<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 September 30, 1996

                                       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 October 31, 1996, Registrant had 30,067,696 shares of its Common Stock,
$.01 par value, outstanding.
<PAGE>

ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES

INDEX
                                                                        PAGE NO.
                                                                       ---------
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                             9

PART II - OTHER INFORMATION

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


                                        2
<PAGE>

PART I FINANCIAL INFORMATION:

Item 1. Financial Statements

     ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
     CONDENSED CONSOLIDATED BALANCE SHEETS

                                                 September 30,        June 30,
                                                     1996               1996
                                                 -------------      ------------
   ASSETS                                            (Unaudited)          (Note)

   Current assets:
      Cash and cash equivalents                 $   20,745,000    $   9,480,000
      Short-term investments                        44,075,000       61,921,000
      Research revenue receivable                    5,750,000        5,750,000
      Inventories  and other current assets          2,538,000        1,803,000
                                                 -------------   --------------
           Total current assets                     73,108,000       78,954,000

   PROPERTY, PLANT AND EQUIPMENT - NET              12,348,000       12,390,000
   PURCHASED TECHNOLOGY - NET                       15,540,000       15,966,000
   OTHER ASSETS - NET                                1,072,000        1,033,000
                                                 -------------   --------------
                                                $  102,068,000    $ 108,343,000
                                                 -------------   --------------
                                                 -------------   --------------

   LIABILITIES AND STOCKHOLDERS' EQUITY

   CURRENT LIABILITIES:
      Accounts payable                          $    1,160,000    $   2,189,000
      Accrued expenses                               1,897,000        2,801,000
      Current portion of long-term debt                740,000          720,000
                                                 -------------   --------------
           Total current liabilities                 3,797,000        5,710,000

   LONG-TERM DEBT                                      752,000          945,000
   OTHER                                               200,000          221,000

   STOCKHOLDERS' EQUITY:
      Preferred stock - $.01 par value;
        5,000,000 shares authorized;
        200,000 shares outstanding at
        September 30, 1996 and June 30, 1996             2,000            2,000
      Common stock - $.01 par value;
        50,000,000 shares authorized;
        30,064,056 and 30,001,918 shares
        issued and outstanding at
        September 30, 1996 and June 30, 1996,
        respectively                                   301,000          300,000
      Additional paid-in capital                   313,661,000     313,397,000
      Accumulated deficit                         (216,645,000)    (212,232,000)
                                                 -------------    -------------
           Total stockholders' equity               97,319,000      101,467,000
                                                 -------------   --------------
                                                $  102,068,000   $  108,343,000
                                                 -------------   --------------
                                                 -------------   --------------

Note: The balance sheet at June 30, 1996 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


                                                       Three months ended

                                                          September 30,

                                                      1996             1995
                                                 -------------   --------------
                                                           (Unaudited)
REVENUES:
   License and research revenue                   $  5,750,000     $  2,090,000
   Product revenue - net                                     -           56,000
                                                 -------------   --------------
                                                     5,750,000        2,146,000

OPERATING EXPENSES:
   Research and development                          9,250,000        8,211,000
   General and administrative                        1,947,000        1,572,000
                                                 -------------   --------------
                                                    11,197,000        9,783,000
                                                 -------------   --------------
LOSS FROM OPERATIONS                                (5,447,000)      (7,637,000)

INVESTMENT INCOME AND OTHER - NET                    1,034,000          252,000
                                                 -------------   --------------
NET LOSS                                            (4,413,000)      (7,385,000)

DIVIDENDS ON PREFERRED STOCK                                 -         (187,000)
                                                 -------------   --------------
NET LOSS APPLICABLE TO COMMON SHARES             $  (4,413,000)   $  (7,572,000)
                                                 -------------   --------------
                                                 -------------   --------------

NET LOSS PER COMMON SHARE                        $       (0.15)   $       (0.31)
                                                 -------------   --------------
                                                 -------------   --------------

WEIGHTED AVERAGE NUMBER OF
 SHARES OUTSTANDING                                 30,026,000      24,817,000
                                                 -------------   --------------
                                                 -------------   --------------



SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                        4
<PAGE>

   ALLIANCE PHARMACEUTICAL CORP. AND SUBSIDIARIES
   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                        Three months ended

                                                           September 30,

                                                       1996             1995
                                                  ---------------   -----------
                                                              (Unaudited)
OPERATING ACTIVITIES:
   Net loss                                      $  (4,413,000)   $  (7,385,000)
   Adjustments to reconcile net loss to
    net cash used in operations:
      Depreciation and amortization                    818,000          777,000
      Acquired research and development                      -          757,000
      Changes in operating assets and
       liabilities:
         Inventories and other                        (566,000)         264,000
         Accounts payable and accrued expenses
          and other                                 (1,955,000)        (931,000)
                                                 -------------   --------------
Net cash used in operating activities               (6,116,000)      (6,518,000)
                                                 -------------   --------------

FINANCING ACTIVITIES:
   Issuance of common stock and preferred stock        409,000          236,000
   Proceeds from long-term debt                              -        2,208,000
   Principal payments on long-term debt               (173,000)         (52,000)
                                                 -------------   --------------
Net cash provided by financing activities              236,000        2,392,000
                                                 -------------   --------------
INVESTING ACTIVITIES:
   Short-term investments                           17,703,000        3,298,000
   Property, plant and equipment                      (558,000)        (351,000)
                                                 -------------   --------------
Net cash provided by investing activities           17,145,000        2,947,000
                                                 -------------   --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS    11,265,000       (1,179,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     9,480,000      12,519,000
                                                 -------------   --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD          20,745,000      11,340,000
                                                 -------------   --------------
                                                 -------------   --------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
   AND FINANCING ACTIVITIES:
Issuance of common stock and warrants in
 connection with acquisition of patent rights and
 related documents                                           $          757,000
Preferred stock dividends                                    $          187,000

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

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of Alliance and
its majority-owned subsidiaries, Astral, Inc., Talco Pharmaceutical, Inc., and
Applications et Transferts de Technologies Avanc es.  All significant
intercompany accounts and transactions have been eliminated.

INTERIM CONDENSED FINANCIAL STATEMENTS

     The condensed consolidated balance sheet as of September 30, 1996, the
condensed consolidated statements of operations for the three months ended
September 30, 1996 and 1995, and the condensed consolidated statements of cash
flows for the three months ended September 30, 1996 and 1995 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, 1996.

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the consolidated financial
statements.  Actual results could differ from those estimates.

CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS

     Cash, cash equivalents, and short-term investments consist of highly liquid
debt instruments. The Company considers instruments purchased with an original
maturity of three months or less to be cash equivalents.  Management has
classified the Company s cash equivalents and short-term investments as
available-for-sale securities in the accompanying financial statements.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported in stockholders  equity.

INVENTORIES

     Inventories, which consist primarily of raw materials, are stated at the
lower of cost (first-in, first-out basis) or market.


                                        6
<PAGE>

CONCENTRATION OF CREDIT RISK

     Cash, cash equivalents, and short-term investments are financial
instruments which potentially subject the Company to concentration of credit
risk.  The Company invests its excess cash primarily in U.S. government
securities and marketable debt securities of financial institutions and
corporations with strong credit ratings.  The Company has established guidelines
relative to diversification and maturities to maintain safety and liquidity.
These guidelines are reviewed periodically and modified to take advantage of
trends in yields and interest rates.  The Company has not experienced any
material losses on its investments.

PROPERTY, PLANT, EQUIPMENT, AND OTHER ASSETS

     Buildings, furniture, and equipment are stated at cost and depreciation is
computed using the straight-line method over the estimated useful lives of 3 to
25 years.  Leasehold improvements are amortized using the straight-line method
over the shorter of the estimated useful lives of the assets or the lease term.
Technology and patent rights are amortized using the straight-line method over 5
to 20 years.

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 OXYGENT  (temporary
blood substitute) and LIQUIVENT  (intrapulmonary oxygen carrier) products.
Purchased technology also includes $2.0 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.  BioPulmonics was
merged into Alliance in March 1996.

     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 $8,807,000 and $8,516,000 at September 30, 1996 and
June 30, 1996, respectively.  The technology acquired with the acquisition of
BioPulmonics is being amortized over five to seven years, and accumulated
amortization was $929,000 and $843,000 at September 30, 1996 and June 30, 1996,
respectively. Amortization of purchased technology is included in research and
development expense.

     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.

RESEARCH AND DEVELOPMENT EXPENSES

     Research and development expenditures are charged to expense as incurred.


                                        7
<PAGE>

LONG-TERM DEBT

     The Company entered into a loan and security agreement in August 1995 under
which the Company received $2.2 million.  Amounts borrowed under the agreement
are secured by fixed assets, and are being repaid over three years.  If certain
financial covenants are not satisfied, the note may become due and payable.

NET LOSS PER COMMON SHARE

     Net loss per common share is based on the weighted average number of shares
outstanding during the respective periods and does not include common stock
equivalents since their effect on the net loss per common share would be anti-
dilutive.

NEW ACCOUNTING STANDARDS

     In November 1995, the Financial Accounting Standards Board issued SFAS 123,
 Accounting for Stock-Based Compensation,  effective for fiscal years beginning
after December 15, 1995.  SFAS 123 establishes and encourages the use of the
fair value based method of accounting for stock-based compensation arrangements
under which compensation cost is determined using the fair value of stock-based
compensation determined as of the grant date, and is recognized over the periods
in which the related services are rendered.  The statement also permits
companies to elect to continue using the current implicit value accounting
method specified in APBO No. 25 to account for stock-based compensation.  The
Company has elected to retain its current implicit value based method and will
be required to disclose the pro forma effect of using the fair value based
method to account for its stock-based compensation in its fiscal 1997 financial
statements.

2. SUBSEQUENT EVENT - PURCHASE OF MDV TECHNOLOGIES, INC.

     In October 1996, the Company announced that it had agreed in principle for
the merger of privately-held MDV Technologies, Inc. ( MDV ) with a newly-formed
subsidiary of Alliance.  MDV is engaged in the development of a thermo-
reversible gel (FLOGEL ) 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 closing of the transaction is subject to certain shareholder and
regulatory approvals, which are expected to be obtained by the end of November
1996.  Under the terms of the agreement, Alliance would pay the MDV shareholders
$15.5 million in installments over a one-year period, commencing on the closing
date. In addition, Alliance would agree to pay up to $20.0 million upon the
achievement of advanced clinical development or licensing milestones.  The MDV
shareholders would  receive royalties on the sale of products utilizing the MDV
technology.  All payments by Alliance other than royalties (which will be paid
in cash) may be made in cash or stock, at Alliance s discretion.

     MDV is currently headquartered in Dearborn, Michigan.  Major shareholders
of MDV include affiliated entities of the Hillman Co.


                                        8
<PAGE>

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 pharmaceutical products.  The Company has been unprofitable since
inception and expects to continue to spend substantial amounts on research and
development, preclinical testing and clinical trials, regulatory activities, and
commercial manufacturing start-up. The Company has entered into collaborative
research and development agreements with pharmaceutical companies for OXYGENT
and LIQUIVENT, and is actively searching for a similar arrangement for IMAGENT 
US.  The arrangements with its existing partners require them to reimburse the
Company for substantially all of its development expenses incurred for the
respective products and to make milestone payments to the Company upon the
achievement of certain product development events, followed by royalties on
sales at commercialization.  If the Company enters into a similar arrangement
for IMAGENT US, and some of the development events under its existing agreements
are achieved and the relevant payments made, the Company could become profitable
on a periodic basis over the next two years, prior to the commercialization of
products.  However, the timing and amounts of such license fees and milestone
payments, if any, cannot be predicted with certainty and may not occur if
product development events are not achieved.  There can be no assurance that the
Company will be able to achieve profitability at all or on a sustained basis.

     In October 1996, the Company announced that it had agreed in principle for
the merger of privately-held MDV Technologies, Inc. ( MDV ) with a newly-formed
subsidiary of Alliance.  MDV is engaged in the development of a thermo-
reversible gel (FLOGEL ) 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 closing of the transaction
is subject to certain shareholder and regulatory approvals, which are expected
to be obtained by the end of November, 1996.  Under the terms of the agreement,
Alliance would pay the MDV shareholders $15.5 million in installments over a
one-year period, commencing on the closing date. In addition, Alliance would
agree to pay up to $20.0 million upon the achievement of advanced clinical
development or licensing milestones.  The MDV shareholders would  receive
royalties on the sale of products utilizing the MDV technology.  All payments by
Alliance other than royalties (which will be paid in cash) may be made in cash
or stock, at Alliance s discretion.

LIQUIDITY AND CAPITAL RESOURCES

     Through September 1996, 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 April 1996, the Company completed a public offering of 2.9 million
shares of newly issued common stock, resulting in net proceeds to the Company of
approximately $44 million.

     In February 1996, the Company entered into a license agreement with Hoechst
Marion Roussell, Inc. ( HMRI ), which provides HMRI with worldwide marketing and
manufacturing rights to the intratracheal administration of liquids, including
LIQUIVENT, which perform bronchoalveolar lavage or liquid ventilation.  The
product is being developed jointly by Alliance and HMRI, with HMRI responsible
for substantially all of the costs of development and


                                        9
<PAGE>

marketing. In conjunction with the HMRI license agreement, HMRI purchased shares
of Series B Preferred Stock and Series C Preferred Stock for $22 million.  In
addition, HMRI paid Alliance an initial license fee of $5 million and agreed to
pay further license fees, milestone payments, and royalties on product sales.
HMRI also received a five-year warrant to acquire 300,000 shares of common stock
at $20 per share.  In June 1996, the Series B Preferred Stock was converted into
common stock of the Company.

     In August 1995, the Company entered into a loan and security agreement
under which the Company received $2.2 million.  Amounts borrowed under the
agreement are secured by property and equipment, and are being repaid over three
years.  If certain financial covenants are not satisfied, the debt may become
due and payable.  The Company has financed substantially all of its office and
research facilities and related leasehold improvements under operating lease
arrangements.

     In April 1995, the Company completed offerings of 3.2 million shares of
newly issued common stock, resulting in net proceeds to the Company of
approximately $14.3 million.

     In August 1994, the Company entered into a license agreement with Ortho
Biotech, Inc. and The R.W. Johnson Pharmaceutical Research Institute, affiliates
of Johnson & Johnson (collectively,  Ortho ), for injectable PFC emulsions
capable of transporting oxygen for therapeutic use, including OXYGENT.  Under
the Ortho license agreement, Ortho paid to Alliance an initial fee of $4 million
and agreed to make other payments upon the achievement of certain milestones.
Ortho is responsible for substantially all the remaining costs of developing and
marketing the products and will pay Alliance a royalty based upon sales of
products after commercialization.  From August 1994 through September 30, 1996,
the Company had received aggregate research revenue payments under the Ortho
license agreement of $14.9 million from Ortho, and as of September 30, 1996, had
recorded a receivable of $1.8 million.  In conjunction with the Ortho license
agreement, Johnson and Johnson Development Corporation ( J&JDC ) purchased
Series A Preferred Stock for $15 million and obtained a three-year warrant to
purchase 300,000 shares of common stock at $15 per share.  In June 1996, the
Series A Preferred Stock was converted into common stock of the Company, and
J&JDC exercised its warrant for 300,000 shares.

     The Company had net working capital of $69.3 million at September 30, 1996
compared to $73.2 million at June 30, 1996.  The Company's cash, cash
equivalents, and short-term investments decreased to $64.8 million at September
30, 1996 from $71.4 million at June 30, 1996.  The decrease resulted primarily
from cash used in operations of $6.1 million and property, plant, and equipment
additions of $0.5 million.  The Company s operations to date have consumed
substantial amounts of cash, and are expected to continue to do so for the
foreseeable future.

     In December 1993, in order to obtain a commitment for a long-term supply of
raw material for both clinical trials and anticipated future production
requirements, the Company entered into an agreement with a supplier under which
the Company was obligated to make payments to the supplier through May 1997
based, in part, upon the achievement of certain milestones.  Based upon the
supplier s intent to negotiate directly with the Company s existing and future
collaborative partners, that agreement was modified in July 1995 to terminate
certain


                                       10
<PAGE>

commitments by both parties.  Some or all of the Company s payment obligations
that remain may be reimbursed to the Company by existing collaborative partners.

     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 include projected markets and
need, potential for regulatory approval and reimbursement under the existing
health care 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.  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 anticipates that its current capital resources, including the net
proceeds from the recent offering, expected revenues from the Ortho license
agreement, HMRI 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 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.

     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 facility, it may need to
expand its commercial manufacturing capabilities for its products in the future.
This expansion 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 projected location and completion
date of any production facility will depend upon regulatory and development
activities and other factors.  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.
Construction of a facility will depend on regulatory approvals, product
development, and capital resources, among other things.  The Ortho license
agreement provides an option to Ortho to elect to manufacture the emulsion


                                       11
<PAGE>

products referred to therein, or to require the Company to manufacture such
products at a negotiated price.  The HMRI license agreement requires the Company
to manufacture LIQUIVENT at its Otisville facility for a period of time after
market launch and to sell the product to HMRI at a negotiated price.  HMRI will
be responsible for establishing production capacity beyond the maximum capacity
of the Otisville 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 1997, 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 health care costs and potential legislation or regulation of
health care pricing.

RESULTS OF OPERATIONS

     THREE MONTHS ENDED  SEPTEMBER 30, 1996 AS COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1995

     The Company's license and research revenue increased by 175% to $5.8
million for the three months ended September 30, 1996, compared to $2.1 million
for the three months ended September 30, 1995, primarily as a result of amounts
received from the HMRI agreement.  The Company expects research revenue to
continue at higher levels in 1997 compared to 1996.

     Research and development expenses increased by 13% to $9.3 million for the
three months ended September 30, 1996, compared to $8.2 million for the three
months ended September 30, 1995.  The net increase in expenses was primarily due
to a $700,000 increase in payments to outside researchers for pre-clinical and
clinical trials and other product development work, and increased staffing costs
of $600,000.  The expenses for the three months ended


                                       12
<PAGE>

September 30, 1995 included a $757,000 charge arising from the acquisition of
certain PFC patents, patent rights, and related documents.

     General and administrative expenses increased by 19% to $1.9 million for
the three months ended September 30, 1996, compared to $1.6 million for the
three months ended September 30, 1995.  The increase in general and
administrative expenses was primarily due to increased staffing costs and
increased professional fees.

     Investment income and other was $1 million for the three months ended
September 30, 1996, compared to $252,000 for the three months ended September
30, 1995.  The increase in investment revenue was primarily a result of higher
average cash balances.

     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.

PART II  OTHER INFORMATION:

Item 6.  Exhibits and Reports on Form 8-K

(a)  There were no exhibits.

(b)  There were no reports on Form 8-K.


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<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:  November 5, 1996


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