SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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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 September 30, 1999.

[ ] 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 November
1, 1999 was 44,224,802.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
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DURA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS, EXCEPT SHARE AMOUNTS
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SEPTEMBER 30, DECEMBER 31,
1999 1998
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ASSETS (UNAUDITED)

Current assets:
Cash and cash equivalents $ 34,300 $ 31,113
Short-term investments 232,419 238,299
Accounts and other receivables 42,352 24,627
Inventory 13,515 9,006
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Total current assets 322,586 303,045

License agreements and product rights 385,086 377,250
Property 92,690 85,374
Other assets 64,633 59,790
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Total $ 864,995 $ 825,459
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LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 9,008 $ 8,893
Accrued liabilities 68,913 46,557
Current portion of long-term obligations 3,948 6,798
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Total current liabilities 81,869 62,248

Convertible subordinated notes 287,500 287,500
Other long-term obligations 65,278 65,339
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Total liabilities 434,647 415,087
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Shareholders' 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 - 44,150,491 and 44,083,652, respectively 44 44
Additional paid-in capital 608,505 607,436
Accumulated other comprehensive income (loss) (1,002) 454
Warrant subscriptions receivable (7,076) (9,385)
Accumulated deficit (142,066) (160,951)
Treasury stock, at cost; 2,402,500 and 2,327,500 shares, respectively (28,057) (27,226)
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Total shareholders' equity 430,348 410,372
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Total $ 864,995 $ 825,459
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---------------------------------

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)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------------------------------
1999 1998 1999 1998
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Revenues:
Sales $ 54,271 $ 24,961 $ 160,673 $ 95,759
Contract 17,289 18,402 50,140 48,308
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Total revenues 71,560 43,363 210,813 144,067
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Operating costs and expenses:
Cost of sales 10,467 5,798 31,337 21,348
Clinical, development and regulatory 13,000 11,298 36,966 32,375
Selling, general and administrative 39,243 25,224 110,120 70,685
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Total operating costs and expenses 62,710 42,320 178,423 124,408
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Operating income 8,850 1,043 32,390 19,659
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Other:
Interest income 4,220 5,579 12,771 16,931
Interest expense (4,370) (2,945) (12,742) (9,155)
Other expense (3,500) - (3,746) (504)
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Total other (3,650) 2,634 (3,717) 7,272
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Income before income taxes 5,200 3,677 28,673 26,931
Provision for income taxes 1,664 1,253 9,789 9,166
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Net income $ 3,536 $ 2,424 $ 18,884 $ 17,765
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Net income per share:
Basic $ 0.08 $ 0.05 $ 0.43 $ 0.38
Diluted $ 0.08 $ 0.05 $ 0.41 $ 0.37

Weighted average number of common shares:
Basic 44,138 46,367 44,107 46,216
Diluted 45,462 47,578 45,655 47,647

See accompanying notes to consolidated financial statements.

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DURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
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NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1999 1998
----------------------------

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Net cash provided by operating activities $ 49,680 $ 56,628
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Investing activities:
Sales and maturities of short-term investments 240,241 280,569
Purchases of short-term investments (235,817) (277,617)
Product acquisitions (32,135) (40,223)
Capital expenditures (14,079) (34,627)
Other (4,250) (5,583)
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Net cash used for investing activities (46,040) (77,481)
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Financing activities:
Issuance of common stock and warrants - net 3,378 6,332
Principal payments on long-term obligations (3,000)
Repurchase of common stock (831)
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Net cash (used for) provided by financing activities (453) 6,332
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Net increase (decrease) in cash and cash equivalents 3,187 (14,521)
Cash and cash equivalents at beginning of period 31,113 72,003
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Cash and cash equivalents at end of period $ 34,300 $ 57,482
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 15,117 $ 11,312
Income taxes $ 1,687 $ 5,890

See accompanying notes to consolidated financial statements.

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

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
by Dura Pharmaceuticals, Inc. ("Dura" or the "Company") 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 the
opinion of management, necessary for a fair statement of the results of the
interim periods presented. These consolidated financial statements and notes
thereto should be read in conjunction with the audited financial statements and
notes thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1998. 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 the accounts of Dura and its
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 management 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. COMMITMENTS AND CONTINGENCIES

SETTLEMENT OF THE TERMINATION OF MERGER AGREEMENT WITH SCANDIPHARM, INC. - On
December 1, 1997, the Company terminated a merger agreement with Scandipharm,
Inc. entered into on October 20, 1997. On January 16, 1998, Scandipharm filed
suit against the Company for breach of contract. On January 20, 1998, the
Company filed suit against Scandipharm seeking a declaratory judgment that
Dura's termination of the merger agreement did not breach the agreement and for
damages against Scandipharm. On October 4, 1999, the Company settled all
litigation with Scandipharm. Under the terms of the settlement, the Company paid
$3.5 million to Scandipharm, and the parties dismissed all lawsuits filed
against one another. The $3.5 million charge is included with other expense in
the accompanying consolidated statements of operations for the periods ended
September 30, 1999.

SHAREHOLDER CLASS ACTION LITIGATION - Commencing on January 27, 1999, several
class action suits were filed against the Company, various current or former
officers and directors of the Company, and one of the Company's investment
bankers 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 shareholders who purchased Dura common stock during a
defined period. The Company believes that the claims in the lawsuit are
without merit and intends to defend against them vigorously.

3. REPORTING COMPREHENSIVE INCOME

Comprehensive income (loss) includes net income and unrealized gains and losses
on investments. The accumulated balance of other comprehensive income is
disclosed as a separate component of shareholders' equity. For the three months
and nine months ended September 30, 1999 and 1998, comprehensive income
consisted of (in thousands):

Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----

Net income $3,536 $ 2,424 $ 18,884 $ 17,765
Other comprehensive income (loss):
Unrealized income (loss) on
investments (360) 767 (1,456) 684
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Comprehensive income $3,176 $ 3,191 $ 17,428 $ 18,449
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4. SEGMENT INFORMATION

The Company operates in two business segments: (1) Pharmaceutical Products
and (2) Research and Development. The Pharmaceutical Products segment markets
prescription pharmaceutical products for the treatment of acute and
respiratory infections, allergies, and other respiratory conditions. The
Research and Development segment manages the development of Spiros(R), the
Company's proprietary dry powder delivery technology. Each of the Company's
segments operates solely within the United States. Four wholesale customers
accounted for 16%, 13%, 13%, and 12% of pharmaceutical product sales,
respectively, for the nine months ended September 30, 1999, while one
wholesale customer accounted for 13% of pharmaceutical product sales for the
same period in 1998.

The following table summarizes information about the Company's operating
segments (in thousands) for:

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------- --------------------------------------------
Pharmaceutical Research and Pharmaceutical Research and
Products Development Consolidated Products Development Consolidated

Total revenues 1999 $54,271 $17,289 $71,560 $161,526 $49,287 $210,813
1998 $25,832 $17,531 $43,363 $97,110 $46,957 $144,067

Operating income (loss) 1999 $5,566 $3,284 $8,850 $23,374 $9,016 $32,390
1998 ($4,467) $5,510 $1,043 $7,431 $12,228 $19,659

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, 1998 contained in our 1998
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.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

Net income for the three months ended September 30, 1999 was $3.5 million, or
$0.08 per diluted share, as compared to $2.4 million, or $0.05 per diluted
share, for the same period in 1998. Net income for the three months ended
September 30, 1999 includes a $3.5 million charge in other expense that we
incurred for settling all litigation with Scandipharm, Inc. (see Note 2).
Excluding the after tax impact of this nonrecurring item, we would have reported
net income of $5.9 million, or $0.13 per diluted share, for the three months
ended September 30, 1999.

Pharmaceutical sales for the three months ended September 30, 1999 increased
$29.3 million, or 117%, over 1998. This increase is due primarily to sales of
Maxipime(R) and Azactam(R), which we acquired in December 1998, as well as
increases in the sales of our promoted products Ceclor(R) CD and Nasarel(R).
Gross profit (pharmaceutical sales less cost of sales) for the three months
ended September 30, 1999 increased $24.6 million, or 129%, over 1998 due to the
increase in pharmaceutical sales. Gross profit as a percentage of sales
increased to 81% in 1999 compared to 77% in 1998.

Contract revenue relates primarily to amounts received by us for the development
of our Spiros(R) pulmonary drug delivery system. Under agreements with multiple
companies, we conduct feasibility testing and development work on various
compounds for use with Spiros. Contract revenues include payment for feasibility
and development work performed by us, as well as milestone and technology access
payments. Contract revenues for the three months ended September 30, 1999 were
$17.3 million as compared to $18.4 million for the same period in 1998. Contract
revenues from Spiros Development Corporation II, Inc. totaled $14 million for
the three months ended September 30, 1999, as compared to $12.6 for the same
period in 1998 (see Liquidity and Capital Resources below for further discussion
of 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.

Clinical, development and regulatory expenses for the three months ended
September 30, 1999 increased $1.7 million, or 15%, over 1998 due to additional
expenses incurred under feasibility and development agreements covering the use
of various compounds with Spiros as discussed above.

Selling, general and administrative expenses for the three months ended
September 30, 1999 increased $14 million, or 56%, over 1998, but decreased as a
percentage of total revenues from 58% in 1998 to 55% in 1999. The dollar
increase is primarily due to costs incurred to expand our field sales force and
to promote our recently acquired products, Maxipime and Azactam, as well as an
increase in the amortization of our recently acquired product rights.

Interest income for the three months ended September 30, 1999 decreased $1.4
million, or 24%, from 1998 due to lower balances of cash and short-term
investments resulting from the acquisition of product rights and the repurchase
of shares of our common stock in the second half of 1998.

Interest expense for the three months ended September 30, 1999 increased $1.4
million, or 48%, over 1998 due to interest expense on obligations incurred in
connection with the acquisition of product rights completed in the second half
of 1998.

We record interim provisions for income taxes based on the estimated effective
combined tax rate to be applicable for the fiscal year. We reevaluate this
estimate each quarter based on forecasts of pre-tax income for the year as well
as anticipated adjustments from statutory federal and state tax rates. Our
effective tax rate was 32% for the three months ended September 30, 1999 as
compared to 34% for the same period in 1998. The decrease in the effective rate
is due to an increase in the portion of foreign-sourced taxable income which is
taxed at lower rates.

NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

Net income for the nine months ended September 30, 1999 was $18.9 million, or
$0.41 per diluted share, as compared to $17.8 million, or $0.37 per diluted
share, for the same period in 1998. Net income for the nine months ended
September 30, 1999 includes a $3.5 million charge in other expense that we
incurred for settling all litigation with Scandipharm, Inc. (see Note 2).
Excluding the after tax impact of this nonrecurring item, we would have reported
net income of $21.3 million, or $0.47 per diluted share, for the nine months
ended September 30, 1999.

Pharmaceutical sales for the nine months ended September 30, 1999 increased
$64.9 million, or 68%, over 1998. This increase is due primarily to sales of
Maxipime, Azactam, and Myambutol(R) (acquired in August 1998) and growth in
prescription demand for Ceclor CD and Nasarel. Gross profit for the nine
months ended September 30, 1999 increased $54.9 million, or 74%, over 1998
due to the increase in pharmaceutical sales. Gross profit as a percentage of
sales increased from 78% in 1998 to 80% in 1999 due primarily to changes in
product mix.

Contract revenue for the nine months ended September 30, 1999 totaled $50.1
million as compared to $48.3 million for the same period in 1998. Contract
revenue from Spiros Corp. II for the nine months ended September 30, 1999 was
$38.8 million as compared to $35.6 million for the same period in 1998 (see
Liquidity and Capital Resources below for further discussion of Spiros Corp.
II).

Clinical, development and regulatory expenses for the nine months ended
September 30, 1999 increased $4.6 million, or 14%, over 1998 due to additional
expenses incurred under feasibility and development agreements covering the use
of various compounds with Spiros as discussed above.

Selling, general and administrative expenses for the nine months ended September
30, 1999 increased $39.4 million, or 56%, over 1998, and increased as a
percentage of total revenues from 49% in 1998 to 52% in 1999. The dollar and
percentage increases are primarily due to costs incurred to expand the number of
our field sales force and to promote our recently acquired products, Maxipime
and Azactam, as well as an increase in the amortization of our recently acquired
product rights.

Interest income for the nine months ended September 30, 1999 decreased $4.2
million, or 25%, from 1998 due to lower balances of cash and short-term
investments resulting from the acquisition of product rights and the repurchase
of shares of our common stock in the second half of 1998.

Interest expense for the nine months ended September 30, 1999 increased $3.6
million, or 39%, over 1998 due to interest expense on obligations incurred in
connection with the acquisition of product rights completed in the second half
of 1998.

We record interim provisions for income taxes based on the estimated effective
combined tax rate to be applicable for the fiscal year. We reevaluate this
estimate each quarter based on forecasts of pre-tax income for the year as well
as anticipated adjustments from statutory federal and state tax rates. Our
effective tax rate was 34% for the nine months ended September 30, 1999 and
1998. The decrease in the effective rate is due to an increase in the portion of
foreign-sourced taxable income which is taxed at lower rates.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and short-term investments totaled $266.7 million at
September 30, 1999 as compared to $269.4 million at December 31, 1998. Working
capital totaled $240.7 million at September 30, 1999 as compared to $240.8
million at December 31, 1998.

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 September 30, 1999, we had outstanding an
aggregate of $69.2 million in current and other long-term obligations, of which
$3.9 million is to be paid during the next 12 months. As of September 30, 1999,
additional future contingent obligations existed relating to product
acquisitions. Payments totaling approximately $122.6 million, estimated based on
historical sales levels of the related products, are contingent upon the amount
of future sales of certain products, and approximately $68 million are
contingent upon the continued absence of competing formulations of certain
products as defined in the respective agreements. Such contingent amounts are
payable through 2004, including approximately $38.7 million contingently due
within the next 12 months.

We have entered into various agreements with Spiros Corp. II for the development
of Spiros with certain compounds including albuterol, beclomethasone, and
budesonide. In 1997, we licensed the use of these and other compounds with
Spiros to Spiros Corp. II on an exclusive basis. We

have the right to purchase all, but not less than all, of the then
outstanding shares of Spiros Corp. II callable common stock at predetermined
prices. In addition, we have the right to acquire from Spiros Corp. II the
exclusive rights for the use of Spiros with albuterol and for the use of
Spiros with a second product other than albuterol. Both the stock purchase
option and the product purchase option expire the earlier of December 31,
2002 or upon the use of substantially all of Spiros Corp. II's funds.

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 $38.8 million for the nine months ended September
30, 1999. 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 use of Spiros Corp. II's remaining cash will require us to consider
whether to purchase Spiros Corp. II's callable common stock or to exercise
either product purchase option. If we do not purchase the Spiros Corp. II
stock or exercise either of the product options prior to their expiration,
our rights to the use of Spiros with certain compounds (including albuterol,
beclomethasone, and budesonide) will terminate upon the depletion of Spiros
Corp. II's cash. Based on the predetermined option price for the shares of
Spiros Corp. II callable common stock, the exercise of our stock purchase
option would cost $151.9 million through December 31, 1999. This option
price increases approximately 6% per quarter beginning in the first quarter
of 2000. The purchase price may be paid, at our option, in Dura stock, cash
or any combination thereof. The purchase price for exercising either product
purchase option must be paid in cash and is set by a formula based, in part,
on the costs incurred by Spiros Corp. II developing the respective product.
We may also, at our sole option, provide additional funds to Spiros Corp. II
to continue its development efforts.

The purchase of Spiros Corp. II's callable common stock or the exercise of
the product purchase options would require the use of a significant amount of
our capital resources. The issuance of common stock to purchase Spiros Corp.
II's callable common stock would increase the number of shares outstanding
and dilute our future earnings per share. The use of cash to acquire either
the stock or a product or to make a direct cash contribution to Spiros Corp.
II would decrease our cash on hand. In addition, the discontinuation of
contract revenue from Spiros Corp. II due to the depletion of its cash or the
acquisition of its stock by us would reduce our earnings as well as cash
generated from operating activities. Further, acquiring the Spiros Corp. II
stock or one of the products or making a contribution of cash to Spiros Corp.
II would likely result in a material charge to earnings in the period in
which the event occurs. We are currently evaluating all of our options with
respect to Spiros Corp. II.

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 resources. Such
additional resources may not be available when needed or on terms acceptable
to us. We continue to pursue the acquisition of rights to products and/or
companies which may require the use of substantial capital resources;
however, there are no present agreements or commitments for such acquisitions.

YEAR 2000

We utilize computer systems throughout our business to carry out our day-to-day
operations. Beginning in 1997, we implemented a program designed to enable our
computer operating systems to process data having dates on or after January 1,
2000. The program assesses our information technology systems as well as
technology systems embedded in our facilities and equipment.

The first phase in our year 2000 program was to identify the systems with year
2000 exposure. This phase was completed during 1998. Substantially all the
hardware and software comprising our information technology systems were
replaced in 1997 with systems that we believe are year 2000 compliant.
Accordingly, no further evaluation or testing of these systems has been
undertaken. We are also currently upgrading and testing other systems to make
them year 2000 compliant.

We have contacted our significant suppliers, customers, and key business
partners to determine if our business may be affected if these parties fail
to address their year 2000 issues. We are monitoring the progress made by
these parties and to address any risks arising from their failure to
adequately prepare for the year 2000. In addition, we are testing key
interfacing data systems with our business partners to ensure that all
measures taken to become year 2000 compliant are effective.

We have developed a contingency plan to address any year 2000 exposures from
internal and third-party systems that may not be adequately remediated or
replaced. While it is difficult to identify all potential year 2000
exposures, the greatest risks to us are our inability to receive and process
orders from our customers and our vendors' inability to supply product
inventory. Our contingency plan addresses these risks by identifying
alternative suppliers, stocking additional inventory, and developing back-up
systems to process sales orders.

We will complete our year 2000 evaluation, testing and contingency planning
during the fourth quarter of 1999. We estimate that the aggregate costs of
our year 2000 program will be less than $1 million, including costs incurred
to date. This estimate excludes the cost of the information technology
systems implemented in 1997 as the implementation was not in response to the
year 2000 issue. The majority of the costs are not expected to be incremental
expenses but rather an allocation of existing resources. The estimated
impact, cost, and timing of our year 2000 program are based on our best
estimates using information currently available. These estimates may not be
achieved, and actual results could differ materially from our plans.

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.

SPIROS CORP. II MAY NOT HAVE SUFFICIENT FUNDS TO COMPLETE THE DEVELOPMENT OF
ANY SPIROS PRODUCT AND OUR EXERCISE OF THE SPIROS CORP. II STOCK PURCHASE
OPTION AND/OR PRODUCT PURCHASE OPTION MAY HAVE AN ADVERSE EFFECT ON OUR
BUSINESS. We have entered into various agreements with Spiros Corp. II for
the development of Spiros with certain compounds including albuterol,
beclomethasone, and budesonide. In 1997, we licensed the use of these and
other compounds with Spiros to Spiros Corp. II on an exclusive basis. We have
the right to purchase all, but not less than all, of the then outstanding
shares of Spiros Corp. II callable common stock at predetermined prices. In
addition, we have the right to acquire from Spiros Corp. II the exclusive
rights for the use of Spiros with albuterol and for the use of Spiros with a
second product other than albuterol. Both the stock purchase option and the
product purchase option expire the earlier of December 31, 2002 or upon the
use of substantially all of Spiros Corp. II's funds.

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 $38.8 million for the nine
months ended September 30, 1999. 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 use of Spiros Corp. II's remaining cash will require us to consider
whether to purchase Spiros Corp. II's callable common stock or to exercise
either product purchase option. If we do not purchase the Spiros Corp. II
stock or exercise either of the product options prior to their expiration,
our rights to the use of Spiros with certain compounds (including albuterol,
beclomethasone, and budesonide) will terminate upon the depletion of Spiros
Corp. II's cash. Based on the predetermined option price for the shares of
Spiros Corp. II callable common stock, the exercise of our stock purchase
option would cost $151.9 million through December 31, 1999. This option
price increases approximately 6% per quarter beginning in the first quarter
of 2000. The purchase price may be paid, at our option, in Dura stock, cash
or any combination thereof. The purchase price for exercising either product
purchase option must be paid in cash and is set by a formula based, in part,
on the costs incurred by Spiros Corp. II developing the respective product.
We may also, at our sole option, provide additionnal funds to Spiros Corp. II
to continue its development efforts.

BEFORE WE CAN MARKET 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. Failure to obtain such approvals would have an adverse effect
on our business and results of operations. 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. None of the products currently in development by Dura or in
collaboration with third parties may ever be approved by the FDA.

OUR REGULATORY APPLICATION SUBMITTED TO THE FDA FOR ALBUTEROL SPIROSTM WILL
NOT BE APPROVED WITHOUT ADDITIONAL CLINICAL TRIALS, WHICH WILL DELAY THE
COMMERCIALIZATION OF ALBUTEROL SPIROS. On November 4, 1998 Dura and Spiros
Corp. II announced the receipt of a complete response letter from the FDA.
The letter indicated that the new drug application submitted by Dura on
behalf of Spiros Corp. II for Albuterol Spiros will not be approved unless
certain deficiencies are addressed. The FDA requested that additional
clinical trials on the Spiros inhaler be completed to ensure the inhaler is
reliable and to replicate clinical outcomes of the initial trials. The FDA
also requested that several chemistry, manufacturing and control issues, as
well as certain electromechanical reliability issues be resolved. As a result
of a series of meetings with the FDA, Dura and Spiros Corp. II have
determined the requirements that they believe will address these issues to
support the resubmission of the new drug application for Albuterol Spiros. We
cannot, however, assure the commencement or the successful outcome of the
additional trials to support the submission of the new drug application or if
the FDA will ever approve the new drug application for this product.

WE NEED TO BUILD A HOSPITAL-BASED FIELD SALES FORCE BY THE END OF 1999 TO BE
ABLE TO EFFECTIVELY MARKET OUR RECENTLY ACQUIRED PRODUCTS, MAXIPIME AND
AZACTAM. Effective January 1, 1999, we acquired the rights to two
hospital-based products, Maxipime (cefepime hydrochloride) for Injection and
Azactam (aztreonam) for Injection. Under a co-promotion agreement with
Bristol-Myers Squibb Company, the BMS hospital field sales force will promote
the products through the end of 1999, at which point we will assume full
responsibility for promoting these products. In the first half of 1999 we
built our acute care sales and marketing management team, and by the end of
1999 we expect to have approximately 100 field sales representatives and
associated field management who will primarily focus on promoting our
hospital-based products. Our success with these products is dependent upon
effectively building this sales and marketing capability by the end of 1999.

WE WILL NEED TO SIGNIFICANTLY EXPAND OUR MANUFACTURING CAPABILITY AND COMPLY
WITH GOVERNMENT REGULATIONS BEFORE WE CAN MANUFACTURE ANY SPIROS PRODUCTS. We
will need to significantly 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 products to obtain marketing
approval. 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 the State of
California. We intend to utilize third parties to produce components of and
assemble the Spiros inhaler. Such third parties have only produced limited
quantities of components and assembled limited numbers of inhalers. These 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. Such 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.

WE INTEND TO CONTINUE TO PURSUE OUR STRATEGY OF ACQUIRING COMPLEMENTARY PRODUCTS
AND TECHNOLOGIES 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 product rights and
technologies. 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 such
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 technologies 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.

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 us. Competitors may also be able to
complete the regulatory process sooner, and therefore, may begin to market their
products in advance of our products.

A PROPOSED NEW ACCOUNTING STANDARD MAY REQUIRE US TO CONSOLIDATE SPIROS CORP. II
WHICH WOULD HAVE AN ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS. In February
1999, the Financial Accounting Standards Board issued an exposure draft of a
proposed new statement of financial accounting standards entitled "Consolidated
Financial Statements: Purpose and Policy." This proposed standard, if adopted,
would modify existing standards which govern when the assets, liabilities, and
operating results of special purpose research and development entities, like
Spiros Corp. II, should be consolidated. The exposure period for interested
parties to comment on the proposed changes ended in May 1999, and these comments
will be considered prior to issuing the standard in its final form, if one is
issued at all. The Board plans to issue a statement in the second quarter of
2000. If adopted as initially proposed, this standard may require us to
consolidate the assets, liabilities, and operating results of Spiros Corp. II
into our financial statements. Such consolidation would have an adverse effect
on our results of operations and may have an adverse effect on the market price
of our common stock.

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 A NUMBER OF
FACTORS OUTSIDE OUR CONTROL, WHICH WOULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.
We do not have proprietary protection for several of the products we sell, and
other pharmaceutical companies sell substitutes for such products. In addition,
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 average selling
prices would also reduce the gross margins we achieve and negatively impact our
business.

ALTERNATIVE SUPPLIERS TO OUR THIRD-PARTY MANUFACTURERS MAY NOT BE AVAILABLE ON A
TIMELY BASIS WHICH WOULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS. 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.

OUR ABILITY TO OBTAIN PATENTS AND PROTECT OUR PROPRIETARY RIGHTS IS UNCERTAIN
AND COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS. 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. 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, if 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.

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.

WE ARE INVOLVED IN A LAWSUIT AND CANNOT PREDICT ITS OUTCOME. We are involved
in shareholder litigation as described in Note 2 of the 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.

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.

OUR PRODUCTS MAY CAUSE PRODUCT LIABILITY CLAIMS OR MAY NEED TO BE RECALLED,
EITHER OF WHICH WOULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS. 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.

CERTAIN OF OUR CHARTER AND OTHER CONTRACTUAL PROVISIONS MAY PREVENT A CHANGE OF
CONTROL WHICH COULD BE BENEFICIAL TO OUR SHAREHOLDERS. Certain provisions of our
charter documents, outstanding securities, including certain warrants, options
and our notes, and our shareholder 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.

WE MAY NOT ADEQUATELY ADDRESS YEAR 2000 ISSUES WHICH COULD HAVE AN ADVERSE
EFFECT ON OUR BUSINESS. We have evaluated our systems to assess their year 2000
compliance, and we are currently upgrading and testing those systems. We are
also completing our audits of the compliance efforts of our significant
suppliers, customers and key business partners to determine the extent to which
our business may be affected if these parties fail to address their year 2000
issues. We estimate that the aggregate costs of our year 2000 program will be
less than $1 million, including costs incurred to date. There can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those plans. Our failure to adequately address our year 2000
risks would have an adverse effect on our business and results of operations.
For a more complete description of the initiatives we have implemented with
respect to the year 2000 issue, please see "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Year 2000."

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 September 30, 1999, 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 September 30, 1999, the notes had a fair market value of
$223.5 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 1. LEGAL PROCEEDINGS

See Note 2 to the consolidated financial statements.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

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

11 Statements re Computations of Net Income Per Share
27 Financial Data Schedule

(b) Reports on Form 8-K

None.

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 NOVEMBER 12, 1999 /s/ Michael T. Borer
- ----------------------- ---------------------
(MICHAEL T. BORER)
----------------
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)