal amounts in excess of $1.0 million be paid on
January 1, 2000, all outstanding principal amounts in excess of $0.5 million be
paid on July 1, 2000 and all remaining principal shall be paid in full on
November 24, 2000. As of June 30, 2000, the partnership had $0.2 million
outstanding under the line of credit.

We use interest rate swap agreements to manage our interest rate exposure
under the credit agreement. We have effectively converted, for the period
through October 31, 2001, $25.0 million of floating-rate borrowings to
fixed-rate borrowings. We secured a 5.5% fixed interest rate (exclusive of the
margin rate) under our current interest rate swap agreement.

While we anticipate that our cash from operations, along with the short
term use of the credit agreement and the net proceeds to be received from this
offering, will be sufficient to meet our internal operating requirements and
growth plans for at least the next 12 months, we expect that additional funds
may be required in the future to successfully continue our growth beyond that
12-month period or in the event that we grow more than expected within such
period. We may be required to raise additional funds through sales of equity or
debt securities or seek additional financing from financial institutions. There
can be no assurance, however, that financing will be available on terms that are
favorable to us or, if obtained, will be sufficient for our needs.

SELECTED QUARTERLY FINANCIAL RESULTS

The following table presents selected unaudited quarterly statements of
operations items, and the percentages of total revenues represented by those
respective items, for each of the nine quarters beginning January 1, 1998 and
ending March 31, 2000. This information has been prepared on the same basis as
the audited financial statements appearing elsewhere in this prospectus, and
includes all adjustments, consisting only of normal recurring adjustments, that
we consider necessary for a fair presentation of the information when read in
conjunction with our consolidated financial statements.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- --------- -------- -------- -------- --------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues........ $44,813 $50,559 $57,348 $62,678 $66,881 $71,447 $76,871 $86,356 $91,392
Operating income...... 1,908 2,214 2,709 2,747 2,922 3,170 3,625 4,316 5,186
Net income before
extraordinary
item................ 378 619 915 948 1,020 1,499 1,968 2,349 2,732
AS A PERCENTAGE OF TOTAL
REVENUES:
Total revenues........ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating income...... 4.3 4.4 4.7 4.4 4.4 4.4 4.7 5.0 5.7
Net income before
extraordinary
item................ 0.8 1.2 1.6 1.5 1.5 2.1 2.6 2.7 3.0
</TABLE>

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<PAGE> 31

QUARTERLY FLUCTUATION

Our results of operations may fluctuate on a quarterly basis. In
particular, we typically increase our operating expenses in anticipation of the
launch of a new drug, and if the new drug does not generate the levels of sales
during the periods anticipated by our management, our results in that and future
quarters could be adversely affected. Quarterly results can also fluctuate as a
result of:

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

- the timing of periodic adjustments to prices and other terms with our
drug suppliers;

- the accuracy of estimates of resources required for ongoing programs;

- the timing and integration of acquisitions;

- changes in regulations related to biopharmaceutical companies;

- physician prescribing patterns;

- general economic conditions;

- the annual renewal (on a calendar year basis) of deductible and
co-payment requirements, which affects patient ordering patterns;

- our providing drugs, now or in the future, that treat seasonal illnesses.

We believe that quarterly comparisons of our financial results may not
necessarily be meaningful and should not be relied upon as an indication of
future performance. In addition, fluctuations in quarterly results could affect
the market price of our common stock in a manner unrelated to our longer term
operating performance.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, was issued, and is
required to be adopted in years beginning after June 15, 1999. In June 1999,
SFAS No. 137 was issued, deferring the effective date of SFAS No. 133 for one
year. We expect to adopt Statement No. 133 in fiscal year 2001. Statement No.
133 will require us to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivative will either be offset against the
change in fair value of the hedged asset, liability, or firm commitment through
earnings, or recognized in the comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a hedge's change in fair
value will be immediately recognized in earnings. We do not anticipate that the
adoption of Statement No. 133 will have a significant effect on our results of
operations or our financial position.

IMPACT OF INFLATION

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

IMPACT OF YEAR 2000 ISSUES

In prior years, we discussed the nature and progress of our plans to become
Year 2000 ready. In late 1999, we completed the remediation and testing of our
systems. As a result of our planning
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<PAGE> 32

and implementation efforts, we experienced no disruptions in our mission
critical information technology and non-information technology systems. We
believe these systems successfully responded to the Year 2000 date change. We
are not aware of material problems resulting from Year 2000 issues, either with
our internal systems, our services or the products and services of third parties
with whom we do business. We will continue to monitor our mission critical
computer applications and those of our suppliers throughout the year 2000 to
ensure that any Year 2000 issues that may arise are properly addressed.

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<PAGE> 33

BUSINESS

OVERVIEW

We provide specialized contract pharmacy services on behalf of
biopharmaceutical manufacturers to patients with chronic diseases. The unique
needs of patients with chronic diseases have led biopharmaceutical manufacturers
to develop programs with companies like Accredo to help patients manage their
diseases more effectively. Our services help simplify the difficult and often
challenging medication process for patients with a chronic disease and help
ensure that patients receive and take their medication as prescribed. Our
services benefit biopharmaceutical manufacturers by accelerating patient
acceptance of new drugs, facilitating patient compliance with the prescribed
treatment and capturing valuable clinical information about a new drug's
effectiveness, all of which help manufacturers to increase revenues. We have
existing preferred relationships with Biogen, Centocor, Genentech and Genzyme
Corporation.

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

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

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

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

- are administered through injection; and

- require temperature control or other specialized handling.

We have agreements with four biopharmaceutical manufacturers to provide
specialized contract pharmacy services on a preferred basis. Although our
agreements are not exclusive, our preferred status generally means that we are a
recommended provider of the manufacturer's drug to patients and physicians.
These agreements also contain preferred drug pricing from the manufacturer to
compensate us for our specialized services. The terms of these agreements may be
adjusted periodically in the event of changed market conditions or required
service levels.

INDUSTRY BACKGROUND

We believe that biopharmaceutical products represent the most rapidly
growing part of the new drug pipeline. Significant advances in disciplines such
as molecular biology, genomics and high-throughput screening have accelerated
the pace of biopharmaceutical discovery. As a result, opportunities to develop
therapies for previously unmet patient needs are greater than ever before. As of
April 2000, industry sources estimated that there were more than 300
biopharmaceutical products in late stage development.

Unlike many traditional drugs, biopharmaceutical products often possess
specific characteristics that make patient use and compliance with prescribed
therapies difficult. These drugs often contain unstable proteins that must be
taken by injection and require timely, temperature maintained distribution,
dosage monitoring, and controlled inventory management. In addition, expert
reimbursement management is crucial as a result of the high cost and significant
support services associated with these products.

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Biopharmaceutical manufacturers face many challenges bringing their drugs
to market, such as limited internal resources, an unpredictable drug approval
process, limits on patent protection, drug acceptance by physicians and
consumers and competition from rival drugs. In response to these challenges,
biopharmaceutical manufacturers have historically used contract research and
site management organizations to outsource aspects of the discovery and
development processes. They are now expanding this outsourcing trend to product
commercialization and launch, sales and marketing, product delivery, pharmacy
and distribution, and patient support services.

The challenges facing biopharmaceutical manufacturers of drugs for chronic
diseases are often heightened by complexities from small patient populations,
uncertainties of patient compliance and persistence with treatment programs, the
need to realize a return on investment prior to the expiration of any patent or
orphan drug status exclusivity, and the onset of significant competition. In
addition, many traditional distribution channels, such as wholesalers,
hospitals, physicians, pharmacies and pharmacy benefit managers, do not want to
maintain an inventory of expensive drugs and often lack the specialized
knowledge needed to manage chronic disease patients.

OUR STRATEGY

We believe that we are well-positioned to take advantage of the large drug
development pipeline and trend toward specialized outsourcing by the
biopharmaceutical industry. Our objective is to be the leading provider of
specialized contract pharmacy services to biopharmaceutical manufacturers. In
addition to expanding revenues from our current product lines, key elements of
our strategy include the following:

Expand Number of Chronic Diseases Served. We closely monitor the
development of drugs in an effort to expand the number of chronic diseases we
serve. We seek to establish new relationships with biopharmaceutical
manufacturers and to expand our existing relationships to cover newly-developed
drugs and newly-approved disease indications for existing drugs. For example, in
August 1998, we established a new preferred relationship with Centocor in which
we provide our specialized services with respect to REMICADE(TM) for use in
treating patients with Crohn's Disease. In November 1999, the FDA approved
REMICADE(TM) for use in treating patients with rheumatoid arthritis and we began
providing the drug to patients with this disease. Additionally, in December
1999, the FDA approved Genentech's Nutropin Depot(TM) for the treatment of
growth hormone-related disorders. We will deliver Genentech's Nutropin Depot(TM)
to patients.

Leverage Expertise to Expand Service Offerings. We seek to develop new or
complementary services that meet the specialized needs of biopharmaceutical
manufacturers and the patients who use their products. We believe that we are
well-positioned to identify these needs and develop customized solutions through
our close relationships with leading biopharmaceutical manufacturers. We believe
that biopharmaceutical manufacturers will increasingly recognize the benefits of
outsourcing product development, launch and specialized pharmacy services as the
biopharmaceutical market matures and competition increases.

Establish Additional Relationships with Medical Centers. We intend to
pursue additional strategic relationships with medical centers. Many of the
diseases for which we provide services are discovered before or during
adolescence and require on-going care from physician specialists who are often
based at pediatric, academic or other acute care medical centers. By
establishing strategic relationships with these centers, we believe we can
obtain access to a large number of patients and introduce them to our
specialized services during the initial stages of their treatment program.

Increase Number of Payor Contracts. We intend to pursue contracts with
additional payors, including managed care companies and employers, in order to
access and provide services to a greater number of patients. Because most
patients are restricted to using pharmacy providers specified by their payment
plans, we are eligible to receive reimbursement only for services provided to
patients who are enrolled in payment plans with which we maintain provider
contracts. We maintain a dedicated team of sales and marketing personnel that
work exclusively on pursuing
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<PAGE> 35

additional payor relationships and have a variety of payor education programs
aimed at increasing awareness of our specialized services among private payors.
Effective May 1, 2000, Aetna U.S. Healthcare(R) selected us as a preferred
provider of injectible medications to Aetna U.S. Healthcare(R) members and
participating physicians.

Pursue Selective Acquisitions of Similar or Complementary Businesses. We
intend to pursue acquisitions that offer attractive growth opportunities and
that involve businesses that are similar to or that complement our present
operations. For example, in June 1997, we made an acquisition that significantly
expanded the scope of our hemophilia operations, and in November 1998, we
acquired a 50% interest in each of two California general partnerships that
service patients with hemophilia and growth hormone related disorders. Effective
April 1, 2000, we increased our interest in one of these partnerships to 80%. In
October 1999, we acquired two pharmacies that are engaged in pharmaceutical care
of patients with chronic diseases. In addition, on December 1, 1999, we acquired
a provider of specialty pharmacy services that serves patients throughout the
Southeast and specializes in providing IVIG to patients with autoimmune
disorders.

OUR SERVICES

Our services include the following:

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

- consulting services related to strategic pricing decisions;

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

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

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

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

Following product launch, we offer:

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

- reimbursement hotlines for patients and health care professionals;

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

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

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

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

Results of our interaction with patients, which is primarily via telephone, are
coded to protect privacy and tracked to compile valuable information, including
side effects, drug interactions,
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<PAGE> 36

administration problems, supply issues, physician prescription habits, changes
to new products, and reasons for therapy discontinuation and non-compliance.

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

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

- help patients understand their medication and treatment program;

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

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

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

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

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

Delivery Services. We provide timely delivery of drugs and ancillary
supplies directly to the patient or the patient's physician in packaging
specially designed to maintain appropriate temperatures. The package typically
contains all of the supplies required for administration in the patient's home
or in other alternate sites. Substantially all products are shipped from our two
primary pharmacy locations in Memphis and Nashville, Tennessee. We also maintain
satellite pharmacy locations in Dallas-Ft. Worth, Texas, Birmingham, Alabama,
Atlanta, Georgia, Temecula, California, Charlotte, North Carolina and
Jacksonville, Florida. We ship our products via FedEx and believe that our
proximity to FedEx's principal "hub" location in Memphis provides us with a
competitive advantage in meeting the time-sensitive needs of our patients.

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<PAGE> 37

DISEASE MARKETS AND RELATED PRODUCTS

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

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

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

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

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

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

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

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

We have a preferred relationship with Genzyme relating to Ceredase(R) and
Cerezyme(R). Ceredase(R) and Cerezyme(R) are administered by intravenous
infusion. Dosing frequencies vary, but a typical dosing regimen involves
administration once every two weeks. Pursuant to our current agreement with
Genzyme, we dispense Ceredase(R) and Cerezyme(R) in the United States and
provide

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<PAGE> 38

various information and other services to Genzyme. The pricing of Ceredase(R)
and Cerezyme(R) under our agreement with Genyzme, as well as the scope and
pricing of services that we provide, are subject to periodic adjustment. Our
agreement with Genzyme automatically renews on an annual basis unless either
party provides 90 days prior notice of non-renewal, and is terminable by either
party for any reason with 60 days prior notice. In addition, the agreement
provides that, during the term of the agreement and for a period of five years
after its termination, we may not sell any prescription drug for the treatment
of Gaucher Disease other than Ceredase(R) and Cerezyme(R). We do not have
exclusive rights to sell Ceredase(R) or Cerezyme(R). Genzyme has reserved the
right under the agreement to sell these products directly or to appoint other
distributors of these products, but any such action would eliminate our
exclusivity obligations. Our annual revenue during fiscal year 1999 from
patients receiving this therapy was predominantly within the range of $150,000
to $200,000 per patient, depending on the patient's weight, stage of the therapy
cycle and severity of condition.

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

Hemophilia is generally treated by infusing anti-hemophilic factor
concentrates intravenously when the symptoms of a bleed are detected. This
therapy is generally administered by the patient or his or her family members,
without the assistance of a nurse, in response to bleeding episodes.
Approximately 60% of the persons with hemophilia in the United States have a
severe form of the disorder as measured by the level of factor naturally present
in the body. In general, the more severe the factor deficiency, the more
frequently the bleeding episodes may occur. On average, someone with severe
hemophilia will need to infuse factor weekly. In many individuals with severe
hemophilia, factor therapy is administered prophylactically to maintain high
enough circulating factor levels to minimize the risk of bleeding. Our annual
revenue from patients receiving this therapy generally ranged from $50,000 to
$100,000 per patient depending on the patient's weight, severity of condition
and the presence of complications.

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

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

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<PAGE> 39

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

We have purchasing relationships with all six manufacturers of growth
hormone products used in the United States, including a preferred relationship
with Genentech. Typically, patients or family members administer growth hormone
products at home without the presence of a nurse. Most growth hormone products
require administration by injection several times per week, and in some cases
daily. In contrast, Nutropin Depot(TM) may be administered as infrequently as
monthly or bi-monthly. We have entered into a distribution agreement with
Genentech in which we also provide various information and other services
relating to Genentech's human growth hormone products, Protropin(R),
Nutropin(R), Nutropin AQ(R) and Nutropin Depot(TM) in the United States. Under
the agreement, the pricing of Protropin(R), Nutropin(R), Nutropin AQ(R) and
Nutropin Depot(TM) under the distribution agreement, as well as the scope and
pricing of the services provided by us, are subject to periodic adjustment. The
distribution agreement has an initial term that has been extended to December
31, 2002. The agreement may be terminated by Genentech if we are acquired by one
of their competitors and may be terminated by either party for cause following a
60-day right to cure or in the event of bankruptcy, insolvency or similar events
affecting the other party. We do not have exclusive rights to distribute
Protropin(R), Nutropin(R), Nutropin AQ(R) and Nutropin Depot(TM). Genentech has
reserved the right under our agreement to sell these drugs directly or to
appoint other distributors of these drugs. Our annual revenue from pediatric
patients receiving this therapy generally ranges from $15,000 to $25,000 per
patient depending on a patient's weight and severity of condition.

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

In August 1998, we established a preferred relationship with Centocor
relating to REMICADE(TM). Under an agreement that we have with Centocor, we
dispense REMICADE(TM) and provide various information and other services to
Centocor. The pricing of REMICADE(TM) under our agreement with Centocor, as well
as the scope and pricing of the services provided by us, are subject to periodic
adjustment. Our agreement with Centocor has an initial term of three years
ending August 2001, with a renewal provision. We do not have any exclusive
rights to sell REMICADE(TM). In addition, our agreement provides that as long as
we are the only retail distributor approved by Centocor, we may not, without
Centocor's approval, sell any products that compete with REMICADE(TM) during the
term of the agreement and for 90 days thereafter. Centocor has reserved the
right under the agreement to sell REMICADE(TM) directly or to appoint
distributors or other providers of pharmacy services for REMICADE(TM), but any
such action would eliminate our exclusivity obligations.

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

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

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

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

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

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

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

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

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

Respiratory syncytial virus is seasonal, with the disease striking
primarily during the period of October through April. We renewed our
relationship with MedImmune for the 1999-2000 respiratory syncytial virus season
by executing a new distribution agreement on August 16, 1999. The distribution
agreement with MedImmune has a term of one year. We do not have the exclusive
right to sell Synagis(R), although we were a national assignment-of-benefits
provider of the drug for the 1999-2000 respiratory syncytial virus season. The
distribution agreement can be terminated by either party upon 30 days notice. We
are in discussions with MedImmune to renew our agreement for the 2000-2001
season.

BUSINESS DEVELOPMENT

We have a full-time director of business development whose responsibilities
include tracking biopharmaceutical drugs in development, determining whether
these drugs meet our service criteria
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<PAGE> 41

and are a strategic fit for us, introducing our services to the manufacturers of
these drugs, and assisting in the development of customized services for these
manufacturers.

At June 30, 2000, we had 34 full-time and 2 part-time sales and marketing
personnel who market our therapies and services to physicians, patients and
payors. We also market directly to potential referral sources that specialize in
the care and support of patients with chronic disorders. Our sales and support
personnel also work closely with each of the referral sources with the goal of
addressing the clinical and reimbursement needs of its patients. We assist in
clinical drug trials, professional training seminars, distribution of patient
support material, development of patient support groups, and other programs
designed to assist patients, payors, manufacturers, and physicians in enhancing
the quality of care and quality of life for patients and their families.

We continually seek to obtain contracts with additional payors, including
managed care companies and employers, in order to access and provide services
for a greater number of patients. For example, we were recently selected as one
of three providers by Aetna U.S. Healthcare(R). The Aetna agreement has a term
of 3 years from April 1, 2000, but is terminable by either party on 90 days
notice. Because most patients are restricted to using pharmacy providers
included in their payors' provider panels, we are eligible to receive
reimbursement only for services provided to patients covered by payors with whom
we maintain provider contracts. We maintain a dedicated team of sales and
marketing personnel that work exclusively on pursuing additional payor
relationships and have a variety of payor education programs aimed at increasing
awareness of our specialized services among payors.

SUPPLIERS

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

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

- Biogen, with respect to AVONEX(R);

- Centocor with respect to REMICADE(TM); and

- MedImmune, with respect to Synagis(R).

Although there are five other manufacturers of FDA-approved growth hormone
products, Genentech's products collectively enjoy a market share that exceeds
the aggregate of all other individual manufacturers of growth hormone products.
Accordingly, in the event that one or more of our current suppliers of products
(other than IVIG and other blood-related products) were to cease selling
products to us, our business, financial condition and results of operations
would be materially and adversely affected. Approximately 37%, 31% and 23% of
our total revenues for the nine-month period ended March 31, 2000 and the fiscal
years ended June 30, 1999 and 1998, respectively, were derived from sales of
AVONEX(R) and related services. In addition, approximately 31%, 37% and 46% of
our total revenues for the nine-month period ended March 31, 2000 and the fiscal
years ended June 30, 1999 and 1998, respectively, were derived from sales of
Ceredase(R) and Cerezyme(R) and related services. We have supply contracts with
all six major suppliers of clotting factor and all five major suppliers of IVIG
in the United States, and no supplier is responsible for a majority of our
hemophilia or IVIG product purchases.

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

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<PAGE> 42

products. See "Risk Factors -- We are highly dependent on our relationships with
a limited number of biopharmaceutical manufacturers." and "Business -- Disease
Markets and Related Products."

STRATEGIC RELATIONSHIPS WITH MEDICAL CENTERS

We currently have joint ventures with five medical centers (or their
affiliates):

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

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

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

- Children's Memorial Hospital located in Chicago, Illinois;

- Children's National Medical Center located in Washington D.C.

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

In addition to joint venture relationships, from time to time we have
entered into management agreements with medical centers (or their affiliates) to
provide specialized contract pharmacy services. We currently have one contract
management relationship with LeBonheur Children's Medical Center located in
Memphis, Tennessee.

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

PAYORS

The following are the approximate percentages of our gross patient service
revenue attributable to various payor categories for the fiscal years ended June
30, 1999 and 1998 and the nine-month period ended March 31, 2000:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
----------------------------- ENDED
JUNE 30, 1998 JUNE 30, 1999 MARCH 31, 2000
------------- ------------- -----------------
<S> <C> <C> <C>
Private payors (including self pay)(1).......... 80% 82% 82%
Medicaid and other state programs............... 17% 16% 16%
Medicare and other federal programs............. 3% 2% 2%
--- --- ---
Total................................. 100% 100% 100%
=== === ===
</TABLE>

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

(1) Includes sales to private physician practices, whose ultimate payor is
typically Medicare, which accounted for approximately 7%, 6% and 5% of gross
patient service revenue, respectively for the fiscal years ended June 30,
1998 and 1999 and the nine-month period ended March 31, 2000.

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<PAGE> 43

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

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

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

Federal and state proposals are pending that would impose further
limitations on governmental payments and that could increase patient co-payments
and deductibles. Federal and state agencies are examining perceived
discrepancies between reported average wholesale prices of drugs and the actual
manufacturers selling price. Talks are currently underway with at least one
large drug manufacturer aimed at revising price reporting methods. Recently,
First DataBank, Inc., which reports average wholesale drug prices to Medicaid
programs, announced that it will report based on market prices rather than
prices submitted by manufacturers. As a result, a number of state Medicaid
agencies have recently lowered the amount of reimbursement that they pay for
certain drugs, including clotting factor. Medicare also announced that it will
implement lower prices for clotting factor effective October 1, 2000. We expect
that these developments will reduce prices and margins on some of the drugs that
we distribute.

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

Hemophilia treatment centers may purchase factor from manufacturers at a
discount under a government program established in 1992 which extended the
Medicaid best price rebate program to hemophilia treatment centers.
Manufacturers that sell outpatient drugs to hemophilia treatment centers agree
with the Department of Health and Human Services that they will not charge a
price

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<PAGE> 44

for covered outpatient drugs that is higher than a statutorily set amount. We do
not directly own or operate a hemophilia treatment center that is eligible for
this special pricing, which places us at a competitive disadvantage as a
provider of factor, except where our affiliated medical centers are eligible for
the special pricing. Under the Department's guidelines, an eligible hemophilia
treatment center may obtain factor at this special pricing and use a contract
pharmacy to dispense it to the center's patients. However, if a hemophilia
treatment center does not comply with the Department's guidelines or sells
factor bought at this special pricing to patients who are not patients of the
center, it may incur civil penalties or liability to drug manufacturers for the
amount of the discount that the center received from the manufacturer.

The Federal Health Resources and Services Administration recently gave
notice that all entities receiving grants from the Health Resources and Services
Administration must annually certify that they either receive this special
pricing or can purchase drugs at or below such special pricing. This policy will
cause us to face additional competition in our clotting factor sales because the
number of hemophilia treatment centers receiving this special pricing will
increase.

COMPETITION

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

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

- specialty pharmacy divisions of national wholesale drug distributors;

- pharmacy benefit management companies;

- hospital-based pharmacies;

- retail pharmacies;

- home infusion therapy companies;

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

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

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

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

COMPLIANCE PROGRAM

We adopted a corporate compliance program, entitled "Code of Ethics and
Business Conduct," in February 1998. We implemented our compliance program to
help detect and prevent inappropriate or dishonest conduct in the workplace,
including among other things violations of antitrust laws, fraud and abuse laws,
billing and coding errors, dishonest or misleading dealings with suppliers,
patients, payors, and competitors, and the disclosure of confidential or
sensitive information. Upon accepting a job with us, a new employee receives a
written copy of the Code and is asked to read the document prior to beginning
employment. We conduct a training session

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shortly after the new employee begins work and all employees are required to
sign written acknowledgments indicating that he or she has read and understands
the Code and will adhere to the standards set forth therein. We have a corporate
compliance officer and a compliance committee. Our compliance officer is
responsible for administering the program, which includes training, internal
audits and reviews, and responding to reported issues with the assistance of the
compliance committee.

We encourage employees to ask questions or reveal potential compliance
issues to either their supervisor or a compliance committee member or via a toll
free hotline number. Employees can make these calls anonymously, if so desired.
Employees also receive corporate compliance training periodically with respect
to potential compliance issues. Issues that employees report to the committee
will normally be handled at the committee level unless the compliance officer
believes that our Board of Directors should be involved. At least once a year,
the corporate compliance officer will meet with or submit a report to our Board
of Directors. The Audit Committee of our Board has responsibility for handling
compliance issues.

GOVERNMENT REGULATION

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

- the payment of inducements for patient referrals;

- prohibited financial relationships with physicians;

- joint venture and management arrangements;

- product discounts;

- inducements given to patients; and

- professional licensing.

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

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

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

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

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<PAGE> 46

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

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

Federal Mail Order. Federal law imposes standards for:

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

- the dispensing of controlled substances and prescription drugs.

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

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

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

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

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

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

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

The Department of Health and Human Services, DHHS, published a set of "safe
harbor" regulations and continues to publish clarifications to the safe harbors.
Arrangements that fully
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<PAGE> 47

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

Health Insurance Portability and Accountability Act. HIPAA created new
health care crimes, and granted authority to the Secretary of DHHS to impose
certain civil penalties. Particularly, the Secretary may now exclude from
Medicare any individual with a direct or indirect ownership interest in an
entity convicted of health care fraud or excluded from the program. HIPAA
encourages the reporting of health care fraud by allowing reporting individuals
to share in any recovery made by the government. HIPAA also requires new
programs to control fraud and abuse, and new investigations, audits and
inspections.

New crimes under HIPAA include:

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

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

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

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

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

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

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

The OIG recently issued final regulations concerning inducements to
beneficiaries. Under the new regulations, permissible incentives are those given
in connection with preventive care, including pre and post natal care, and
services described in the U.S. Preventive Service Task Force's Guide to
Preventive Care. OIG also believes that items of nominal value given to
beneficiaries are permissible even if not related to preventive care. However,
permissible incentives would not include cash or cash equivalents. We from time
to time provide some items at no charge to our patients in connection with their
drug therapies, not all of which are included on the list of items specifically
stated not to violate the new regulations. We nevertheless believe that those
items are allowed by the underlying statute. A determination that we violated
the regulations or the statute, however, could result in sanctions that reduce
our revenue or profits.

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

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

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

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

Balanced Budget Act. Each state operates a Medicaid program funded in part
by the Federal government. The states may customize their programs within
federal limitations. Each state program has its own payment formula and
recipient eligibility criteria. In recent years, changes in Medicare and
Medicaid programs have resulted in limitations on, and reduced levels of,
payment and reimbursement for a substantial portion of health care goods and
services. For example, the federal Balanced Budget Act of 1997 (even after the
restoration of some funding in 1999) will continue to cause significant
reductions in spending levels for the Medicare and Medicaid programs. A more
recent example is the action of a number of state Medicaid agencies to reduce
their reimbursement rates in response to the new AWP prices published by First
Data Bank. Medicare has announced that it will adopt new AWP pricing effective
October 1, 2000.

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

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

FACILITIES

We are headquartered in Memphis, Tennessee. Our primary pharmacy locations
are in Memphis and Nashville, Tennessee. In addition, we have satellite pharmacy
locations in the following cities:

- Birmingham, Alabama;

- Atlanta, Georgia;

- Dallas/Ft. Worth, Texas;

- Temecula, California;

- Jacksonville, Florida; and

- Charlotte, North Carolina

Memphis, Tennessee. We currently lease approximately 72,000 square feet of
space in an office/warehouse business park in Memphis. We also have a land lease
for an expanded parking lot next to our offices. Our leases for 41,873 square
feet of space expire in August 2003, the leases on the remainder of the space
and the land expire in December 2005, but we have an option to extend our lease
terms for one additional five-year period.

Nashville, Tennessee. We currently lease approximately 28,000 square feet
of space in Nashville. We are currently in negotiation to confirm our renewal of
this lease for a term ending October 2004.

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

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

Atlanta, Georgia. We currently lease approximately 5,400 square feet of
space in the Atlanta area. Our leases expire in December 2000 and September
2001.

Temecula, California. We currently lease approximately 3,800 square feet
of space in Temecula. Our lease expires in October 2001.

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

Charlotte, North Carolina. We currently lease approximately 1,500 square
feet of space in Charlotte, North Carolina. Our lease expires in May 2003.

EMPLOYEES

As of June 30, 2000, we had 480 full-time and 58 part-time employees, which
included 51 full-time and 9 part-time pharmacists. Our employees are not
represented by a labor union, and we believe we have good relations with our
employees.

LIABILITY INSURANCE

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

LEGAL PROCEEDINGS

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

49
<PAGE> 51

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth information with respect to our executive
officers and directors as of June 30, 2000.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David D. Stevens........................... 47 Chairman of the Board of Directors and
Chief Executive Officer
John R. ("Randy") Grow..................... 51 President and Director
Joel R. Kimbrough.......................... 42 Senior Vice President, Chief Financial
Officer and Treasurer
Kyle J. Callahan........................... 34 Senior Vice President and Director
Thomas W. Bell, Jr......................... 48 Senior Vice President, Secretary and
General Counsel
Kenneth R. Masterson(1).................... 56 Director
Kenneth J. Melkus(1)(2).................... 54 Director
Andrew M. Paul(2).......................... 44 Director
Kevin L. Roberg(1)......................... 49 Director
Patrick J. Welsh........................... 56 Director
</TABLE>

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

(1) Member of the Audit Committee

(2) Member of the Compensation Committee

David D. Stevens has served as Chief Executive Officer of Accredo since it
was acquired from Le Bonheur in 1996 and has served as a director of Accredo
since June 1997. Previously, Mr. Stevens served as Chief Operating Officer of
Accredo's wholly owned subsidiary, Southern Health Systems, Inc., since its
inception in 1983. Mr. Stevens has served as President of Southern Health
Systems since 1993 and as a director since 1996. He has served as Chief
Executive Officer of Accredo's wholly owned subsidiary, Nova Factor, since 1996
and as a director since 1990.

John R. ("Randy") Grow has served as President of Accredo since it was
acquired from Le Bonheur in 1996 and has served as a director of Accredo since
June 1997. Mr. Grow has also served as President of Nova Factor since 1996, and
Chief Operating Officer and director since 1990. Previously, Mr. Grow was
employed in the home infusion industry as President of Curaflex Health Infusion
Services, Inc. from 1988 to 1989 and as Area Vice President of Caremark, Inc.
from 1985 to 1988.

Joel R. Kimbrough has served as Senior Vice President and Chief Financial
Officer and Treasurer of Accredo since it was acquired from Le Bonheur in 1996.
He has also served as Chief Financial Officer and as a director of Nova Factor
since its inception in 1990, as Chief Financial Officer of Southern Health
Systems since 1989, and as a director of Southern Health Systems since 1996.
Previously, Mr. Kimbrough, a certified public accountant, was employed by Ernst
& Young LLP from 1980 to 1989.

Kyle J. Callahan has served as Senior Vice President and a director of
Accredo since Accredo's wholly owned subsidiary, Hemophilia Health Services,
Inc., was acquired by Accredo in June 1997. Mr. Callahan has served as President
of Hemophilia Health Services since June 1997. From Hemophilia Health Service's
inception in 1990 until June 1997, Mr. Callahan served in several management and
executive positions with Hemophilia Health Services, including Vice President of
Operations.

50
<PAGE> 52

Thomas W. Bell, Jr. joined Accredo as Senior Vice President and General
Counsel in July 1998 and was elected Secretary of Accredo in October 1998. Prior
to joining Accredo, Mr. Bell practiced law from 1976 to 1998 as a member of the
firm of Armstrong Allen Prewitt Gentry Johnston & Holmes, PLLC in Memphis,
Tennessee, where Mr. Bell represented Nova Factor and Southern Health Systems
since their inceptions in 1990 and 1983, respectively.

Kenneth R. Masterson has been a director of Accredo since April 1998. Mr.
Masterson joined Federal Express Corporation in 1980 and in 1996 he became
Executive Vice President, General Counsel and Secretary of Federal Express
Corporation. In 1998, Mr. Masterson assumed the same duties for FedEx
Corporation, a transportation holding company and the parent company of Federal
Express. Mr. Masterson is also a director of Thomas & Betts Corporation.

Kenneth J. Melkus has been a director of Accredo since October 1997. Mr.
Melkus currently serves as a consultant to Welsh, Carson, Anderson & Stowe. From
its founding in 1993 to its sale in 1996, Mr. Melkus served as Chairman of the
Board and Chief Executive Officer of HealthWise of America, Inc., an operator of
health maintenance organizations. From 1986 until 1993, Mr. Melkus served as
Vice Chairman and President of Surgical Care Affiliates, Inc., an operator of
outpatient surgery centers. Mr. Melkus is also a director of Quorum Health
Group, Inc. and several privately-held companies.

Andrew M. Paul has been a director of Accredo since 1996. Mr. Paul joined
Welsh, Carson, Anderson & Stowe in 1984 and is a general partner of the sole
general partner of Welsh, Carson, Anderson & Stowe VII, L.P. Mr. Paul also is a
director of Centennial HealthCare Corporation, Concentra Managed Care, Inc., and
several privately-held companies.

Kevin L. Roberg has been a director of Accredo since November 1999. From
1995 to 1998, Mr. Roberg served as the Chief Executive Officer and President of
ValueRX and Medintell Systems Corporation, which was acquired by ValueRX. Mr.
Roberg has held numerous positions with healthcare companies since 1974,
including positions with United Healthcare Corporation, Partners National Health
Plans, American MedCenters, Inc. and MedCenters Health Care, Inc. Mr. Roberg
serves as a director of Duane Reade Drug Stores.

Patrick J. Welsh has been a director of Accredo since June 1997. Mr. Welsh
was a founder of Welsh, Carson, Anderson & Stowe in 1979 and is a general
partner of the sole general partner of Welsh, Carson, Anderson & Stowe VII, L.P.
Prior to 1979, Mr. Welsh was President and a director of Citicorp Venture
Capital, Ltd., an affiliate of Citicorp engaged in venture capital investing.
Mr. Welsh also serves as a director of several privately-held companies.

BOARD OF DIRECTORS

Our Board of Directors is divided into the following three classes, with
the members of the respective classes serving for staggered three year terms:

- Class I directors, whose terms expire at the annual meeting of
stockholders to be held in 2002;

- Class II directors, whose terms expire at the annual meeting of
stockholders to be held in 2000; and

- Class III directors, whose terms expire at the annual meeting of
stockholders to be held in 2001.

Messrs. Melkus, Roberg and Stevens are our Class I directors, Messrs. Paul
and Callahan are our Class II directors, and Messrs. Welsh, Grow and Masterson
are our Class III directors. At each annual meeting of stockholders, our
stockholders will elect the successors to directors whose terms have expired to
serve from the time of election and qualification until the third annual meeting
following election. The classification of the Board of Directors may delay or
prevent a change in

51
<PAGE> 53

control or in the management of Accredo. See "Description of Capital
Stock -- Special Provisions of the Certificate of Incorporation, Bylaws and
Delaware Law."

Our executive officers are appointed by the Board of Directors and serve
until their successors have been duly elected and qualified. There are no family
relationships among any of our executive officers or directors.

COMMITTEES OF THE BOARD OF DIRECTORS

The Compensation Committee currently consists of Messrs. Melkus and Paul.
The Compensation Committee is responsible for the approval of compensation
arrangements for our executive officers. The Compensation Committee also
administers our stock option and employee stock purchase plans.

The Audit Committee currently consists of Messrs. Masterson, Melkus and
Roberg. The audit committee reviews the scope and results of audits and other
services performed by our independent public accountants and reviews the
adequacy of our internal controls.

COMPENSATION OF DIRECTORS

Employees of Accredo who are members of our Board of Directors do not
receive any compensation for serving on our Board. Messrs. Welsh, Paul, Melkus,
Masterson and Roberg are members of our Board who are not our employees. In
exchange for their service on our Board for the 12 month period beginning
November 1, 1999, they each received options to purchase 15,000 shares of common
stock at $19.33 per share, which was the closing price of our common stock on
the Nasdaq National Market on the date of the option grant. All of these options
are fully-vested and immediately exercisable. Our directors do not receive a fee
for attending meetings. All of our directors, including our employees, are
reimbursed for out of pocket expenses that they incur to attend Board or
committee meetings.

52
<PAGE> 54

PRINCIPAL STOCKHOLDERS AND BENEFICIAL OWNERSHIP OF MANAGEMENT

Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless otherwise indicated below, to our knowledge, the
persons and entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned. Except as indicated,
ownership is as of June 30, 2000. The percentage of shares beneficially owned
are based on 14,106,968 shares of common stock outstanding as of June 30, 2000.
Shares of common stock subject to options that are currently exercisable or
exercisable within sixty days of June 30, 2000 are deemed to be outstanding and
to be beneficially owned by the person holding the options for the purpose of
computing the percentage ownership of that person but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person. The number of shares of common stock outstanding after this offering
includes shares of common stock being offered and does not include the shares
that are subject to the underwriters' over-allotment option. Unless otherwise
indicated, the address for each listed stockholder is the same as Accredo.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
---------------------
NUMBER OF SHARES BEFORE AFTER
NAME BENEFICIALLY OWNED OFFERING OFFERING
---- ------------------ -------- --------
<S> <C> <C> <C>
Janus Capital Corporation(1)......................... 895,257 6.3% 5.6%
HLM Management Co., Inc.(2).......................... 820,800 5.8 5.1
Berger LLC(3)........................................ 775,715 5.5 4.8
Deutsche Asset Management Americas(4)................ 715,700 5.1 4.4
John McStay Investment Counsel, LLC(5)............... 708,750 5.0 4.4
David D. Stevens(6).................................. 357,321 2.5 2.2
John R. Grow(7)...................................... 125,905 * *
Joel R. Kimbrough(8)................................. 140,116 1.0 *
Kyle J. Callahan(9).................................. 83,929 * *
Thomas W. Bell, Jr.(10).............................. 23,830 * *
Kenneth R. Masterson(11)............................. 55,500 * *
Kenneth J. Melkus(12)................................ 30,000 * *
Patrick J. Welsh(13)(14)............................. 151,578 1.1 *
Andrew M. Paul(13)(15)............................... 47,684 * *
Kevin L. Roberg(16).................................. 18,750 * *
All directors and executive officers
as a group (10 persons)(17)........................ 1,034,613 7.0 6.2
</TABLE>

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

* Less than one percent.

(1) The address of Janus Capital Corporation is 100 Fillmore Street, Denver,
Colorado 80206-4923. This information is derived from a 13F filing made by
such holder as to shares as to which it exercises shared investment
discretion as of March 31, 2000. We make no representation as to the
accuracy and completeness of this information regarding Janus.

(2) The address of HLM Management Co., Inc. is 222 Berkeley St., Boston,
Massachusetts 02116. This information is derived from a 13F filing made by
such holder as to shares as to which it exercises investment discretion as
of March 31, 2000. We make no representation as to the accuracy and
completeness of this information regarding HLM Management.

(3) The address of Berger LLC is 210 University Boulevard, Suite 900, Denver,
Colorado 80206. This information is derived from a 13F filing made by such
holder as to shares as to which it exercises shared investment discretion
as of March 31, 2000. We make no representation as to the accuracy and
completeness of this information regarding Berger.

53
<PAGE> 55

(4) The address of Deutsche Asset Management Americas is 130 Liberty Street,
35th Floor, New York, New York 10006. This information is derived from a
13F filing made on behalf of such holder as to shares as to which it
exercises shared investment discretion as of March 31, 2000. We make no
representation as to the accuracy and completeness of this information
regarding Deutsche Asset Management.

(5) The address of John McStay Investment Counsel, LLC is 5949 Sherry Lane,
Suite 1600, Dallas, Texas 75225. This information is derived from a 13F
filing made on behalf of such holder as to shares as to which it exercises
shared investment discretion as of March 31, 2000. We make no
representation as to the accuracy and completeness of this information
regarding John McStay Investment.

(6) Includes options to purchase 225,071 shares granted under our stock option
plan.

(7) Includes options to purchase 78,010 shares granted under our stock option
plan.

(8) Includes options to purchase 120,535 shares granted under our stock option
plan.

(9) Includes options to purchase 35,625 shares granted under our stock option
plan.

(10) Includes options to purchase 13,125 shares granted under our stock option
plan.

(11) Includes options to purchase 30,000 shares granted under our stock option
plan. The address for Mr. Masterson is c/o FedEx Corporation, 942 S. Shady
Grove Road, Memphis, Tennessee 38120.

(12) Includes options to purchase 15,000 shares granted under our stock option
plan. The address for Mr. Melkus is 102 Woodmont Blvd., Suite 110,
Nashville, Tennessee 37205.

(13) The address of the named person is 320 Park Avenue, Suite 2500, New York,
New York 10022.

(14) Includes options to purchase 30,000 shares granted under our stock option
plan.

(15) Includes options to purchase 30,000 shares granted under our stock option
plan.

(16) Includes options to purchase 15,000 shares granted under our stock option
plan. The address for Mr. Roberg is 1695 Hunter Drive, Medina, Minnesota
55391.

(17) Includes options to purchase an aggregate of 592,366 shares granted under
our stock option plan.

54
<PAGE> 56

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 30,000,000 shares of common stock,
$0.01 par value per share, 2,500,000 shares of non-voting common stock, $0.01
par value per share, and 5,000,000 shares of preferred stock, $1.00 par value
per share.

As of June 30, 2000, there were 14,106,968 shares of common stock
outstanding and held of record by approximately 47 stockholders. Based upon the
number of shares of common stock outstanding as of that date and giving effect
to the issuance of the shares of common stock that we are offering hereby,
assuming no exercise of the underwriters' over-allotment option, there will be
16,106,968 shares of common stock outstanding upon the closing of this offering.
There are no shares of non-voting common stock or preferred stock currently
outstanding.

COMMON STOCK

Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to share ratably in
dividends, if any, as may be declared from time to time by the Board of
Directors in its discretion out of funds legally available therefor. Upon our
liquidation, dissolution or winding up, holders of common stock are entitled to
share ratably in the net assets of our company available for distribution after
the payment of all debts and other liabilities. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The rights,
preferences and privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock that we may designate and issue in the future. There are
presently no shares of preferred stock outstanding.

NON-VOTING COMMON STOCK

Holders of non-voting common stock are not entitled to vote such shares on
any matter submitted to a vote of stockholders. Holders of non-voting common
stock are entitled to receive dividends out of assets legally available therefor
at such time and in such amounts as the Board of Directors may from time to time
determine. Holders of non-voting common stock may convert their shares of
non-voting common stock into common stock at any time. Holders of Non-Voting
Common Stock have no preemptive or subscription rights. Upon our liquidation,
dissolution or winding up, holders of non-voting common stock are entitled to
receive pro rata the net assets of our company available for distribution after
payment of all debts and other liabilities on a pro rata basis with the holders
of common stock. The rights, preferences and privileges of holders of non-
voting common stock are subject to, and may be adversely affected by, the rights
of the holders of shares of any series of preferred stock that we may designate
and issue in the future. There are presently no shares of preferred stock
outstanding.

PREFERRED STOCK

Our Board of Directors is authorized, subject to conditions specified in
our amended and restated certificate of incorporation and other applicable law,
without further stockholder approval, from time to time to issue up to an
aggregate of 5,000,000 shares of preferred stock in one or more class or series
and to determine the dividend rights, dividend rate, conversion rights, voting
rights, redemption rights and terms, liquidation preferences, sinking fund
provisions, number of shares constituting any class or series, and designations
of such class or series. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a change of control in Accredo. We have no
present intention to issue any shares of preferred stock.

55
<PAGE> 57

SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW

Some provisions of our amended and restated certificate of incorporation
and our amended and restated bylaws, as well as Delaware Law, may be deemed to
have an anti-takeover effect or may delay, defer or prevent a tender offer or
takeover attempt that a stockholder might consider in such stockholder's best
interest, including those attempts that might result in a premium over the
market price for the shares held by such stockholder.

Delaware Anti-Takeover Law. We are subject to the provisions of Section
203 of the Delaware General Corporation Law. Subject to some exceptions, Section
203 prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a definitive period of time.
That period is three years from the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
such status with the approval of the Board of Directors or unless the business
combination is approved in a prescribed manner. A "business combination"
includes certain mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to some exceptions, an
"interested stockholder" is a person who, together with his, her or its
affiliates and associates, owns, or owned within three years prior, 15% or more
of the corporation's voting stock.

Classified Board of Directors. Our certificate of incorporation provides
for the division of the Board of Directors into three classes of directors, as
nearly equal in size as possible, with each class beginning its three-year term
in different years. See "Management -- Board of Directors." A director may be
removed from office prior to the expiration of his or her term only "for cause,"
so any person acquiring control of our company would need three annual meetings
to replace all of the members of our Board.

Number of Directors; Removal; Filling Vacancies. Our certificate of
incorporation and bylaws provide that the number of directors will be fixed from
time to time with the consent of two-thirds of the Board. Moreover, our
certificate of incorporation provides that directors may only be removed "for
cause" by the affirmative vote of the holders of at least a majority of the
outstanding shares of our capital stock then entitled to vote at an election of
directors. This provision prevents stockholders from removing any incumbent
director without cause and allows two-thirds of the incumbent directors to add
additional directors without the approval of stockholders until the next annual
meeting of stockholders at which directors of that class are elected.

Advance Notice of Nominations and Stockholder Proposals. Our bylaws
contain a provision requiring at least 60, but no more than 90 days advance
notice by a stockholder of a proposal or director nomination that such
stockholder desires to present at any annual or special meeting of stockholders.
This provision would prevent a stockholder from making a proposal or a director
nomination at a stockholder meeting without us having advance notice of the
proposal or director nomination. This provision could make a change in control
more difficult by providing our Board of Directors with more time to prepare an
opposition to a proposed change in control.

Vote Requirement for Calling Special Meeting. Our bylaws also contain a
provision requiring the vote of the holders of two-thirds of the outstanding
common stock in order to call a special meeting of stockholders. This provision
would prevent a stockholder with less than a two-thirds interest from calling a
special meeting to consider a merger unless such stockholder had first garnered
adequate support from a sufficient number of other stockholders.

LIMITATION OF LIABILITY AND INDEMNIFICATION

Limitations of Liability and Indemnification. Section 102(b)(7) of the
Delaware General Corporation Law authorizes corporations to limit or to
eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breach of directors' fiduciary duty of
care. Although Section 102(b) does not change directors' duty of care, it
enables corporations to limit available relief to equitable remedies such as
injunction or rescission. Our certificate of

56
<PAGE> 58

incorporation limits the liability of our directors to us or to our stockholders
to the full extent permitted by such Section 102(b). Specifically, our directors
are not to be personally liable for monetary damages for breach of a director's
fiduciary duty as a director, except for liability:

- for any breach of the director's duty of loyalty;

- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;

- for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or

- for any transaction from which the director derived an improper personal
benefit.

Indemnification. To the maximum extent permitted by law, our certificate
of incorporation provides for mandatory indemnification of our directors and
officers against any expense, liability or loss to which they may become
subject, or which they may incur, as a result of being or having been a director
or officer of our company. In addition, we must advance or reimburse our
directors and officers for expenses incurred by them in connection with
indemnifiable claims.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.

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<PAGE> 59

SHARES ELIGIBLE FOR FUTURE SALE

As of June 30, 2000, we had outstanding 14,106,968 shares of common stock
assuming no exercise of outstanding options under our stock option and employee
stock purchase plans. We are offering 2,000,000 shares (2,300,000 shares, if the
underwriters' over-allotment option is exercised in full) of common stock by
this prospectus. Of these shares, all of the 2,000,000 shares sold in this
offering (2,300,000 shares, if the underwriters' over-allotment option is
exercised in full) and the 5,175,000 issued in our initial public offering will
be freely transferable without restriction or further registration under the
Securities Act, except for any shares held by an existing "affiliate" of ours,
as such term is defined in Rule 144 under the Securities Act. 8,440,631 shares
of the remaining 8,931,968 shares outstanding were issued as "restricted
securities" as that term is defined in Rule 144 and which may be sold in the
market as described below under "Rule 144" and "Sales of Restricted Shares."

In addition, as of June 30, 2000, 2,396,250 shares of our common stock have
been registered under the Securities Act. These shares have been reserved for
stock awards under our stock option and employee stock purchase plans and for
issuance upon the exercise of outstanding awards. As of June 30, 2000, options
to purchase 1,187,287 of these registered shares have been granted and not yet
exercised. These shares are freely transferable upon exercise, except to the
extent that holders are deemed to be "affiliates" of ours, in which case the
transferability of such shares will be subject to Rule 144.

Subject to some exceptions, our directors and executive officers, some
holders of outstanding shares of common stock and optionees holding options to
purchase a total of 851,386 shares of common stock have agreed under written
"lock-up" agreements not to sell any shares of common stock for 90 days after
the date of this prospectus without the prior written consent of Chase
Securities Inc. See "Underwriting."

RULE 144

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who owns shares that were purchased from us or any
affiliate at least one year previously, including a person who may be deemed to
be an affiliate of ours, is entitled to sell within any three-month period a
number of shares that does not exceed the greater of

- 1% of the then outstanding shares of common stock, which will equal
approximately 161,070 shares immediately after the completion of this
offering; or

- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange
Commission.

Sales under Rule 144 must be made with the required notice and the
availability of current public information about us.

Any person or persons whose shares are aggregated, who is not deemed to
have been an affiliate of ours at any time during the 90 days preceding a sale,
and who owns shares within the definition of "restricted securities" under Rule
144 under the Securities Act that were purchased from us or any affiliate at
least two years previously, would be entitled to sell such shares under Rule
144(k) without regard to the volume limitations, manner of sale provisions,
public information requirements, or notice requirements.

SALES OF RESTRICTED SHARES

We believe that almost all of the 8,440,631 shares that were issued as
restricted common stock are eligible for resale without restriction under Rule
144(k), of which 442,247 shares are subject to lock-up agreements.

58
<PAGE> 60

We have agreed not to offer, sell or otherwise dispose of any shares of
common stock or any securities convertible into or exercisable or exchangeable
for common stock or any rights to acquire common stock for a period of 90 days
after the date of this prospectus, without the prior written consent of the
representative of the underwriters, subject to some limited exceptions. See
"Underwriting."

Sales of substantial amounts of shares of common stock in the public
market, or the perception that such sales might occur, could adversely affect
the market price of the common stock and could impair our future ability to
raise capital through an offering of our equity securities.

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<PAGE> 61

UNDERWRITING

We have entered into an underwriting agreement with Chase Securities Inc.,
SunTrust Equitable Securities Corporation, Banc of America Securities LLC and
First Union Securities, Inc. Chase Securities Inc. is acting as the lead
underwriter. Subject to the terms and conditions of the underwriting agreement,
the underwriters have severally agreed to purchase from us all of the shares of
common stock offered by this prospectus. This means that each underwriter is
required to purchase a specified number of shares, but is not responsible for
the commitment of any other underwriter to purchase shares. The number of shares
of common stock that each underwriter has agreed to purchase is listed opposite
its name below:

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Chase Securities Inc. ......................................
SunTrust Equitable Securities Corporation...................
Banc of America Securities LLC..............................
First Union Securities, Inc. ...............................
---------
Total............................................. 2,000,000
=========
</TABLE>

This is a firm commitment underwriting. This means that the underwriters
have agreed to purchase all of the shares offered by this prospectus, other than
those covered by the over-allotment option described below, if any are
purchased. Under the underwriting agreement, if an underwriting defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances.

The underwriters propose to offer the shares of common stock directly to
the public at the public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
public offering of the shares, the offering price and other selling terms may be
changed by the underwriters.

We have granted to the underwriters an over-allotment option. If exercised
within 30 days after the date of this prospectus, the option permits the
underwriters to purchase up to 300,000 additional shares of common stock offered
in this prospectus at the public offering price set forth on the cover page of
this prospectus less the underwriting discount. The underwriters may exercise
the option in whole or in part and we will be obligated, pursuant to the option,
to sell shares to the underwriters to the extent the option is exercised.

The following table summarizes the compensation that we will pay to the
underwriters in connection with this offering. Such amount is shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares.

<TABLE>
<CAPTION>
TOTAL
--------------------------------
PER NO FULL
SHARE EXERCISE EXERCISE
------ --------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions................
</TABLE>

We estimate that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $750,000.

The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

60
<PAGE> 62

We have agreed to indemnify the underwriters against all liabilities,
including liabilities to which they may become subject under the federal
securities laws or other law. This includes contribution to any payments the
underwriters may make with regard to those liabilities to the extent not covered
by indemnification.

Each of our executive officers and directors and certain of our significant
stockholders have agreed that they will not, without the prior written consent
of the underwriters, offer, sell, contract to sell, or otherwise dispose of any
shares of common stock, options or warrants to acquire shares of common stock or
securities exchangeable for or convertible into shares of common stock during
the 90-day period following the effective date of the registration statement. We
have agreed that we will not, without prior written consent of the underwriters,
offer, sell, contract to sell, or otherwise dispose of any shares of common
stock or securities exchangeable for or convertible into shares of common stock
during the 90-day period following the effective date of the registration
statement, except that we may (1) issue shares of common stock or grant options
under our employee benefit plans, qualified stock plans or other employee
compensation plans existing as of the date of this prospectus, and (2) issue
shares of common stock upon the exercise of options, warrants or other rights
granted prior to the date of this prospectus.

Rules of the SEC may limit the ability of the underwriters to bid for or
purchase shares before the distribution of the shares is completed. However, the
underwriters may engage in the following activities in accordance with the
rules:

- Stabilizing transactions. The underwriters may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the
shares, so long as stabilizing bids do not exceed a specified maximum.

- Over-allotments and syndicate covering transactions. The underwriters
may create a short position in the shares of common stock by selling more
shares than are shown on the cover page of this prospectus. If a short
position is created in connection with the offering, the underwriters may
engage in syndicate covering transactions by purchasing shares in the
open market. The underwriters may also elect to reduce any short position
by exercising all or part of the over-allotment option.

Stabilization and syndicate covering transactions may cause the price of
the shares to be higher than it would be in the absence of these transactions.
These transactions may be effected on the Nasdaq National Market, in the
over-the-counter market, or otherwise. If commenced, these stabilizing
transactions may be discontinued at any time.

The underwriters and any selling group member who is a qualified market
maker on the Nasdaq National Market may engage in passive market making
transactions in our common stock on the Nasdaq National Market in accordance
with Rule 103 of Regulation M under the Securities Exchange Act of 1934, as
amended. During the business day prior to the pricing of the offering before the
commencement of offers or sales of our common stock, passive market makers must
comply with applicable volume and price limitations and must be identified
passive market makers. In general, a passive market maker must display its bid
at a price not in excess of the highest independent bid for our common stock,
and if all independent bids are lowered, the passive market maker's bid must
also then be lowered when certain purchase limits are exceeded.

Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant providence of Canada in which
such sale is made.

Bank of America Corporation, an affiliate of Banc of America Securities
LLC, one of the underwriters, is a lender under our revolving line of credit,
and will receive more than 10% of the proceeds of this offering when the
revolving line of credit is repaid. Accordingly, this offering is being
conducted in compliance with Rule 2710(c)(8) of the Rules of Conduct of the
National Association of Securities Dealers, Inc., which seeks to ensure fairness
in pricing terms.

61
<PAGE> 63

LEGAL MATTERS

Alston & Bird LLP, Atlanta, Georgia will pass upon the validity of the
common stock offered in this offering on behalf of Accredo. McDermott, Will &
Emery will pass upon certain legal matters in connection with this offering on
behalf of the underwriters.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at June 30, 1998 and 1999, and for each of the
three years in the period ended June 30, 1999, the respective statements of
income, partners' equity and cash flows and schedule of Texas Health
Pharmaceutical Resources and of Children's Memorial Home Hemophilia Services for
the year ended June 30, 1997, and the financial statements of Sunrise Health
Management, Inc. as of June 30, 1999 and for the year then ended, as set forth
in their reports. We have included these financial statements in the Prospectus
and Registration Statement in reliance on Ernst & Young LLP's reports, given on
their authority as experts in accounting and auditing.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means:

- incorporated documents are considered part of the prospectus;

- we can disclose important information to you by referring you to those
documents; and

- information that we file later with the SEC will automatically update and
supercede this information.

We incorporate by reference the documents listed below which we filed with
the SEC under the Securities Exchange Act of 1934:

- Annual Report on Form 10-K for the fiscal year ended June 30, 1999;

- Quarterly Report on Form 10-Q for the quarterly period ended September
30, 1999;

- Quarterly Report on Form 10-Q for the quarterly period ended December 31,
1999;

- Form 8-K filed on December 16, 1999;

- Form 8-K/A filed on February 11, 2000; and

- Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2000.

You may request a copy of these filings, at no cost, by writing or
telephoning our Corporate Secretary at the following address: Accredo Health,
Incorporated, 1640 Century Center Parkway, Suite 101, Memphis, Tennessee 38134,
Attention: Corporate Secretary (901) 385-3688.

We also incorporate by reference all future documents filed with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
on or after the date of the filing of this registration statement and prior to
its effectiveness or after the date of this prospectus but before all the common
stock offered by this prospectus has been sold.

Any statement contained in this prospectus or in a document incorporated by
reference are modified or superseded for purposes of this prospectus to the
extent that a statement contained in any such document modifies or supersedes
such statement. Any such statement so modified or superseded shall be deemed, as
so modified or superseded, to constitute a part of this prospectus.

62
<PAGE> 64

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly, and current reports, proxy statements, and other
documents with the Commission. You may read and copy any document we file at the
following locations of the Commission:

<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
</TABLE>

You may call 1-800-SEC-0330 for more information on the Commission's public
reference facilities. You may also obtain copies of this information by mail
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, at prescribed rates. The Commission also
maintains an Internet site at www.sec.gov that contains reports, proxy
statements and other information about issuers, like us, who file electronically
with the Commission. In addition, you can inspect reports, proxy statements and
other information about us at the offices of The Nasdaq Stock Market, Inc.,
Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.

This prospectus is part of a registration statement that we filed with the
Commission. The registration statement contains more information than this
prospectus regarding Accredo Health and our common stock, including exhibits.
You can get a copy of the registration statement from the Commission at the
addresses listed above or from its Internet site.

63
<PAGE> 65

INDEX OF FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ACCREDO HEALTH, INCORPORATED
Report of Independent Auditors............................ F-3
Consolidated Balance Sheets at June 30, 1998 and 1999..... F-4
Consolidated Statements of Operations for the years ended
June 30, 1997, 1998 and 1999........................... F-5
Consolidated Statements of Stockholders' Equity and
Mandatorily Redeemable Preferred Stock for the years
ended June 30, 1997, 1998 and 1999..................... F-6
Consolidated Statements of Cash Flows for the years ended
June 30, 1997, 1998 and 1999........................... F-7
Notes to Consolidated Financial Statements................ F-8
Condensed Consolidated Balance Sheet at March 31, 2000
(unaudited)............................................ F-21
Condensed Consolidated Statements of Operations for the
nine months ended March 31, 1999 and 2000
(unaudited)............................................ F-22
Condensed Consolidated Statement of Stockholders' Equity
for the nine months ended March 31, 2000 (unaudited)... F-23
Condensed Consolidated Statements of Cash Flows for the
nine months ended March 31, 1999 and 2000
(unaudited)............................................ F-24
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................ F-25
Pro Forma Condensed Consolidated Financial Statements
(unaudited)............................................ F-30
Pro Forma Condensed Consolidated Statement of Income for
the year ended June 30, 1999 (unaudited)............... F-31
Pro Forma Condensed Consolidated Statement of Income for
the nine months ended March 31, 2000 (unaudited)....... F-32
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements................................... F-33

SUNRISE HEALTH MANAGEMENT, INC.
Report of Independent Auditors............................ F-34
Balance Sheet at June 30, 1999............................ F-35
Statement of Income for the year ended June 30, 1999...... F-36
Statement of Stockholders' Equity for the year ended June
30, 1999............................................... F-37
Statement of Cash Flows for the year ended June 30,
1999................................................... F-38
Notes to Financial Statements............................. F-39
Condensed Balance Sheet at September 30, 1999
(unaudited)............................................ F-42
Condensed Statements of Income for the three months ended
September 30, 1999 and 1998 (unaudited)................ F-43
Condensed Statements of Cash Flows for the three months
ended September 30, 1999 and 1998 (unaudited).......... F-44
Notes to Condensed Interim Financial Statements........... F-45

TEXAS HEALTH PHARMACEUTICAL RESOURCES
Report of Independent Auditors............................ F-46
Balance Sheets as of June 30, 1998 (unaudited) and 1999
(unaudited)............................................ F-47
Statements of Income for the years ended June 30, 1997,
1998 (unaudited) and 1999 (unaudited).................. F-48
</TABLE>

F-1
<PAGE> 66

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Statements of Partners' Equity for the years ended June
30, 1997, 1998 (unaudited) and 1999 (unaudited)........ F-49
Statements of Cash Flows for the years ended June 30,
1997, 1998 (unaudited) and 1999 (unaudited)............ F-50
Notes to Financial Statements............................. F-51

CHILDREN'S MEMORIAL HOME HEMOPHILIA SERVICES
Report of Independent Auditors............................ F-54
Balance Sheets as of June 30, 1998 (unaudited) and 1999
(unaudited)............................................ F-55
Statements of Income for the years ended June 30, 1997,
1998 (unaudited) and 1999 (unaudited).................. F-56
Statements of Partners' Equity for the years ended June
30, 1997, 1998 (unaudited) and 1999 (unaudited)........ F-57
Statements of Cash Flows for the years ended June 30,
1997, 1998 (unaudited) and 1999 (unaudited)............ F-58
Notes to Financial Statements............................. F-59
</TABLE>

F-2
<PAGE> 67

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Accredo Health, Incorporated

We have audited the accompanying consolidated balance sheets of Accredo
Health, Incorporated (the "Company") as of June 30, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity and
mandatorily redeemable cumulative preferred stock, and cash flows for each of
the three years in the period ended June 30, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Accredo
Health, Incorporated at June 30, 1998 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1999, in conformity with accounting principles generally accepted in
the United States.

/s/Ernst & Young LLP

Memphis, Tennessee
August 9, 1999,
except for Note 17 as to
which the date is February 21, 2000

F-3
<PAGE> 68

ACCREDO HEALTH, INCORPORATED

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

<TABLE>
<CAPTION>
JUNE 30
-------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,087 $ 5,542
Receivables:
Patient accounts........................................ 40,062 60,116
Allowance for doubtful accounts......................... (3,430) (5,300)
-------- --------
36,632 54,816
Due from affiliates..................................... 321 2,105
Other................................................... 2,922 5,856
-------- --------
39,875 62,777
Recoverable income taxes.................................. 151 --
Inventories............................................... 12,131 19,927
Prepaids and other current assets......................... 310 359
Deferred income taxes..................................... 324 1,554
-------- --------
Total current assets............................... 57,878 90,159
Property and equipment, net................................. 2,128 3,025
Other assets:
Joint venture investments................................. 628 3,415
Goodwill, net............................................. 49,647 48,353
Other intangible assets, net.............................. 3,768 1,794
-------- --------
Total assets....................................... $114,049 $146,746
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 31,305 $ 56,029
Accrued expenses.......................................... 3,197 4,831
Income taxes payable...................................... -- 393
-------- --------
Total current liabilities.......................... 34,502 61,253
Long-term notes payable..................................... 27,498 20,500
Senior subordinated notes payable........................... 8,920 --
Deferred income taxes....................................... 536 866
Mandatorily redeemable cumulative preferred stock, at
redemption amount, 300,000 shares authorized, 255,361
shares issued and outstanding in 1998; no shares issued
and outstanding in 1999................................... 29,792 --
Stockholders' equity:
Undesignated preferred stock, 5,000,000 shares authorized,
no shares issued........................................ -- --
Non-voting common stock, $.01 par value; 2,500,000 shares
authorized; no shares issued and outstanding in 1998;
1,650,000 shares issued and outstanding in 1999......... -- 16
Common stock, $.01 par value; 30,000,000 shares
authorized; 8,385,881 shares in 1998 and 11,965,631
shares in 1999 issued and outstanding................... 84 120
Common stock subscribed -- 51,000 shares in 1998 and none
in 1999................................................. 204 --
Additional paid-in capital................................ 14,011 63,322
Retained earnings (deficit)............................... (1,294) 669
-------- --------
13,005 64,127
Subscription receivable..................................... (204) --
-------- --------
Total stockholders' equity......................... 12,801 64,127
-------- --------
Total liabilities and stockholders' equity......... $114,049 $146,746
======== ========
</TABLE>

See accompanying notes.
F-4
<PAGE> 69

ACCREDO HEALTH, INCORPORATED

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

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
--------------------------------------------
(NOTE 15)
PRO FORMA
(UNAUDITED)
1997 1998 1999 1999
-------- -------- -------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net patient service revenue...................... $106,143 $170,002 $244,158 $244,158
Other revenue.................................... 8,049 9,806 12,277 12,277
Equity in net income of joint ventures........... 1,017 1,150 1,919 1,919
-------- -------- -------- --------
Total revenues........................... 115,209 180,958 258,354 258,354
Operating expenses:
Cost of services................................. 101,080 154,046 220,517 220,517
General and administrative....................... 5,939 12,489 17,637 17,637
Bad debts........................................ 2,977 3,165 4,739 4,739
Depreciation..................................... 231 430 614 614
Amortization..................................... 4,646 3,431 3,297 3,297
-------- -------- -------- --------
Total operating expenses................. 114,873 173,561 246,804 246,804
-------- -------- -------- --------
Operating income................................... 336 7,397 11,550 11,550
Other expense (income):
Interest expense................................. 1,084 3,721 3,346 1,888
Interest income.................................. (100) (169) (181) (181)
-------- -------- -------- --------
984 3,552 3,165 1,707
-------- -------- -------- --------
Income (loss) before income taxes and extraordinary
item............................................. (648) 3,845 8,385 9,843
Income tax expense................................. 1,502 2,420 4,003 4,547
-------- -------- -------- --------
Income (loss) before extraordinary item............ (2,150) 1,425 4,382 5,296
Extraordinary charge for early extinguishment of
debt, net of income tax benefit.................. -- -- (1,254) --
-------- -------- -------- --------
Net income (loss).................................. (2,150) 1,425 3,128 5,296
Mandatorily redeemable cumulative preferred stock
dividends........................................ (2,043) (2,043) (1,617) --
-------- -------- -------- --------
Net income (loss) to common stockholders........... $ (4,193) $ (618) $ 1,511 $ 5,296
======== ======== ======== ========
Basic earnings per common share:
Income (loss) before extraordinary item.......... $ (0.28) $ 0.17 $ 0.46 $ 0.39
Extraordinary charge............................. -- -- (0.13) --
Preferred stock dividends........................ (0.26) (0.24) (0.17) --
-------- -------- -------- --------
Net income (loss) to common stockholders........... $ (0.54) $ (0.07) $ 0.16 $ 0.39
======== ======== ======== ========
Diluted earnings per common share:
Income (loss) before extraordinary item............ $ (0.28) $ 0.17 $ 0.42 $ 0.36
Extraordinary charge............................. -- -- (0.12) --
Preferred stock dividends........................ (0.26) (0.24) (0.16) --
-------- -------- -------- --------
Net income (loss) to common stockholders........... $ (0.54) $ (0.07) $ 0.14 $ 0.36
======== ======== ======== ========
</TABLE>

See accompanying notes.
F-5
<PAGE> 70

ACCREDO HEALTH, INCORPORATED

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

<TABLE>
<CAPTION>
MANDATORILY
REDEEMABLE
COMMON COMMON ADDITIONAL RETAINED TOTAL CUMULATIVE
STOCK COMMON STOCK SUBSCRIPTION PAID-IN EARNINGS STOCKHOLDERS' PREFERRED
SHARES STOCK SUBSCRIBED RECEIVABLE CAPITAL (DEFICIT) EQUITY STOCK
---------- ------ ---------- ------------ ---------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1996............... 7,660,880 $ 77 $ -- $ -- $15,075 $ (569) $14,583 $ 25,706
Issuance of common
stock.............. 600,000 6 -- -- 2,394 -- 2,400 --
Common stock
subscribed (125,001
shares)............ -- -- 500 -- -- -- 500 --
Subscription
receivable......... -- -- -- (500) -- -- (500) --
Accrued dividends on
mandatorily
redeemable
cumulative
preferred stock.... -- -- -- -- (2,043) -- (2,043) 2,043
Net loss............. -- -- -- -- -- (2,150) (2,150) --
---------- ---- ----- ----- ------- ------- ------- --------
Balance at June 30,
1997............... 8,260,880 83 500 (500) 15,426 (2,719) 12,790 27,749
Issuance of common
stock.............. 125,001 1 (500) 500 499 -- 500 --
Common stock
subscribed (51,000
shares)............ -- -- 204 -- -- -- 204 --
Subscription
receivable......... -- -- -- (204) -- -- (204) --
Accrued dividends on
mandatorily
redeemable
cumulative
preferred stock.... -- -- -- -- (2,043) -- (2,043) 2,043
Compensation
resulting from
stock transactions,
net of income tax
benefit............ -- -- -- -- 129 -- 129 --
Net income........... -- -- -- -- -- 1,425 1,425 --
---------- ---- ----- ----- ------- ------- ------- --------
Balance at June 30,
1998............... 8,385,881 84 204 (204) 14,011 (1,294) 12,801 29,792
Issuance of common
stock.............. 5,229,750 52 (204) 204 51,496 -- 51,548 --
Costs related to
public offering.... -- -- -- -- (1,849) -- (1,849) --
Accrued dividends on
mandatorily
redeemable
cumulative
preferred stock.... -- -- -- -- (452) (1,165) (1,617) 1,617
Redemption of
mandatorily
redeemable
cumulative
preferred stock.... -- -- -- -- -- -- -- (31,409)
Compensation
resulting from
stock transactions,
net of income tax
benefit............ -- -- -- -- 116 -- 116 --
Net income........... -- -- -- -- -- 3,128 3,128 --
---------- ---- ----- ----- ------- ------- ------- --------
Balance at June 30,
1999............... 13,615,631 $136 $ -- $ -- $63,322 $ 669 $64,127 $ --
========== ==== ===== ===== ======= ======= ======= ========
</TABLE>

See accompanying notes.
F-6
<PAGE> 71

ACCREDO HEALTH, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS
(000'S OMITTED)

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................... $ (2,150) $ 1,425 $ 3,128
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 4,877 3,861 3,911
Original issue discount amortization...................... 12 177 198
Interest added to long term obligations................... 85 1,046 -
Extraordinary charge for early retirement of debt......... - - 2,000
Provision for losses on accounts receivable............... 2,977 3,165 4,739
Deferred income taxes..................................... 111 1,466 (969)
Compensation resulting from stock transactions............ - 138 184
Changes in operating assets and liabilities, net of effect
from business acquisitions:
Patient receivables and other............................. (11,060) (10,522) (25,857)
Due from affiliates....................................... 479 93 (1,784)
Inventories............................................... (5,260) 3,885 (7,796)
Prepaids and other current assets......................... (216) 144 (49)
Recoverable income taxes.................................. - (151) 151
Accounts payable and accrued expenses..................... 9,378 (1,047) 25,891
Income taxes payable...................................... 261 (1,802) 393
-------- -------- --------
Net cash provided by (used in) operating
activities...................................... (506) 1,878 4,140
INVESTING ACTIVITIES:
Purchases of property and equipment......................... (349) (992) (1,511)
Business acquisition and joint venture investments.......... (29,721) - (1,298)
Change in joint venture investments, net.................... 378 25 (1,489)
-------- -------- --------
Net cash used in investing activities............. (29,692) (967) (4,298)
FINANCING ACTIVITIES:
Proceeds from (payment of) long-term obligations............ 27,898 - (18,116)
Redemption of preferred stock............................... -- -- (31,409)
Capitalized loan fees....................................... - - (27)
Issuance of common stock.................................... 2,400 500 51,547
Payment of costs related to public offering................. -- -- (1,382)
-------- -------- --------
Net cash provided by financing activities......... 30,298 500 613
-------- -------- --------
Increase in cash and cash equivalents....................... 100 1,411 455
Cash and cash equivalents at beginning of year.............. 3,576 3,676 5,087
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 3,676 $ 5,087 $ 5,542
======== ======== ========
SUPPLEMENTARY CASH FLOW DISCLOSURES:
Income taxes paid........................................... $ 859 $ 1,532 $ 3,731
======== ======== ========
Cash paid for interest...................................... $ 568 $ 1,826 $ 3,836
======== ======== ========
</TABLE>

See accompanying notes.
F-7
<PAGE> 72

ACCREDO HEALTH, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999

1. DESCRIPTION OF BUSINESS

The consolidated financial statements include the accounts and transactions
of Accredo Health, Incorporated (the Company) and its subsidiaries for the years
ended June 30, 1997, 1998 and 1999, and its subsidiary Horizon Health Systems,
Inc. (HHS) for the period from the date of its acquisition, June 1, 1997.
Significant intercompany accounts have been eliminated in consolidation.

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

The Company has designed its specialty services to focus primarily on
biotechnology drugs that: (i) are used on a recurring basis to treat chronic,
and potentially life threatening diseases; (ii) are expensive; (iii) are
administered through injection; and (iv) require temperature control or other
specialized handling as part of their distribution process. Currently, the
Company provides specialized contract pharmacy and related services that address
the needs of patients with the following diseases: Gaucher Disease, a hereditary
liver enzyme deficiency; hemophilia, a hereditary bleeding disorder; Multiple
Sclerosis, a debilitating disease of the central nervous system; growth hormone
related disorders; and Crohn's Disease, a chronic inflammatory disease affecting
the gastrointestinal tract. These diseases generally require life-long therapy,
except for the treatment of growth hormone-related disorders which typically
require treatment for six to ten years.

2. SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

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

CONCENTRATIONS OF CREDIT

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

<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Medicare.................................................... 3% 4%
Medicaid.................................................... 23% 19%
</TABLE>

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

F-8
<PAGE> 73
ACCREDO HEALTH, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Federal deposit insurance is limited to $100,000 per depositor. Management
has weighed the risks involved in entrusting a single depository bank with these
assets and has considered the bank's financial stability and FDIC risk rating.
Management believes that there is low risk associated with this practice.
Included in cash and cash equivalents at June 30, 1998 and 1999, are cash
balances at several institutions, which exceed the federal deposit insured
limit, of $4,786,000 and $5,241,000, respectively.

INVENTORIES

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of receivables, accounts payable and notes payable
approximates fair value of these financial instruments at June 30, 1998 and
1999.

PROPERTY AND EQUIPMENT

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

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of the cost of businesses acquired over fair
value of net tangible and identifiable intangible assets at the date of
acquisition. The Company recorded $22,388,000 in goodwill, $1,000,000 in
non-compete agreements, and $1,008,000 in acquired patient population on June 1,
1997, and $29,396,000 in goodwill, $1,118,000 in non-compete agreements,
$6,137,000 in value associated with agreements with drug manufacturers and
medical centers, $247,000 in acquired patient population, and $361,000 in other
intangible assets on May 31, 1996, in connection with business acquisitions.
These assets are being amortized using the straight-line method over their
estimated useful lives of 40 years for goodwill, 3 and 10 years for the
non-compete agreements, 3 months to 3 years for the value associated with
agreements with drug manufacturers and medical centers, 4 to 8 years for
acquired patient population, and 10 years for the other intangible assets.
Goodwill is net of accumulated amortization of $2,137,000 and $3,432,000 at June
30, 1998 and 1999, respectively. Other intangible assets are net of accumulated
amortization of $6,379,000 and $8,382,000 at June 30, 1998 and 1999,
respectively.

VALUATION OF LONG-LIVED ASSETS

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

STOCK-BASED COMPENSATION

The Company recognizes stock-based compensation using the intrinsic value
method as permitted by Financial Accounting Standards Board Statement (FASB) No.
123, Accounting for Stock-Based Compensation (Statement 123). Accordingly, no
compensation expense is recorded for
F-9
<PAGE> 74
ACCREDO HEALTH, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
stock-based awards issued at market value at the date such awards are granted.
However, the Company incurred $436,000 and $420,000 in compensation cost in 1998
and 1999, respectively, for stock transactions at less than fair market value.
The Company makes pro forma disclosures of net income as if the market-value
method was followed.

REVENUE RECOGNITION

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

Approximately 17%, 20% and 18% of gross patient service revenues for the
years ended June 30, 1997, 1998 and 1999, respectively, is from participation in
the Medicare and state-sponsored Medicaid programs.

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

INTEREST RATE SWAP AGREEMENTS

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

EARNINGS PER SHARE

In 1998, the Company adopted FASB Statement No. 128, Earnings Per Share.
All per share amounts have been calculated in accordance with the statement
using the weighted average number of shares outstanding during each period,
adjusted for the impact of common stock equivalents using the treasury stock
method when the effect is dilutive.

USE OF ESTIMATES

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

RISK MANAGEMENT

During 1999 the Company adopted a self-insured medical and dental plan for
employees. Claims are accrued under these plans as the incidents that give rise
to them occur. Unpaid claim accruals are based on the estimated ultimate cost of
settlement, including claim settlement expenses. The Company has entered into a
reinsurance agreement with an independent insurance company to limit its losses
on claims. Under the terms of this agreement, the insurance company will
reimburse the Company for individual claims generally in excess of $25,000 and
when total claims exceed an aggregate amount based on the number of covered
lives. These reimbursements are included in general and administrative expense
in the accompanying consolidated statements of operations.

F-10
<PAGE> 75
ACCREDO HEALTH, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENT

In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in years
beginning after June 15, 2000. Management of the Company does not anticipate
that the adoption of the new Statement will have a significant effect on results
of operations or the financial position of the Company.

3. BUSINESS ACQUISITION

On June 1, 1997, the Company acquired substantially all the assets of HHS,
a Company engaged in the sale and distribution of blood clotting factors and
ancillary supplies to hemophilia patients, through an acquisition accounted for
using the purchase method of accounting. The consideration paid by the Company
related to this acquisition was $29,996,000. Total assets acquired and
liabilities assumed were $9,019,000 and $3,152,000, respectively. The excess of
the purchase price of $24,396,000, including acquisition costs of $266,000, over
the fair market value of the net assets acquired was allocated to goodwill and
other identifiable intangible assets. The Company recorded $22,388,000 in
goodwill, $1,000,000 in non-compete agreements, and $1,008,000 in acquired
patient population. The operating results of HHS are included in the Company's
consolidated statements of operations beginning June 1, 1997.

Pro forma amounts for the year ended June 30, 1997, as if the acquisition
had occurred on July 1, 1996, are as follows (in thousands, except per share
data):

<TABLE>
<CAPTION>
1997
--------
<S> <C>
Pro forma total revenues.................................... $142,777
Pro forma net loss attributable to common stockholders...... $ (4,571)
Pro forma loss per share attributable to common
stockholders.............................................. $ (0.59)
</TABLE>

4. PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
1998 1999
------ -------
<S> <C> <C>
Equipment................................................... $1,305 $ 1,936
Furniture and fixtures...................................... 1,488 2,362
------ -------
2,793 4,298
Accumulated depreciation.................................... (665) (1,273)
------ -------
$2,128 $ 3,025
====== =======
</TABLE>

5. NOTES PAYABLE

At June 30, 1999, the Company has a revolving line of credit agreement for
up to $60 million with banks, which expires December 1, 2001. The Company's
borrowing base, as defined in the agreement, was approximately $39,843,000 and
$54,112,000 at June 30, 1998 and 1999, respectively. Amounts outstanding under
the line of credit bear interest at varying rates based upon a LIBOR or prime
rate of interest at the periodic election of the Company plus a variable margin
rate based on the Company's debt to cash flow ratio as defined by the banks (the
combination of a variable rate margin and LIBOR base rate resulted in effective
rates of 7.625% at June 30, 1998, and 6.44% at June 30, 1999). The Company
entered into an interest rate swap agreement with a bank in October

F-11
<PAGE> 76
ACCREDO HEALTH, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. NOTES PAYABLE -- (CONTINUED)
1997 in order to fix a portion of its interest rate exposure on this line of
credit. The terms of the agreement were revised and extended on January 21,
1999, and require the Company to pay a fixed interest rate of 5.5% on a $25
million notional amount and receive the 30 day LIBOR rate in exchange. The
interest rate swap agreement terminates October 31, 2001. The line of credit is
secured by substantially all assets of the Company. The bank's security interest
in a portion of the Company's inventory is subordinate to the liens on that
inventory under the terms of a security agreement between the Company and one of
its vendors. The same vendor has a security interest in certain accounts
receivable of the Company which is subordinate to the rights of the banks. At
June 30, 1999, the balance outstanding under this line of credit was
$20,500,000.

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

During June 1997, the Company issued $10 million in senior subordinated
notes (the Notes) to certain stockholders of the Company in connection with the
purchase of HHS. The Notes, which were due June 1, 2004, had a stated interest
rate of 10% and an effective rate of 16%. The Notes were unsecured. Concurrently
with the issuance of the Notes, the Company issued 600,000 shares of its common
stock to the Noteholders. The excess of the fair market value of the 600,000
shares of common stock issued over the purchase price of $4,000 was recorded as
an original issue discount. This original issue discount, which was accreted
over the life of the related obligation using the effective interest method, is
reflected as a reduction of the Notes in the accompanying consolidated balance
sheets at June 30, 1998.

In accordance with the terms of the Notes, the Company added $85,000 and
$1,046,000, respectively, of accrued interest due during 1997 and 1998 to the
unpaid principal balance of the Notes.

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

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

6. MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK

The Company is authorized to issue up to 300,000 shares of nonvoting
mandatorily redeemable cumulative preferred stock (Series A). In connection with
its formation, the Company issued, at the $100 redemption amount, 255,361 shares
of the preferred stock on May 31, 1996, for a total of $25,536,100. The
nonvoting mandatorily redeemable cumulative preferred stock is entitled to an $8
per share annual dividend.

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

F-12
<PAGE> 77
ACCREDO HEALTH, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. INCOME TAXES

The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company is indemnified for income tax
liabilities arising prior to May 31, 1996, by its former parent.

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

<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Current:
Federal................................................... $1,160 $ 850 $4,306
State..................................................... 231 104 666
------ ------ ------
1,391 954 4,972
Deferred:
Federal................................................... 95 1,239 (839)
State..................................................... 16 227 (130)
------ ------ ------
111 1,466 (969)
------ ------ ------
$1,502 $2,420 $4,003
====== ====== ======
</TABLE>

The provision (benefit) for income taxes differed from the amount computed
by applying the statutory federal income tax rate of 34% for the years ended
June 30 due to the following (in thousands):

<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rate.............. $ (220) $1,307 $2,851
State income tax expense, net of federal income tax
benefit................................................... 164 219 354
Goodwill amortization....................................... 1,553 836 790
Other....................................................... 5 58 8
------ ------ ------
Income tax expense.......................................... $1,502 $2,420 $4,003
====== ====== ======
</TABLE>

F-13
<PAGE> 78
ACCREDO HEALTH, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
1998 1999
----- ------
<S> <C> <C>
Deferred tax assets:
Accounts receivable reserves.............................. $ 176 $1,186
Accrued expenses.......................................... 97 295
Joint venture investments................................. 17 11
Other..................................................... 34 62
----- ------
324 1,554
Deferred tax liabilities:
Property and equipment.................................... (151) (235)
Intangible assets......................................... (301) (587)
Joint venture investments................................. (84) (44)
----- ------
(536) (866)
----- ------
Net deferred tax assets (liabilities)............. $(212) $ 688
===== ======
</TABLE>

Management has evaluated the need for a valuation allowance for the
deferred tax asset in 1999 and believes it is more likely than not that the
assets will ultimately be realized through future taxable income from
operations.

8. COMMITMENTS

The Company leases office space and equipment under various operating
leases. Rent expense for all operating leases was approximately $429,000,
$758,000 and $985,000 for the years ended June 30, 1997, 1998 and 1999,
respectively.

Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with initial terms of one year or more consist of the following
at June 30, 1999 (in thousands):

The Company has guaranteed a bank line of credit made to one of the
partnerships in which the Company owns a 50% interest. This line of credit
allows the partnership to borrow up to $1,500,000, which is repayable in full on
November 24, 2000.

9. INVESTMENT IN JOINT VENTURES

Texas Health Pharmaceutical Resources, Teddy Bear Home Care/Drug Therapies,
Children's Memorial Home Hemophilia Services, Children's Hemophilia Services and
Children's Home Services are partnerships in which the Company has a 50%
ownership interest. Campus Home Health Care-Home Hemophilia is a limited
liability company in which the Company has a 25%

F-14
<PAGE> 79
ACCREDO HEALTH, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. INVESTMENT IN JOINT VENTURES -- (CONTINUED)
ownership interest (This entity was dissolved during the fiscal year ended June
30, 1999.). These joint ventures are accounted for by the Company under the
equity method of accounting. Amounts due from these joint ventures to the
Company are classified as due from affiliates in the accompanying consolidated
balance sheets. The portion of the Company's retained earnings at June 30, 1998
and 1999, attributable to undistributed earnings of these joint ventures is
$628,000 and $1,968,000, respectively.

On November 10, 1998, the Company acquired a 50% general partnership
interest in Children's Hemophilia Services, a partnership established to engage
in the sale and distribution of blood clotting factors and ancillary supplies to
hemophilia patients, for an initial purchase price of $917,000. In addition to
the purchase price paid on the acquisition date, the Company will pay up to an
additional $833,000 in two installments if targeted earnings specified in the
purchase agreement are achieved for the twelve-month periods ending twenty-four
months and thirty-six months from the acquisition date.

On November 10, 1998, the Company acquired a 50% general partnership
interest in Children's Home Services, a partnership established to engage in the
sale and distribution of human growth hormone and ancillary supplies to patients
with growth hormone-related disorders, for a purchase price of $381,000.

The difference in the purchase price and the Company's interest in the fair
value of net tangible assets of these partnerships of $1,298,000 is being
amortized over its estimated useful life of 40 years. Any additional payments
made under the purchase agreement will be treated as additional purchase cost
and amortized over the remaining useful life on the date of payment.

The Company received fees for management services from these joint ventures
of $362,000, $413,000 and $589,000 for the years ended June 30, 1997, 1998 and
1999, respectively, which are recorded as other revenues in the accompanying
consolidated statements of operations.

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

<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Current assets.............................................. $2,783 $2,322 $8,519
Property and equipment and other assets..................... 84 78 81
Current liabilities......................................... 1,546 1,133 3,101
Total revenues.............................................. 12,736 10,215 17,512
Net income.................................................. 2,050 2,315 3,866
</TABLE>

10. DEFINED CONTRIBUTION RETIREMENT PLAN

The Company sponsors a qualified defined contribution retirement plan under
Section 401(k) of the Internal Revenue Code in which substantially all employees
qualify for participation. The Company matches employee contributions, as
defined in the plan. The Company made annual matching contributions of
approximately $41,000, $43,000 and $70,000 for the years ended June 30, 1997,
1998 and 1999, respectively.

F-15
<PAGE> 80
ACCREDO HEALTH, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. STOCKHOLDERS' EQUITY

COMMON STOCK

In April 1999, the Company completed its initial public offering of
5,175,000 shares of common stock at an offering price of $10.67 per share. In
connection with the offering, the Company's majority shareholder exchanged
1,650,000 shares of the Company's $.01 par value common stock for 1,650,000
shares of the Company's $.01 par value non-voting common stock. The net proceeds
from the offering were used to redeem the outstanding balance of the Series A
redeemable cumulative preferred stock plus accrued dividends, repay the
Company's senior subordinated notes and reduce the balance of the outstanding
revolving line of credit.

PREFERRED STOCK

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

12. EMPLOYEE STOCK PURCHASE PLAN

In April 1999, the Company's Board of Directors adopted and the
stockholders approved, the Accredo Health, Incorporated 1999 Employee Stock
Purchase Plan (the ESPP). Under the ESPP, employees may purchase shares of
common stock at 85% of market price on the first day of an offering period
(usually consisting of a six-month period beginning January 1 or July 1) or the
last day of an offering period, whichever is lower. The shares are purchased at
the end of each period with funds withheld from employees' pay during the
period. A total of 202,500 shares of the Company's common stock have been
reserved for issuance under the ESPP. Participation in the ESPP commenced on the
effective date of the Company's initial public offering in April 1999 and the
first date shares may be purchased is December 31, 1999.

13. STOCK OPTION PLAN

The Company's Amended and Restated Stock Option and Restricted Stock
Purchase Plan authorizes the grant of options to selected employees, officers
and directors for up to 1,447,500 shares of the Company's common stock. All
options granted have ten-year terms and vest and become fully exercisable over a
period of 1 to 6 years of continued employment. Certain options granted with up
to six year vesting terms also have provisions for accelerated vesting over the
first 4 years if certain Company income targets are achieved during that period.
Otherwise, these options become fully exercisable at the end of up to 6 years of
continued employment.

The Company's 1999 Long-Term Incentive Plan authorizes the grant of options
to selected employees, officers and directors for up to 750,000 shares of the
Company's common stock. No options have been granted under this plan.

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

<TABLE>
<CAPTION>
1997 1998 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Risk-free interest rates...................... 6.08% to 6.93% 5.48% to 6.22% 5.05% to 5.40%
Dividend yield................................ 0% 0% 0%
Volatility factor............................. .60 .60 .50
Weighted-average expected life................ 4.50 years 4.45 years 4.47 years
</TABLE>

F-16
<PAGE> 81
ACCREDO HEALTH, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

<TABLE>
<CAPTION>
1997 1998 1999
------- ------ ------
<S> <C> <C> <C>
Net income (loss) "as reported"............................. $(2,150) $1,425 $3,128
Pro forma net income (loss)................................. $(2,358) $1,119 $2,729
Pro forma basic earnings (loss) per share................... $ (0.31) $ 0.13 $ 0.29
Pro forma diluted earnings (loss) per share................. $ (0.31) $ 0.12 $ 0.26
</TABLE>

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

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

<TABLE>
<CAPTION>
1997 1998 1999
--------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period....................... 814,286 $2.00 1,006,287 $2.00 1,284,643 $2.44
Granted........................ 195,001 2.00 279,642 4.00 130,715 6.84
Exercised...................... -- -- -- -- (3,750) 2.00
Forfeited...................... (3,000) 2.00 (1,286) 2.00 (10,500) 2.67
--------- ----- --------- ----- --------- -----
Outstanding at end of period... 1,006,287 $2.00 1,284,643 $2.44 1,401,108 $2.85
========= ===== ========= ===== ========= =====
Exerciseable at end of year.... 174,000 $2.00 370,501 $2.11 608,628 $2.29
========= ===== ========= ===== ========= =====
Weighted-average fair value of
options granted during the
year......................... $ 1.09 $ 1.74 $ 3.32
========= ========= =========
</TABLE>

The range of exercise prices for the Company's stock options outstanding at
June 30, 1999, is $2.00 to $10.67. The weighted-average remaining contractual
life of those outstanding options is 7.5 years at June 30, 1999.

F-17
<PAGE> 82
ACCREDO HEALTH, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
(NOTE 15)
PRO FORMA
(UNAUDITED)
1997 1998 1999 1999
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator for basic and diluted income (loss)
per share to common stockholders:
Income (loss) before extraordinary item.... $(2,150) $1,425 $4,382 $5,296
Extraordinary item......................... -- -- (1,254) --
Preferred stock dividends.................. (2,043) (2,043) (1,617) --
---------- ---------- ----------- -----------
Net income (loss) to common
stockholders..................... $(4,193) $(618) $1,511 $5,296
========== ========== =========== ===========
Denominator:
Denominator for basic income (loss) per
share to common
stockholders-weighted-average shares.... 7,710,879 8,349,422 9,501,806 13,610,367
Effect of dilutive stock options........... 415,706 711,738 930,139 930,140
---------- ---------- ----------- -----------
Denominator for diluted income (loss) per
share to common stockholders-adjusted
weighted-average shares................. 8,126,585 9,061,160 10,431,945 14,540,507
========== ========== =========== ===========
Basic earnings per common share:
Income (loss) before extraordinary item.... $(0.28) $0.17 $0.46 $0.39
Extraordinary item......................... -- -- (0.13) --
Preferred stock dividends.................. (0.26) (0.24) (0.17) --
---------- ---------- ----------- -----------
Net income (loss) to common
stockholders..................... $(0.54) $(0.07) $0.16 $0.39
========== ========== =========== ===========
Diluted earnings per common share:
Income (loss) before extraordinary item.... $(0.28) $0.17 $0.42 $0.36
Extraordinary item......................... -- -- (0.12) --
Preferred stock dividends.................. (0.26) (0.24) (0.16) --
---------- ---------- ----------- -----------
Net income (loss) to common
stockholders(1).................. $(0.54) $(0.07) $0.14 $0.36
========== ========== =========== ===========
</TABLE>

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

(1) Historical diluted loss per share amounts for 1997 and 1998 have been
calculated using the same denominator as used in the basic loss per share
calculation since the inclusion of dilutive securities in the denominator of
the calculation would have an anti-dilutive effect.

15. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

The pro forma consolidated statement of operations for the year ended June
30, 1999, gives effect to the sale of common stock in the Company's initial
public offering and the application of the net proceeds thereof to the
prepayment in full of all principal and accrued interest on the Company's
outstanding Senior Subordinated Notes, the redemption of all outstanding shares
of Series A Preferred Stock, including all accrued dividends thereon, and the
reduction of $7,000,000

F-18
<PAGE> 83
ACCREDO HEALTH, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) -- (CONTINUED)
in the balance of the Company's outstanding line of credit, as if all such
transactions had been completed as of July 1, 1998, as follows:

The elimination of interest expense (including original issue discount
amortization) associated with the prepayment of the Senior Subordinated
Notes and the reduction of the line of credit with a portion of the net
proceeds of the offering, and the elimination of the related income tax
benefit based on the combined federal and state statutory rate of 37.3%.

The elimination of the dividends on the Series A Preferred Stock
redeemed with a portion of the net proceeds of the Offering.

In connection with the prepayment of the Senior Subordinated Notes, the
Company incurred an extraordinary charge related to the early extinguishment of
debt. This extraordinary charge of approximately $1,254,000, net of a $746,000
tax benefit, is due to the unamortized original issue discount remaining on the
debt on the prepayment date. This charge is reflected as an extraordinary
nonrecurring charge in the Company's financial results for the year ended June
30, 1999. This charge is not reflected in the pro forma statement of operations.

16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Quarterly financial information for the years ended June 30, 1998 and 1999,
is summarized below (in thousands, except share data):

<TABLE>
<CAPTION>
1999
-------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues............................................ $57,348 $62,678 $66,881 $71,447
Operating income.......................................... 2,709 2,747 2,922 3,170
Income before income taxes and extraordinary item......... 1,844 1,882 2,000 2,659
Income before extraordinary item.......................... 915 948 1,020 1,499
Net income................................................ 915 948 1,020 245
Net income to common stockholders......................... 405 437 509 160
Basic earnings per common share:
Income before extraordinary item........................ 0.11 0.11 0.12 0.12
Net income.............................................. 0.11 0.11 0.12 0.02
Net income to common stockholders....................... 0.05 0.05 0.06 0.01
Diluted earnings per common share:
Income before extraordinary item........................ 0.10 0.10 0.11 0.11
Net income.............................................. 0.10 0.10 0.11 0.02
Net income to common stockholders....................... 0.05 0.05 0.06 0.01
</TABLE>

F-19
<PAGE> 84
ACCREDO HEALTH, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) -- (CONTINUED)

<TABLE>
<CAPTION>
1998
-------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues............................................ $40,886 $44,700 $44,813 $50,559
Operating income.......................................... 1,558 1,717 1,908 2,214
Income before income taxes................................ 667 829 986 1,363
Net income................................................ 175 253 378 619
Net income (loss) to common stockholders.................. (335) (257) (133) 107
Basic earnings per common share:
Net income.............................................. 0.02 0.03 0.05 0.07
Net income (loss) to common stockholders................ (0.04) (0.03) (0.01) 0.01
Diluted earnings per common share:
Net income.............................................. 0.02 0.03 0.05 0.07
Net income (loss) to common stockholders................ (0.04) (0.03) (0.01) 0.01
</TABLE>

17. SUBSEQUENT EVENTS

The Company acquired all of the outstanding stock of Sunrise Health
Management, Inc. ("Sunrise") from its shareholders effective December 1, 1999.
Sunrise is headquartered in Norcross, Georgia and is a provider of
pharmaceutical care for certain chronic, long-term patient populations,
including those requiring intravenous immunoglobulin, clotting factor and growth
hormone.

The purchase price for Sunrise was approximately $13.7 million, plus a
potential earn-out payment of up to $1.0 million if certain financial goals are
achieved by Sunrise during the six-month period ending May 31, 2000. The Company
also paid $500,000 as consideration for an agreement with the selling
shareholders and a prior officer of Sunrise not to compete with the Company in
certain product lines for ten years.

On January 31, 2000, the Company announced a three-for-two stock split in
the form of a 50% stock dividend for shareholders of record on February 11,
2000. Shareholders received one additional share of common stock on February 21,
2000 for every two shares held on the record date. The Company has adjusted
earnings per share and all other share related information to reflect the stock
split.

F-20
<PAGE> 85

ACCREDO HEALTH, INCORPORATED

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

<TABLE>
<CAPTION>
MARCH 31,
2000
------------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 8,500
Accounts receivable, less allowance for doubtful accounts
of $7,508 at March 31, 2000............................ 62,054
Due from affiliates....................................... 2,638
Other accounts receivable................................. 12,893
Inventories............................................... 31,869
Prepaids and other current assets......................... 455
Deferred income taxes..................................... 2,819
--------
Total current assets.............................. 121,228
Property and equipment, net................................. 5,270
Other assets:
Joint venture investments................................. 5,127
Goodwill and other intangible assets, net................. 69,767
--------
Total assets...................................... $201,392
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 79,403
Accrued expenses.......................................... 5,024
Income taxes payable...................................... 57
--------
Total current liabilities......................... 84,484
Long-term notes payable..................................... 41,500
Deferred income taxes....................................... 1,184
Stockholders' equity:
Undesignated Preferred Stock, 5,000,000 shares authorized,
no shares issued....................................... --
Non-voting Common Stock, $.01 par value; 2,500,000 shares
authorized; no shares issued and outstanding at March
31, 2000............................................... --
Common Stock, $.01 par value; 30,000,000 shares
authorized; 14,076,324 shares issued and outstanding at
March 31, 2000......................................... 141
Additional paid-in capital................................ 66,365
Retained earnings......................................... 7,718
--------
Total stockholders' equity........................ 74,224
--------
Total liabilities and stockholders' equity........ $201,392
========
</TABLE>

See accompanying notes to condensed consolidated financial statements.
F-21
<PAGE> 86

ACCREDO HEALTH, INCORPORATED

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

<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------------------
1999 2000
-------- --------
(UNAUDITED)
<S> <C> <C>
Net patient service revenue................................. $176,816 $241,413
Other revenue............................................... 8,861 11,483
Equity in net income of joint ventures...................... 1,230 1,722
-------- --------
Total revenues.................................... 186,907 254,618
Cost of services............................................ 159,198 217,450
-------- --------
Gross profit................................................ 27,709 37,168
General & administrative.................................... 12,907 17,089
Bad debts................................................... 3,420 4,549
Depreciation and amortization............................... 3,003 2,404
-------- --------
Income from operations...................................... 8,379 13,126
Interest expense, net....................................... 2,653 1,498
-------- --------
Income before income taxes.................................. 5,726 11,628
Provision for income taxes.................................. 2,843 4,580
-------- --------
Net income.................................................. 2,883 7,048
Preferred stock dividends................................... (1,532) --
-------- --------
Net income to common shareholders........................... $ 1,351 $ 7,048
======== ========
Basic earnings per common share (Note 6 and 7):
Net income................................................ $ 0.34 $ 0.51
Preferred stock dividends................................. (0.18) --
-------- --------
Net income to common stockholders........................... $ 0.16 $ 0.51
======== ========
Diluted earnings per common share (Note 6 and 7):
Net income................................................ $ 0.31 $ 0.48
Preferred stock dividends................................. (0.16) --
-------- --------
Net income to common stockholders........................... $ 0.15 $ 0.48
======== ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.
F-22
<PAGE> 87

ACCREDO HEALTH, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(000'S OMITTED, EXCEPT SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
COMMON ADDITIONAL RETAINED TOTAL
STOCK COMMON PAID-IN EARNINGS STOCKHOLDERS'
SHARES STOCK CAPITAL (DEFICIT) EQUITY
---------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1999............... 13,615,631 $136 $63,322 $ 669 $64,127
Issuance of common stock:
Exercise of stock options............ 405,382 4 986 -- 990
Employee Stock Purchase Plan......... 55,333 1 501 -- 502
Adjustment for stock split fractional
shares paid in cash............... (22) -- -- -- --
Tax benefit of disqualifying
disposition.......................... -- -- 1,469 -- 1,469
Compensation resulting from stock
transactions, net of income tax
benefit.............................. -- -- 87 -- 87
Other -- -- -- 1 1
Net income............................. -- -- -- 7,048 7,048
---------- ---- ------- ------ -------
Balance at March 31, 2000.............. 14,076,324 $141 $66,365 $7,718 $74,224
========== ==== ======= ====== =======
</TABLE>

See accompanying notes to condensed consolidated financial statements.
F-23
<PAGE> 88

ACCREDO HEALTH, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(000'S OMITTED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-------------------
1999 2000
-------- --------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 2,883 $ 7,048
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 3,003 2,404
Original issue discount amortization...................... 184 --
Provision for losses on accounts receivable............... 3,420 4,549
Deferred income tax benefit............................... (1,108) (998)
Compensation resulting from stock transactions............ 138 138
Changes in operating assets and liabilities:
Patient receivables and other............................. (22,252) (16,802)
Due from affiliates....................................... (1,204) (1,110)
Inventories............................................... (2,699) (11,477)
Prepaids and other current assets......................... (790) (91)
Recoverable income taxes.................................. 151 --
Accounts payable and accrued expenses..................... 15,193 22,749
Income taxes payable...................................... 3 (336)
-------- --------
Net cash provided by (used in) operating
activities....................................... (3,078) 6,074
INVESTING ACTIVITIES:
Purchases of property and equipment......................... (941) (2,876)
Business acquisitions and joint venture investments......... (1,298) (22,490)
Change in joint venture investments, net.................... (808) (1,712)
-------- --------
Net cash used in investing activities............. (3,047) (27,078)
FINANCING ACTIVITIES:
Proceeds from long-term obligations......................... 2,000 21,000
Issuance of common stock.................................... 212 2,962
-------- --------
Net cash provided by financing activities......... 2,212 23,962
-------- --------
Increase (decrease) in cash and cash equivalents............ (3,913) 2,958
Cash and cash equivalents at beginning of period............ 5,087 5,542
-------- --------
Cash and cash equivalents at end of period.................. $ 1,174 $ 8,500
======== ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.
F-24
<PAGE> 89

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions of Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary to present fairly the
condensed consolidated financial position, results of operations and cash flows
of Accredo Health, Incorporated (the "Company" or "Accredo") have been included.
Operating results for the nine-month period ended March 31, 2000, are not
necessarily indicative of the results that may be expected for the fiscal year
ended June 30, 2000.

For further information, refer to the consolidated financial statements and
footnotes thereto included in this Registration Statement.

2. ACQUISITIONS

On October 20, 1999, the Company acquired, through an indirect subsidiary,
the majority of the operating assets of the specialty pharmacy businesses
operated by certain affiliates of Home Medical of America, Inc., of Cherry Hill,
New Jersey ("HMA"). The assets acquired consist of two pharmacies, one located
in Jacksonville, Florida and the other in Temecula, California, each of which
are engaged in the pharmaceutical care of certain chronic, long-term patients,
including those requiring growth hormone, hemophilia and intravenous
gammaglobulin products and services.

The purchase price for these assets consists of a cash payment of
approximately $7.7 million, plus a potential earn-out payment of up to $1.2
million if certain revenue goals are achieved by the Company from this
acquisition during the six-month period ending April 30, 2000. The Company also
paid $500,000 as consideration for an agreement from HMA and some of its other
affiliates not to compete for a period of five years. No indebtedness was
assumed with this acquisition.

This transaction was accounted for using the purchase method of accounting.
The total value of tangible assets acquired was $234,000. The excess of the
total purchase price of $7,765,000, including acquisition costs of $91,000, over
the fair value of the tangible assets acquired, was allocated to goodwill and
other identifiable intangible assets. The Company preliminarily recorded
$7,181,000 in goodwill, $300,000 in acquired patient population, and $50,000 in
other intangible assets. These assets are being amortized using the
straight-line method over their estimated useful lives of 40 years for goodwill
and 5 years for acquired patient population and other intangible assets. The
$500,000 payment for the non-compete agreement is being amortized using the
straight-line method over its five year life. The operating results of these
pharmacies are included in the Company's consolidated statement of operations
beginning October 21, 1999 but are not material to the results of the Company
for the nine months ended March 31, 2000.

The Company acquired, through a subsidiary, all of the outstanding stock of
Sunrise Health Management, Inc. ("Sunrise") from its shareholders effective
December 1, 1999. Sunrise is headquartered in Norcross, Georgia and is a
provider of pharmaceutical care for certain chronic, long-term patient
populations, including those requiring intravenous immunoglobulin, clotting
factor and growth hormone.

F-25
<PAGE> 90
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)

2. ACQUISITIONS -- (CONTINUED)
with the selling shareholders and a prior officer of Sunrise not to compete with
the Company in certain product lines for ten years.

This transaction was accounted for using the purchase method of accounting.
Total assets acquired and liabilities assumed were $1,903,000 and $875,000,
respectively. The excess of the total purchase price of $13,731,000, including
acquisition costs of $45,000, over the fair value of the net assets acquired of
$1,028,000, was allocated to goodwill and other identifiable intangible assets.
The Company preliminarily recorded $11,987,000 in goodwill, $646,000 in acquired
patient population, and $70,000 in other intangible assets. These assets are
being amortized using the straight-line method over their estimated useful lives
of 40 years for goodwill and 5 years for acquired patient population and other
intangible assets. The $500,000 payment for the non-compete agreement is being
amortized using the straight-line method over its ten year life. The operating
results of Sunrise are included in the Company's consolidated statement of
operations beginning December 1, 1999.

Pro forma amounts for the nine months ended March 31, 2000 and 1999, as if
the acquisition of Sunrise had occurred on July 1, 1998, are as follows (in
thousands, except per share data):

<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
----------------------
1999 2000
-------- --------
<S> <C> <C>
Pro forma total revenues.................................... $192,363 $258,394
Pro forma net income........................................ 3,117 7,240
Basic earnings per common share:
Pro forma net income........................................ $ 0.37 $ 0.53
Diluted earnings per common share:
Pro forma net income........................................ $ 0.33 $ 0.49
</TABLE>

3. INVESTMENT IN JOINT VENTURES

On October 1, 1999, the Company entered into a joint venture agreement with
Children's National Medical Center in Washington, DC, to market, sell, provide
and distribute Synagis(R) and growth hormone and related services and supplies.
The term of the joint venture is for a period of five years unless terminated at
an earlier date pursuant to the terms of the agreement. Both companies
contributed $50,000 in capital to the joint venture and will share equally in
the assets, liabilities, profits and losses.

In conjunction with the formation of this joint venture, the Company also
entered into a management, service and sales agreement with the joint venture,
whereby the Company will provide specialty pharmacy and management services to
the joint venture in exchange for a monthly management fee and the reimbursement
of certain expenses. The Company previously had a direct management agreement
relationship with an affiliate of Children's National Medical Center.

On January 1, 2000, the Company entered into a joint venture agreement with
Specialized Pharmaceutical Services, Inc. ("SPS") to market, sell, provide and
distribute intravenous immunoglobulin ("IVIG") products and related services and
supplies in thirteen northeastern and eastern states. The term of the joint
venture is for a period of six years unless terminated at an earlier date
pursuant to the terms of the agreement. Both companies contributed an initial
$200,000 in capital to the joint venture and will contribute an additional
$300,000 within 120 days from its

F-26
<PAGE> 91
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)

3. INVESTMENT IN JOINT VENTURES -- (CONTINUED)
formation. The companies will share equally in the assets, liabilities, profits
and losses of the joint venture.

In conjunction with the formation of the joint venture, the Company entered
into management, service and sales agreements with the joint venture, whereby
the Company will provide specialty pharmacy and management services to the joint
venture in exchange for a monthly management fee and the reimbursement of
certain expenses and will also sell IVIG products to the joint venture. SPS has
also entered into a marketing and sales agreement to provide marketing and sales
support to the joint venture in exchange for a monthly fee and reimbursement of
certain expenses.

4. COMMITMENTS

In October 1999, the Company entered into a six-year lease agreement with
its current landlord for approximately 30,570 square feet of additional office
and warehouse space in Memphis, Tennessee, and a land lease for an expanded
parking lot adjacent to the office and warehouse space. In conjunction with the
acquisition of Sunrise Health Management, Inc. and the two pharmacy locations in
Florida and California discussed in Note 2, the Company also assumed the leases
for their facilities.

Revised future minimum payments, by fiscal year and in the aggregate, under
non-cancelable operating leases with initial terms of one year or more consist
of the following after taking into account these most recent lease obligations
(in thousands):

<TABLE>
<S> <C>
2000........................................................ $ 745
2001........................................................ 603
2002........................................................ 579
2003........................................................ 545
2004........................................................ 225
Thereafter.................................................. 236
------
$2,933
======
</TABLE>

5. STOCKHOLDERS' EQUITY

During the nine months ended March 31, 2000, the Company's largest
shareholder converted 1,650,000 shares of the Company's outstanding Non-voting
Common Stock to 1,650,000 shares of voting Common Stock.

During the nine months ended March 31, 2000, employees exercised stock
options to acquire 405,382 shares of Accredo common stock for exercise prices
ranging between $2.00 and $10.67 per share.

Employees of the Company also acquired 55,333 shares of Accredo common
stock during the nine months ended March 31, 2000 pursuant to the provisions of
the Company's Employee Stock Purchase Plan at a price of approximately $9.07 per
share. Shares acquired under the plan were purchased on December 31, 1999 from
employee funds accumulated via payroll deductions from April through December,
1999.

F-27
<PAGE> 92
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)

date. The Company has adjusted earnings per share and all other share related
information to reflect the stock split.

6. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except share data):

<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
------------------------
1999 2000
---------- -----------
<S> <C> <C>
Numerator for basic and diluted income per share to common
stockholders:
Net income................................................ $ 2,883 $ 7,048
Preferred stock dividends................................. (1,532) --
---------- -----------
Net income to common stockholders................. $ 1,351 $ 7,048
========== ===========
Denominator:
Denominator for basic income per share to common
stockholders -- weighted-average shares................ 8,433,618 13,764,744
Effect of dilutive stock options.......................... 888,536 976,631
---------- -----------
Denominator for diluted income per share to common
stockholders -- adjusted weighted-average shares....... 9,322,154 14,741,375
========== ===========
Basic earnings per common share
Net income................................................ $ 0.34 $ 0.51
Preferred stock dividends................................. (0.18) --
---------- -----------
Net income to common stockholders................. $ 0.16 $ 0.51
========== ===========
Diluted earnings per common share
Net income................................................ $ 0.31 $ 0.48
Preferred stock dividends................................. (0.16) --
---------- -----------
Net income to common stockholders................. $ 0.15 $ 0.48
========== ===========
</TABLE>

7. CONTINGENCY

Recent revisions to how the average wholesale price (or AWP) is determined
will result in reduced prices and profit margins for some drugs that the Company
handles. Many government payors, including Medicare and Medicaid pay the Company
directly or indirectly at the drug's AWP or at a percentage off AWP. The Company
has also contracted with a number of private payors to sell drugs at AWP or at a
percentage off AWP. AWP for most drugs is compiled and published by a private
company, First DataBank, Inc. Various federal and state government agencies have
been investigating whether the reported AWP of many drugs, including some that
the Company sells, is an appropriate or accurate measure of the market price of
the drugs. As recently reported in the Wall Street Journal, there are also
several whistleblower lawsuits pending against manufacturers of certain drugs.
These government investigations and lawsuits involve allegations that
manufacturers reported artificially inflated AWP prices of certain drugs to
First DataBank. Bayer AG, one of the Company's suppliers of clotting factor,
announced on May 9, 2000, that is engaged in settlement discussions with the
government regarding these charges. In February 2000, First DataBank published a
Market Price Survey of 437 drugs. The First DataBank Survey significantly
reduces

F-28
<PAGE> 93
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)

7. CONTINGENCY -- (CONTINUED)
reimbursement to the Company for a number of the clotting factor products and
IVIG the Company sells.

A number of state Medicaid agencies now pay the Company for clotting factor
at the prices shown on the Market Price Survey or at a percentage discount off
those prices. Other states have not changed their pricing structure or have
changed back to their pre-Market Price Survey reimbursement rates. Health Care
Financing Administration has also announced that effective October 1, 2000
Medicare intermediaries should calculate the amount that they pay for clotting
factor and 49 other drugs by using the lower prices on the First DataBank Market
Price Survey. It is expected that all of the Medicare intermediares will adopt
the lower pricing.

The Company estimates that reimbursements by Medicare and state Medicaid
agencies make up approximately 2% and 7%, respectively, of the Company's gross
patient service revenues from drugs the Company handles that are covered by the
Market Price Survey. The Company has seen an overall reduction in pricing and
margins for clotting factor that the Company sells. However, management of the
Company cannot predict the eventual results of the government investigations and
the changes made by First DataBank. If the reduced average wholesale prices
published by First DataBank for the drugs that the Company sells are ultimately
adopted as the standard by which the Company is paid by government payors or
private payors, this could have a material adverse effect on the Company's
business, financial condition and results of operation, including reducing the
pricing and margins on certain of the Company's products.

F-29
<PAGE> 94

ACCREDO HEALTH, INCORPORATED

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Effective December 1, 1999, Accredo Health, Incorporated (the "Company"),
through its wholly-owned subsidiary Hemophilia Health Services, Inc., acquired
all of the outstanding stock of Sunrise Health Management, Inc. ("Sunrise")
pursuant to a Stock Purchase Agreement (the "Acquisition").

The following unaudited pro forma condensed consolidated statements of
income for the year ended June 30, 1999 and the nine months ended March 31,
2000, give effect to the acquisition of Sunrise as if such transaction had been
completed as of July 1, 1998. The acquisition of HMA was not material to the
historical results of operations of the Company.

The unaudited pro forma condensed consolidated financial information
presented herein does not purport to represent the results the Company would
have obtained had the transaction, in fact, occurred at the beginning of the
period presented or to project the Company's results of operations in any future
period. The pro forma adjustments are based upon preliminary estimates,
available information and certain assumptions that management deems appropriate
and are not necessarily indicative of the results that may be expected in the
future. The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
of the Company included in this Registration Statement, the unaudited condensed
consolidated financial statements of the Company included in this Registration
Statement, and the audited financial statements of Sunrise Health Management,
Inc. included in this Registration Statement.

F-30
<PAGE> 95

ACCREDO HEALTH, INCORPORATED

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
FOR THE YEAR ENDED JUNE 30, 1999
(IN THOUSANDS)

<TABLE>
<CAPTION>
(A)
PRO FORMA HISTORICAL
HISTORICAL (UNAUDITED) SUNRISE
ACCREDO ACCREDO HEALTH PRO FORMA PRO FORMA
HEALTH, INC HEALTH, INC MANAGEMENT ADJUSTMENTS CONSOLIDATED
----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net patient service
revenue.................. $ 244,158 $ 244,158 $7,631 $ -- $ 251,789
Other revenue.............. 12,277 12,277 2 12,279
Equity in net income of
joint ventures........... 1,919 1,919 -- 1,919
----------- ----------- ------ ------- -----------
Total revenue.............. 258,354 258,354 7,633 265,987
Cost of services........... 220,517 220,517 3,988 224,505
----------- ----------- ------ ------- -----------
Gross profit............... 37,837 37,837 3,645 41,482
General and administrative
expenses................. 17,637 17,637 1,383 19,020
Bad debts.................. 4,739 4,739 99 4,838
Depreciation and
amortization............. 3,911 3,911 36 492(b) 4,439
----------- ----------- ------ ------- -----------
Income from operations..... 11,550 11,550 2,127 (492) 13,185
Interest expense, net...... 3,165 1,707 10 1,184(c) 2,901
----------- ----------- ------ ------- -----------
Income before income taxes
and extraordinary item... 8,385 9,843 2,117 (1,676) 10,284
Provision for income
taxes.................... 4,003 4,547 -- 168(d) 4,715
----------- ----------- ------ ------- -----------
Net income before
extraordinary
item........... $ 4,382 $ 5,296 $2,117 $(1,844) $ 5,569
=========== =========== ====== ======= ===========
Earnings per common share:
Basic.................... $ 0.46 $ 0.39 $ 0.41
Diluted.................. $ 0.42 $ 0.36 $ 0.38
Weighted average number of
shares:
Basic.................... 9,501,806 13,610,367 13,610,367
Diluted.................. 10,431,945 14,540,507 14,540,507
</TABLE>

See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-31
<PAGE> 96

ACCREDO HEALTH, INCORPORATED

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL SUNRISE
ACCREDO HEALTH PRO FORMA PRO FORMA
HEALTH, INC MANAGEMENT ADJUSTMENTS CONSOLIDATED
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net patient service revenue............. $ 241,413 $3,776 $ -- $ 245,189
Other revenue........................... 11,483 -- 11,483
Equity in net income of joint
ventures.............................. 1,722 -- 1,722
----------- ------ ----- -----------
Total revenue........................... 254,618 3,776 258,394
Cost of services........................ 217,450 2,027 219,477
----------- ------ ----- -----------
Gross profit............................ 37,168 1,749 38,917
General and administrative expenses..... 17,089 739 17,828
Bad debts............................... 4,549 5 4,554
Depreciation and amortization........... 2,404 11 205(b) 2,620
----------- ------ ----- -----------
Income from operations.................. 13,126 994 (205) 13,915
Interest expense, net................... 1,498 11 469(c) 1,978
----------- ------ ----- -----------
Income before income taxes.............. 11,628 983 (674) 11,937
Provision for income taxes.............. 4,580 -- 117(d) 4,697
----------- ------ ----- -----------
Net income.................... $ 7,048 $ 983 $(791) $ 7,240
=========== ====== ===== ===========
Earnings per common share:
Basic................................. $ 0.51 $ 0.53
Diluted............................... $ 0.48 $ 0.49
Weighted average number of shares:
Basic................................. 13,764,744 13,764,744
Diluted............................... 14,741,375 14,741,375
</TABLE>

See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
F-32
<PAGE> 97

ACCREDO HEALTH, INCORPORATED

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

INCOME STATEMENT PRO FORMA ADJUSTMENTS

(a) The pro forma condensed consolidated statement of income of Accredo
Health, Incorporated for the year ended June 30, 1999, gives effect to the sale
of common stock in the Company's initial public offering and the application of
the net proceeds thereof to the prepayment in full of all principal and accrued
interest on the Company's outstanding Senior Subordinated Notes, the redemption
of all outstanding shares of Series A Preferred Stock, including all accrued
dividends thereon, and the reduction of $7,000,000 in the balance of the
Company's outstanding line of credit, as if all such transactions had been
completed as of July 1, 1998.

The pro forma results included the elimination of interest expense
(including original issue discount amortization) associated with the prepayment
of the Senior Subordinated Notes and the reduction of the line of credit with a
portion of the net proceeds of the offering, and the elimination of the related
income tax benefit based on the combined federal and state statutory rate of
37.3%.

This pro forma consolidated information should be read in conjunction with
the audited consolidated financial statements of the Company included in this
Registration Statement.

(b) Adjustment to reflect the increase in amortization expense relating to
the goodwill and other intangible assets recorded for the Acquisition under the
purchase method. The Company preliminarily recorded $11,987,000 in goodwill,
$500,000 in non-compete agreements, $646,000 in acquired patient population and
$70,000 in acquired workforce. These assets are being amortized using the
straight-line method over their estimated useful lives of 40 years for goodwill,
10 years for non-compete agreements, and 5 years for acquired patient population
and workforce.

(d) Adjustment to reflect (i) the income tax expense of Sunrise as if
Sunrise was taxed as a C corporation rather than an S corporation during the
period and (ii) the income tax benefit related to the additional amortization
and interest expense as a result of the acquisition. A combined federal and
state tax rate of 38% was used for the pro forma adjustment for the year ended
June 30, 1999 and for the nine months ended March 31, 2000.

F-33
<PAGE> 98

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Sunrise Health Management, Inc.

We have audited the accompanying balance sheet of Sunrise Health
Management, Inc. (the Company) as of June 30, 1999, and the related statements
of income, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sunrise Health Management,
Inc. at June 30, 1999, and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States.

/s/Ernst & Young LLP

Memphis, Tennessee
November 19, 1999

F-34
<PAGE> 99

SUNRISE HEALTH MANAGEMENT, INC.

BALANCE SHEET
JUNE 30, 1999

<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 19,363
Receivables:
Patient accounts....................................... 1,679,194
Allowance for doubtful accounts........................ (79,352)
----------
1,599,842
Other.................................................. 662
----------
1,600,504
Inventories............................................... 264,084
----------
Total current assets.............................. 1,883,951
Property and equipment, net of accumulated depreciation of
$87,152................................................... 87,084
Other assets................................................ 4,896
----------
Total assets...................................... $1,975,931
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 861,770
Bank revolving line of credit............................. 214,000
Accrued expenses.......................................... 38,001
Current portion of notes payable.......................... 7,078
----------
Total current liabilities......................... 1,120,849
Long-term notes payable..................................... 13,195
Stockholders' equity:
Common stock $0.01 par value; 1,250,000 shares authorized;
892,915 shares issued and outstanding.................. 8,929
Additional paid-in capital................................ 330,001
Retained earnings......................................... 502,957
----------
Total stockholders' equity........................ 841,887
Total liabilities and stockholders' equity........ $1,975,931
==========
</TABLE>

See accompanying notes.
F-35
<PAGE> 100

SUNRISE HEALTH MANAGEMENT, INC.

STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1999

<S> <C>
Net patient service revenues................................ $7,631,187
Expenses:
Cost of services.......................................... 3,988,819
General and administrative................................ 1,382,893
Bad debts................................................. 98,872
Depreciation and amortization............................. 35,822
----------
Total operating expenses.......................... 5,506,406
----------
Operating income............................................ 2,124,781
Other expense (income):
Interest expense.......................................... 13,990
Interest income........................................... (3,840)
Other income.............................................. (2,424)
----------
7,726
----------
Net income........................................ $2,117,055
==========
</TABLE>

See accompanying notes.

F-36
<PAGE> 101

SUNRISE HEALTH MANAGEMENT, INC.

STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1998................. 889,443 $8,894 $326,647 $ 1,128,530 $ 1,464,071
Net income............................ -- -- -- 2,117,055 2,117,055
Distributions to stockholders......... -- -- -- (2,742,628) (2,742,628)
Issuance of common stock.............. 3,472 35 3,354 -- 3,389
------- ------ -------- ----------- -----------
Balance at June 30, 1999................ 892,915 $8,929 $330,001 $ 502,957 $ 841,887
======= ====== ======== =========== ===========
</TABLE>

See accompanying notes.
F-37
<PAGE> 102

SUNRISE HEALTH MANAGEMENT, INC.

STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1999

<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 2,117,055
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 35,822
Provisions for losses on patient accounts receivables..... 98,872
Changes in operating assets and liabilities:
Patient accounts receivable............................... (133,929)
Inventories............................................... 221,544
Other assets.............................................. (2,280)
Accounts payable and accrued expenses..................... 473,173
-----------
Net cash provided by operating activities......... 2,810,257
INVESTING ACTIVITIES
Purchases of property and equipment......................... (49,902)
-----------
Net cash used in investing activities............. (49,902)
FINANCING ACTIVITIES
Proceeds from bank line of credit........................... 192,000
Repayment of notes payable.................................. (288,038)
Distributions to stockholders............................... (2,742,628)
Issuance of common stock.................................... 3,389
-----------
Net cash used in financing activities............. (2,835,277)
Decrease in cash and cash equivalents....................... (74,922)
Cash and cash equivalents at beginning of year.............. 94,285
-----------
Cash and cash equivalents at end of year.................... $ 19,363
===========
SUPPLEMENTARY CASH FLOW DISCLOSURES
Cash paid for interest...................................... $ 13,990
===========
</TABLE>

See accompanying notes.
F-38
<PAGE> 103

SUNRISE HEALTH MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1999

1. DESCRIPTION OF BUSINESS

Sunrise Health Management, Inc. (the "Company"), is a specialty pharmacy
that provides alternate-site, home-based therapies to patients with chronic
diseases. The Company specializes in the provision of intravenous immunoglobulin
(IVIG) to patients suffering from a variety of immunodeficient and autoimmune
disorders. The Company also provides blood clotting factor and other related
pharmacy services to patients with hemophilia and provides certain other
specialized home infusion therapy services. The Company operates in Georgia,
Florida, Alabama and South Carolina.

2. SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

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

CONCENTRATIONS OF CREDIT RISK

The Company's primary concentration of credit risk is patient accounts
receivable, which consists of amounts owed by various governmental agencies,
insurance companies and private patients. The Company manages the receivables by
regularly reviewing its accounts and contracts and by providing appropriate
allowances for uncollectible amounts. Significant concentrations of patient
accounts receivable are as follows at June 30, 1999:

<TABLE>
<S> <C>
Medicaid.................................................... 14%
Medicare.................................................... 8%
</TABLE>

INVENTORIES

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

PROPERTY AND EQUIPMENT

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of receivables, accounts payable, revolving line of
credit and notes payable approximates fair value of these financial instruments
at June 30, 1999.

STOCK-BASED COMPENSATION

The Company has a Non-qualified Stock Option Plan (the "Plan") under which
options for a maximum of 175,000 shares of common stock may be granted to
employees for a period not to exceed 10 years at a price not less than fair
market value on the date of grant. As of June 30, 1999, there were 8,862 options
outstanding. The Plan provisions state that all outstanding options may be
exercised upon the occurrence of the sale of the Company (See Note 8).

F-39
<PAGE> 104
SUNRISE HEALTH MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
As allowed under the provisions of Financial Accounting Standard (FAS) No.
123, Accounting for Stock-Based Compensation, the Company applies the provisions
of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations to account for its stock option plan. The
pro forma income disclosures called for by FAS No. 123 would not differ
materially from the amount reported on the statement of income.

REVENUE RECOGNITION

Approximately 19% of gross patient service revenues for the year ended June
30, 1999, is from participation in the Medicare and state-sponsored Medicaid
programs.

COMPREHENSIVE INCOME

The Company had no items of other comprehensive income during fiscal 1999;
accordingly, comprehensive income equals net income.

USE OF ESTIMATES

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

3. NOTES PAYABLE

The Company's revolving line of credit agreement allows for borrowings up
to $750,000 and expires May 31, 2000. Amounts outstanding under the line of
credit bear interest at rates varying from 8% to 10%, with an effective rate of
8% at June 30, 1999. Borrowings on the line of credit are secured by assets of
the Company and personal assets of the Company's majority stockholders.

The Company's other notes payable consists of bank notes bearing interest
at 8.75% and 9.67%. The notes are secured by furniture and equipment of the
Company and require monthly payments through October 2002.

Future maturities of notes payable, by year and in the aggregate, consist
of the following at June 30, 1999:

F-40
<PAGE> 105
SUNRISE HEALTH MANAGEMENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. OPERATING LEASES

The Company leases office space and equipment under various operating
leases. Rent expense for all operating leases was approximately $52,000 for the
year ended June 30, 1999.

Future minimum lease payments, by year and in the aggregate, under
noncancelable operating leases with initial terms of one year or more are as
follows at June 30, 1999:

5. INCOME TAXES

The Company, with the consent of its stockholders, has elected to be an S
Corporation under the Internal Revenue Code and applicable Georgia State law.
Instead of the Company's paying federal corporate income taxes, the stockholders
are taxed individually on the Company's taxable income. Therefore, no provision
for federal or state income taxes has been made.

6. 401(K) PLAN

The Company sponsors a defined contribution plan (the "Plan") for employees
who have completed one year of service. The Company may, at its discretion, make
employer matching contributions to the Plan. However, no employer matching
contributions were made to the Plan during the year ended June 30, 1999.

7. YEAR 2000 READINESS (UNAUDITED)

The Company has modified certain portions of its software, hardware and
patient care equipment so that its systems and equipment will function properly
with respect to dates in the Year 2000 and thereafter. Costs specifically
associated with modifying software and equipment have been expensed as incurred
and have not had a significant effect on the Company's operations. The Company
has completed the Year 2000 project.

The Company is vulnerable to certain third parties' failures to mitigate
Year 2000 issues. The Company has identified its critical vendor relationships
and has contacted each such vendor and has inquired directly as to the status of
that vendor's Year 2000 readiness. Based on this process, the Company
anticipates that all crucial vendors will achieve year 2000 compliance. However,
there can be no assurance that all such third parties have provided accurate and
complete information, or that all of their systems in fact will achieve full
Year 2000 compliance. Therefore, the Company cannot provide assurances that the
Company will not be adversely affected by the Year 2000 date change.

8. SUBSEQUENT EVENT

The Company has entered into negotiations to sell all the capital stock to
Accredo Health, Incorporated.

F-41
<PAGE> 106

SUNRISE HEALTH MANAGEMENT, INC.

CONDENSED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1999

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 35,630
Receivables:
Patient accounts....................................... 1,777,956
Allowance for doubtful accounts........................ (123,283)
----------
1,654,673
Other.................................................. 662
----------
1,655,335
Inventories............................................... 470,430
----------
Total current assets.............................. 2,161,395
Property and equipment, net of accumulated depreciation of
$93,209................................................... 83,819
Other assets................................................ 4,871
----------
Total assets...................................... $2,250,085
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 615,116
Bank revolving line of credit............................. 647,000
Accrued expenses.......................................... 38,731
Current portion of notes payable.......................... 7,078
----------
Total current liabilities......................... 1,307,925
Long-term notes payable..................................... 11,009
Stockholders' equity:
Common stock $0.01 par value; 1,250,000 shares authorized;
892,915 shares issued and outstanding.................. 8,929
Additional paid-in capital................................ 330,001
Retained earnings......................................... 592,221
----------
Total stockholders' equity........................ 931,151
Total liabilities and stockholders' equity........ $2,250,085
==========
</TABLE>

See accompanying notes to condensed financial statements.
F-42
<PAGE> 107

SUNRISE HEALTH MANAGEMENT, INC.

CONDENSED STATEMENTS OF INCOME (UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
Net patient service revenues................................ $1,852,167 $2,272,005
Expenses:
Cost of services.......................................... 923,043 1,185,913
General and administrative................................ 316,224 431,416
Bad debts................................................. 46,692 27,960
Depreciation and amortization............................. 3,874 6,081
---------- ----------
Total operating expenses.......................... 1,289,833 1,651,370
---------- ----------
Operating income............................................ 562,334 620,635
Other expense (income):
Interest expense.......................................... 5,016 2,371
Interest income........................................... (2,283) (348)
Other income.............................................. -- (222)
---------- ----------
2,733 1,801
---------- ----------
Net income........................................ $ 559,601 $ 618,834
========== ==========
</TABLE>

See accompanying notes to condensed financial statements.
F-43
<PAGE> 108

SUNRISE HEALTH MANAGEMENT, INC.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1999
--------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 559,601 $ 618,834
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 3,874 6,081
Provisions for losses on patient accounts receivables..... 46,692 43,931
Changes in operating assets and liabilities:
Patient accounts receivable............................... 7,786 (98,762)
Inventories............................................... 140,776 (206,346)
Accounts payable and accrued expenses..................... 275,546 (245,924)
--------- ----------
Net cash provided by operating activities......... 1,034,275 117,814
INVESTING ACTIVITIES:
Purchases of property and equipment......................... (12,563) (2,791)
--------- ----------
Net cash used in investing activities............. (12,563) (2,791)
FINANCING ACTIVITIES:
Proceeds from (repayments of) bank line of credit........... (302,000) 433,000
Repayment of notes payable.................................. (2,082) (2,186)
Distributions to stockholders............................... (614,355) (529,570)
--------- ----------
Net cash used in financing activities............. (918,437) (98,756)
Increase in cash and cash equivalents....................... 103,275 16,267
Cash and cash equivalents at beginning of period............ 94,285 19,363
--------- ----------
Cash and cash equivalents at end of period.................. $ 197,560 $ 35,630
========= ==========
</TABLE>

See accompanying notes to condensed financial statements.
F-44
<PAGE> 109

SUNRISE HEALTH MANAGEMENT, INC.

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

BASIS OF PRESENTATION

The accompanying unaudited condensed balance sheet as of September 30, 1999
and the related unaudited condensed statements of income and cash flows for the
three months ended September 30, 1999 and 1998 (interim financial statements) of
Sunrise Health Management, Inc. have been prepared in accordance with generally
accepted accounting principles for interim financial information and
instructions to Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation of the interim results have been included.

The interim unaudited condensed financial statements should be read in
conjunction with the audited June 30, 1999 financial statements included herein.
The results of the three months ended September 30, 1999 may not be indicative
of the operating results expected for the year ended June 30, 2000.

SUBSEQUENT EVENT

The company was acquired by Hemophilia Health Services, Inc., a
wholly-owned subsidiary of Accredo Health, Inc., effective on December 1, 1999.

F-45
<PAGE> 110

REPORT OF INDEPENDENT AUDITORS

The Partners
Texas Health Pharmaceutical Resources

We have audited the accompanying statements of income, partners' equity and
cash flows of Texas Health Pharmaceutical Resources (the Partnership) for the
year ended June 30, 1997. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Texas
Health Pharmaceutical Resources for the year ended June 30, 1997, in conformity
with accounting principles generally accepted in the United States.

/s/ Ernst & Young LLP

Memphis, Tennessee
August 21, 1998

F-46
<PAGE> 111

TEXAS HEALTH PHARMACEUTICAL RESOURCES

BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30
-----------------------
1998 1999
---------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 53,979 $ 91,371
Receivables:
Patient accounts....................................... 520,806 677,756
Allowance for doubtful accounts........................ (170,160) (93,005)
---------- ----------
350,646 584,751
Due from affiliates.................................... 192,096 236,967
Other.................................................. 124,765 183,604
---------- ----------
667,507 1,005,322
Inventories............................................... 252,731 567,287
Prepaids and other current assets......................... 1,159 533
---------- ----------
Total current assets.............................. 975,376 1,664,513
Furniture and equipment, net of accumulated depreciation of
$30,356 and $47,476 for 1998 and 1999, respectively....... 55,385 48,746
---------- ----------
Total assets...................................... $1,030,761 $1,713,259
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 388,156 $ 409,264
Accrued expenses.......................................... 29,281 47,694
Due to partner............................................ 13,896 265,622
---------- ----------
Total current liabilities......................... 431,333 722,580
Partners' equity............................................ 599,428 990,679
---------- ----------
Total liabilities and partners' equity............ $1,030,761 $1,713,259
========== ==========
</TABLE>

See accompanying notes.
F-47
<PAGE> 112

TEXAS HEALTH PHARMACEUTICAL RESOURCES

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------
1997 1998 1999
---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues:
Net patient service revenue............................ $7,217,045 $3,840,253 $3,371,515
Other revenue.......................................... 43,315 718,469 506,804
---------- ---------- ----------
Total revenues................................. 7,260,360 4,558,722 3,878,319
Expenses:
Cost of services....................................... 5,300,908 2,771,129 2,707,071
General and administrative............................. 162,534 166,626 204,027
Management, accounting and reimbursement fees.......... 245,967 194,198 173,905
Bad debts.............................................. 283,357 177,351 20,733
Depreciation........................................... 13,350 13,857 17,120
---------- ---------- ----------
Total operating expenses....................... 6,006,116 3,323,161 3,122,856
---------- ---------- ----------
Operating income......................................... 1,254,244 1,235,561 755,463
Other income (expense):
Interest income........................................ 19,691 14,268 15,788
---------- ---------- ----------
Net income..................................... $1,273,935 $1,249,829 $ 771,251
========== ========== ==========
</TABLE>

See accompanying notes.
F-48
<PAGE> 113

TEXAS HEALTH PHARMACEUTICAL RESOURCES

STATEMENTS OF PARTNERS' EQUITY

<TABLE>
<S> <C>
Balance at June 30, 1996.................................... $ 1,450,127
Distributions to partners................................. (1,950,000)
Net income................................................ 1,273,935
-----------
Balance at June 30, 1997.................................... 774,062
Distributions to partners (unaudited)..................... (1,424,463)
Net income (unaudited).................................... 1,249,829
-----------
Balance at June 30, 1998 (unaudited)........................ 599,428
Distributions to partners (unaudited)..................... (380,000)
Net income (unaudited).................................... 771,251
-----------
Balance at June 30, 1999 (unaudited)........................ $ 990,679
===========
</TABLE>

See accompanying notes.
F-49
<PAGE> 114

TEXAS HEALTH PHARMACEUTICAL RESOURCES

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................ $ 1,273,935 $ 1,249,829 $ 771,251
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation........................................... 13,350 13,857 17,120
Gain on sale of equipment.............................. -- (2,000) --
Provision for losses on patient accounts receivable.... 283,357 177,351 20,733
Changes in operating assets and liabilities:
Patient receivables and other....................... 645,220 (133,423) (313,677)
Due from affiliates................................. (107,636) (8,857) (44,871)
Inventories......................................... (1,104) 160,640 (314,556)
Prepaids and other current assets................... 6,691 2,701 626
Accounts payable and accrued expenses............... 333,754 (175,762) 39,521
Due to partner...................................... (410,736) 6,045 251,726
----------- ----------- ---------
Net cash provided by operating activities...... 2,036,831 1,290,381 427,873
INVESTING ACTIVITIES:
Purchases of furniture and equipment..................... (6,335) (12,667) (10,481)
Proceeds from sale of equipment.......................... -- 2,000 --
----------- ----------- ---------
Net cash used in investing activities.......... (6,335) (10,667) (10,481)
FINANCING ACTIVITIES:
Distributions to general partners........................ (1,950,000) (1,424,463) (380,000)
----------- ----------- ---------
Increase (decrease) in cash and cash equivalents......... 80,496 (144,749) 37,392
Cash and cash equivalents at beginning of year........... 118,232 198,728 53,979
----------- ----------- ---------
Cash and cash equivalents at end of year................. $ 198,728 $ 53,979 $ 91,371
=========== =========== =========
</TABLE>

See accompanying notes.
F-50
<PAGE> 115

TEXAS HEALTH PHARMACEUTICAL RESOURCES

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED AS TO 1998 AND 1999)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999

1. ORGANIZATION AND NATURE OF OPERATIONS

ORGANIZATION

Texas Health Pharmaceutical Resources (the Partnership) is a general
partnership formed on July 1, 1994. The Partnership has two general partners,
Nova Factor, Inc. (NFI) and Alternative Care Systems, Inc. (ACS), each of which
has a 50% ownership interest and shares equally in the profits and losses of the
Partnership. Under the partnership agreement, the partnership term will end on
March 31, 2004, unless extended by mutual agreement of the partners.

DESCRIPTION OF BUSINESS

The purpose of the Partnership is to provide specialized contract pharmacy
services beneficial to patients with certain costly chronic diseases. The
Partnership markets, sells and distributes drugs such as growth hormone and
provides hemophilia therapy services and supplies.

2. SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

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

PATIENT ACCOUNTS RECEIVABLE

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

<TABLE>
<CAPTION>
1998 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Medicare.................................................... 14 5%
Medicaid.................................................... 32 36%
</TABLE>

Concentration of credit risk relating to accounts receivable is limited to
some extent by the diversity and number of patients and payors, and could be
adversely affected by the geographic service area of the business which, under
the partnership agreement, is the area encompassed within the 50-mile radius of
Dallas, Texas, and within the city limits of Lubbock, Texas. The Partnership
grants credit without collateral to its patients.

INVENTORIES

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of receivables and accounts payable approximates fair
value of these financial instruments.

F-51
<PAGE> 116
TEXAS HEALTH PHARMACEUTICAL RESOURCES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
FURNITURE AND EQUIPMENT

Furniture and equipment are stated at cost. Provisions for depreciation are
computed by the straight-line method based on the estimated useful lives of the
related assets of three to seven years.

REVENUE RECOGNITION

Net patient service revenues are reported at the net amounts billed to
patients, third-party payors and others in the period the services are rendered.
The Partnership has agreements with certain third-party payors that provide for
payments to the Partnership at amounts discounted from its established rates.
Approximately 63%, 63% (unaudited) and 64% (unaudited) of gross patient service
revenues for the years ended June 30, 1997, 1998 and 1999, respectively, are
from participation in the Medicare and state-sponsored Medicaid programs.

Other revenues primarily consist of management fees. Management fees are
primarily based upon the amount of patient service revenues generated by a
hospital program managed by the Partnership.

USE OF ESTIMATES

3. OPERATING LEASES

The Partnership leases office space and equipment under various operating
leases. Rent expense for all operating leases was approximately $15,000, $15,000
(unaudited) and $15,000 (unaudited), for the years ended June 30, 1997, 1998 and
1999, respectively.

Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with terms of one year or more, consist of the following for
the years ended June 30:

4. RELATED PARTIES

Due from affiliates of $192,096 (unaudited) and $236,967 (unaudited) at
June 30, 1998 and 1999, respectively, consists of accounts receivable from other
entities affiliated with NFI.

The Partnership receives certain services provided by NFI that include cash
management, tax reporting, risk management, executive management, computer
processing, and accounting and reimbursement services. For these services, the
Partnership pays management, reimbursement and accounting fees to NFI.
Management, accounting and reimbursement fees were $245,967, $194,198
(unaudited), and $173,905 (unaudited) for the years ended June 30, 1997, 1998
and 1999, respectively.

F-52
<PAGE> 117
TEXAS HEALTH PHARMACEUTICAL RESOURCES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. RELATED PARTIES -- (CONTINUED)

The Partnership received management fees of approximately $708,000
(unaudited) from an affiliate of ACS for the year ended June 30, 1998.

5. INCOME TAXES

No provision is made in the accounts of the Partnership for federal and
state income taxes, as such taxes are liabilities of the partners. The
Partnership's tax returns and amounts of allocable Partnership revenues and
expenses are subject to examination by federal and state taxing authorities. If
such examinations occur and result in changes, the portion of the Partnership's
income or loss reported by the partners may also change.

F-53
TEXAS HEALTH PHARMACEUTICAL RESOURCES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

F-54
<PAGE> 118

REPORT OF INDEPENDENT AUDITORS

The Partners
Children's Memorial Home Hemophilia Services

We have audited the accompanying statements of income, partners' equity and
cash flows of Children's Memorial Home Hemophilia Services (the Partnership) for
the year ended June 30, 1997, and the related statements of operations,
partners' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Children's
Memorial Home Hemophilia Services for the year ended June 30, 1997, in
conformity with accounting principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP

Memphis, Tennessee
March 19, 1999

F-55
<PAGE> 119

CHILDREN'S MEMORIAL HOME HEMOPHILIA SERVICES

BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30,
---------------------
1998 1999
-------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $306,029 $ 30,375
Receivables:
Patient accounts....................................... 420,159 1,065,725
Allowance for doubtful accounts........................ (29,446) (114,312)
-------- ----------
390,713 951,413
-------- ----------
Total current assets.............................. 696,742 981,788
Furniture and equipment, net of accumulated depreciation of
$29 and $115 for 1998 and 1999, respectively.............. 404 318
-------- ----------
Total assets...................................... $697,146 $ 982,106
======== ==========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $163,909 $ 5,247
Due to partner............................................ 288,149 495,505
-------- ----------
Total current liabilities......................... 452,058 500,752
Partners' equity............................................ 245,088 481,354
-------- ----------
Total liabilities and partners' equity............ $697,146 $ 982,106
======== ==========
</TABLE>

See accompanying notes.
F-56
<PAGE> 120

CHILDREN'S MEMORIAL HOME HEMOPHILIA SERVICES

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
--------------------------------------
1997 1998 1999
---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues:
Net patient service revenues........................... $2,572,296 $2,826,371 $3,853,643
Expenses:
Cost of services....................................... 1,701,032 1,839,937 2,631,201
General and administrative............................. 2,347 1,043 1,461
Management, accounting and reimbursement fees.......... 22,473 106,810 187,841
Bad debts.............................................. 181,713 212,452 209,299
Depreciation........................................... -- 29 86
---------- ---------- ----------
Total operating expenses....................... 1,907,565 2,160,271 3,029,888
---------- ---------- ----------
Operating income......................................... 664,731 666,100 823,755
Other income:
Interest income........................................ 6,732 9,094 12,511
---------- ---------- ----------
Net income............................................... $ 671,463 $ 675,194 $ 836,266
========== ========== ==========
</TABLE>

See accompanying notes.
F-57
<PAGE> 121

CHILDREN'S MEMORIAL HOME HEMOPHILIA SERVICES

STATEMENTS OF PARTNERS' EQUITY

<TABLE>
<S> <C>
Balance at June 30, 1996.................................... $ 378,431
Distributions to partners................................. (610,000)
Net income................................................ 671,463
---------
Balance at June 30, 1997.................................... 439,894
Distributions to partners (unaudited)..................... (870,000)
Net income (unaudited).................................... 675,194
---------
Balance at June 30, 1998 (unaudited)........................ 245,088
Distributions to partners (unaudited)..................... (600,000)
Net income (unaudited).................................... 836,266
---------
Balance at June 30, 1999 (unaudited)........................ $ 481,354
=========
</TABLE>

See accompanying notes.
F-58
<PAGE> 122

CHILDREN'S MEMORIAL HOME HEMOPHILIA SERVICES

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
-------------------------------------
1997 1998 1999
--------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................... $ 671,463 $ 675,194 $ 836,266
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... -- 29 86
Provision for losses on patient receivables............ 181,713 212,452 209,299
Changes in operating assets and liabilities:
Patient receivables................................. (96,815) (37,796) (769,999)
Accounts payable and accrued expenses............... 12,501 7,956 (158,662)
Due to partner...................................... 31 66,275 207,356
--------- --------- ---------
Net cash provided by operating activities...... 768,893 924,110 324,346
INVESTING ACTIVITIES
Purchases of furniture and equipment..................... -- (433) --
FINANCING ACTIVITIES
Distributions to general partners........................ (610,000) (870,000) (600,000)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents......... 158,893 53,677 (275,654)
Cash and cash equivalents at beginning of year........... 93,459 252,352 306,029
--------- --------- ---------
Cash and cash equivalents at end of year................. $ 252,352 $ 306,029 $ 30,375
========= ========= =========
</TABLE>

See accompanying notes.
F-59
<PAGE> 123

CHILDREN'S MEMORIAL HOME HEMOPHILIA SERVICES

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED AS TO 1998 AND 1999)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999

1. ORGANIZATION AND NATURE OF OPERATIONS

Children's Memorial Home Hemophilia Services (the Partnership) is a general
partnership formed on October 27, 1992. The Partnership has two general
partners, Nova Factor, Inc. (NFI) and CM Healthcare Resources, Inc. (CMH), each
of which has a 50% ownership interest and shares equally in the profits and
losses of the Partnership. Under the partnership agreement, the partnership term
initially ended on October 31, 1997, with automatic extensions of six months
each, unless terminated by mutual agreement of the partners.

DESCRIPTION OF BUSINESS

The purpose of the Partnership is to market, sell and provide Hemophilia
therapy services and supplies to pediatric patients in a home setting or on an
inpatient or outpatient basis.

2. SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

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

PATIENT ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
1998 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Medicaid.................................................... 19% 49%
Cigna....................................................... 18% 32%
</TABLE>

Concentration of credit risk relating to accounts receivable is limited to
some extent by the diversity and number of patients and payors, and could be
adversely affected by the geographic service area of the business which, under
the partnership agreement, encompasses the counties of McHenry, Cook, Du Page,
Lake, Will, Kendall and Kane located in the State of Illinois. The Partnership
grants credit without collateral to its patients.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of receivables and accounts payable approximates fair
value of these financial instruments.

FURNITURE AND EQUIPMENT

Furniture and equipment are stated at cost. Provisions for depreciation are
computed by the straight-line method based on the estimated useful lives of the
related assets of three to seven years.

F-60
<PAGE> 124
CHILDREN'S MEMORIAL HOME HEMOPHILIA SERVICES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

REVENUE RECOGNITION

Net patient service revenues are reported at the net amounts billed to
patients, third-party payors and others in the period the services are rendered.
The Partnership has agreements with certain third-party payors that provide for
payments to the Partnership at amounts discounted from its established rates.
Approximately 12%, 10% and 26% of gross patient service revenues for the years
ended June 30, 1997, 1998 (unaudited) and 1999 (unaudited), respectively, are
from participation in the state-sponsored Medicaid program.

USE OF ESTIMATES

3. RELATED PARTIES

The Partnership receives certain services provided by NFI that include cash
management, tax reporting, risk management, executive management, computer
processing, and accounting and reimbursement services. For these services, the
Partnership pays management, reimbursement and accounting fees to NFI.
Management, accounting and reimbursement fees were $22,473, $106,810
(unaudited), and $187,841 (unaudited) for the years ended June 30, 1997, 1998
and 1999, respectively.

4. INCOME TAXES

F-61
<PAGE> 125

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Accredo Health, Incorporated

We have audited the consolidated financial statements of Accredo Health,
Incorporated as of June 30, 1998 and 1999, and for each of the three years in
the period ended June 30, 1999, and have issued our report thereon dated August
9, 1999 (included elsewhere in this Registration Statement). Our audits also
included the financial statement schedule of the Company listed in Item 16(b) of
this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Memphis, Tennessee
August 9, 1999

S-1
<PAGE> 126

ACCREDO HEALTH, INCORPORATED

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
---------------------------------- ---------- ---------------------- ----------- ----------
ADDITIONS
----------------------
CHARGED
TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
---------------------------------- ---------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1997:
Allowance for doubtful
accounts..................... $2,710,000 $2,977,000 $-- $1,885,000(1) $3,802,000
Year ended June 30, 1998:
Allowance for doubtful
accounts..................... 3,802,000 3,165,000 -- 3,537,000(1) 3,430,000
Year ended June 30, 1999:
Allowance for doubtful
accounts..................... 3,430,000 4,739,000 -- 2,869,000(1) 5,300,000
</TABLE>

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

(1) Uncollectible accounts written off, net of recoveries.

S-2
<PAGE> 127

REPORT OF INDEPENDENT AUDITORS

To the Partners
Texas Health Pharmaceutical Resources

We have audited the statements of income, partners' equity and cash flows
of Texas Health Pharmaceutical Resources for the year ended June 30, 1997, and
have issued our report thereon dated August 21, 1998 (included elsewhere in this
Registration Statement). Our audit also included the information for the year
ended June 30, 1997, in the financial statement schedule of the Partnership
listed in Item 16(b) of this Registration Statement. This schedule is the
responsibility of the Partnership's management. Our responsibility is to express
an opinion based on our audit.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as whole,
presents fairly in all material respects the information set forth therein for
the year ended June 30, 1997.

/s/ Ernst & Young LLP

Memphis, Tennessee
August 21, 1998

S-3
<PAGE> 128

TEXAS HEALTH PHARMACEUTICAL RESOURCES

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
----------------------------------------- ---------- ------------------------ ------------- ----------
ADDITIONS
------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS -- DEDUCTIONS -- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------------------------------------- ---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1997:
Allowance for doubtful accounts........ $113,286 $283,357 $-- $273,640(1) $123,003
Year ended June 30, 1998 (unaudited):
Allowance for doubtful accounts........ 123,003 177,351 -- 130,194(1) 170,160
Year ended June 30, 1999 (unaudited):
Allowance for doubtful accounts........ 170,160 20,733 -- 97,888(1) 93,005
</TABLE>

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

(1) Uncollectible accounts written off, net of recoveries.

S-4
<PAGE> 129

REPORT OF INDEPENDENT AUDITORS

To the Partners
Children's Memorial Home Hemophilia Services

We have audited the statements of income, partners' equity and cash flows
of Children's Memorial Home Hemophilia Services for the year ended June 30,
1997, and have issued our report thereon dated March 19, 1999 (included
elsewhere in this Registration Statement). Our audit also included the
information for the year ended June 30, 1997, in the financial statement
schedule of the Partnership listed in Item 16(b) of this Registration Statement.
This schedule is the responsibility of the Partnership's management. Our
responsibility is to express an opinion based on our audit.

/s/ Ernst & Young LLP

Memphis, Tennessee
March 19, 1999

S-5
<PAGE> 130

CHILDREN'S MEMORIAL HOME HEMOPHILIA SERVICES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
---------------------------------- ---------- ----------------------- ----------- ----------
ADDITIONS
-----------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
---------------------------------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1997:
Allowance for doubtful
accounts..................... $15,000 $181,713 $ -- $192,252(1) $ 4,461
Year ended June 30, 1998
(unaudited):
Allowance for doubtful
accounts..................... 4,461 212,452 -- 187,467(1) 29,446
Year ended June 30, 1999
(unaudited):
Allowance for doubtful
accounts..................... 29,446 209,299 -- 124,433(1) 114,312
</TABLE>

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

(1) Uncollectible accounts written off, net of recoveries.

S-6
<PAGE> 131

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

2,000,000 SHARES

ACCREDO HEALTH, INCORPORATED LOGO
COMMON STOCK

--------------------
PROSPECTUS
--------------------

CHASE H&Q
SUNTRUST EQUITABLE SECURITIES
BANC OF AMERICA SECURITIES LLC
FIRST UNION SECURITIES, INC.

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

AUGUST , 2000

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

YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU INFORMATION DIFFERENT FROM THAT CONTAINED
IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES
OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF OUR COMMON STOCK.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 132

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses to be borne by
Accredo in connection with the issuance and distribution of the securities being
registered hereby, other than underwriting discounts and commissions. Accredo is
paying all of these expenses in connection with the issuance and distribution of
the securities.

<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 20,797
NASD Filing Fee............................................. 8,378
Nasdaq National Market Listing Fee.......................... 17,500
Accountants' Fee and Expenses............................... 200,000
Legal Fees and Expenses..................................... 300,000
Printing and Engraving Costs................................ 175,000
Transfer Agent and Registrar Fees........................... 10,000
Miscellaneous............................................... 18,325
--------
Total............................................. $750,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Accredo's Amended and Restated Certificate of Incorporation provides that
Accredo shall, to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law, as amended from time to time, indemnify its officers
and directors.

Section 145 permits a corporation, under specified circumstances, to
indemnify its directors, officers, employees or agents against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by them in connection with any action, suit or
proceeding brought by third parties by reason of the fact that they were or are
directors, officers, employees or agents of the corporation, if such directors,
officers, employees or agents acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reason to believe their conduct was unlawful. In a derivative action, i.e., one
by or in the right of the corporation, indemnification may be made only for
expenses actually and reasonably incurred by directors, officers, employees or
agents in connection with the defense or settlement of any action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant directors, officers, employees or
agents are fairly and reasonably entitled to indemnity for such expenses despite
such adjudication of liability.

Accredo's Amended and Restated Certificate of Incorporation contains a
provision which eliminates, to the fullest extent permitted by the Delaware
General Corporation Law, director liability for monetary damages for breaches of
the fiduciary duty of care or any other duty as a director.

Accredo has purchased a policy of director's and officer's insurance that
would in certain instances provide the funds necessary for Accredo to meet its
indemnification obligations under its Amended and Restated Certificate of
Incorporation.

II-1
<PAGE> 133

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In order to finance the acquisition of Hemophilia Health Services, Inc.,
formerly known as Horizon Health Systems, Inc., and to provide working capital,
Accredo issued $10.0 million in Senior Subordinated Notes to Welsh, Carson,
Anderson & Stowe VII, L.P. and certain of its affiliates on June 4, 1997. In
connection with the issuance of the Senior Subordinated Notes, Accredo issued an
aggregate of 600,000 shares of Common Stock to the holders of the Senior
Subordinated Notes. Furthermore, as a condition to the acquisition of Hemophilia
Health Services and the appointment of Kyle J. Callahan to Accredo's Board of
Directors, Mr. Callahan acquired 62,501 shares of the Accredo's Common Stock for
$250,002 on October 1, 1997.

In connection with the appointment of Kenneth J. Melkus to the Accredo's
Board of Directors, Lauren Melkus acquired 62,501 shares of Common Stock for
$250,002 on October 27, 1997.

In connection with the appointment of Kenneth R. Masterson to Accredo's
Board of Directors, Accredo sold 51,000 shares of Common Stock to Mr. Masterson
for $204,000 on July 24, 1998 pursuant to a subscription agreement entered into
by Mr. Masterson in April 1998.

In connection with Accredo's initial public offering of Common Stock
effective as of April 15, 1999, Welsh, Carson, Anderson & Stowe VII, L.P.
exchanged 1,650,000 shares of unregistered Common Stock of Accredo for 1,650,000
shares of unregistered Non-Voting Common Stock of Accredo. During Accredo's
first fiscal quarter ended September 30, 1999, Welsh, Carson, Anderson & Stowe
VII, L.P. exchanged its 1,650,000 shares of unregistered Non-Voting Common Stock
of Accredo for 1,650,000 shares of unregistered Common Stock of Accredo.

Except as otherwise noted, all issuances of securities described above were
made in reliance on the exemption from registration provided by Section 4(2) of
the Securities Act of 1933, as amended, as transactions by an issuer not
involving a public offering. All share numbers discussed above reflect a
three-for-two stock split of Accredo's common stock in the form of a 50% stock
dividend issued to stockholders on February 21, 2000.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<C> <S> <C>
*1.1 -- Form of Underwriting Agreement
2.1 -- Stock Purchase Agreement, dated December 1, 1999, among
Margo Grbinich-Hunt, Mark B. Epstein, Hemophilia Health
Services, Inc. and Sunrise Health Management, Inc.(2)
3.1 -- Amended and Restated Certificate of Incorporation of the
Accredo Health, Incorporated(1)
3.2 -- Amended and Restated Bylaws of Accredo Health,
Incorporated(1)
4.1 -- Form of Common Stock Certificate(1)
*5.1 -- Opinion of Alston & Bird LLP
*23.1 -- Consent of Alston & Bird LLP (included in Opinion filed as
Exhibit 5.1)
23.2 -- Consent of Ernst & Young LLP
*24.1 -- Power of Attorney (contained on the signature page)
</TABLE>

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

* Previously filed

(1) Incorporated by reference to Accredo Health, Incorporated's Registration
Statement on Form S-1 (Reg. No. 333-62679) effective as of April 15, 1999.

(2) Incorporated by reference to Accredo Health, Incorporated's Current Report
on Form 8-K filed on December 16, 1999 (SEC File No. 000-25769).

II-2
<PAGE> 134

(b) Financial Statement Schedules

Accredo Health, Incorporated
Schedule II -- Valuation and Qualifying Accounts

Texas Health Pharmaceutical Resources
Schedule II -- Valuation and Qualifying Accounts

Children's Memorial Home Hemophilia Services
Schedule II -- Valuation and Qualifying Accounts

Schedules other than those listed above are omitted because they are not
required or are not applicable, or the required information is shown in the
respective financial statements or notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

(3) For purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-3
<PAGE> 135

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Memphis, State of Tennessee, on August 2, 2000.

ACCREDO HEALTH, INCORPORATED

By: /s/ DAVID D. STEVENS
------------------------------------
David D. Stevens
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement on Form S-3 has been signed by the following
persons in the capacities indicated on August 2, 2000.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>

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

* President and Director
---------------------------------------------
John R. Grow

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

* Senior Vice President and Director
---------------------------------------------
Kyle J. Callahan

Director
---------------------------------------------
Patrick J. Welsh

* Director
---------------------------------------------
Andrew M. Paul

* Director
---------------------------------------------
Kenneth J. Melkus

* Director
---------------------------------------------
Kenneth R. Masterson

* Director
---------------------------------------------
Kevin L. Roberg

*By: /s/JOEL R. KIMBROUGH
---------------------------------------------
Joel R. Kimbrough
Attorney-in-Fact
</TABLE>

II-4
<PAGE> 136

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
*1.1 -- Form of Underwriting Agreement
2.1 -- Stock Purchase Agreement, dated December 1, 1999, among
Margo Grbinich-Hunt, Mark B. Epstein, Hemophilia Health
Services, Inc. and Sunrise Health Management, Inc.(2)
3.1 -- Amended and Restated Certificate of Incorporation of the
Accredo Health, Incorporated(1)
3.2 -- Amended and Restated Bylaws of Accredo Health,
Incorporated(1)
4.1 -- Form of Common Stock Certificate(1)
*5.1 -- Opinion of Alston & Bird LLP
*23.1 -- Consent of Alston & Bird LLP (included in Opinion filed as
Exhibit 5.1)
23.2 -- Consent of Ernst & Young LLP
*24.1 -- Power of Attorney (contained on the signature page)
</TABLE>

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

* Previously filed

(1) Incorporated by reference to Accredo Health, Incorporated's Registration
Statement on Form S-1 (Reg. No. 333-62679) effective as of April 15, 1999.

(2) Incorporated by reference to Accredo Health, Incorporated's Current Report
on Form 8-K filed on December 16, 1999 (SEC File No. 000-25769).

II-5