SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2000.

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

Commission File number 000-19809

DURA PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 95-3645543
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

7475 LUSK BLVD., SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE IS (858)457-2553

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] Yes [ ] No

The number of shares of the Registrant's Common Stock outstanding as of April
28, 2000 was 44,352,525.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
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DURA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
- --------------------------------------------------------------------------------

MARCH 31, DECEMBER 31,
2000 1999
- ------------------------------------------------------------------------------------------------------------------------
ASSETS (UNAUDITED)

Current assets:
Cash and cash equivalents $ 142,927 $ 63,631
Short-term investments 156,310 210,782
Accounts and other receivables 49,288 44,632
Inventory 15,636 12,938
Other current assets 5,845 11,523
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Total current assets 370,006 343,506

License agreements and product rights 393,533 389,631
Property 91,626 93,333
Other assets 56,499 57,004
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Total $ 911,664 $ 883,474
===================================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 18,703 $ 11,411
Accrued liabilities 79,980 74,305
Current portion of long-term obligations 1,898 1,865
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Total current liabilities 100,581 87,581

Convertible subordinated notes 287,500 287,500
Other long-term obligations 67,379 66,654
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Total liabilities 455,460 441,735
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Stockholders' equity:
Preferred stock, par value $.001, shares authorized - 5,000,000; no
shares issued or outstanding
Common stock, par value $.001, shares authorized - 200,000,000;
issued and outstanding - 44,335,314 and 44,239,660, respectively 44 44
Additional paid-in capital 581,155 579,929
Accumulated other comprehensive loss (1,305) (1,230)
Warrant subscriptions receivable (5,202) (6,057)
Accumulated deficit (118,488) (130,947)
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 456,204 441,739
- ------------------------------------------------------------------------------------------------------------------------
Total $ 911,664 $ 883,474
===================================

See accompanying notes to consolidated financial statements.

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DURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
- --------------------------------------------------------------------------------

THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
- ---------------------------------------------------------------------------------------------------------------

Revenues:
Sales $ 67,325 $ 55,081
Contract 18,454 16,166
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Total revenues 85,779 71,247
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Operating costs and expenses:
Cost of sales 14,172 10,491
Clinical, development and regulatory 14,804 11,491
Selling, general and administrative 37,510 32,414
Product rights amortization 5,389 4,876
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Total operating costs and expenses 71,875 59,272
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Operating income 13,904 11,975
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Other:
Interest income 4,751 4,303
Interest expense (4,300) (4,064)
Other - net 3,443 (228)
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Total other 3,894 11
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Income before income taxes 17,798 11,986
Provision for income taxes 5,340 4,220
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Net income $ 12,458 $ 7,766
===========================
Net income per share:
Basic $ 0.28 $ 0.18
Diluted $ 0.27 $ 0.17

Weighted average number of common shares:
Basic 44,335 44,100
Diluted 46,158 45,686

See accompanying notes to consolidated financial statements.

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DURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
- --------------------------------------------------------------------------------

THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
-------------------------

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Net cash provided by operating activities $ 28,375 $ 19,179
- ---------------------------------------------------------------------------------------------------------
Investing activities:
Sales and maturities of short-term investments 73,608 88,907
Purchases of short-term investments (19,211) (69,454)
Product acquisitions (9,075) (3,679)
Capital expenditures (1,617) (4,172)
Proceeds from the sale of other long-term investments 4,949 -
Other 578 (4,280)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 49,232 7,322
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Financing activities:
Issuance of common stock and warrants - net 1,689 961
Principal payments on long-term obligations - (1,000)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 1,689 (39)
- ---------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 79,296 26,462
Cash and cash equivalents at beginning of period 63,631 31,113
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $142,927 $ 57,575
=========================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 5,031 $ 6,494
Income taxes $ 56 $ 281

See accompanying notes to consolidated financial statements.

DURA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

We have prepared the accompanying unaudited consolidated financial statements in
accordance with the instructions to Form 10-Q. The consolidated financial
statements reflect all adjustments, consisting of only normal recurring
accruals, which are, in our opinion, necessary for a fair statement of the
results of the interim periods presented. These consolidated financial
statements and related notes should be read in conjunction with the audited
financial statements and related notes included in our annual report on Form
10-K for the year ended December 31, 1999. The results of operations for the
interim periods are not necessarily indicative of results to be expected for any
other interim period or for the year as a whole.

The consolidated financial statements include our accounts and the accounts of
our wholly owned subsidiaries. All intercompany transactions and balances are
eliminated in consolidation.

The preparation of financial statements in conformity with generally accepted
accounting principles requires us to make estimates and assumptions that affect
amounts reported in the consolidated financial statements and related notes.
Changes in those estimates may affect amounts reported in future periods.

2. MERGER AGREEMENT WITH SPIROS DEVELOPMENT CORPORATION II, INC.

In March 2000 we entered into a merger agreement to acquire Spiros Corp II.
Under the agreement, each holder of Spiros Corp. II's callable common stock
will receive $13.25 in cash and a warrant to purchase a fractional share of
our common stock for each share of callable common stock. The warrant will be
immediately exercisable at $17.94 per share, which represents a 25% premium
over the average closing price of our common stock for the ten trading days
prior to the date of the merger agreement, and will expire five years from
the date the merger is completed. The exact fraction of a share of our common
stock purchasable under the warrant will be determined based on the average
closing price of our common stock for the ten trading days prior to the vote
of the Spiros Corp. II stockholders on the merger and will result in a
calculated value, using the Black-Scholes option pricing model, for each
warrant between $3.22 and $1.81. We expect to pay a total of approximately
$88.7 million in cash, which includes expenses related to the merger. Closing
of the transaction is subject to Spiros Corp. II stockholder approval,
expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act, registration of the warrant and
the shares of our common stock which will be issued if the warrants are
exercised, and approval for listing on Nasdaq of the warrants and the
underlying common stock. We have received voting agreements in favor of the
merger from holders of approximately 22% of Spiros Corp. II's outstanding
callable common stock. A special committee of independent members of the
Spiros Corp. II board, formed in December 1999 to evaluate strategic
alternatives for Spiros Corp. II, has approved the merger agreement and is
recommending that the Spiros Corp. II shareholders approve the merger.

3. COMMITMENTS AND CONTINGENCIES

STOCKHOLDER CLASS ACTION LITIGATION - Commencing on January 27, 1999, several
class action suits were filed against us and a number of our current or former
officers and directors in the United States District Court for the Southern
District of California. The lawsuits, which have been consolidated into one
action, allege violations of the federal securities laws, and purport to seek
damages on behalf of a class of stockholders who purchased our common stock
during a defined period. We believe that the claims in the lawsuit are without
merit and intend to defend against them vigorously.

4. REPORTING COMPREHENSIVE INCOME

Comprehensive income includes net income (loss) and unrealized gains and losses
on investments. The accumulated balance of other comprehensive income (loss) is
disclosed as a separate component of stockholders' equity. For the three months
ended March 31, 2000 and 1999, comprehensive income consisted of (in thousands):

Three months ended
March 31,
2000 1999
------- ------

Net income $12,458 $7,766
Other comprehensive loss:
Unrealized loss on investments (75) (227)
------- ------
Comprehensive income $12,383 $7,539
======= ======

5. SEGMENT INFORMATION

We operate in two business segments: (1) pharmaceutical products and (2)
research and development. The pharmaceutical products segment markets
prescription pharmaceutical products for the treatment of respiratory conditions
and infectious diseases. The research and development segment manages the
development of Spiros(TM). Each of our segments operates solely within the
United States. Four wholesale customers accounted for 19%, 12%, 12% and 10% of
pharmaceutical product sales, respectively, for the three months ended March 31,
2000, while two wholesale customers accounted for 16% and 12% of pharmaceutical
product sales, respectively, for the same period in 1999.

The following table summarizes information about our operating segments for the
three months ended March 31, 2000 and 1999, in thousands:

PHARMACEUTICAL RESEARCH AND
PRODUCTS DEVELOPMENT CONSOLIDATED

Total revenues 2000 $ 67,448 $ 18,331 $ 85,779
1999 $ 55,668 $ 15,579 $ 71,247

Operating income 2000 $ 10,801 $ 3,103 $ 13,904
1999 $ 9,442 $ 2,533 $ 11,975

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following information should be read in conjunction with the consolidated
financial statements and the accompanying notes included in Item 1 of this
quarterly report, as well as the audited financial statements and accompanying
notes and Management's Discussion and Analysis of Financial Condition and
Results of Operations for the year ended December 31, 1999 contained in our 1999
annual report on Form 10-K. See "Risks and Uncertainties" below for trends and
uncertainties known to us that could cause reported financial information not to
be necessarily indicative of future results.

OVERVIEW

We are engaged in developing and marketing prescription pharmaceutical products
for the treatment of respiratory conditions and infectious diseases. We execute
our business strategy by (1) acquiring currently marketed or late-stage
development products and companies developing or marketing such products to
support our presence in high-prescribing physicians' offices and the hospital
market, and (2) developing Spiros(R), a pulmonary drug delivery system for both
topical and systemic delivery of medications. We currently sell 10 prescription
product lines and also own a separate mail service pharmacy, Health Script
Pharmacy Services, Inc., which dispenses respiratory pharmaceuticals. Our
operations are divided into two business segments: (1) pharmaceutical products
and (2) research and development. The pharmaceutical products segment markets
prescription pharmaceutical products for the treatment of respiratory conditions
and infectious diseases. The research and development segment manages the
development of Spiros. Each of our segments operates solely within the United
States.

The following table summarizes information about our operating segments for the
three months ended March 31, 2000 and 1999, in thousands:

PHARMACEUTICAL RESEARCH AND
PRODUCTS DEVELOPMENT CONSOLIDATED

Total revenues 2000 $ 67,448 $ 18,331 $ 85,779
1999 $ 55,668 $ 15,579 $ 71,247

Operating income 2000 $ 10,801 $ 3,103 $ 13,904
1999 $ 9,442 $ 2,533 $ 11,975

RESULTS OF OPERATIONS

The following table summarizes our results of operations for the three months
ended March 31, 2000 and 1999 (in thousands, except per share amounts):

2000 1999

Total revenues $ 85,779 $ 71,247
Operating income $ 13,904 $ 11,975
Net income $ 12,458 $ 7,766
Earnings per share - diluted $ 0.27 $ 0.17

NET INCOME

Net income for the three months ended March 31, 2000 was $12.5 million, or $0.27
per diluted share, which included a $2.2 million after-tax gain in other income
from the sale of a long-term investment. Excluding the net of tax impact of this
gain, we would have reported net income of $10.3 million, or $0.22 per diluted
share. Net income for the three months ended March 31, 1999 was $7.8 million, or
$0.17 per diluted share. Factors that affected net income are discussed below.

SALES AND GROSS PROFIT

Sales for the three months ended March 31, 2000 increased $12.2 million, or
22%, over 1999. This increase is due to increases in the sales of each of our
promoted products Maxipime-Registered Trademark-, Azactam-Registered Trademark-,
Ceclor-Registered Trademark- CD and Nasarel-Registered Trademark-, which had a
combined increase in sales of $11.7 million. Gross profit, or sales less cost
of sales, for the three months ended March 31, 2000 increased $8.6 million, or
19%, over 1999 as a result of the increase in sales in the first quarter of
2000. Gross profit as a percentage of sales decreased to 79% for the three
months ended March 31, 2000 compared to 81% in 1999. This decrease is due
primarily to increased sales of Maxipime and Azactam, which have slightly
lower gross margins than our other products.

CONTRACT REVENUE

Contract revenue relates primarily to amounts received by us for development
work we perform on our Spiros pulmonary drug delivery system, as well as
milestone and technology access payments, under agreements with Spiros Corp. II
and Eli Lilly and Company. Contract revenues for the three months ended March
31, 2000 were $18.5 million, of which $13.8 million was from Spiros Corp. II, as
compared to $16.2 million for 1999, of which $12.2 million was from Spiros Corp.
II. Contract revenues may fluctuate from period to period based on the level of
research funding received as well as the achievement of milestones and receipt
of technology access payments from our partners. See "Liquidity and Capital
Resources" below and note 2 of the notes to consolidated financial statements
for discussion of our March 2000 definitive merger agreement with Spiros Corp.
II. The merger with Spiros Corp. II, if completed, will result in a significant
reduction of our contract revenue even though we will continue to incur
development costs for the ongoing Spiros development programs.

CLINICAL, DEVELOPMENT AND REGULATORY EXPENSES

Clinical, development and regulatory expenses for the three months ended March
31, 2000 increased $3.3 million, or 29%, over 1999 due to increased development
activity conducted under the agreements covering the use of various compounds
with Spiros as discussed above. If the proposed merger with Spiros Corp. II is
completed, we will continue to incur these expenses to the extent we continue to
develop our Spiros system.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses for the three months ended March
31, 2000 increased $5.1 million, or 16%, over 1999 but decreased as a
percentage of total revenues from 45% in 1999 to 44% in 2000. The dollar
increase is comprised primarily of an increase of $2.8 million in marketing
costs to promote our products and an increase of $1.6 million in costs
incurred to expand our hospital-based sales force in the second half of 1999.

PRODUCT RIGHTS AMORTIZATION

Product rights amortization for the three months ended March 31, 2000 increased
$513,000, or 11%, over 1999, and decreased as a percentage of sales from 9% in
1999 to 8% in 2000. The dollar increase is due to the amortization of specific
product rights that increased due to additional contingent product acquisition
payments being made after March 31, 1999. The percentage decrease is due to the
growth in product sales for the three months ended March 31, 2000 over 1999 as
discussed above.

OTHER INCOME

Other income increased $3.9 million for the three months ended March 31, 2000
over 1999. The primary reason for the increase is a $3.5 million pre-tax gain on
the sale of a long-term investment recognized in the first quarter of 2000.

PROVISION FOR INCOME TAXES

Our effective tax rate was 30% for the three months ended March 31, 2000, as
compared to 35% for the same period in 1999. This decrease is mainly
attributable to an increase in the portion of foreign-sourced taxable income,
which is taxed at a lower rate, and an increase in federal and state research
credits.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and short-term investments increased by $24.8 million
from $274.4 million at December 31, 1999 to $299.2 million at March 31, 2000.
This increase is due to cash provided by operating activities of $28.4 million,
partially offset by product acquisition payments and capital expenditures.
Working capital increased by $13.5 million from $255.9 million at December 31,
1999 to $269.4 million at March 31, 2000.

We have outstanding $287.5 million principal amount of notes due July 15, 2002
with interest payable semiannually at a coupon rate of 3.5%. The notes are
convertible, at the option of the holder, into shares of common stock at any
time prior to maturity or redemption at a conversion price of $50.635 per share.

In addition to the notes, as of December 31, 1999, we had outstanding an
aggregate of $60.4 million in current and other long-term obligations related to
our product acquisitions, of which $1.9 million is to be paid during the next 12
months. As of March 31, 2000, additional payments totaling approximately $135
million, estimated based on historical sales levels of the related products, are
contingent upon the levels of future sales of specified products, and
approximately $70 million are contingent upon the continued absence of competing
formulations of specified products as defined in the respective acquisition and
licensing agreements. These contingent amounts are payable through 2004,
including approximately $50 million contingently due within the next 12 months.

We have entered into various agreements with Spiros Corp. II for the development
of Spiros with specified compounds including beclomethasone and budesonide. In
1997, we licensed the use of these and other compounds with Spiros to Spiros
Corp. II on an exclusive basis. Spiros Corp. II has engaged us to develop the
Spiros products under license from us. We record contract revenue for payments
from Spiros Corp. II for development costs we incur on its behalf and for
technology access fees. Contract revenues from Spiros Corp. II totaled $13.8
million for the three months ended March 31, 2000. Based on the current
development plan of Spiros Corp. II, we expect that it will expend all of its
existing cash during the second half of 2000. Further, we do not believe that
Spiros Corp. II's existing funds will be sufficient to complete the development
of any Spiros product.

the warrant will be determined based on the average closing price of our
common stock for the ten trading days prior to the vote of the Spiros Corp.
II stockholders on the merger and will result in a calculated value, using
the Black-Scholes option pricing model, for each warrant between $3.22 and
$1.81. We expect to pay a total of approximately $88.7 million in cash, which
includes expenses related to the merger. Closing of the transaction is
subject to Spiros Corp. II stockholder approval, expiration or termination of
the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act, registration of the warrant and the shares of our common
stock which will be issued if the warrants are exercised, and approval for
listing on Nasdaq of the warrants and the underlying common stock. We have
received voting agreements in favor of the merger from holders of
approximately 22% of Spiros Corp. II's outstanding callable common stock. A
special committee of independent members of the Spiros Corp. II board, formed
in December 1999 to evaluate strategic alternatives for Spiros Corp. II, has
approved the merger agreement and is recommending that the Spiros Corp. II
shareholders approve the merger.

Following completion of the proposed merger, the discontinuation of contract
revenue from Spiros Corp. II would significantly reduce our earnings as well as
cash generated from operating activities. In addition, we expect that a charge
for acquired in-process technology will be recorded in the period in which the
merger is effected.

We anticipate that our existing capital resources and cash generated from
operations will be sufficient to finance our operations through at least the
next 12 months. Product or company acquisitions or in-licensing opportunities,
however, may require significant additional capital resources. Such additional
capital resources may not be available when needed or on terms acceptable to us.
We are actively pursuing the acquisition of rights to products and/or companies
that may require the use of substantial capital resources; however, there are no
present agreements or commitments for any such acquisitions.

RISKS AND UNCERTAINTIES

FORWARD-LOOKING STATEMENTS. We caution readers that the statements in this
quarterly report that are not descriptions of historical facts may be
forward-looking statements that are subject to risks and uncertainties. Actual
results could differ materially from those currently anticipated due to a number
of factors, including those identified below.

WE FACE RISKS ASSOCIATED WITH THE PENDING MERGER OF SPIROS CORP. II.

THE MERGER WILL SIGNIFICANTLY REDUCE OUR CONTRACT REVENUES AND OPERATING INCOME
AND WILL LIKELY RESULT IN A MATERIAL CHARGE TO OUR EARNINGS IN THE PERIOD IN
WHICH THE MERGER OCCURS.

We record contract revenue for payments from Spiros Corp. II for development
costs we incur on Spiros Corp. II's behalf and for technology access fees.
Contract revenues from Spiros Corp. II totaled $13.8 million for the three
months ended March 31, 2000. The merger will result in a significant reduction
of contract revenue to us as well as a reduction in our operating income and
cash flow from operations. In addition, we expect that a material charge for
acquired in-process technology will likely be recorded in the period in which
the acquisition is completed.

THE FAILURE TO COMPLETE THE ACQUISITION MAY RESULT IN A DECREASE IN THE MARKET
VALUE OF OUR COMMON STOCK.

The acquisition is subject to a number of conditions, including approval by the
stockholders of Spiros Corp. II and other customary closing conditions. As a
result, the acquisition may not be completed. If the acquisition is not
completed for any reason, the trading price of our common stock may fall.

WE FACE RISKS ASSOCIATED WITH OUR OPERATIONS THAT WILL NOT BE REDUCED BY THE
MERGER.

BEFORE WE CAN MARKET ANY PRODUCT, INCLUDING ANY SPIROS PRODUCT, WE WILL HAVE TO
OBTAIN REQUIRED GOVERNMENTAL APPROVALS, WHICH IS NOT ASSURED.

The development, testing, manufacturing and marketing of pharmaceutical products
are subject to extensive regulation by governmental authorities, including the
FDA. The FDA must approve each Spiros product before that product can be
manufactured or marketed for commercial sale. The review and approval process
mandated by the FDA is very rigorous, requiring extensive preclinical and
clinical testing as well as determining manufacturing capability and product
performance. The FDA may never approve any of the Spiros products currently in
development by us or in collaboration with third parties. Failure to obtain any
such approval would have an adverse effect on our business and results of
operations.

ALTERNATIVE SUPPLIERS TO OUR THIRD-PARTY MANUFACTURERS MAY NOT BE AVAILABLE ON A
TIMELY BASIS.

We do not have the capability to manufacture the pharmaceutical products we
currently sell. As a result, we are dependent on third-party contract
manufacturers for the supply of all of our products. These products are supplied
under short-term and long-term supply agreements. If these manufacturers were
unable to supply product, it could be difficult for us to secure alternative
sources of supply in a timely manner. This would impair our ability to ship
product to our customers and could have an adverse effect on our business and
results of operations.

WE INTEND TO CONTINUE TO PURSUE OUR STRATEGY OF ACQUIRING COMPLEMENTARY PRODUCTS
AND LATE-STAGE PRODUCT DEVELOPMENT CANDIDATES, WHICH COULD RESULT IN SIGNIFICANT
CHARGES TO EARNINGS AND REQUIRE THE USE OF CAPITAL RESOURCES.

As part of our business strategy, we intend to continue to pursue the
acquisition of complementary products and late-stage product development
candidates. Such acquisitions could result in significant charges to earnings in
the related period as well as require the use of a large amount of our available
capital resources. Depending on the acquisition opportunities available and our
use of existing funds to satisfy existing capital and operating needs, we may
need to raise additional funds to finance these transactions. If adequate funds
are not available when needed on terms acceptable to us, our ability to complete
acquisitions could be limited. We may not have sufficient funds to develop any
late-stage product development candidates that we may acquire, any development
we conduct may not be successful and any funds we spend on product development
may reduce our earnings below the levels expected by securities analysts.
Further, reimbursement may not be available to enable us to achieve market
acceptance of any

products we may acquire or develop or to maintain price levels sufficient to
realize an appropriate return on our investment in these products.

WE WILL NEED TO EXPAND OUR MANUFACTURING CAPABILITY AND COMPLY WITH
GOVERNMENT REGULATIONS BEFORE WE CAN MANUFACTURE ANY SPIROS PRODUCTS.

We will need to expand our current manufacturing operations and comply with
regulations prescribed by various regulatory agencies to achieve the quality
and required levels of production of our Spiros products to be commercially
successful. In addition, our manufacturing facility must be registered with
and licensed by various regulatory authorities and must comply with current
good manufacturing practice requirements prescribed by the FDA and other
governmental authorities. We intend to utilize third parties to produce
components of and assemble the Spiros inhaler. Those third parties have only
produced limited quantities of components and assembled limited numbers of
inhalers. The third parties will be required to significantly scale up their
activities and to produce components which meet applicable specifications on
a timely and consistent basis. Those third parties may not be successful in
attaining acceptable service levels or meeting regulatory requirements which
would have an adverse effect on our ability to commercialize the Spiros
products.

IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL
AS NECESSARY, IT COULD IMPAIR OUR OPERATIONS AND DELAY OUR PRODUCT DEVELOPMENT
PROGRAMS.

Our success depends on the principal members of our scientific and management
staff. If we lose the services of one or more of these people, we may be unable
to achieve our development objectives.

None of our employees, other than Cam L. Garner, our chairman and chief
executive officer, Robert S. Whitehead, our president and chief operating
officer and David S. Kabakoff, Ph.D., president, Dura Technologies, are
currently employed under an employment contract. Each of Mr. Garner, Mr.
Whitehead and Dr. Kabakoff are employed under separate letter agreements which
expire in 2000, on May 31, July 1 and April 30, respectively. Each contract
automatically renews for successive one-year periods.

We may not be able to recruit and retain management and qualified scientific
personnel to perform research and development work in the future due to intense
competition for personnel among pharmaceutical and other technology-based
businesses, universities and research institutions, particularly in the San
Diego area.

WE MAY NOT BE ABLE TO EFFECTIVELY MARKET MAXIPIME AND AZACTAM.

Effective January 1, 1999, we acquired the rights to Maxipime and Azactam, our
first acquisition of products used in hospitals. Under a co-promotion agreement
with Bristol-Myers Squibb Company, Bristol-Myers Squibb's hospital sales force
promoted the products during 1999, while we built our hospital sales force.
Beginning in 2000, we assumed full responsibility for promoting these products.
We may not be able to effectively promote these products solely through our own
hospital sales force.

WE MAY HAVE TO REFINANCE OUR $287.5 MILLION OF OUTSTANDING NOTES ON TERMS THAT
MAY NOT BE ATTRACTIVE.

We issued $287.5 million principal amount of 3 1/2% convertible subordinated
notes due July 2002. We may desire to refinance the notes at a time when we
are not able to do so or on terms that are not attractive to us. Any
inability to refinance the notes on attractive terms could have a material
adverse effect on us and the market value of our common stock.

SEASONALITY AND THE TIMING AND SEVERITY OF THE WINTER COLD AND FLU SEASON CAN
HAVE AN ADVERSE EFFECT ON OUR OPERATING results.

Historically, as a result of the winter cold and flu season, industry-wide
demand for respiratory products has been stronger in the first and fourth
quarters than in the second and third quarters of the year. In addition,
variations in the timing and severity of the winter cold and flu season have
influenced our results of operations in the past and may influence them again in
the future.

WE COMPETE WITH MANY COMPANIES FOR THE ACQUISITION OF RIGHTS TO NEW PRODUCTS AND
TECHNOLOGIES.

Our strategy for growth is dependent, in part, on our ability to continue to
acquire rights to new products and technologies. The failure to successfully
acquire, develop or market new products or technologies would have an adverse
effect on our business, including our ability to achieve our targeted growth
rates. Other companies, including those with substantially greater resources,
are competing with us for the rights to such products. We may not be able to
acquire additional products or technologies on acceptable terms, or at all.

GROSS MARGINS ON PHARMACEUTICAL PRODUCTS MAY DECREASE AS A RESULT OF COMPETITIVE
PRESSURES.

The average selling prices for many of our products may decline over time due
to competitive and reimbursement pressures. We may not be successful in any
efforts we take to mitigate the effect of a decline in average selling
prices. Our commercial success will depend in part on the price that
third-party healthcare payors, such as government and private health insurers
and managed care organizations, are willing to pay for our products.
Third-party payors continually challenge the pricing of medical products and
services. Many managed care organizations limit the number of pharmaceutical
products they approve for reimbursement. The competition between
pharmaceutical companies to get their products approved for reimbursement may
also result in downward pricing pressure in the industry. Any of these
factors causing a decline in our average selling prices would also reduce the
gross margins we achieve and negatively impact our business.

OUR ABILITY TO OBTAIN PATENTS AND PROTECT OUR PROPRIETARY RIGHTS IS UNCERTAIN.

Our ability to obtain patents on current or future products or technologies,
defend our patents, maintain trade secrets and operate without infringing upon
the proprietary rights of others both in the U.S. and abroad is uncertain.
Patents may never issue from the applications we have filed. Even if issued or
licensed to us, patents may not be enforceable, provide substantial protection
from competition or be of commercial benefit to us. Even if all these are true,
we may not

possess the financial resources necessary to enforce or defend any patent rights
we obtain. Our commercial success will also depend upon avoiding the
infringement of patents issued to competitors and upon maintaining the
technology licenses upon which certain of our products are based. Litigation,
which is costly, may be necessary to enforce our patent and license rights or to
determine the scope and validity of proprietary rights of third parties. If any
of our products or technologies are found to infringe upon patents or other
rights owned by third parties, we could be required to obtain a license to
continue to manufacture or market such products or technologies. Licenses to
such patent rights may not be available to us on commercially reasonable terms,
or at all. If we do not obtain such licenses, we could encounter delays in
marketing affected products or technologies or we could find that the
development, manufacture or sale of products requiring such licenses is not
possible.

WE ARE INVOLVED IN A LAWSUIT AND CANNOT PREDICT ITS OUTCOME.

We are involved in stockholder litigation as described in note 3 of the notes to
consolidated financial statements. The outcome of this lawsuit and any other
suits in which we may become involved cannot be predicted. An adverse outcome in
any of these actions could have an adverse effect on our business or results of
operations.

OUR PRODUCTS MAY CAUSE PRODUCT LIABILITY CLAIMS OR MAY NEED TO BE RECALLED.

We face an inherent business risk of exposure to product liability claims in the
event that the use of our products or technologies is alleged to have resulted
in adverse effects. The level or breadth of any insurance coverage we currently
maintain may not be sufficient to fully cover potential claims. Adequate
insurance coverage may not be available in the future at acceptable costs, if at
all.

WE FACE RISKS ASSOCIATED WITH OUR MARKET.

THE PHARMACEUTICAL INDUSTRY IS EXTREMELY COMPETITIVE.

Many companies, including large pharmaceutical firms with financial and
marketing resources and development capabilities substantially greater than
ours, are engaged in developing, marketing and selling products that compete
with those that we offer or plan to offer. Our failure to effectively respond to
the competitive pressures of our industry would have an adverse effect on our
business and results of operations. The selling prices of such products
typically decline as competition increases. Further, other products now in use
or under development by others may be more effective than our current or future
products. The industry is characterized by rapid technological change, and
competitors may develop their products more rapidly than we do. Competitors may
also be able to complete the regulatory process sooner, and therefore, may begin
to market their products in advance of our products.

SOME OF OUR CHARTER AND OTHER CONTRACTUAL PROVISIONS MAY PREVENT A CHANGE OF
CONTROL WHICH COULD BE BENEFICIAL TO OUR STOCKHOLDERS.

Some provisions of our charter documents, outstanding securities, including
warrants, options and our notes, specified contracts, including the executive
severance agreements, and our stockholder rights plan may have the effect of
delaying, deferring or preventing a change in

control. This could deprive you of an opportunity to receive a premium for your
shares of common stock.

OUR STOCK PRICE IS VOLATILE.

The market prices for securities of emerging companies, including ours, have
historically been highly volatile. Future announcements concerning us or our
competitors may have a significant impact on the market price of our common
stock. Such announcements might include:

- - financial results,
- - the results of clinical testing of our or our competitors' products,
- - regulatory developments,
- - technological innovations,
- - new commercial products,
- - changes to government regulations,
- - regulatory decisions on commercialization of products,
- - developments concerning proprietary rights,
- - litigation or public concern as to safety of our products, or
- - our failure to achieve securities analysts' expectations concerning our
earnings per share or revenues.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We invest our excess cash and short-term investments in U.S. government and
corporate debt securities with high quality credit ratings and maturities of
less than two years. These investments are not held for trading or other
speculative purposes. Changes in interest rates affect the investment income we
earn on our investments and, therefore, impact our cash flows and results of
operations. At March 31, 2000, we had outstanding subordinated notes totaling
$287.5 million that mature in July 2002. The notes have a fixed interest rate of
3.5%. Accordingly, while changes in interest rates may affect the fair market
value of the notes, they do not impact our cash flows or results of operations.
As of March 31, 2000, the notes had a fair market value of $239 million. We are
not exposed to risks for changes in foreign currency exchange rates, commodity
prices, or any other market rates.

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit No.
-----------

(1) 2.1 Agreement and Plan of Merger dated March 20, 2000 by and
among Dura Pharmaceuticals, Inc., Starfish Acquisition Corp.,
Inc., and Spiros Development Corporation II, Inc.

(2) 10.1 Voting Agreement dated March 20, 2000 among Dura
Pharmaceuticals, Inc., Starfish Acquisition Corp., Inc.,
Spiros Development Corporation II, Inc., Farallon Capital
Partners, L.P., Farallon Capital Institutional Partners, L.P.,
Farallon Capital Institutional Partners II, L.P., Farallon
Capital Institutional Partners III, L.P., Tinicum Partners,
L.P., and Farallon Capital Management, L.L.C.

11 Statements re Computations of Net Income Per Share

27 Financial Data Schedule

(1) Incorporated by reference to the Company's Registration Statement on
From S-4 filed April 25, 2000 (No. 333-35512), as amended.
(2) Incorporated by reference to the Company's Form 8-K dated March 20,
2000.

(b) Reports on Form 8-K

On March 21, 2000, we filed a current report on Form 8-K dated March 20, 2000,
reporting that we entered into an agreement and plan of merger with Starfish
Acquisition Corp., Inc. and Spiros Development Corporation II, Inc.

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.

DURA PHARMACEUTICALS, INC.

DATE MAY 10, 2000 /s/ MICHAEL T. BORER
- ------------------ --------------------
(MICHAEL T. BORER)
----------------
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)