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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, 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 (619) 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 March
31, 1999 was 44,104,851.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

DURA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
In thousands, except share amounts

March 31, December 31,
1999 1998
--------- ------------
ASSETS (unaudited)

Current assets:
Cash and cash equivalents $ 57,575 $ 31,113
Short-term investments 218,620 238,299
Accounts and other receivables 33,616 24,627
Inventory 11,827 9,006
--------- ---------
Total current assets 321,638 303,045

License agreements and product rights 366,539 377,250
Property 87,533 85,374
Other assets 65,869 59,790
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Total $ 841,579 $ 825,459
--------- ---------
--------- ---------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 8,801 $ 8,893
Accrued liabilities 57,697 46,557
Current portion of long-term obligations 5,846 6,798
--------- ---------
Total current liabilities 72,344 62,248

Convertible subordinated notes 287,500 287,500
Other long-term obligations 62,862 65,339
--------- ---------
Total liabilities 422,706 415,087
--------- ---------

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 - 44,104,851 and 44,083,652, respectively 44 44
Additional paid-in capital 607,667 607,436
Accumulated other comprehensive income 227 454
Warrant subscriptions receivable (8,654) (9,385)
Accumulated deficit (153,185) (160,951)
Treasury stock, at cost; shares outstanding - 2,327,500 (27,226) (27,226)
--------- ---------
Total shareholders' equity 418,873 410,372
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Total $ 841,579 $ 825,459
--------- ---------
--------- ---------

See accompanying notes to consolidated financial statements.

DURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except per share amounts
(Unaudited)

Three months ended
March 31,
--------------------
1999 1998

Revenues:
Sales $ 55,081 $ 35,885
Contract 16,166 12,881
-------- --------
Total revenues 71,247 48,766

Operating costs and expenses:
Cost of sales 10,491 8,093
Clinical, development and regulatory 11,491 9,590
Selling, general and administrative 37,290 22,514
-------- --------
Total operating costs and expenses 59,272 40,197
-------- --------

Operating income 11,975 8,569
-------- --------
Other:
Interest income 4,303 5,417
Interest expense (4,064) (3,142)
Other - net (228) 13
-------- --------
Total other 11 2,288
-------- --------

Income before income taxes 11,986 10,857
Provision for income taxes 4,220 3,693
-------- --------

Net income $ 7,766 $ 7,164
-------- --------
-------- --------
Net income per share:
Basic $ 0.18 $ 0.16
Diluted $ 0.17 $ 0.15

Weighted average number of common shares:
Basic 44,100 45,975
Diluted 45,686 48,523

See accompanying notes to consolidated financial statements.

DURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
(Unaudited)

Three months ended
March 31,
------------------
1999 1998
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Net cash provided by operating activities $ 19,179 $ 14,514
-------- ---------

Investing activities:
Purchases of short-term investments (69,454) (102,211)
Sales and maturities of short-term investments 88,907 111,351
Capital expenditures (4,172) (5,768)
Product acquisitions (3,679)
Other (4,280) (449)
-------- ---------
Net cash provided by investing activities 7,322 2,923
-------- ---------

Financing activities:
Issuance of common stock and warrants - net 961 2,194
Principal payments on long-term obligations (1,000)
-------- ---------
Net cash provided by (used for) financing activities (39) 2,194
-------- ---------
Net increase in cash and cash equivalents 26,462 19,631
Cash and cash equivalents at beginning of period 31,113 72,003
-------- ---------
Cash and cash equivalents at end of period $ 57,575 $ 91,634
-------- ---------
-------- ---------

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 6,494 $ 5,272
Income taxes $ 281 $ 370

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. Certain reclassifications have been made to
amounts included in the prior year's financial statements to conform to the
financial statement presentation for the three months ended March 31, 1999.

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. REPORTING COMPREHENSIVE INCOME

Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130") requires reporting and displaying comprehensive income
and its components which, for Dura, includes net income and unrealized gains
and losses on investments. In accordance with SFAS 130, the accumulated
balance of other comprehensive income is disclosed as a separate component of
shareholders' equity.

For the three months ended March 31, 1999 and 1998, comprehensive income
consisted of (in thousands):

1999 1998
------- -------

Net income $ 7,766 $ 7,164
Other comprehensive income:
Unrealized gain(loss) on
investments (227) 84
------- -------
Comprehensive income $ 7,539 $ 7,248
------- -------
------- -------

3. LICENSE AGREEMENTS AND PRODUCT RIGHTS

On December 31, 1998, the Company acquired from Bristol-Myers Squibb Company
the exclusive U.S. distribution rights for the patented hospital antibiotic
products Maxipime-R- (cefepime hydrochloride) for Injection and Azactam-R-
(aztreonam) for Injection. The Company began selling these products effective
January 1, 1999. The purchase price consisted of $60 million paid in cash at
closing, payments totaling $4 million due in 1999 and a payment of $70
million due in 2003, plus additional contingent payments due from 1999
through 2003 based on sales of Maxipime and Azactam during that period. Based
on historical sales data, the Company estimates that such future contingent
payments could approximate $90 million.

4. COMMITMENTS AND CONTINGENCIES

TERMINATION OF MERGER AGREEMENT WITH SCANDIPHARM, INC. - On December 1, 1997,
the Company terminated a merger agreement with Scandipharm, Inc.
("Scandipharm") 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. The Company believes that it
had the right to terminate the merger agreement, that Scandipharm's claims in
its lawsuit and its claims for damages are without merit, and the outcome of
this matter will not have a material adverse effect on the Company's
financial condition or operations.

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 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 lawsuits are without merit and intends to defend
against them vigorously.

5. 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 respiratory
ailments. 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. Three
wholesale customers accounted for 12%, 14%, and 16% of sales, respectively,
for the first quarter of 1999, while one wholesale customer accounted for 10%
of sales for the first quarter of 1998.

The following table summarizes information about the Company's operating
segments for the three months ended March 31, 1999 and 1998 (in thousands):

Pharmaceutical Research and
Products Development Consolidated

Total revenues 1999 $ 55,668 $ 15,579 $ 71,247
1998 $ 35,885 $ 12,881 $ 48,766

Operating income 1999 $ 9,442 $ 2,533 $ 11,975
1998 $ 6,176 $ 2,393 $ 8,569

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 and 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.

RECENT DEVELOPMENTS

On December 31, 1998, we acquired from Bristol-Myers Squibb Company the
exclusive U.S. distribution rights for the patented hospital antibiotic
products Maxipime-R- (cefepime hydrochloride) for Injection and
Azactam-R(aztreonam) for Injection. The Company began selling these products
effective January 1, 1999. The purchase price consisted of $60 million paid
in cash at closing, payments totaling $4 million due in 1999 and a payment of
$70 million due in 2003, plus additional contingent payments due from 1999
through 2003 based on sales of Maxipime and Azactam during that period. Based
on historical sales data, we estimate that such future contingent payments
could approximate $90 million.

RESULTS OF OPERATIONS

Total revenues for the three months ended March 31, 1999 were $71.2 million,
an increase of $22.5 million, or 46%, over the same period in 1998. Net
income for the three months ended March 31, 1999 was $7.8 million, or $0.17
per diluted share, as compared to $7.2 million, or $0.15 per diluted share,
for the same period in 1998. The principal factors causing these results are
discussed below.

Pharmaceutical sales for the three months ended March 31, 1999 were $55.1
million, an increase of $19.2 million, or 53%, over 1998. This increase is
due primarily to sales of Maxipime and Azactam (acquired in December 1998)
and Myambutol (acquired in August 1998) and increases in sales of Ceclor-R-
CD, Nasarel-R- and Nasalide-R- resulting from increased prescription volumes
for those products.

Gross profit (pharmaceutical sales less cost of sales) for the three months
ended March 31, 1999 was $44.6 million, an increase of $16.8 million, or 60%,
over 1998. This increase is due primarily to the increase in pharmaceutical
sales discussed above. Gross profit as a percentage of sales was 81% for the
three months ended March 31, 1999 as compared to 77% for the same period in
1998. The increase in the gross profit percentage is due to differences in
product mix for the first quarter of 1999 as compared to the same period in
1998.

Contract revenue relates primarily to amounts received by us for the
development of our Spiros-R- system. Under agreements with several 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 revenue for the three months ended March 31, 1999 was
$16.2 million, an increase of $3.3 million, or 26%, over 1998. This increase
is due to increased development activity conducted on behalf of Spiros
Development Corporation II, Inc. and Eli Lilly and Company. Contract revenue
totaled $12.2 million from Spiros Corp. II for the three months ended March
31, 1998 as compared to $10.4 million for the same period in 1998. Contract
revenue may fluctuate from period to period based on the level of research
funding as well as the achievement of milestones and receipt of technology
access payments from partners.

Clinical, development and regulatory expenses for the three months ended
March 31, 1999 were $11.5 million, an increase of $1.9 million, or 20%, over
1998. The increase reflects additional expenses incurred by us 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 March
31, 1999 were $37.3 million, an increase of $14.8 million, or 66%, over 1998.
These expenses increased as a percentage of total revenues to 52% for the
three months ended March 31, 1999 as compared to 46% for 1998. The dollar and
percentage increases are primarily due to costs incurred to support the
expansion of our sales organization from approximately 270 field sales
representatives in the first quarter of 1998 to approximately 400 in the
first quarter of 1999 (increase of $7.8 million) and to promote the newly
acquired products, Maxipime and Azactam (increase of $5.7 million). We
anticipate that our selling, general and administrative expenses will
increase during fiscal 1999 as we establish our hospital-based sales force of
approximately 120 representatives and associated field management.

Interest income for the three months ended March 31, 1999 was $4.3 million, a
decrease of $1.1 million, or 21%, from 1998. The decrease is 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 March 31, 1999 was $4.1 million,
an increase of $922,000, or 29%, over 1998. The increase is primarily due to
the amortization of the discounts recorded in connection with the
acquisitions of Myambutol-R-, Maxipime and Azactam in the second half of 1998.

The Company records interim provisions for income taxes based on the
estimated effective combined tax rate to be applicable for the fiscal year.
This estimate is reevaluated by management each quarter based on forecasts of
income before income taxes for the year as well as anticipated adjustments
from statutory federal and state tax rates. The Company's effective tax rate
for the three months ended March 31, 1999 was 35%, as compared to 34% for the
same period in 1998.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and short-term investments totaled $276.2 million at
March 31, 1999 as compared to $269.4 million at December 31, 1998. Working
capital increased by $8.5 million from $240.8 million at December 31, 1998 to
$249.3 million at March 31, 1999.

In the third quarter of 1997, we issued $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 March 31, 1999, we had outstanding an
aggregate of $68.7 million in current and other long-term obligations, of
which $5.8 million is to be paid during the next 12 months. As of March 31,
1999, additional future contingent obligations existed relating to product
acquisitions. Payments totaling approximately $135 million, estimated based
on historical sales levels of the related products, are contingent upon the
levels of future sales of certain products, and approximately $80 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 $35 million contingently due
within the next 12 months.

We have entered into a loan agreement which provides for the borrowing of up
to $50 million, subject to maintaining certain financial ratios, through
August 1, 1999. As of March 31, 1999, no borrowings have been or were
outstanding under this agreement.

We anticipate that our existing capital resources, cash generated from
operations and available bank borrowings 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 are actively pursuing 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 are year 2000 compliant. Accordingly, no
further evaluation or testing of these systems is required. We are currently
evaluating our other systems to assess whether they are year 2000 compliant
or, if not, whether the systems will be impacted by the change in year. When
the evaluation phase is complete, we will assess if any remediation to these
other systems will be necessary.

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 intend to monitor 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 will test key
interfacing data systems with our business partners to ensure that all
measures taken to become year 2000 compliant are effective.

We are developing 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. If necessary, our contingency plan will address these risks by
identifying alternative suppliers, stocking additional inventory, and
developing back-up systems to process sales orders.

We expect to complete our year 2000 evaluation, testing and contingency
planning by September 30, 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-R- REQUIRES SIGNIFICANT ADDITIONAL DEVELOPMENT WHICH IS COSTLY,
TIME-CONSUMING AND MAY NEVER BE COMMERCIALLY SUCCESSFUL. Spiros, our
proprietary dry powder pulmonary drug delivery system, will require
significant additional development efforts as well as clinical testing. This
work is very costly and time consuming. Even after spending significant
amounts of money and time, the development and commercialization, if any, of
any Spiros product may not be successful.

BEFORE WE CAN MARKET ANY SPIROS PRODUCT, WE WILL HAVE TO OBTAIN REQUIRED
GOVERNMENTAL APPROVALS, WHICH IS NOT ASSURED; FAILURE TO OBTAIN SUCH
APPROVALS WOULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS. The development,
testing, manufacturing and marketing of pharmaceutical products are subject
to extensive regulation by governmental authorities, including the FDA. Each
Spiros product will have to obtain approval from the FDA before that product
can be manufactured or marketed. The review and approval process mandated by
the FDA is very rigorous, requiring extensive preclinical and clinical
testing as well 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. Failure to obtain such
approvals would have an adverse effect on our business and results of
operations.

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 to address these issues to support the
resubmission of the new drug application for Albuterol Spiros. Dura, on
behalf of Spiros Corp. II, expects to initiate clinical trials for both
Albuterol Spiros and Beclomethasone SpirosTM in the fourth quarter of 1999
and to commercialize these products in 2001, pending successful development
and FDA approval. We cannot predict or assure the successful outcome of
additional trials to support the resubmission of the new drug application, or
if the FDA will ever approve this new drug application.

WE WILL NEED TO SIGNIFICANTLY EXPAND OUR MANUFACTURING CAPABILITY AND COMPLY
WITH GOVERNMENT REGULATIONS BEFORE WE CAN MANUFACTURE OUR SPIROS PRODUCT. We
will need to significantly expand our current manufacturing operations and
comply with current good manufacturing practices and other regulations
prescribed by various regulatory agencies in the U.S. and other countries to
achieve the quality and required levels of production of such 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 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 fund existing
capital and operating needs, Dura 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. Further, there can be no assurance that reimbursement will be
available to enable us to achieve market acceptance of our products or to
maintain price levels sufficient to realize an appropriate return on our
investment in product acquisition, in-licensing and development.

THE PHARMACEUTICAL INDUSTRY IS EXTREMELY COMPETITIVE. Many companies,
including large pharmaceutical firms with financial and marketing resources
and development capabilities substantially greater than those of Dura, are
engaged in developing, marketing and selling products that compete with those
offered or planned to be offered by Dura. 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 are able.
Competitors may also be able to complete the regulatory process sooner, and
therefore, may begin to market their products in advance of our products. Our
failure to effectively respond to the competitive pressures of our industry
would have an adverse effect on our business and results of operations.

WE NEED TO BUILD A HOSPITAL-BASED FIELD SALES FORCE BY THE END OF 1999 TO BE
ABLE TO EFFECTIVELY MARKET OUR NEWLY ACQUIRED PRODUCTS, MAXIPIME AND AZACTAM.
Effective January 1, 1999, we acquired the rights to two hospital-based
products, Maxipime-R- (cefepime hydrochloride) for Injection and
Azactam-R-(aztreonam) for Injection. In the first quarter of 1999 we built
our acute care sales and marketing management team, and by the end of 1999 we
expect to have an additional 120 field sales representatives and associated
field management who will be fully dedicated to the hospital-based products.
We may not be able to hire qualified field sales representatives with the
necessary experience selling to hospitals. Even if we are successful in
identifying and hiring such representatives, we may not be able to hire the
numbers needed in the appropriate time frame. Our success with these products
is dependent upon effectively building this sales and marketing capability.

WE COMPETE WITH MANY COMPANIES FOR THE ACQUISITION OF PRODUCT RIGHTS; FAILURE
TO ACQUIRE PRODUCT RIGHTS COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS. Our
strategy for growth is dependent, in part, on our ability to continue to
acquire product rights. 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, in-license or co-promote additional
pharmaceuticals on acceptable terms, or at all. The failure to acquire,
in-license, co-promote, develop or market commercially successful
pharmaceuticals would have an adverse effect on our ability to achieve our
targeted growth rates.

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 substitutes for such products are sold by other pharmaceutical
companies. 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.

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 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 EXERCISE OF THE SPIROS CORP. II STOCK PURCHASE OPTION MAY HAVE AN ADVERSE
EFFECT ON OUR BUSINESS. We have a purchase option with respect to the
outstanding shares of callable common stock of Spiros Corp. II which expires
on December 31, 2002. We may or may not exercise this option. If we exercise
our stock purchase option, we will be required to make a substantial cash
payment or to issue shares of our common stock, or both. A payment in cash
would reduce our capital resources. A payment in shares of our common stock
would result in a decrease in the percentage ownership of our shareholders at
that time and have a dilutive effect on future earnings per share. If we
determine to exercise the stock purchase option, it will likely require us to
record a significant charge to earnings. If we do not exercise our stock
purchase option prior to its expiration in December 2002, our rights in and
to Spiros with respect to certain compounds will terminate.

WE ALSO HOLD OPTIONS TO PURCHASE FROM SPIROS CORP. II CERTAIN RIGHTS TO
ALBUTEROL SPIROS AND RIGHTS TO USE SPIROS WITH AN ADDITIONAL PRODUCT OTHER
THAN ALBUTEROL. We may or may not exercise either of these options. If we
exercise either of our product options, we will need to make a significant
cash payment which could have an adverse effect on our capital resources. Any
such cash payment also may result in a significant charge to our earnings in
the period we exercise the option. We may not have sufficient capital
resources to exercise the product options, which may result in our loss of
valuable rights.

OUR ABILITY TO OBTAIN PATENTS AND PROTECT OUR PROPRIETARY RIGHTS IS UNCERTAIN
AND COULD RESULT IN AN ADVERSE EFFECT ON OUR BUSINESS. Our ability to obtain
patents on current or future products or formulations, 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 Dura. Even if all these are true, we may not possess the financial
resources necessary to enforce or defend any of our patent rights. 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
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. 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 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 CERTAIN LAWSUITS AND CANNOT PREDICT THEIR OUTCOME. We are
involved in certain lawsuits as described in note 4 of the notes to
consolidated financial statements. The outcome of these lawsuits and any
other suits we may become involved in cannot be predicted. An adverse outcome
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.

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
entities should be consolidated. During its exposure period, interested
parties have the opportunity to comment on the proposed changes and these
comments will be considered prior to issuing the standard in its final form,
if one is issued at all. If adopted as initially proposed, this standard may
require us to consolidate Spiros Corp. II into our financial statements. Such
consolidation would have an adverse effect on our results of operations.

OUR PRODUCTS MAY CAUSE PRODUCT LIABILITY CLAIMS OR 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 technologies or products 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 are currently evaluating certain of our systems to
assess whether they are year 2000 compliant or, if not, whether the systems
will be impacted by the change in year. We will not be able to assess what,
if any, remediation to these systems will be necessary until the evaluation
phase is complete. We have not yet completed our audit 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 March 31, 1999, we had outstanding subordinated notes
totaling $287.5 million which mature in July 2002. The notes have a fixed
interest rate of 3 1/2 percent. 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, 1999, the notes had a fair
market value of $217.8 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)3.1 Certificate of Incorporation
(2)3.2 Certificate of Amendment of Certificate of Incorporation,
effective May 21, 1998
(2)3.3 Certificate of Designation of Series A Junior Participating
Preferred Stock
(1)3.4 Bylaws
(3)10.1 Distribution Agreement for Maxipime-R- and Azactam-R- between
the Company and Bristol-Myers SquIbb Company (with certain
confidential portions omitted).
(3)10.2 Supply Agreement for Maxipime-R- and Azactam-R- between the
Company and Bristol-Myers SquIbb Company (with certain
confidential portions omitted).
11 Statements re Computations of Net Income Per Share
27 Financial Data Schedule

(1) Incorporated by reference to the Company's Form 10-Q for the
quarter ended June 30, 1997.
(2) Incorporated by reference to the Company's Registration Statement
on Form 8-A filed on May 22, 1998.
(3) Incorporated by reference to the Company's Form 8-K, dated January
1, 1999.

(b) Reports on Form 8-K

On January 15, 1999, the Company filed a current report on Form 8-K
dated January 1, 1999, reporting the Company's acquisition of product
rights from Bristol-Myers Squibb Company.

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 3, 1999 /s/ MICHAEL T. BORER
----------------------
(MICHAEL T. BORER)
Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)