<PAGE>


                      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 December 31, 1997

                                      or

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

                     For the transition period from ________ to ________

                        Commission File Number 0-12900

                         ALLIANCE PHARMACEUTICAL CORP.
            (Exact name of Registrant as specified in its charter)

New York                               14-1644018
--------------------------------       -----------------------------------
(State or other jurisdiction           (I.R.S. Employer
of incorporation or organization)      Identification Number)

3040 Science Park Road
San Diego, California                  92121
--------------------------------       -----------------------------------
(Address of principal                  Zip Code
executive offices)

Registrant's telephone number,
including area code:                   619-558-4300
                                       -----------------------------------

Indicate by a check 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 filing
requirements for the past 90 days.

     Yes           X                    No
         ------------------------          ---------------------------------

As of February 3, 1998, Registrant had 31,934,345 shares of its Common Stock,
$.01 par value, outstanding.


<PAGE>


ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
----------------------------------------------


<TABLE>
<CAPTION>

INDEX                                                       Page No.
-----                                                       --------
<S>                                                         <C>

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

  Condensed Consolidated Balance Sheets                        3

  Condensed Consolidated Statements of Operations              4

  Condensed Consolidated Statements of Cash Flows              5

  Notes to Condensed Consolidated Financial Statements         6

Item 2. Management's Discussion and Analysis of
 Financial Condition and Results of Operations                 8

PART II - OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders   13

Item 6. Exhibits and Reports on Form 8-K                      13

</TABLE>

                                       2


<PAGE>


PART I FINANCIAL INFORMATION:
ITEM 1.  FINANCIAL STATEMENTS

ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                    DECEMBER 31,        JUNE 30,
                                                                        1997              1997
                                                                   ------------      --------------
 ASSETS                                                             (UNAUDITED)          (NOTE)
-------
<S>                                                                 <C>               <C>
 CURRENT ASSETS:
  Cash and cash equivalents                                         $ 15,461,000      $ 15,368,000
  Short-term investments                                              53,024,000        57,041,000
  Research revenue receivable                                          4,213,000         7,250,000
  Other current assets                                                 1,200,000         1,147,000
                                                                    ------------      ------------
    Total current assets                                              73,898,000        80,806,000

 PROPERTY, PLANT AND EQUIPMENT - NET                                  17,664,000        16,574,000
 PURCHASED TECHNOLOGY - NET                                           13,640,000        14,400,000
 OTHER ASSETS - NET                                                      253,000           233,000
                                                                    ------------      ------------
                                                                    $105,455,000      $112,013,000
                                                                    ------------      ------------
                                                                    ------------      ------------

 LIABILITIES AND STOCKHOLDERS' EQUITY

 CURRENT LIABILITIES:
  Accounts payable                                                  $  1,671,000      $  2,807,000
  Accrued expenses                                                     2,785,000         3,439,000
  Deferred revenue                                                     2,286,000         2,500,000
  Payable for acquired in-process technology                                   -         7,557,000
  Current portion of long-term debt                                    1,626,000         1,508,000
                                                                    ------------      ------------
    Total current liabilities                                          8,368,000        17,811,000

 LONG-TERM DEBT                                                        2,080,000         2,742,000
 OTHER                                                                    85,000           129,000

 STOCKHOLDERS' EQUITY:
  Preferred stock - $.01 par value; 5,000,000 shares authorized;
   500,000 and 0 shares of Series D issued and outstanding at
   December 31, 1997 and June 30, 1997, respectively                       5,000                 -
  Common stock - $.01 par value; 50,000,000 shares authorized;
   31,934,345 and 31,164,935 shares issued and outstanding at
   December 31, 1997 and June 30, 1997, respectively                     319,000           311,000
  Additional paid-in capital                                         339,660,000       322,268,000
  Accumulated deficit                                               (245,062,000)     (231,248,000)
                                                                    ------------      ------------
    Total stockholders' equity                                        94,922,000        91,331,000
                                                                    ------------      ------------
                                                                    $105,455,000     $ 112,013,000
                                                                    ------------      ------------
                                                                    ------------      ------------

</TABLE>

Note:  The balance sheet at June 30, 1997 has been derived from the audited
       financial statements at that date but does not include all of the 
       information and footnotes required by generally accepted accounting 
       principles for complete financial statements.

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                        3


<PAGE>

ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                        THREE MONTHS ENDED              SIX MONTHS ENDED
                                                            DECEMBER 31,                  DECEMBER 31,
                                                          1997          1996           1997           1996
                                                      -----------   -----------    -----------    -----------
                                                             (UNAUDITED)                   (UNAUDITED)
<S>                                                  <C>            <C>            <C>           <C>
REVENUES:
  License and research revenue                        $ 5,274,000   $ 22,126,000   $ 11,813,000   $ 27,876,000

OPERATING EXPENSES:
  Research and development                             11,778,000     10,469,000     23,824,000     19,720,000
  General and administrative                            1,868,000      1,923,000      3,680,000      3,869,000
  Acquired in-process technology                                -     16,020,000              -     16,020,000
                                                      -----------    -----------   ------------   ------------
                                                       13,646,000     28,412,000     27,504,000     39,609,000
                                                      -----------    -----------   ------------   ------------
LOSS FROM OPERATIONS                                   (8,372,000)    (6,286,000)   (15,691,000)   (11,733,000)

INVESTMENT INCOME AND OTHER - NET                         908,000        938,000      1,877,000      1,972,000
                                                      -----------    -----------   ------------   ------------
NET LOSS                                              $(7,464,000)  $ (5,348,000)  $(13,814,000)   $(9,761,000)
                                                      -----------    -----------   ------------   ------------
                                                      -----------    -----------   ------------   ------------
 NET LOSS PER COMMON SHARE:
  BASIC AND DILUTED                                   $     (0.24)   $     (0.18)  $      (0.44)  $      (0.32)
                                                      -----------    -----------   ------------   ------------
                                                      -----------    -----------   ------------   ------------
 WEIGHTED AVERAGE SHARES OUSTANDING:
  BASIC AND DILUTED                                    31,458,000     30,168,000     31,387,000     30,103,000
                                                      -----------    -----------   ------------   ------------
                                                      -----------    -----------   ------------   ------------

</TABLE>

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       4
<PAGE>
ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                SIX MONTHS ENDED
                                                                                   DECEMBER 31,
                                                                             1997              1996
                                                                       --------------    --------------
                                                                                   (UNAUDITED)
<S>                                                                    <C>               <C>
OPERATING ACTIVITIES:
 Net loss                                                              $ (13,814,000)    $  (9,761,000)
 Adjustments to reconcile net loss to net cash used in operations:
  Depreciation and amortization                                            2,488,000         1,829,000
  Charge for acquired in-process technology                                        -        16,020,000
  Changes in operating assets and liabilities:
   Research revenue receivable                                             3,037,000        (1,250,000)
   Deferred revenue                                                         (214,000)                -
   Other assets                                                              (73,000)         (273,000)
   Accounts payable and accrued expenses and other                        (1,833,000)          500,000
                                                                       --------------    --------------
Net cash provided by (used in) operating activities                      (10,409,000)        7,065,000
                                                                       --------------    --------------
INVESTING ACTIVITIES:
 Short-term investments                                                    3,929,000         6,157,000
 Property, plant and equipment                                            (2,818,000)       (2,603,000)
 Payment for acquired in-process technology                                  (57,000)         (467,000)
                                                                       --------------    --------------
Net cash provided by investing activities                                  1,054,000         3,087,000
                                                                       --------------    --------------
FINANCING ACTIVITIES:
 Issuance of common stock                                                    394,000           350,000
 Issuance of convertible preferred stock                                   9,600,000                 -
 Principal payments on long-term debt                                       (546,000)         (351,000)
                                                                       --------------    --------------
Net cash provided by (used in) financing activities                        9,448,000            (1,000)
                                                                       --------------    --------------
INCREASE IN CASH AND CASH EQUIVALENTS                                         93,000        10,151,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                          15,368,000        10,258,000
                                                                       --------------    --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                             $  15,461,000     $  20,409,000
                                                                       --------------    --------------
                                                                       --------------    --------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
 AND FINANCING ACTIVITIES:
Payable for acquired in-process technology                                               $  12,878,000
Issuance of common stock in connection with
 acquired in-process technology                                        $   7,500,000     $   2,675,000

</TABLE>

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                 5

<PAGE>

ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

     Alliance Pharmaceutical Corp. and its subsidiaries (collectively, the 
"Company" or "Alliance") are engaged in identifying, designing, and 
developing novel medical products.

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of Alliance 
Pharmaceutical Corp., the accounts of its wholly owned subsidiary Astral, 
Inc., its wholly owned subsidiary MDV Technologies, Inc. ("MDV") from the 
acquisition date of November 1996, and its majority-owned subsidiaries, Talco 
Pharmaceutical, Inc. and Applications et Transferts de Technologies Avancees 
("ATTA").  ATTA was dissolved in 1997.  All significant intercompany accounts 
and transactions have been eliminated.  Certain amounts in fiscal 1997 have 
been reclassified to conform to the current year's presentation.

INTERIM CONDENSED FINANCIAL STATEMENTS

     The condensed consolidated balance sheet as of December 31, 1997, the 
condensed consolidated statements of operations for the three and six months 
ended December 31, 1997 and 1996, and the condensed consolidated statements 
of cash flows for the six months ended December 31, 1997 and 1996 are 
unaudited. In the opinion of management, such unaudited financial statements 
include all adjustments, consisting only of normal recurring accruals, 
necessary for a fair presentation of the results for the periods presented.  
Interim results are not necessarily indicative of the results to be expected 
for the full year.  The financial statements should be read in conjunction 
with the Company's consolidated financial statements and footnotes thereto 
included in the Company's annual report on Form 10-K for the year ended June 
30, 1997.

PURCHASED TECHNOLOGY

     The purchased technology was primarily acquired as a result of the 
merger of Fluoromed Pharmaceutical, Inc. into a subsidiary of the Company in 
fiscal 1989.  The technology acquired is the Company's core perfluorochemical 
("PFC") technology and was valued based on an analysis of the present value 
of future earnings anticipated from this technology at that time.  The 
Company identified alternative future uses for the PFC technology, including 
the OXYGENT-TM- (temporary blood substitute) and LIQUIVENT-Registered 
Trademark- (intrapulmonary oxygen carrier) products. Purchased technology 
also includes $2 million for technology capitalized as a result of the 
acquisition of BioPulmonics, Inc. ("BioPulmonics") in December 1991.  Since 
the acquisition, an alternative future use of the acquired technology has 
been pursued by the Company.  An intrapulmonary drug delivery system using 
the PFC-based liquid as a carrier (or dispersing agent) is being developed by 
Alliance from the liquid ventilation technology.

     The PFC technology is the basis for the Company's main drug development 
programs and is being amortized over a 20-year life.  Accumulated 
amortization for this PFC technology was $10.3 million and $9.7 million at 
December 31, 1997 and June 30, 1997, respectively.  The technology acquired 
from BioPulmonics is being amortized over five to seven years and


                                       6

<PAGE>

accumulated amortization was $1.4 million and $1.2 million at December 31, 
1997 and June 30, 1997, respectively.

     The carrying value of purchased technology is reviewed periodically 
based on the projected cash flows to be received from license fees, milestone 
payments, royalties and other product revenues.  If such cash flows are less 
than the carrying value of the purchased technology, the difference will be 
charged to expense. 

ACQUIRED IN-PROCESS TECHNOLOGY

     In November 1996, the Company acquired MDV by a merger (the "MDV 
Merger") of a wholly owned subsidiary of the Company into MDV.  MDV is 
engaged in the development of a thermo-reversible gel, FLOGEL-Registered 
Trademark-, intended for use as an anti-adhesion treatment for persons 
undergoing abdominal or pelvic surgeries. FLOGEL is applied in a cold, liquid 
form and becomes a gel at body temperature. MDV has obtained preliminary 
human safety data with the product's current formulation, and has performed 
preclinical studies on additional formulations.

     The consideration payable in the MDV Merger consists of $15.5 million, 
payable in common stock or cash, of which $8 million was paid during fiscal 
1997, and $7.5 million was paid during fiscal 1998.  The $8 million payments 
made in fiscal 1997 and the $7.5 million payments made in fiscal 1998 were 
made through the delivery of 703,093 and 706,100 shares of the Company's 
common stock, respectively.  Additionally, the Company will pay up to $20 
million if advanced clinical development or licensing milestones are achieved 
in connection with MDV's technology.  The Company will also make certain 
royalty payments on the sales of products, if any, developed from such 
technology.  The Company may buy out its royalty obligation for $10 million 
at any time prior to the first anniversary of the approval by U.S. regulatory 
authorities of any products based upon the MDV technology (the amount 
increasing thereafter over time).  All of such payments to the former MDV 
shareholders may be made in cash or, at the Company's option, shares of the 
Company's common stock, except for the royalty obligations which will be 
payable only in cash.  The Company has not determined whether subsequent 
payments (other than royalties) will be made in cash or in common stock or, 
if made in cash, the source of such payments. There can be no assurance that 
any of the contingent payments will be made, because they are dependent on 
future developments which are inherently uncertain. 

NET INCOME (LOSS) PER SHARE      

     In February 1997, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" 
("SFAS No. 128").  SFAS No. 128 requires the presentation of basic and 
diluted earnings per share amounts.  Basic earnings per share is calculated 
based upon the weighted average number of common shares outstanding during 
the period while diluted earnings per share also gives effect to all 
potential dilutive common shares outstanding during the period such as 
options, warrants, convertible securities, and contingently issuable shares.  
SFAS No. 128 is effective for periods ending after December 15, 1997.  All 
potential dilutive common shares have been excluded from the calculation of 
diluted earnings per share as their inclusion would be anti-dilutive.


                                       7

<PAGE>

2.  LICENSE AGREEMENT

     In September 1997, the Company entered into a license agreement (the 
"Schering License Agreement") with Schering AG, Germany ("Schering"), which 
provides Schering with worldwide exclusive marketing and manufacturing rights 
to Alliance's drug compounds, drug compositions, and medical devices and 
systems related to perfluorocarbon ultrasound imaging products, including 
IMAGENT-Registered Trademark- US.  The product will be developed jointly by 
Alliance and Schering. Under the Schering License Agreement, Schering paid to 
Alliance an initial license fee of $4 million and agreed to pay further 
milestone payments and royalties on product sales.  Schering also agreed to 
provide funding to Alliance for some of its development expenses.  In 
conjunction with the Schering License Agreement, Schering Berlin Venture 
Corp., an affiliate of Schering, purchased 500,000 shares of the Company's 
convertible Series D Preferred Stock for $10 million.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS 
(References to years are to the Company's fiscal years ended June 30.)

     Alliance has devoted substantial resources to research and development 
related to its medical products.  The Company has been unprofitable since 
inception and expects to incur operating losses for at least the next several 
years due to substantial spending on research and development, preclinical 
testing and clinical trials, regulatory activities, and commercial 
manufacturing start-up. The amount of net losses and the time required by the 
Company to achieve profitability are highly uncertain due to differences in 
the timing of revenues earned and expenses incurred. The Company has entered 
into collaborative research and development agreements with companies for 
OXYGENT, IMAGENT US, and RODA-TM-.  The arrangements with its existing 
partners for OXYGENT and IMAGENT US require them to reimburse the Company for 
certain approved development expenses incurred for the respective products.  
Both partners for such products will make milestone payments to the Company 
upon the achievement of certain product development events, and pay royalties 
on sales at commercialization. With respect to RODA, the Company has agreed 
to reimburse VIA Medical Corporation for substantially all of its development 
expenses and to share revenues on the sale of products. There can be no 
assurance that the Company will be able to achieve profitability at all or on 
a sustained basis.

LIQUIDITY AND CAPITAL RESOURCES

     Through December 1997, the Company financed its activities primarily from
public and private sales of equity and funding from collaborations with
corporate partners. To date, the Company's revenue from the sale of products
has not been significant.

     In January 1997, the Company entered into a loan and security agreement
with a bank under which the Company received $3.5 million.  In December 1997,
the Company restructured the agreement and increased the amount available under
the loan to $15.2 million. Amounts borrowed under the agreement are secured by
certain financial assets and are to be repaid over five years. On December
31, 1997, the balance outstanding on this loan was $3.2 million.  In January
1998, the Company borrowed an additional $5 million under the agreement. The
Company has another loan from a financing company with an outstanding balance
of $554,000 on December 31, 1997.  The Company has financed substantially all
of its office and research facilities and related leasehold improvements under
operating lease arrangements and loan and security agreements.


                                       8


<PAGE>

     In September 1997, the Company entered into the Schering License 
Agreement with Schering.  See Note 2 to the Condensed Consolidated Financial 
Statements for information related to the license agreement.  In December 
1997, Schering paid the Company a $1 million milestone payment under the 
Schering License Agreement.

     See Note 1 to the Condensed Consolidated Financial Statements for 
information related to the November 1996 acquisition of MDV by the Company.

     In February 1996, the Company entered into a license agreement (the 
"HMRI License Agreement") with Hoechst Marion Roussel, Inc. ("HMRI"), which 
provided HMRI with worldwide marketing and manufacturing rights to the 
intratracheal administration of liquids, including LIQUIVENT, which perform 
bronchoalveolar lavage or liquid ventilation.  Under the agreement, HMRI was 
responsible for most of the costs of development and marketing of LIQUIVENT. 
On June 30, 1997, HMRI paid the Company a $2.5 million milestone payment and 
$2.5 million for the purchase of clinical trial supplies.  The Company also 
announced in June 1997 that the parties agreed in principle to modify the 
HMRI License Agreement to (i) adjust certain milestone payments, and (ii) 
temporarily revise the method for reimbursing the expenses for portions of 
the development work. On December 5, 1997, HMRI gave written notice of 
termination of the HMRI License Agreement. Therefore, Alliance has not been 
reimbursed for its LIQUIVENT development expenses since July 1, 1997, and it 
will be responsible for all future LIQUIVENT development expenses worldwide.  
HMRI has no continuing rights to the development or marketing of LIQUIVENT. 
The parties are considering a repurchase by Alliance of approximately $2.3 
million of clinical trial supplies from HMRI. Because of the termination of 
the arrangement with HMRI, Alliance will incur a substantial increase in 
development expenses related to LIQUIVENT and a substantial decrease in 
research revenue.

     In August 1994, the Company executed a license agreement (the "Ortho 
License Agreement") with Ortho Biotech Inc. and The R.W. Johnson 
Pharmaceutical Research Institute, a division of Ortho Pharmaceutical 
Corporation (collectively referred to as "Ortho"), which provides Ortho with 
worldwide marketing and, at its election, manufacturing rights to the 
Company's injectable perfluorochemical emulsions capable of transporting 
oxygen for therapeutic use, including OXYGENT.  Ortho has agreed to pay 
milestone payments and royalties on product sales.  Ortho is responsible for 
substantially all of the costs of developing and marketing the products.  In 
December 1996, Ortho paid the Company a $15 million milestone payment under 
the Ortho License Agreement.

     The Company had net working capital of $65.5 million at December 31, 
1997, compared to $63 million at June 30, 1997.  The Company's cash, cash 
equivalents, and short-term investments decreased to $68.5 million at 
December 31, 1997 from $72.4 million at June 30, 1997.  The decrease resulted 
primarily from cash used in operations of $10.4 million and property, plant, 
and equipment additions of $2.8 million, partially offset by net proceeds 
from the sale of convertible preferred stock of $9.6 million in conjunction 
with the Schering License Agreement.  The Company's operations to date have 
consumed substantial amounts of cash, and are expected to continue to do so 
for the foreseeable future.

     The Company continually reviews its product development activities in an 
effort to allocate its resources to those product candidates that the Company 
believes have the greatest commercial potential.  Factors considered by the 
Company in determining the products to pursue 


                                       9

<PAGE>

include projected markets and need, potential for regulatory approval and 
reimbursement under the existing healthcare system, status of its proprietary 
rights, technical feasibility, expected and known product attributes, and 
estimated costs to bring the product to market.  Based on these and other 
factors, the Company may from time to time reallocate its resources among its 
product development activities.  Additions to products under development or 
changes in products being pursued can substantially and rapidly change the 
Company's funding requirements.

     The Company expects to incur substantial additional expenditures 
associated with product development, particularly LIQUIVENT.  The Company 
will seek additional collaborative research and development relationships 
with suitable corporate partners for its non-licensed products.  There can be 
no assurance that such relationships, if any, will successfully reduce the 
Company's funding requirements.  Additional equity or debt financing may be 
required, and there can be no assurance that funds from these sources will be 
available on reasonable terms, if at all. If adequate funds are not 
available, the Company may be required to delay, scale back, or eliminate one 
or more of its product development programs, or obtain funds through 
arrangements with collaborative partners or others that may require the 
Company to relinquish rights to certain of its technologies, product 
candidates, or products that the Company would not otherwise relinquish.

     Alliance believes that its current capital resources, expected revenues 
from the Ortho License Agreement and Schering License Agreement, and 
investments will be adequate to satisfy its capital requirements for at least 
the next 24 months.  The Company's future capital requirements will depend on 
many factors, including, but not limited to, continued scientific progress in 
its research and development programs, progress with preclinical testing and 
clinical trials, the time and cost involved in obtaining regulatory 
approvals, patent costs, competing technological and market developments, 
changes in existing collaborative relationships, the ability of the Company 
to establish additional collaborative relationships, and the cost of 
manufacturing scale-up.

     The Company anticipates that capital expenditures for facilities will 
increase over the next twelve to eighteen months, some or all of which will 
be financed by third parties.  While the Company believes that it can produce 
materials for clinical trials and the initial market launch for its emulsion 
products at its existing San Diego facility and for LIQUIVENT at its 
Otisville, New York facility, it may need to expand its commercial 
manufacturing capabilities for its products in the future.  The Company's 
existing  San Diego facility currently produces material for clinical trials 
for IMAGENT US.  The Company has leased an additional facility and is 
currently expanding its market launch production capacity in San Diego for 
IMAGENT US.  Any expansion for any of its products may occur in stages, each 
of which would require regulatory approval, and product demand could at times 
exceed supply capacity.  The Company has not selected a site or obtained any 
regulatory approvals for construction of a commercial production facility for 
its products, nor can there be any assurance that it will be able to do so.  
The Company cannot predict the amount that it will expend for the 
construction of such a production facility, and there can be no assurance as 
to when or whether the U.S. Food and Drug Administration will determine that 
such facility complies with Good Manufacturing Practices.  The projected 
location and construction of a facility will depend on regulatory approvals, 
product development, and capital resources, among other things.  The Ortho 
License Agreement provides an option for Ortho to elect to manufacture the 
emulsion products referred to therein, or to require the Company to 
manufacture such products at a negotiated price. The Schering License 
Agreement requires the Company to 

                                      10

<PAGE>

manufacture products at its San Diego facility for a period of time after 
market launch at a negotiated price.  Schering will be responsible for 
establishing production capacity beyond the maximum capacity of the San Diego 
facility.

     Except for historical information, the statements made herein and 
elsewhere are forward-looking.  The Company wishes to caution readers that 
these statements are only predictions and that the Company's business is 
subject to significant risks.  The factors discussed herein and other 
important factors in some cases have affected, and in the future could 
affect, the Company's actual results and could cause the Company's actual 
consolidated results for 1998, and beyond, to differ materially from those 
expressed in any forward-looking statements made by, or on behalf of, the 
Company.  These risks include the inability to enter into collaborative 
relationships to further develop and commercialize the Company's products; 
changes in any such relationships, or the inability of any collaborative 
partner to adequately commercialize any of the Company's products; the 
uncertainties associated with the lengthy regulatory approval process; 
obtaining and enforcing patents important to the Company's business; and 
possible competition from other products.  Furthermore, even if the Company's 
products appear promising at an early stage of development, they may not 
reach the market for a number of important reasons.  Such reasons include, 
but are not limited to, the possibilities that the potential products will be 
found ineffective during clinical trials; failure to receive necessary 
regulatory approvals; difficulties in manufacturing on a large scale; failure 
to obtain market acceptance; and the inability to commercialize because of 
proprietary rights of third parties.  The research, development, and market 
introduction of new products will require the application of considerable 
technical and financial resources, while revenues generated from such 
products, assuming they are developed successfully, may not be realized for 
several years.  Other material and unpredictable factors which could affect 
operating results include, without limitation, the uncertainty of the timing 
of product approvals and introductions and of sales growth; the ability to 
obtain necessary raw materials at cost-effective prices or at all; the effect 
of possible technology and/or other business acquisitions or transactions; 
and the increasing emphasis on controlling healthcare costs and potential 
legislation or regulation of healthcare pricing.

RESULTS OF OPERATIONS

     SIX MONTHS ENDED DECEMBER 31, 1997 AS COMPARED WITH SIX MONTHS ENDED
DECEMBER 31, 1996

     The Company's license and research revenue decreased by $16.1 million to 
$11.8 million for the six months ended December 31, 1997, compared to $27.9 
million for the six months ended December 31, 1996.  The six months ended 
December 31, 1996 included a $15 million milestone payment from Ortho under 
the Ortho License Agreement.  The Company expects research revenue to 
continue to decrease in 1998 compared to 1997, due to the termination of the 
HMRI License Agreement, and also expects milestone payments to diminish.

     Research and development expenses increased by 21% to $23.8 million for 
the six months ended December 31, 1997, compared to $19.7 million for the six 
months ended December 31, 1996.  The increase in expenses was primarily due 
to a $1.3 million increase in payments to outside researchers for preclinical 
and clinical trials and other product development work, a $1.8 million 
increase in staffing costs, a $463,000 increase in rent and lease expense, a 


                                      11

<PAGE>

$456,000 increase in depreciation expense, as well as other increases related 
to the Company's research and development activities.

     General and administrative expenses decreased by 5% to $3.7 million for 
the six months ended December 31, 1997, compared to $3.9 million for the six 
months ended December 31, 1996.  The decrease in general and administrative 
expenses was primarily due to a decrease in professional fees.

     The Company accounted for the acquisition of MDV as a purchase, and 
recorded a one-time charge in the six months ended December 31, 1996 of $16 
million, including the $15.5 million scheduled payments and related 
transaction costs.

     Investment income and other was $1.9 million for the six months ended
December 31, 1997, compared to $2 million for the six months ended
December 31, 1996.

     THREE MONTHS ENDED DECEMBER 31, 1997 AS COMPARED WITH THREE MONTHS ENDED 
DECEMBER 31, 1996

     The Company's license and research revenue decreased by $16.8 million to 
$5.3 million for the three months ended December 31, 1997, compared to $22.1 
million for the three months ended December 31, 1996.  The three months ended 
December 31, 1996 included a $15 million milestone payment from Ortho under 
the Ortho License Agreement.  The Company expects research revenue to 
continue to decrease in 1998 compared to 1997, due to the termination of the 
HMRI License Agreement, and also expects milestone payments to diminish.

     Research and development expenses increased by approximately 13% to 
$11.8 million for the three months ended December 31, 1997, compared to $10.5 
million for the three months ended December 31, 1996.  The increase in 
expenses was primarily due to a $1 million increase in staffing costs, and a 
$245,000 increase in depreciation expense, as well as other increases related 
to the Company's research and development activities.

     General and administrative expenses were $1.9 million for the three 
months ended December 31, 1997, compared to $1.9 million for the three months 
ended December 31, 1996.

     The Company accounted for the acquisition of MDV as a purchase, and 
recorded a one-time charge in the three months ended December 31, 1996 of $16 
million, including the $15.5 million scheduled payments and related 
transaction costs.

     Investment income and other was $908,000 for the three months ended
December 31, 1997, compared to $938,000 for the three months ended December 31,
1996.

     Alliance expects to continue to incur substantial and increasing 
expenses associated with its research and development programs.  Operating 
losses may fluctuate from quarter to quarter as a result of differences in 
the timing of revenues earned and expenses incurred and such fluctuations may 
be substantial. The Company's historical results are not necessarily 
indicative of future results.


                                      12

<PAGE>

PART II  OTHER INFORMATION:

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     An annual meeting of shareholders was held on November 12, 1997.  The
following directors were re-elected for the following year and until the
election and qualification of their respective successors:

<TABLE>
<CAPTION>
                                                                   Broker
            Director                For     Against    Withheld  Non-Votes
     <S>                        <C>         <C>        <C>       <C>
     Pedro Cuatrecasas, M.D.    24,563,139     0        575,452    0
     Carroll O. Johnson         24,567,519     0        571,072    0
     Stephen M. McGrath         24,567,519     0        571,072    0
     Donald E. O'Neill          24,567,019     0        571,572    0
     Helen M. Ranney, M.D.      24,566,919     0        571,672    0
     Jean G. Riess, Ph.D.       24,567,419     0        571,172    0
     Duane J. Roth              24,566,798     0        571,793    0
     Thomas F. Zuck, M.D.       24,567,519     0        571,072    0
</TABLE>

     The shareholders of the Company voted to amend the 1991 Stock Option 
Plan of the Company to increase the number of shares available for issuance 
thereunder in accordance with the following vote:
 
21,367,005 For  3,647,824 Against   123,762 Withheld  0 Broker Non-Votes

     The shareholders of the Company voted to ratify the appointment of Ernst 
& Young LLP as independent auditors of the Company for its fiscal year ending 
June 30, 1998 in accordance with the following vote:

25,052,600 For    42,427 Against     43,564 Withheld  0 Broker Non-Votes

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits.
     10(a)  Credit Agreement dated as of December 5, 1997 between the
            Company and Imperial Bank.
     10(b)  Promissory Note dated December 5, 1997 executed by the Company
            in favor of Imperial Bank.
(b)  There was no report on Form 8-K.

                                       13

<PAGE>

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.
     
                                        ALLIANCE PHARMACEUTICAL CORP.
                                                 (Registrant)

                                           \s\ Theodore D. Roth
                                       -----------------------------
                                             Theodore D. Roth
                                          Executive Vice President
                                        and Chief Financial Officer
Date:  February 11, 1998


                                       14

<PAGE>
                                       
                         Alliance Pharmaceutical Corp.
                                   Form 10-Q
                                 EXHIBIT INDEX



     The following exhibits are being filed herewith:

<TABLE>
<CAPTION>
Number                         Document
------    ----------------------------------------------------- 
<S>       <C>  
10(a)     Credit Agreement dated as of December 5, 1997 between 
          the Company and Imperial Bank.

10(b)     Promissory Note dated December 5, 1997 executed by the
          Company in favor of Imperial Bank.
</TABLE>


                                      15