SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

__________________

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended June 30, 2000

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

Commission File Number 0-27150

__________________

PathoGenesis Corporation
(Exact name of Registrant as specified in its charter)

Delaware 91-1542150
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

201 Elliott Avenue West, Seattle, Washington 98119

(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (206) 467-8100

__________________

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

On August 9, 2000, the registrant had an aggregate of 16,616,860 shares of
Common Stock issued and outstanding.

PART I

FINANCIAL INFORMATION

PathoGenesis Corporation
Condensed Consolidated Balance Sheets (Unaudited)

Item 1. Financial statements

June 30, 2000 December 31, 1999
-------------- ------------------

ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 4,605,575 $ 10,456,031
Investment securities............................................................... 34,654,928 34,549,738
Accounts receivable, net............................................................ 8,914,111 6,038,299
Interest receivable................................................................. 359,555 442,676
Inventories......................................................................... 13,214,650 14,613,385
Other............................................................................... 2,125,450 2,110,610
------------- -------------
Total current assets...................................................... 63,874,269 68,210,739
------------- -------------
Property and equipment, at cost:
Land................................................................................ 2,846,813 3,030,938
Building and improvements........................................................... 1,366,470 1,454,850
Leasehold improvements.............................................................. 10,064,385 9,735,242
Furniture and equipment............................................................. 18,213,760 16,948,235
------------- -------------
32,491,428 31,169,265
Less accumulated depreciation and amortization...................................... 14,918,490 12,957,926
------------- -------------
Net property and equipment................................................ 17,572,938 18,211,339
------------- -------------
License rights, net.................................................................. 13,105,916 13,591,321
Other assets......................................................................... 3,277,261 823,519
------------- -------------
Total assets........................................................................ $ 97,830,384 $ 100,836,918
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 891,341 $ 1,668,775
Compensation and benefits........................................................... 2,769,426 2,524,184
Clinical development costs.......................................................... 1,262,256 1,391,383
Accrued royalties................................................................... 968,634 906,629
Other accrued expenses.............................................................. 2,418,478 2,781,644
Current portion of long-term liability.............................................. 99,717 5,149,847
------------- -------------
Total current liabilities................................................. 8,409,852 14,422,462
------------- -------------
Long-term liability, net of current portion.......................................... 2,557,308 --

Stockholders' equity:
Preferred stock, $0.01 par value. Authorized
1,000,000 shares; none issued and outstanding...................................... -- --
Common stock, $0.001 par value.
Authorized 60,000,000 shares; 16,570,131 shares and 16,451,530 shares issued and
outstanding at June 30, 2000 and December 31, 1999, respectively............... 16,570 16,452
Additional paid-in capital.......................................................... 196,225,141 194,641,919
Deferred compensation............................................................... (298,882) (526,199)
Accumulated other comprehensive loss................................................ (833,161) (582,036)
Accumulated deficit................................................................. (108,246,444) (107,135,680)
------------- -------------
Total stockholders' equity.......................................................... 86,863,224 86,414,456
------------- -------------
Total liabilities and stockholders' equity.......................................... $ 97,830,384 $ 100,836,918
============= =============

See accompanying notes.

PathoGenesis Corporation
Condensed Consolidated Statements of Operations (Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------

Revenues:
Sales........................................................ $20,186,362 $14,065,449 $39,561,109 $24,121,584
Grants and royalties......................................... 201,783 235,600 375,467 439,863
----------- ----------- ----------- -----------
Total revenues............................................... 20,388,145 14,301,049 39,936,576 24,561,447
Operating expenses:
Cost of sales................................................ 3,430,479 2,546,929 6,876,378 4,748,990
Research and development..................................... 9,477,999 7,478,589 18,037,859 14,319,058
Selling, general and administrative.......................... 8,681,665 7,202,059 17,029,467 13,739,630
----------- ----------- ----------- -----------
Total operating expenses................................. 21,590,143 17,227,577 41,943,704 32,807,678
----------- ----------- ----------- -----------
Operating loss........................................... (1,201,998) (2,926,528) (2,007,128) (8,246,231)
----------- ----------- ----------- -----------
Other income (expense):
Investment income, net....................................... 600,806 696,021 1,272,558 1,523,221
Interest expense............................................. (74,124) (183,289) (184,463) (401,669)
Other expense................................................ (67,107) (85,804) (191,731) (112,584)
----------- ----------- ----------- -----------
Net other income......................................... 459,575 426,928 896,364 1,008,968
----------- ----------- ----------- -----------
Net loss................................................. $ (742,423) $(2,499,600) $(1,110,764) $(7,237,263)
=========== =========== =========== ===========
Loss per common share-
basic and diluted............................................ $ (0.04) $ (0.15) $ (0.07) $ (0.44)
=========== =========== =========== ===========

Weighted average common shares outstanding-
basic and diluted............................................ 16,559,486 16,394,038 16,523,793 16,386,475

See accompanying notes.

PathoGenesis Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended
June 30,
------------------------------
2000 1999
------------ ------------

Cash flows from operating activities:
Net loss.......................................................................... $ (1,110,764) $ (7,237,263)

Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization............................................. 1,987,105 1,682,856
Amortization of license rights............................................ 485,405 485,404
Amortization of discount on long-term liability........................... 183,486 388,520
Compensation expense from stock options................................... 302,317 230,479
Loss on sale of property and equipment.................................... -- 33,489
Change in certain assets and liabilities:
Accounts receivable................................................. (2,883,318) 6,511,087
Interest receivable................................................. 83,121 88,262
Inventories......................................................... 1,397,740 (5,744,136)
Other current assets................................................ (11,483) 1,568,842
Other assets........................................................ 86,365 (860,297)
Accounts payable.................................................... (769,051) (786,371)
Compensation and benefits........................................... 245,242 (809,608)
Clinical development costs.......................................... (128,102) 237,192
Accrued royalties................................................... 62,005 (216,303)
License payable..................................................... -- (2,000,000)
Other accrued expenses.............................................. (356,744) (31,681)
------------ ------------
Net cash used in operating activities............................... (426,676) (6,459,528)
------------ ------------

Cash flows from investing activities:
Purchases of investment securities................................................ (34,618,307) (16,163,747)
Sales of investment securities.................................................... 34,564,737 25,675,369
Purchases of property and equipment............................................... (1,692,916) (2,171,234)
Investment in AeroGen, Inc........................................................ (2,500,000) --
------------ ------------
Net cash provided by (used in) investing activities................. (4,246,486) 7,340,388
------------ ------------

Cash flows from financing activities:
Proceeds from issuance of common stock in connection
with employee stock purchase plan............................................. 562,186 353,069
Stock option and warrant exercises................................................ 829,168 440,848
Payment of long-term liability.................................................... (5,333,333) (5,333,333)
Proceeds from loan................................................................ 2,655,314 --
Other............................................................................. 116,986 --
------------ ------------
Net cash used in financing activities............................... (1,169,679) (4,539,416)
------------ ------------

Effect of exchange rate changes on cash............................................. (7,615) --
------------ ------------

Net decrease in cash and cash equivalents........................... (5,850,456) (3,658,556)

Cash and cash equivalents at beginning of period.................................... 10,456,031 8,139,153
------------ ------------
Cash and cash equivalents at end of period.......................................... $ 4,605,575 $ 4,480,597
============ ============

See accompanying notes.

PathoGenesis Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000 AND 1999

(1) BASIS OF PRESENTATION

We have prepared the accompanying condensed consolidated financial
statements of PathoGenesis Corporation and subsidiaries and these notes in
accordance with Securities and Exchange Commission rules and regulations for
interim financial statements. As permitted by those rules and regulations, we
have condensed or omitted certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles. You should read the accompanying condensed consolidated
financial statements and these notes in conjunction with our audited
consolidated financial statements for 1999 included in our annual report on Form
10-K.

The information furnished reflects, in the opinion of our management, all
adjustments, consisting only of normal recurring items, necessary for a fair
presentation of the results for the interim periods presented. Interim results
are not necessarily indicative of results for a full year.

(2) INVENTORIES

Inventories are stated at the lower of cost, as determined by the first-in,
first-out method, or market. Inventories consisted of the following:

June 30, 2000 December 31, 1999
------------- -----------------

Finished goods $ 2,692,793 $ 2,433,718
Work in progress 2,257,202 2,907,128
Raw materials and supplies 8,264,655 9,272,539
----------- -----------

$13,214,650 $14,613,385
=========== ===========

LOSS PER COMMON SHARE

We have not included options and warrants to purchase 4,041,116 and
3,466,900 shares of common stock that were outstanding during the second quarter
of 2000 and 1999, respectively, in the computation of diluted loss per share
because the representative share increments would be antidilutive. For the same
reason, we have not included options and warrants to purchase 4,031,844 and
3,527,957 shares of common stock that were outstanding during the six-month
period ended June 30, 2000 and 1999, respectively, in the computation of diluted
loss per share.

(4) COMPREHENSIVE LOSS

Total comprehensive loss amounted to $946,065 and $2,690,887 for the second
quarters of 2000 and 1999, respectively. Total comprehensive loss for the six-
month periods ended June 30, 2000 and 1999 amounted to $1,361,889 and
$7,560,946, respectively. Our other comprehensive income (loss) is comprised of
unrealized gains and losses on available-for-sale investment securities and
foreign currency translation adjustments.

(5) BUSINESS SEGMENTS

In 1998, we adopted Statement of Financial Accounting Standards (SFAS) No.
131, Disclosures about Segments of an Enterprise and Related Information. SFAS
No. 131 requires an enterprise to report segment information based on how
management internally evaluates the operating performance of its business units
(segments). Our operations are confined to one business segment, the
development of drugs to treat chronic infectious diseases.

The following geographic information includes sales revenue based on product
shipment destination:

Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------

United States $18,127,209 $13,648,123 $35,328,031 $23,511,392
Rest of world 2,059,153 417,326 4,233,078 610,192
----------- ----------- ----------- -----------
Total $20,186,362 $14,065,449 $39,561,109 $24,121,584
=========== =========== =========== ===========

(6) COLLABORATION AND INVESTMENT AGREEMENTS

In January 2000, we entered into a collaboration with Chiron Corporation to
discover and develop new antibiotics. The collaboration combines Chiron's
combinatorial chemistry library and expertise in high-throughput screening with
our strengths in bacterial target discovery and antibiotic development, as well
as our knowledge of the Pseudomonas aeruginosa genome. The focus of this
collaboration is on the discovery of novel treatments for infectious diseases,
specifically antibiotics with new mechanisms of action to address serious
medical needs, such as antibiotic resistance.

In March 2000, we entered into an agreement with AeroGen, Inc. to
collaborate on the development and registration of a product combining TOBI and
AeroGen's hand-held, portable AeroDose Inhaler. Our goal is to reduce TOBI's
delivery time from 15-20 minutes to 5-10 minutes or less. Under the development
and supply agreement, we will reimburse AeroGen for costs incurred in developing
the AeroDose Inhaler and will obtain worldwide exclusive distribution rights to
the product. AeroGen will receive royalties on all product sales. Under a
separate agreement, we invested $2.5 million in convertible preferred stock of
privately held AeroGen. This investment is included in other assets and
accounted for under the cost method.

(7) LOAN AGREEMENT

In June 2000, we secured a loan from Lloyds TSB Bank PLC in the amount of
(Pounds)1,750,000 ($2,655,314) to finance the land and building occupied by
PathoGenesis Limited, a wholly owned subsidiary of PathoGenesis Corporation.
This loan is to be repaid in 180 consecutive monthly installments, with interest
payable at the bank's base rate plus 1.5% (7.5% at June 30, 2000).

(8) LEGAL PROCEEDINGS

On February 18, 2000, the United States District Court for the Western
District of Washington dismissed with prejudice all eight consolidated putative
class action lawsuits that had been filed in March and April 1999 against
PathoGenesis Corporation, our chief executive officer and our chief financial
officer. The eight consolidated lawsuits purported to allege claims on behalf
of all purchasers of PathoGenesis common stock during the period January 15,
1999 to March 22, 1999. Plaintiffs had claimed that the company and the
officers violated certain provisions of the federal securities laws by making
statements in early 1999 regarding the company's 1998 financial results. The
court's order dismissed the consolidated cases and bars plaintiffs from filing
another lawsuit on the matter. Plaintiffs have appealed the dismissal order to
the United States Court of Appeals for the Ninth Circuit. We intend to defend
the appeal vigorously. Although we cannot ascertain the ultimate outcome of the
appeal at this time or predict with certainty the results of legal proceedings,
we currently believe that the resolution of the appeal will not have a material
adverse effect on our financial position or results of operations.

(9) SUBSEQUENT EVENT

On August 13, 2000, we entered into an agreement with Chiron Corporation
for Chiron to acquire all of the outstanding common stock of PathoGenesis for
approximately $700 million or $38.50 per share. The transaction will be in the
form of a cash tender offer, which is expected to close in the third or fourth
quarter, subject to customary closing conditions including necessary regulatory
approvals. The transaction has been approved by the board of directors of each
company.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

In addition to historical information, this quarterly report on Form 10-Q
contains forward-looking statements. You may identify these forward-looking
statements by the use of such words as "believe," "anticipate," "expect," "plan"
and "intend," among others. Since these statements are based on factors that
involve risks and uncertainties, they do not necessarily indicate what our
actual future results will be, and results may vary from quarter to quarter.
Important factors that could cause or contribute to material differences between
our actual results and the results expressed or implied by the forward-looking
statements include, but are not limited to, those discussed in "Item 1.
Business," "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" of our annual report on Form 10-K for 1999, and in
Exhibit 99.1 to the Form 10-K. These factors include, but are not limited to,
uncertainties related to the fact that PathoGenesis only began commercial
operations in 1998, its dependence on TOBI(R) (tobramycin solution for
inhalation), the degree of penetration of its markets and frequency of TOBI's
use by patients, risks associated with marketing TOBI in international markets,
third party reimbursement and product pricing, seasonal impacts on
hospitalizations or exacerbations experienced by patients, variability in
wholesaler ordering patterns, drug development and clinical trials, uncertain
outcome of the U.S. and international drug approval process, competition and
alternative therapies. We cannot assure you that TOBI -- which is currently our
only product -- will penetrate markets as planned, that our development of TOBI
for other uses will succeed or occur within anticipated time frames, or that we
will develop any of our other drug candidates successfully.

Results of Operations

Three Months Ended June 30, 2000 and 1999

Revenues. Revenues in the second quarter of 2000 totaled $20.4 million,
including $20.2 million from TOBI sales. Revenues for the corresponding period
in 1999 were $14.3 million, with $14.1 million from sales of TOBI. Significant
contributors to this growth in sales are continuing penetration of the U.S.
cystic fibrosis market and increased use of TOBI among patients with other
serious lung infections. In addition, TOBI sales in international markets have
increased significantly, and now account for approximately 10% of our total
sales. International sales revenue totaled $2.1 million in the second quarter of
2000, compared to $417,000 for the corresponding period in 1999. We expect sales
to continue to increase in the third and fourth quarters of 2000 as the use of
TOBI expands both in the U.S. and internationally.

Operating Expenses. We incurred total operating expenses of $21.6 million
in the second quarter of 2000, an increase of $4.4 million from $17.2 million in
the second quarter of 1999. Cost of sales was $3.4 million for the second
quarter of 2000, up $884,000 from $2.5 million for the corresponding period in
1999. The increase in cost of sales is directly related to the corresponding
increase in sales. However, cost of sales as a percentage of sales declined as
sales volumes increased. Research and development expense for the second
quarter of 2000 increased by $2.0 million to $9.5 million from $7.5 million for
the corresponding period in 1999, as we continued our investment in a number of
development programs. These include preclinical studies and manufacturing
development on PA-1806, which we expect to enter Phase I clinical trials later
in 2000. In addition, our program to develop the next-generation TOBI, with the
goal of improving convenience and significantly shortening the time required for
a treatment, is currently advancing on schedule. In July 2000, we began
enrolling patients in a Phase I open-label randomized study of TOBI using a
portable inhaler made by AeroGen, Inc. We expect our research and development
expenses to increase over the next several quarters as our efforts in these
areas progress, and as we continue our clinical trials of TOBI in cystic
fibrosis and other patients. Selling, general and administrative expenses
increased to $8.7 million for the second quarter of 2000 from $7.2 million for
the corresponding period in 1999. This increase is primarily attributable to an
increase in sales and marketing costs. We have expanded and strengthened our
marketing efforts in the U.S. in order to further penetrate the cystic fibrosis
market. In addition, we have made significant investments in establishing sales
and marketing capabilities in Europe. We expect our selling, general and
administrative expenses to increase over the next several quarters as we
continue to expand TOBI's markets.

Net Loss. We had an operating loss of $1.2 million in the second quarter of
2000, a decrease of $1.7 million from the operating loss of $2.9 million in the
second quarter of 1999. This decrease in operating loss was due to improved
TOBI sales in the second quarter of 2000. Including net other income (primarily
income from

investment securities), our net loss for the second quarter of 2000 was
$742,000, compared to a net loss of $2.5 million for the second quarter of 1999.
In the second quarter of 2000, net investment income decreased by $95,000 to
$601,000 from $696,000 for the corresponding period in 1999. The decrease was
primarily due to lower average invested cash balances. Interest expense, most of
which represents the amortization of the discount on our obligation to the
Cystic Fibrosis Foundation, totaled $74,000 and $183,000 in the second quarters
of 2000 and 1999, respectively.

Six Months Ended June 30, 2000 and 1999

Revenues. Revenues in the first six months of 2000 totaled $39.9 million,
including $39.6 million from TOBI sales. Revenues for the corresponding period
in 1999 were $24.6 million, with $24.1 million from sales of TOBI. Significant
contributors to this improvement in revenue are increased TOBI use in the U.S.
by people with cystic fibrosis and other serious lung infections, as well as
higher TOBI sales in international markets.

Operating Expenses. We incurred total operating expenses of $41.9 million
in the first six months of 2000, an increase of $9.1 million from $32.8 million
in the first half of 1999. Cost of sales was $6.9 million for the first six
months of 2000, up $2.2 million from $4.7 million for the corresponding period
in 1999. The increase in cost of sales is directly related to the corresponding
increase in sales. However, cost of sales as a percentage of sales declined as
sales volumes increased. Research and development expense for the first six
months of 2000 increased by $3.7 million to $18.0 million from $14.3 million for
the first half of 1999. This increase is primarily the result of preclinical
studies and manufacturing development on PA-1806 and our development of the
next-generation TOBI. Selling, general and administrative expenses increased to
$17.0 million for the first six months of 2000 from $13.7 million for the
corresponding period in 1999. This increase is primarily attributable to the
expansion of our sales and marketing efforts, both in the U.S. and
internationally.

Net Loss. We had an operating loss of $2.0 million in the first six months
of 2000, a decrease of $6.2 million from the operating loss of $8.2 million in
the first half of 1999. This decrease in operating loss was due to improved
TOBI sales in the first six months of 2000. Including net other income
(primarily income from investment securities), our net loss for the first half
of 2000 was $1.1 million, compared to a net loss of $7.2 million for the first
six months of 1999. In the first half of 2000, net investment income decreased
by $251,000 to $1.3 million from $1.5 million for the corresponding period in
1999. The decrease was primarily due to lower average invested cash balances.
Interest expense, most of which represents the amortization of the discount on
our obligation to the Cystic Fibrosis Foundation, totaled $184,000 and $402,000
in the first six months of 2000 and 1999, respectively.

Liquidity and Capital Resources

Our combined cash, cash equivalents and investment securities totaled $39.3
million at June 30, 2000, a decrease of $5.7 million from the balance of $45.0
million at December 31, 1999. We expect that these funds, in combination with
expected revenues from sales of TOBI, should be sufficient to meet our operating
expenses and capital requirements for the foreseeable future. In addition, we
have a $10.0 million revolving line of credit from Harris Trust and Savings
Bank.

Net cash used in operating activities totaled $427,000 for the six months
ended June 30, 2000, compared to $6.5 million for the six months ended June 30,
1999. We incurred a $1.1 million net loss for the six months ended June 30,
2000, compared to a net loss of $7.2 million for the corresponding period in the
prior year. Significant changes in working capital components included a $2.9
million increase in accounts receivable and a $1.4 million decrease in
inventories, compared to a $6.5 million decrease in accounts receivable and $5.7
million increase in inventories for the same period a year ago. Also, in the
first half of 2000, we invested $2.5 million in convertible preferred stock of
privately held AeroGen, Inc. AeroGen is the developer of the hand-held,
portable AeroDose Inhaler, which is being developed to administer our next-
generation TOBI. In addition, we made our final installment payment of $5.3
million for the rights in TOBI acquired from the Cystic Fibrosis Foundation, and
realized proceeds of $2.7 million on a 15-year loan from Lloyds TSB Bank PLC.
At June 30, 2000, our working capital was $55.5 million and current ratio was
7.60 to 1.

We plan to continue our policy of investing excess funds in government
securities and investment grade, interest-bearing securities, primarily those
with an expected maturity of one-and-one-half years or less.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to the impact of interest rate changes and changes in the
market values of our investments, in addition to changes in foreign currency
exchange rates.

Our exposure to market rate risk for changes in interest rates relates
primarily to debt securities included in our investment portfolio. We do not
hold any derivative financial instruments. We invest in government securities
and high-quality corporate obligations. Investments in both fixed rate and
floating rate interest-earning instruments carry a degree of interest rate risk.
Fixed rate securities may decline in fair market value due to a rise in
prevailing interest rates, while floating rate securities may produce less
income than expected if prevailing interest rates fall. Due in part to these
factors, our future investment income may fall short of expectations due to
changes in interest rates, or we may suffer losses in principal if forced to
sell securities which have declined in market value due to changes in interest
rates. At June 30, 2000, we owned $2.6 million in government debt instruments
and $32.1 million in corporate debt securities. Our exposure to losses as a
result of interest rate changes is managed through investing in securities
predominantly with maturities of one-and-one-half years or less.

Substantially all the revenue and operating expenses of our subsidiaries are
denominated in local foreign currencies and translated into U.S. dollars at
rates of exchange approximating those existing at the date of the transactions.
Foreign currency translation primarily impacts revenue and operating expenses as
a result of exchange rate fluctuations. Because our inventories are
manufactured in the U.S., foreign currency fluctuations generally do not affect
our cost of sales. Our foreign currency transaction risk is primarily limited
to amounts receivable from our subsidiaries and distributors, which are
denominated in local foreign currencies. We do not currently utilize foreign
currency hedging contracts. If the U.S. dollar uniformly increases in strength
by 10% in 2000 relative to the currencies in which our sales are denominated,
results of operations would not be significantly impacted.

New Accounting Pronouncements

In December 1999, the United States Securities and Exchange Commission
(SEC) released Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition
in Financial Statements, which must be applied in the fourth quarter of 2000.
SAB 101 provides guidance on revenue recognition and the SEC staff's views on
the application of accounting principles to selected revenue recognition issues.
We do not expect that the application of SAB 101 will have a material effect on
our financial statements.

In March 2000, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation. Interpretation No. 44 clarifies the application of Accounting
Principles Board Opinion No. 25 (APB 25) and is effective July 1, 2000.
Interpretation No. 44 clarifies the definition of "employee" for purposes of
applying APB 25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of a previously fixed stock option or award, and the accounting for an
exchange of stock compensation awards in a business combination. We do not
expect the adoption of Interpretation No. 44 to have a material impact on our
financial statements.

In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities.
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
In May 1999, the FASB delayed the effective date of SFAS 133 to fiscal years
beginning after June 15, 2000, with interim reporting required. In June 2000,
the FASB issued SFAS 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities, an Amendment of SFAS 133, which makes minor
modifications to SFAS 133. We do not expect that the application of SFAS 133 or
138 will have a material effect on our financial position or the results of
operations.

PART II
OTHER INFORMATION

Item 1 Legal Proceedings

Item 2 Changes in Securities

NONE

Item 3 Defaults Upon Senior Securities

NONE

Item 4 Submission of Matters to a Vote of Security-Holders

The annual meeting of shareholders of PathoGenesis was held on May 31, 2000.
The following summarizes the votes at the meeting:

Matter For Withheld
- ------ --- --------

Election of Class II Directors:

Wilbur H. Gantz 13,338,459 162,510

John L. Gordon 13,339,136 161,833

Arthur W. Nienhuis 13,338,371 162,598

For Against Abstain Non-Vote
--- ------- ------- --------

Approval of an amendment to the
Employee Stock Purchase Plan
to increase the common stock
authorized for issuance under
that plan to 450,000 shares 13,096,916 386,654 17,399 --

Ratification of the appointment of
KPMG LLP as independent
accountants for 2000 13,470,333 18,844 11,792 --

Item 5 Other Information

On August 13, 2000, we entered into an agreement with Chiron
Corporation for Chiron to acquire all of the outstanding common stock of
PathoGenesis for approximately $700 million or $38.50 per share. The transaction
will be in the form of a cash tender offer, which is expected to close in the
third or fourth quarter, subject to customary closing conditions including
necessary regulatory approvals. The transaction has been approved by the board
of directors of each company.

On August 9, 2000, TOBI(R) (tobramycin solution for inhalation) cleared the
mutual recognition process required for marketing the inhaled antibiotic in 15
additional countries in the European Union, recognizing the drug's earlier
approval by United Kingdom, the reference member state of the EU. Each
additional country is expected to issue a marketing authorization for TOBI
during the next few months.

Item 6 Exhibits and Reports on Form 8-K

(a) EXHIBITS

Exhibit Number Description of Exhibit
-------------- ----------------------

2.1 Agreement and Plan of Merger dated as of August
13, 2000 by and among PathoGenesis Corporation,
Chiron Corporation and Picard Acquisition Corp.

4.4 Amended and Restated PathoGenesis Corporation
1997 Stock Option Plan

4.5 Amended and Restated PathoGenesis Corporation
1999 Employee Stock Option Plan

10.38 Agreement and Plan of merger (include in
Exhibit 2.1)

27.1 Financial Data Schedule.

(b) REPORTS ON FORM 8-K

PathoGenesis filed a report on Form 8-K on June 5, 2000, announcing it
had engaged advisers to assist in the company's efforts to explore
strategic alternatives for enhancing shareholder value.

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, on August 14, 2000.

PathoGenesis Corporation

By: /s/ Wilbur H. Gantz
-------------------
Wilbur H. Gantz
Chairman and Chief Executive Officer

By: /s/ Alan R. Meyer
-----------------
Alan R. Meyer
Executive Vice President and
Chief Financial Officer