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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 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 JUNE 30, 1998
 
                                       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: 0-20815
 
                                     AVIRON
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                            <C>
                   DELAWARE                                      77-0309686
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)
</TABLE>
 
           297 NORTH BERNARDO AVENUE, MOUNTAIN VIEW, CALIFORNIA 94043
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
 
                                 (650) 919-6500
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING ARE CODE)
 
    ------------------------------------------------------------------------
   (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
                                    REPORT)
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]
 
     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
 
<TABLE>
<CAPTION>
Common Stock $.001 par value             15,695,197 shares
----------------------------             -----------------
<S>                               <C>
          (Class)                 (Outstanding at August 5, 1998)
</TABLE>
 
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<PAGE>   2
 
                                     AVIRON
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                       PAGE
<S>      <C>                                                           <C>
                       PART I. FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS........................................    3
         Condensed Balance Sheets as of June 30, 1998 and December
         31, 1997....................................................    3
         Condensed Statements of Operations for the three and
         six-month periods ended June 30, 1998 and 1997..............    4
         Condensed Statements of Cash Flows for the six-month periods
         ended June 30, 1998
         and 1997....................................................    5
         Notes to Condensed Financial Statements.....................    6
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS...................................    7
                        PART II. OTHER INFORMATION
ITEM 1.  LEGAL PROCEEDINGS...........................................   11
ITEM 2.  CHANGES IN SECURITIES.......................................   11
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.............................   11
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........   12
ITEM 5.  OTHER INFORMATION...........................................   12
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K............................   12
SIGNATURES...........................................................   13
EXHIBIT INDEX........................................................   14
</TABLE>
 
                                        2
<PAGE>   3
 
                         PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
                                     AVIRON
 
                            CONDENSED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                               JUNE 30,      DECEMBER 31,
                                                                 1998            1997
                                                              -----------    ------------
                                                              (UNAUDITED)       (NOTE)
<S>                                                           <C>            <C>
CURRENT ASSETS:
  Cash and cash equivalents.................................   $ 56,289        $ 15,239
  Short-term investments....................................     51,949          47,285
  Prepaid expenses and other current assets.................      1,144           1,030
                                                               --------        --------
          Total Current Assets..............................    109,382          63,554
  Long-term investments.....................................     16,593          12,587
  Property and equipment, net...............................     15,942           7,582
  Debt issuance costs, deposits and other assets............      5,325           1,602
                                                               --------        --------
          TOTAL ASSETS......................................   $147,242        $ 85,325
                                                               ========        ========
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable..........................................   $  2,334        $  3,636
  Accrued compensation......................................        306             756
  Accrued clinical trial costs..............................        641           3,592
  Accrued interest..........................................      1,449              --
  Accrued expenses and other liabilities....................      1,900             513
  Current portion of capital lease obligations..............        405             477
                                                               --------        --------
          Total Current Liabilities.........................      7,035           8,974
  Deferred rent.............................................        352              88
  Capital lease obligations, noncurrent.....................        332             521
  Long-term debt............................................    100,000              --
                                                               --------        --------
          Total Long-Term Liabilities.......................    100,684             609
                                                               --------        --------
STOCKHOLDERS' EQUITY:
  Preferred stock, $0.001 par value; 5,000,000 shares
     authorized, issuable in series; none outstanding at
     June 30, 1998 and December 31, 1997....................         --              --
  Common stock, $0.001 par value; 30,000,000 shares
     authorized; 15,682,349 and 16,082,476 shares issued and
     outstanding at June 30, 1998 and December 31, 1997,
     respectively...........................................         16              16
  Additional paid-in capital................................    130,185         142,840
  Notes receivable from stockholders........................       (115)           (115)
  Deferred compensation.....................................       (365)           (588)
  Accumulated deficit.......................................    (90,198)        (66,411)
                                                               --------        --------
     Total Stockholders' Equity.............................     39,523          75,742
                                                               --------        --------
          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........   $147,242        $ 85,325
                                                               ========        ========
</TABLE>
 
                            See accompanying notes.
 
                                        3
<PAGE>   4
 
                                     AVIRON
 
                       CONDENSED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED       SIX MONTHS ENDED
                                                        JUNE 30,                JUNE 30,
                                                   -------------------    --------------------
                                                     1998       1997        1998        1997
                                                   --------    -------    --------    --------
<S>                                                <C>         <C>        <C>         <C>
TOTAL REVENUES:                                    $    134    $   109    $    387    $    414
OPERATING EXPENSES:
  Research and development.......................    10,874      4,606      20,657       8,897
  Marketing, general and administrative..........     2,591      1,461       4,652       2,621
                                                   --------    -------    --------    --------
          TOTAL OPERATING EXPENSES...............    13,465      6,067      25,309      11,518
                                                   --------    -------    --------    --------
LOSS FROM OPERATIONS.............................   (13,331)    (5,958)    (24,922)    (11,104)
OTHER INCOME/(EXPENSE):
  Interest income................................     1,847        355       2,800         577
  Interest expense...............................    (1,618)       (45)     (1,661)        (98)
                                                   --------    -------    --------    --------
          TOTAL OTHER INCOME, NET................       229        310       1,139         479
                                                   --------    -------    --------    --------
NET LOSS.........................................  $(13,102)   $(5,648)   $(23,783)   $(10,625)
                                                   ========    =======    ========    ========
Basic net loss per share.........................  $  (0.84)   $ (0.43)   $  (1.51)   $  (0.87)
                                                   ========    =======    ========    ========
Shares used in computing basic net loss per
  share..........................................    15,571     13,059      15,787      12,224
</TABLE>
 
                            See accompanying notes.
 
                                        4
<PAGE>   5
 
                                     AVIRON
 
                       CONDENSED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                SIX MONTHS ENDED
                                                                    JUNE 30,
                                                              --------------------
                                                                1998        1997
                                                              --------    --------
<S>                                                           <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss....................................................  $(23,783)   $(10,625)
Adjustment to reconcile net loss to net cash used in
  operating activities:
  Depreciation and amortization.............................     1,075         313
  Amortization of debt issuance costs.......................       139          --
  Amortization of deferred compensation.....................       223         334
Changes in assets and liabilities:
  Prepaid expenses and other current assets.................      (114)         82
  Deposits and other assets.................................       138        (136)
  Accounts payable..........................................    (1,302)        442
  Accrued expenses and other liabilities....................      (560)       (734)
  Deferred liabilities......................................       259          --
                                                              --------    --------
Net Cash Used in Operating Activities.......................   (23,925)    (10,324)
                                                              --------    --------
Cash Flows From Investing Activities:
  Purchases of investments..................................   (34,399)     (9,534)
  Maturities of investments.................................    25,725       6,223
  Expenditures for property and equipment...................    (9,435)        (56)
                                                              --------    --------
Net Cash Provided by Investing Activities...................   (18,109)     (3,367)
                                                              --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Principal payments on capital lease obligation............      (261)       (331)
  Proceeds from convertible debt offering, net..............    96,000          --
  Repurchase of Common Stock................................   (13,337)         --
  Proceeds from issuance of Common Stock, net...............       682      15,161
                                                              --------    --------
Net Cash Provided by Financing Activities...................    83,084      14,830
                                                              --------    --------
Net Increase/(Decrease) in Cash and Cash Equivalents........    41,050       1,139
Cash and Cash Equivalents at Beginning of Period............    15,239      12,166
                                                              --------    --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................  $ 56,289    $ 13,305
                                                              ========    ========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING
  ACTIVITIES:
  Equipment acquired under lease line of credit.............        --         152
  Deferred compensation related to grant of certain stock
     options, less cancellations............................        14         125
  Warrant issued in lieu of payment of legal fees...........        --         100
</TABLE>
 
                            See accompanying notes.
 
                                        5
<PAGE>   6
 
                                     AVIRON
 
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
                           JUNE 30, 1998 (UNAUDITED)
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Basis of Presentation
 
     The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X.
 
     The financial information at June 30, 1998 and for the three months and six
months ended June 30, 1998 and 1997 is unaudited, but includes all adjustments
(consisting only of normal recurring adjustments) which Aviron (the "Company")
considers necessary for a fair presentation of the financial position at such
date and the operating results and cash flows for those periods. The balance
sheet data at December 31, 1997 is derived from audited financial statements at
that date. The accompanying condensed financial statements should be read in
conjunction with the financial statements and notes thereto for the year ended
December 31, 1997 included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997. The results of the Company's operations for any
interim period are not necessarily indicative of the results of the Company's
operations for a full fiscal year.
 
2. NET LOSS PER SHARE
 
     Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS 128
requires the presentation of basic earnings (loss) per share and diluted
earnings per share, if more dilutive, for all periods presented. Basic net loss
per share is computed using the weighted average number of common shares
outstanding during the period. Diluted net loss per share has not been presented
separately as, given the Company's net loss position, the result would be
anti-dilutive.
 
3. CHANGES IN SECURITIES
 
     In March 1998, the Company issued $100.0 million of 5 3/4% Convertible
Subordinated Notes due 2005 (the "Notes"). The net proceeds to the Company from
the Note offering were approximately $96.0 million. Of the net proceeds,
approximately $13.3 million was used to repurchase 530,831 shares of Aviron
Common Stock formerly held by Sang-A Pharm. Co., Ltd., a subsidiary of the Hanbo
Group, a Korean pharmaceutical company currently under court-ordered
reorganization. The Notes are convertible into shares of common stock at the
option of the Note holders at a price per share of $30.904.
 
4. NEW ACCOUNTING PRONOUNCEMENTS
 
     As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("Statement 130").
Statement 130 establishes rules for the reporting of comprehensive income (loss)
and its components, accordingly the adoption of this Statement had no impact on
the Company's net loss or stockholders' equity. Comprehensive income (loss) has
not been presented separately herein as it approximates the Company's net loss.
 
                                        6
<PAGE>   7
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains, in addition to historical information,
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the Company's Annual Report on Form 10-K in the section entitled
"Business Risks."
 
OVERVIEW
 
     Since its inception in April 1992, Aviron has devoted the majority of its
resources to its research and development programs. To date, Aviron has not
generated any revenues from the sale of products and does not expect to generate
any such revenues until at least late in 1999, if at all. Aviron has incurred
cumulative net losses of approximately $90.2 million as of June 30, 1998, and it
expects to incur increasing operating losses over at least the next few years.
 
     Aviron has financed its operations through proceeds from private placements
of Preferred Stock, two public offerings and a private placement of Common
Stock, a private placement of convertible subordinated notes ("Notes"), revenue
from its collaborative agreements, equipment lease financings and investment
income earned on cash, cash equivalent balances and marketable securities.
 
     The Company expects its research and development expenditures to increase
substantially over the next several years as the Company expands its research
and development efforts and preclinical testing and clinical trials with respect
to certain of its programs. In addition, marketing, general and administrative
expenses are expected to continue to increase as the Company expands its
operations and prepares for the launch of FLUMIST(TM).
 
     On June 30, 1998 Aviron submitted its first Product License
Application/Establishment License Application (PLA/ELA) to the U.S. Food and
Drug Administration for FLUMIST(TM), the Company's intranasal influenza vaccine.
The Company is seeking U.S. licensure for FLUMIST(TM) to prevent influenza and
its complications in children and adults. In addition, the Company is seeking
licensure for FLUMIST(TM), when co-administered with inactivated vaccine (flu
shots), in high risk adults such as the elderly. Epidemic influenza affects
approximately 10-20 percent of the United States population each year, resulting
in 35-50 million cases of the illness and approximately 20,000 deaths.
 
     Aviron has tested FLUMIST(TM) in approximately 5500 individuals as part of
a Collaborative Research and Development Agreement (CRADA) between Aviron and
the National Institute of Allergy and Infectious Disease (NIAID), a division of
the National Institutes of Health (NIH). The NIAID conducts and supports
research to prevent, diagnose, and treat infectious and immunologic diseases and
has a major responsibility within the federal government for developing vaccines
to control and prevent infectious and immunologic diseases. NIH is an agency of
the U.S. Department of Health and Human Services.
 
     A pivotal Phase 3 clinical trial published in the May 14, 1998 edition of
the New England Journal of Medicine (NEJM) demonstrated a 93 percent protection
rate by FLUMIST(TM) against culture-confirmed influenza and a 98 percent
reduction of influenza-associated otitis media (ear infections). Data from this
double-blind, placebo-controlled trial showed that 14 of 1070 children (1
percent) vaccinated with FLUMIST(TM) experienced culture-confirmed influenza,
while 95 of 532 children (18 percent) in the placebo group developed influenza.
In the few children in the FLUMIST(TM) group who had influenza, the spectrum of
illness was milder than that in the control group.
 
     One child out of the 1070 (0.1 percent) vaccinated with FLUMIST(TM)
contracted influenza-related otitis media, while 20 of 532 (4 percent) of the
placebo recipients developed the condition. The results of the study published
in the NEJM showed that, overall, the rate of febrile otitis media (ear
infections with fever) was 30 percent lower among those who received the
FLUMIST(TM) vaccine and resulting antibiotic use was cut by 35 percent. Otitis
media is responsible for over one-third of all visits to pediatricians' offices
each year. Antibiotics are often used to treat otitis media and the widespread
use of antibiotics is a major medical concern among health professionals.
 
                                        7
<PAGE>   8
 
     In another study among healthy adults, subjects receiving FLUMIST(TM)
experienced an 85 percent protection rate against laboratory-documented
influenza. Those receiving injectable vaccine experienced a 71 percent
protection rate. Aviron has an additional large multi-center double-blind,
placebo-controlled study underway to evaluate the benefits of FLUMIST(TM) in
reducing work loss and health care utilization in adults. In studies with
FLUMIST(TM), no serious adverse events associated with the vaccine were
reported. A minority of recipients reported transient cold-like symptoms such as
runny nose or sore throat. In a separate study, elderly high risk adults (those
with conditions such as diabetes, chronic obstructive pulmonary disease or
congestive heart failure) received FLUMIST(TM) co-administered with an
inactivated vaccine (flu shot). The vaccine was well-tolerated, with the most
common symptoms being runny nose or sore throat.
 
     In April 1997, the Company entered into an agreement with Evans Medical
Limited, a subsidiary of Medeva plc for the commercial manufacture of
FLUMIST(TM) through December 2001. In July 1998 Evans Medical Limited changed
its name to Medeva Pharma Limited ("Medeva Pharma"). In October 1997, the
Company entered into an agreement with Packaging Coordinators, Inc., a
subsidiary of Cardinal Health, Inc. ("PCI") for the blending, filling, packaging
and labeling of FLUMIST(TM) in the United States until October 2004. On July 15,
Aviron and PCI opened a 34,000-square-foot manufacturing suite in Philadelphia
at PCI's site, in which PCI has blended, filled and packaged doses of
FLUMIST(TM) for use in 1998-99 clinical trials. Upon receipt of regulatory
approval, the PCI facility will be used for blending, filling, packaging,
labeling and final shipment of FLUMIST(TM). The agreements with Evans and PCI
have required the Company to fund the construction of facilities, improvements,
and equipment and will continue to require the Company to incur expenses for the
duration of the agreements for facility space, utilities and insurance. The
Company currently is evaluating the costs and benefits of developing internal
manufacturing capabilities or contracting for expanded or alternative sources of
supply from third-party manufacturers.
 
     In June 1998, the Company announced the signing of an agreement with CSL
Limited, Australia, a recognized leader in influenza vaccines, to develop, sell
and distribute FLUMIST(TM) in Australia, New Zealand and certain countries in
the south Pacific region. Under the agreement, CSL and Aviron will jointly carry
out additional trials in Australia for Aviron's cold adapted FLUMIST(TM)
intranasal influenza vaccine.
 
     In early August 1998, the Company announced a preliminary analysis of the
second year of a two-year study of 1358 children during the 1997-98 flu season
with FLUMIST(TM). The preliminary analysis indicated that FLUMIST(TM) provided
protection against culture-confirmed influenza, even though the predominant
strain of influenza circulating during last year's flu season, A/Sydney, was not
included in last year's flu vaccines, including the preparation of FLUMIST(TM)
used in the clinical trial.
 
     During the 1997-98 flu season, children involved in the pivotal phase 3
trial in the 1996-97 flu season were invited to participate in a follow-up
trial. Children were vaccinated with a single dose of FLUMIST(TM) formulated to
match the 1997-98 flu shot or placebo. Investigators were evaluating study
participants to test the safety and efficacy of vaccination in subsequent flu
seasons. Final data are currently being analyzed and investigators expect to
present the results at the Interscience Conference on Antimicrobial Agents and
Chemotherapy in September 1998.
 
     Results from the year-one study (1996-97 flu season) showed only one
percent (14 of 1070) of the children who received FLUMIST(TM) developed
culture-confirmed influenza, versus 18 percent (95 of 532) of the children who
received placebo -- a protection rate of 93 percent. The trial was conducted
under the CRADA between Aviron and the NIAID. It involved ten sites nationwide,
including six Vaccine and Treatment Evaluation Units (VTEUs) supported by NIAID
and four sites supported by Aviron.
 
     Also in August, 1998 the Company announced receipt of a Small Business
Innovation Research (SBIR) grant to support development of its live attenuated
vaccine for the prevention of disease caused by human cytomegalovirus (CMV),
from the NIAID. The $750,000 grant is the second that Aviron has received for
research on CMV. The award will be used to produce recombinant CMV vaccine
candidates for human testing and to determine their safety and immunogenicity in
a Phase 1 clinical trial in collaboration with the NIAID Vaccine Treatment and
Evaluation Unit network.
 
                                        8
<PAGE>   9
 
     CMV is the most common viral infection known to be transmitted to the fetus
during pregnancy. It is the leading infectious cause of birth defects including
deafness, death or major neurodevelopmental defects such as mental retardation.
CMV can be life threatening for persons who are immunocompromised by drug
therapy for transplantation, cancer treatment, or AIDS.
 
     The Company's business is subject to significant risks, including but not
limited to the risks inherent in its research and development efforts, including
preclinical testing and clinical trials; uncertainties associated both with
obtaining and enforcing its patents and with the patent rights of others; the
lengthy, expensive and uncertain process of seeking regulatory approvals;
uncertainties regarding government reforms and product pricing and reimbursement
levels; technological change and competition; manufacturing uncertainties and
dependence on third parties. Even if the Company's product candidates appear
promising at an early stage of development, they may not reach the market for
numerous reasons. Such reasons include the possibilities that the products will
be found unsafe or ineffective during clinical trials, will fail to receive
necessary regulatory approvals, will be difficult to manufacture on a large
scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties.
 
RESULTS OF OPERATIONS
 
     THREE MONTHS ENDED JUNE 30, 1998 AND 1997
 
  Revenues
 
     The Company earned $134,000 in revenue for the three months ended June 30,
1998, compared to $109,000 for the three months ended June 30, 1997. The 1998
revenue came principally from rental of a portion of the Company's animal
research facilities. The 1997 revenue resulted from research support payments
due to the Company under its license and development agreement with SmithKline
Beecham.
 
  Operating Expenses
 
     Research and development expenses increased to $10.9 million in the three
months ended June 30, 1998 from $4.6 million for the three months ended June 30,
1997. These increases were primarily due to increased activities surrounding
FLUMIST(TM), including increased clinical trial activities, preparation for the
submission of the PLA/ELA, and depreciation and other expenses associated with
the documentation, validation, and test production at manufacturing facilities.
Research and development expenses are expected to increase as the Company
expands its efforts in preclinical testing and clinical trial activities.
 
     Marketing, general and administrative expenses increased to $2.6 million in
the three months ended June 30, 1998 from $1.5 million for the three months
ended June 30, 1997. These increases were primarily due to increases in
staffing, legal costs, and market research and development activities associated
principally with FLUMIST(TM). These expenses are expected to increase in the
future in continued support of these activities.
 
  Net Interest Income
 
     Net interest income decreased to $229,000 in the three months ended June
30, 1998 from $310,000 for the three months ended June 30, 1997. Net interest
income is the result of increased interest income on the Company's increase in
average cash, cash equivalent and investment balances, due to the Company's
public offering of Common Stock in August 1997 and the private offering of Notes
in March 1998, offset by the increase in interest expense related to the Notes.
 
     SIX MONTHS ENDED JUNE 30, 1998 AND 1997
 
  Revenues
 
     The Company earned $387,000 in revenue for the six months ended June 30,
1998, compared to $414,000 for the six months ended June 30, 1998. The 1998
revenue was from a grant payment from the NIH for research on the Company's CMV
vaccine, from rental of a portion of the Company's animal research facilities,
and from payments received for services rendered to other biotechnology
companies. The 1997
 
                                        9
<PAGE>   10
 
revenue resulted from research support payments due to the Company under its
license and development agreement with SmithKline Beecham.
 
  Operating Expenses
 
     Research and development expenses increased to $20.7 million in the six
months ended June 30, 1998, from $8.9 million for the six months ended June 30,
1997. These increases were primarily due to increases in research and
development activities and staffing, expenses associated with clinical trials of
FLUMIST(TM) and the Company's Parainfluenza Virus Type 3 (PIV-3) vaccine,
preclinical testing associated with other programs, preparation for the
submission of the PLA/ELA, and depreciation and other expenses associated with
the documentation, validation, and test production at manufacturing facilities.
Research and development expenses are expected to increase as the Company
expands its efforts in preclinical testing and clinical trial activities.
 
     Marketing, general and administrative expenses increased to $4.7 million in
the six months ended June 30, 1998, from $2.6 million for the six months ended
June 30, 1997. These increases were primarily the result of market research
regarding FLUMIST(TM) and additions to staffing necessary to support the
Company's research and development, patent and legal costs, and corporate
development activities. These expenses are expected to increase in the future in
continued support of these activities.
 
  Net Interest Income
 
     Net interest income for the six months ended June 30, 1998 was $1,139,000,
as compared to $479,000 for the six months ended June 30, 1997. The increase in
net interest income reflects the effect of the Company's increase in average
cash, cash equivalent and investment balances, due to a private placement of
Common Stock in March 1997, a public offering of Common Stock in August 1997,
and a private offering of Notes in March 1998, offset by the increase in
interest expense related to the Notes.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Aviron had cash, cash equivalents and marketable securities at June 30,
1998 of approximately $124.8 million. In order to preserve principal and
maintain liquidity, the Company's funds are invested in United States Treasury
obligations, highly rated corporate obligations and other liquid investments.
 
     The Company has financed its operations since inception primarily through
private placements of Preferred Stock from 1992 to 1995, an initial public
offering of Common Stock in November 1996, a private sale of Common Stock in
March 1997, a second public offering of Common Stock in August 1997, and the
Note offering in March 1998. Through June 30, 1998, the Company had raised
approximately $236.3 million from such activities, net of offering expenses.
Cash used in operations was $23.9 million and $10.3 million for the first six
months of 1998 and 1997, respectively. Capital expenditures totaled $9.4 million
for the first six months of 1998 as compared to a nominal amount expended during
the same period in 1997 primarily due to expenditures for facilities and
equipment at the Medeva Pharma and PCI manufacturing plants. The Company expects
that capital expenditures will be at a slightly lower pace during the remainder
of 1998 as these facilities are nearing completion. Net cash used in operating
activities increased primarily due to increased research and development
expenditures. The Company expects expenditures for research and development,
clinical trials and marketing, general and administrative expenses to continue
to increase during the remainder of 1998 and in 1999 as the Company develops its
products, expands its clinical trials and prepares for the launch of
FLUMIST(TM).
 
     The Company anticipates that its existing cash, cash equivalents and
short-term investments, and revenues from existing collaborations, will enable
it to maintain its current and planned operations through 1999. The Company's
future cash requirements will depend on numerous factors, including continued
scientific progress in the research and development of the Company's technology
and vaccine programs; the size and complexity of these programs; the ability of
the Company to establish and maintain collaborative arrangements; progress with
preclinical testing and clinical trials; the time and costs involved in
obtaining regulatory approvals; the cost involved in preparing, filing,
prosecuting, maintaining and enforcing patent
 
                                       10
<PAGE>   11
 
claims; the cost of constructing manufacturing facilities, should they be deemed
necessary; and product commercialization activities. In particular, if the
Company were to construct and equip such a manufacturing facility during this
period, the Company anticipates that it would likely begin to make substantial
additional capital expenditures in the second half of 1998 and beyond, which may
require the Company to seek additional funding. The Company is seeking
additional collaborative agreements with corporate partners. There can be no
assurance, however, that any such agreements will be entered into or that they
will reduce the Company's funding requirements or that additional funding will
be available. In addition, there can be no assurance that, should the Company
require outside funding through additional debt or equity financings, such funds
will be available on favorable terms, if at all. If adequate funds are not
available, the Company may be required to delay, reduce the scope of, or
eliminate one or more of its research or development programs or to obtain funds
through collaborative agreements with others that may require the Company to
relinquish rights to certain of its technologies, product candidates or products
that the Company would otherwise seek to develop or commercialize itself, which
would materially adversely affect the Company's business, financial condition
and results of operations.
 
IMPACT OF "YEAR 2000"
 
     Many older computer software programs refer to years in terms of their
final two digits only. Such programs may interpret the year 2000 to mean the
year 1900 instead, the so-called "Year 2000" problem ("Y2K"). If not corrected,
those programs could cause date-related transaction failures.
 
     The Company is using a number of computer programs across its entire
operations. The Company is in the process of performing a detailed assessment of
all internal computer systems to determine if and how Y2K problems may affect
its operations. The Company has identified some of its older financial and
accounting programs as non-Y2K compliant. However, the Company had already
planned to upgrade these systems, and intends to purchase only new systems that
are believed to be Y2K compliant. The Company is currently making inquiries of
its internal staff and third-party vendors, including its suppliers of
scientific equipment, to determine if Y2K problems exist which may affect the
Company's research and development operations, its communications, or other
administrative functions. We expect this assessment to be completed by the end
of 1998.
 
     The Company currently has no products available for commercial sale, and
does not anticipate FDA clearance for its lead product, FLUMIST(TM), until
mid-1999 at the earliest. The Company plans to contact its third party
manufacturers during the next quarter to determine their level of Y2K
compliance.
 
     External and internal costs specifically associated with modifying internal
use software for Y2K compliance are expensed as incurred. To this point, these
costs have not been material, and the Company does not expect such costs to be
material in the future. There can be no assurance, however, that our assessment
of Y2K's potential impact on the Company will not change as we complete our
assessment, or that Y2K will not ultimately cause a material disruption to the
business of the Company.
 
                           PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS.
 
     None
 
ITEM 2. CHANGES IN SECURITIES.
 
     None
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
 
     None
 
                                       11
<PAGE>   12
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
     The Company's Annual Meeting of Stockholders (Annual Meeting) was held on
June 4, 1998. At the Annual Meeting, the stockholders of the registrant (i)
elected the person listed below to serve as a director of the Registrant until
the 2001 Annual Meeting of Stockholders or until his successor is elected; (ii)
approved amendments to the Company's 1996 Equity Incentive Plan and the 1996
Employee Stock Purchase Plan; and (iii) ratified the selection of Ernst & Young
LLP as the Registrant's Independent Accountants for the fiscal year ending
December 31, 1998.
 
     The Company had 15,628,925 shares of Common Stock outstanding as of April
14, 1998, the record date for the Annual Meeting. At the Annual Meeting, holders
of a total of 13,063,063 shares of Common Stock were present in person or
represented by Proxy. The following sets forth information regarding the results
of the voting at the Annual Meeting.
 
PROPOSAL 1 -- ELECTION OF DIRECTOR
 
Director
 
  BERNARD ROIZMAN, SC.D.
 
<TABLE>
<S>                                                           <C>
Votes in Favor..............................................  11,128,706
Votes Against...............................................   1,934,357
</TABLE>
 
PROPOSAL 2 -- AMENDMENT TO THE COMPANY'S 1996 EQUITY INCENTIVE PLAN
 
<TABLE>
<S>                                                           <C>
Votes in Favor..............................................   8,185,148
Votes Against...............................................   1,750,513
Abstentions.................................................      26,769
Not Voting..................................................   3,100,633
</TABLE>
 
PROPOSAL 3 -- AMENDMENT TO THE COMPANY'S 1996 EMPLOYEE STOCK PURCHASE PLAN
 
<TABLE>
<S>                                                           <C>
Votes in Favor..............................................   9,873,791
Votes Against...............................................      69,361
Abstentions.................................................      19,278
Not Voting..................................................   3,100,633
</TABLE>
 
PROPOSAL 4 -- RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
 
<TABLE>
<S>                                                           <C>
Votes in Favor..............................................  13,045,375
Votes Against...............................................       5,415
Abstentions.................................................      12,273
</TABLE>
 
ITEM 5. OTHER INFORMATION
 
     Proposals of stockholders that are intended to be presented at the
Company's 1999 Annual Meeting of Stockholder must be received by the Company not
later than December 28, 1998, in order to be included in the Company's proxy
statement and proxy related in that Annual Meeting. Pursuant to the Company's
Bylaws, stockholders who wish to bring matters or propose nominees for director
at the Company's 1999 annual meeting of stockholders, must provide specified
information to the Company between March 6, 1999 and April 5, 1999.
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
     None
 
                                       12
<PAGE>   13
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
 
Date: August 13, 1998                     By: /s/ J. LEIGHTON READ, M.D.
                                            ------------------------------------
                                            J. Leighton Read, M.D.
                                            Chairman and
                                            Chief Executive Officer
 
Date: August 13, 1998                     By: /s/ FRED KURLAND
                                            ------------------------------------
                                            Fred Kurland
                                            Senior Vice President and
                                            Chief Financial Officer
 
                                       13
<PAGE>   14
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
NO. OF
EXHIBIT                           DESCRIPTION
-------                           -----------
<C>       <S>
10.18*    Influenza Vaccine Collaboration and License and Distributor
          Agreement between the Company and CSL Limited, dated June
          19, 1998.
27.1      Financial Data Schedule
27.2      Financial Data Schedule
</TABLE>
 
---------------
* Certain information in this document has been omitted and filed separately
  with the Commission. Confidential treatment has been requested with respect to
  the omitted portions, which are marked by an '*' in the text.