<PAGE>   1

                                  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 SEPTEMBER 30, 1999

                                       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)

           DELAWARE                                     77-0309686
(STATE OR OTHER JURISDICTION OF             (I.R.S. EMPLOYER IDENTIFICATION NO.)
 INCORPORATION OR ORGANIZATION)

           297 NORTH BERNARDO AVENUE, MOUNTAIN VIEW, CALIFORNIA 94043
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)

                                 (650) 919-6500
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA 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.

    COMMON STOCK $.001 PAR VALUE                   15,887,315 SHARES
    ----------------------------           ---------------------------------
              (CLASS)                      (OUTSTANDING AT NOVEMBER 9, 1999)


                                       1
<PAGE>   2


                                     AVIRON

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                  PAGE
                                                                                 NUMBER
                                                                                 ------
<S>          <C>                                                                 <C>
PART I.      FINANCIAL INFORMATION

   ITEM 1.   FINANCIAL STATEMENTS AND NOTES (UNAUDITED)

             Condensed Balance Sheets as of September 30, 1999
             and December 31, 1998                                                  3

             Condensed Statements of Operations for the three-
             and nine-month periods ended September 30, 1999 and 1998               4

             Condensed Statements of Cash Flows for the nine-
             month periods ended September 30, 1999 and 1998                        5

             Notes to Condensed Financial Statements                                6

   ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS                                              9

   ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK            19

PART II.     OTHER INFORMATION                                                     20

   ITEM 1.   LEGAL PROCEEDINGS                                                     20

   ITEM 2.   CHANGES IN SECURITIES                                                 21

   ITEM 3.   DEFAULTS UPON SENIOR SECURITIES                                       21

   ITEM 5.   OTHER INFORMATION                                                     21

   ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                                      21

SIGNATURES                                                                         22
</TABLE>



                                       2
<PAGE>   3


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


                                     AVIRON
                            CONDENSED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                           SEPTEMBER 30,   DECEMBER 31,
                                                                               1999           1998
                                                                               ----           ----
                                                                            (UNAUDITED)     (NOTE 1)
<S>                                                                        <C>             <C>
                                          ASSETS
Current Assets:
  Cash and cash equivalents ...............................................  $   7,729      $  28,164
  Short-term investments ..................................................     36,808         60,692
  Accounts receivable .....................................................      4,011             75
  Inventory ...............................................................      2,029             --
  Prepaid expenses and other current assets ...............................        797          1,228
                                                                             ---------      ---------
    Total current assets ..................................................     51,374         90,159
Long-term investments .....................................................      4,360          6,002
Property and equipment, net ...............................................     25,762         18,521
Deposits and other assets .................................................      7,484          6,303
                                                                             ---------      ---------

TOTAL ASSETS ..............................................................  $  88,980      $ 120,985
                                                                             =========      =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities:
  Accounts payable ........................................................  $   3,820      $   2,792
  Accrued compensation ....................................................      1,319            804
  Accrued clinical trial costs ............................................        730            757
  Accrued interest ........................................................      2,875          1,445
  Accrued expenses and other liabilities ..................................      7,315          4,584
  Current portion of capital lease obligations ............................        224            408
                                                                             ---------      ---------
    Total current liabilities .............................................     16,283         10,790
Deferred rent .............................................................      1,958          1,116
Capital lease obligations, noncurrent .....................................         20            113
Convertible debt ..........................................................    100,000        100,000
                                                                             ---------      ---------
Total liabilities .........................................................    118,261        112,019
                                                                             ---------      ---------

Commitments and contingencies

Stockholders' Equity (Deficit):
  Preferred stock, $0.001 par value; 5.0 million shares authorized,
    issuable in series; none outstanding at September 30, 1999 and
    December 31, 1998 .....................................................         --             --
  Common stock, $0.001 par value; 30.0 million shares authorized,
   15.8 million and 15.7 million shares issued and outstanding
    at September 30, 1999 and December 31, 1998, respectively .............         16             16
  Additional paid-in capital ..............................................    131,588        130,524
  Notes receivable from stockholders ......................................        (83)           (83)
  Deferred compensation ...................................................       (132)          (237)
  Accumulated deficit .....................................................   (160,670)      (121,254)
                                                                             ---------      ---------
Total stockholders' equity (deficit) ......................................    (29,281)         8,966
                                                                             ---------      ---------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ......................  $  88,980      $ 120,985
                                                                             =========      =========
</TABLE>


                             See accompanying notes


                                       3
<PAGE>   4


                                     AVIRON
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED              NINE MONTHS ENDED
                                                      SEPTEMBER 30,                   SEPTEMBER 30,
                                                 ------------------------        ------------------------
                                                   1999            1998            1999            1998
                                                 --------        --------        --------        --------
<S>                                              <C>             <C>             <C>             <C>
REVENUES:
  Contract revenues and grants ................  $  1,363        $    107        $ 19,838        $    494
                                                 --------        --------        --------        --------

OPERATING EXPENSES:

  Research and development ....................    19,593          12,469          47,960          33,126
  General, administrative and marketing .......     3,602           2,673           9,435           7,325
                                                 --------        --------        --------        --------

TOTAL OPERATING EXPENSES ......................    23,195          15,142          57,395          40,451
                                                 --------        --------        --------        --------

LOSS FROM OPERATIONS ..........................   (21,832)        (15,035)        (37,557)        (39,957)
                                                 --------        --------        --------        --------

OTHER INCOME/(EXPENSE):
  Interest income .............................       804           1,668           3,077           4,468
  Interest expense ............................    (1,590)         (1,606)         (4,777)         (3,267)
                                                 --------        --------        --------        --------

TOTAL OTHER INCOME (EXPENSE), NET .............      (786)             62          (1,700)          1,201
                                                 --------        --------        --------        --------

NET LOSS ......................................  $(22,618)       $(14,973)       $(39,257)       $(38,756)
                                                 ========        ========        ========        ========

Basic and diluted net loss per share ..........  $  (1.43)       $  (0.95)       $  (2.49)       $  (2.46)
                                                 ========        ========        ========        ========

Shares used in computing basic and diluted
  net loss per share ..........................    15,814          15,643          15,755          15,739
</TABLE>


                             See accompanying notes.


                                       4
<PAGE>   5


                                     AVIRON
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                               NINE MONTHS ENDED
                                                                  SEPTEMBER 30,
                                                            ------------------------
                                                              1999            1998
                                                            --------        --------
<S>                                                         <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss .................................................  $(39,257)       $(38,756)

Adjustment to reconcile net loss to net cash used
in operating activities:
       Depreciation and amortization .....................     3,423           1,918
       Amortization of debt issuance costs ...............       429             279
       Amortization of deferred compensation .............       105             307

Changes in assets and liabilities:
       Accounts receivable ...............................    (3,936)             29
       Inventory .........................................    (2,029)             --
       Prepaid expenses and other current assets .........       431             (54)
       Deposits and other assets .........................    (1,610)           (405)
       Accounts payable ..................................     1,028           1,549
       Accrued expenses and other liabilities ............     4,649            (144)
       Deferred rent .....................................       842             396
                                                            --------        --------

Net cash used in operating activities ....................   (35,925)        (34,881)
                                                            --------        --------

CASH FLOWS FROM INVESTING ACTIVITIES:
       Purchases of investments ..........................   (40,282)        (55,305)
       Maturities of investments .........................    65,649          47,734
       Expenditures for property and equipment ...........   (10,664)        (11,485)
                                                            --------        --------

Net cash provided by (used in) investing activities ......    14,703         (19,056)
                                                            --------        --------

CASH FLOWS FROM FINANCING ACTIVITIES:
       Principal payments on capital lease obligation ....      (277)           (374)
       Proceeds from convertible debt offering, net ......        --          96,000
       Repurchase of Common Stock ........................        --         (13,337)
       Proceeds from issuance of Common Stock, net: ......     1,064             725
                                                            --------        --------

Net cash provided by financing activities ................       787          83,014
                                                            --------        --------

Net increase (decrease) in cash and cash equivalents .....   (20,435)         29,077

Cash and cash equivalents at beginning of period .........    28,164          15,239
                                                            --------        --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD ...............  $  7,729        $ 44,316
                                                            ========        ========
</TABLE>


                             See accompanying notes.


                                       5
<PAGE>   6


                                     AVIRON
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1999
                                   (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 as of September 30, 1999 and for the three-month
and nine-month periods ended September 30, 1999 and 1998 are 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, 1998 is 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. The accompanying condensed financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. The results of 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.

    Accounts Receivable

    Accounts receivable is comprised principally of amounts receivable from
partners in connection with reimbursement of certain expenses associated with
the development and commercialization of FLUMIST(TM), the Company's live
cold-adapted virus vaccine.

    Inventory

    Inventory is comprised principally of sprayer components that will be used
in the manufacture of commercial batches of FLUMIST(TM) for sale. Inventory is
valued at the lower of cost (FIFO) or market value.

    Comprehensive Income (Loss)

    Comprehensive income (loss) is not presented separately as it approximates
the net loss presented in the statement of operations for the three-month and
nine-month periods ended September 30, 1998 and 1999.


2.  Net Loss Per Share

    The Company calculates net loss per share in accordance with 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.  New Accounting Pronouncements

    In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133),
which is required to be adopted for the year ending December 31, 2001.
Management does not anticipate that the adoption of SFAS 133 will have a
significant effect on the results of operations or the financial position of the
Company.


                                       6
<PAGE>   7

    As of January 1, 1999, the Company adopted Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1). SOP 98-1 requires companies to capitalize certain
qualifying computer software costs, which are incurred during the application
development stage, and amortize them over the software's estimated useful life.
The adoption of SOP 98-1 did not have a significant effect on the results of
operations or the financial position of the Company.

4.  Collaboration Agreement

    On January 12, 1999, the Company announced a worldwide collaboration for the
marketing of FLUMIST(TM) with Wyeth Lederle Vaccines, a business unit of
Wyeth-Ayerst Laboratories, the pharmaceutical division of American Home Products
Corporation (Wyeth). On March 15, 1999, the Federal Trade Commission granted
early termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvement Act of 1996 regarding this collaboration.

    Under the agreement, Aviron is granting Wyeth exclusive worldwide rights to
market FLUMIST(TM). Wyeth and Aviron will co-promote FLUMIST(TM) in the United
States, while Wyeth will have the exclusive right to market the product outside
the United States. In each case, Wyeth will hold the marketing rights for up to
eleven years. The collaboration excludes Korea, Australia, New Zealand and
certain South Pacific countries. The companies will collaborate on the
regulatory, clinical, and marketing programs for the product.

    As consideration under the agreement, the Company received a cash payment of
$15.0 million for the initial license that was recognized as revenue during the
quarter ended March 31, 1999. During the period from March 15 through September
30, 1999, the Company recorded $3.7 million of revenue in expense reimbursement
from Wyeth for a portion of its clinical development and commercialization
costs.

    In addition, the Company will receive $15.5 million upon acceptance for
filing with the U.S. Food and Drug Administration (FDA), and $20 million upon
FDA marketing approval for FLUMIST(TM). Compensation for achieving additional
development and regulatory milestones is included in the agreement terms. The
granting of certain rights under the license would trigger additional payments
in excess of $140 million to the Company. Consideration for the license also
includes a commitment to provide up to $40 million in future financing to the
Company from Wyeth, a portion of which is contingent upon regulatory approval of
the product, with the remaining amount to come from participation in the
Company's future securities offerings. The potential value for the license fees,
milestones and financing support that the Company could receive under the
collaboration exceeds $400 million. In addition to the payments mentioned above,
the Company anticipates that it will earn product revenues from Wyeth, in the
form of product transfer payments and royalties, which increase at higher sales
levels. The Company will incur expenses to supply and co-promote the product.

5.  Credit Facilities

    During 1999, the Company entered into two new credit facilities that could
provide a total of up to $27 million of additional financing during 1999 and
2000. The credit facilities are secured by various assets of the Company and
require the maintenance of a minimum balance of cash and investments in the
amount of $20 million. As of September 30, 1999, no amounts have been drawn
against either of these credit lines. Once drawn, the loans will be repaid over
varying terms ranging from 48 to 73 months in monthly payments.

6.  Manufacturing Agreement

    On July 2, 1999 the Company and Medeva Pharma Limited (Medeva Pharma), a
subsidiary of Medeva PLC, extended their collaboration covering the manufacture
of key components of FLUMIST(TM) through December 2005. The Company paid Medeva
Pharma $1.0 million upon execution of the agreement and will pay an additional
$1.0 million on December 31, 1999.


                                       7
<PAGE>   8

    Under the terms of the new agreement, the Company will make specified
payments to Medeva for reaching certain technological, regulatory, and
employment milestones, supplying the vaccine components of FLUMIST(TM), and
providing the use of facilities. The Company is required to make annual minimum
payments to Medeva Pharma totaling 25 million British Pounds Sterling over the
term of the agreement. These minimum payments include all of the milestone,
supply, and facility use payments described above.

    In addition, the Company will make payments to Medeva Pharma totaling $20
million over the term of the agreement based on net sales of FLUMIST(TM).




                                       8
<PAGE>   9


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 Registration Statement on Form S-3 (No. 333-87185),
filed in September 1999, in the section entitled "Risk Factors."

OVERVIEW

    Since its inception in April 1992, Aviron has devoted substantially all 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 2001 at the earliest. Aviron has incurred cumulative net
losses of approximately $160.7 million as of September 30, 1999 and it expects
to incur substantial 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, revenue from its
collaborative agreements, equipment lease financings and investment income
earned on cash, cash equivalent balances and marketable securities.

    On June 30, 1998, Aviron submitted its first Product License
Application/Establishment License Application (PLA/ELA) to the U.S. Food and
Drug Administration (FDA) for its live cold-adapted influenza vaccine,
FLUMIST(TM), a trivalent vaccine. On August 31, 1998 the Company announced that
it had received notice from the FDA that its submission was not accepted for
filing due to lack of data on manufacturing, validation and stability. On
December 10, 1998, the Company reported on a meeting with the U.S. Food and Drug
Administration Center for Biologics Evaluation and Research (CBER) regarding
plans for submission of the Company's license applications for FLUMIST(TM).
Requirements for completion of the submission include data on manufacturing and
assay validation, stability, and clinical equivalence. The resubmission will be
in the form of a Biologics License Application (BLA) in accordance with current
FDA requirements.

    On November 14, 1999, the Company announced that it will not file a BLA for
FLUMIST(TM) in 1999. The schedule change is due to issues that arose in
routine validation tests during the vaccine manufacturing process. The Company
has initiated investigations to evaluate certain tests (assays) which have
provided inconsistent readings. The investigations will determine the need for
any additional validation work on the assays or the manufacturing process.

    Separately, Medeva Pharma Limited (Medeva Pharma), formerly Evans Medical
Limited, a subsidiary of Medeva PLC, which manufactures components of the
vaccine, notified Aviron of facilities compliance issues at its facility near
Liverpool, England. Aviron is working closely with Medeva to determine how this
may impact FLUMIST(TM) manufacturing, and the steps necessary to achieve
compliance.

    The timing of a BLA filing will depend on the information obtained from
these inquiries. Once they are completed, the Company will announce a new
timeline for filing.

                                       9
<PAGE>   10


    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, preclinical testing and clinical trials with respect to
certain of its programs, and manufacturing activities principally in regard to
FLUMIST(TM). In addition, general, administrative and marketing expenses are
expected to continue to increase as the Company expands its operations and
prepares for the potential commercial launch of FLUMIST(TM).

    The Company announced in late 1998 positive preliminary results of a Phase 2
clinical trial for a live intranasal vaccine for Parainfluenza Virus Type 3
(PIV-3) to protect against croup. The Company intends to continue preparation
for further clinical trials for PIV-3.

    The Company also is developing a subunit vaccine for Epstein-Barr Virus
(EBV) to protect against infectious mononucleosis in collaboration with
SmithKline Beecham Biologicals, S.A. (SmithKline Beecham). On August 11, 1999,
the Company announced the completion of a Phase 1 clinical trial of this
vaccine. The study showed that the vaccine tested was generally safe and well
tolerated whether or not subjects had been exposed to EBV prior to the study.
Although the study was not designed to evaluate the efficacy of the vaccine,
laboratory tests showed evidence of immune response in vaccine recipients. The
trial was a randomized, double-blind study to evaluate safety and immunogenicity
of two formulations of intramuscularly injected vaccines in healthy young
adults. It was conducted at University Hospital of Liege, Belgium. The vaccine
was administered to 67 subjects. The vaccine under development is based on the
single surface antigen responsible for most of the neutralizing antibodies
stimulated by EBV infection, and combines Aviron's antigen with SmithKline's
proprietary adjuvant technology.

    In addition, the Company expects to begin a clinical trial by early 2000 for
a vaccine candidate for Cytomegalovirus (CMV) with the National Institute of
Allergy and Infectious Diseases (NIAID) of the National Institute of Health
(NIH). Aviron is also using its proprietary Rational Vaccine Design technologies
to develop vaccine candidates for diseases caused by Herpes Simplex Virus Type 2
(HSV-2) and Respiratory Syncytial Virus (RSV).

Influenza Clinical Trials

    The Company has conducted and continues to conduct clinical trials to
evaluate safety and efficacy of FluMist(TM). To date, the Company has tested
FLUMIST(TM) in over 11,000 children and adults in completed clinical trials.

    The Company's clinical trials relate to the safety, efficacy, and
effectiveness of the trivalent formulation of its intranasal spray delivery
method. The Company enrolled a total of 647 patients in Phase 1/Phase 2
clinical trials; 92 patients in a challenge efficacy study in healthy adults, in
collaboration with the NIH; 1,602 children in Year 1 of the Phase 3 pediatric
protective efficacy trial, 1,358 of whom returned for Year 2, 948 of whom
returned for Year 3, and 508 of whom have returned for Year 4 of the trial; and
10,379 adults and children in six additional studies and in a healthy working
adult effectiveness trial. The Company has received limited data on the efficacy
of FLUMIST(TM) against culture-confirmed influenza from clinical trials in
healthy adults. There can be no assurance that data from such trials, in
addition to prior trials, will be sufficient to support the FDA approval in
healthy children or adults. The Company's clinical trials are being designed to
support the planned BLA submission seeking approval of FLUMIST(TM) in several
target populations.

Phase 3 Clinical Trials in Children

    The Company has completed a two-year pivotal Phase 3 clinical trial to
evaluate one-and two-dose regimens in children. The Company's clinical trial
data suggest that a repeat or booster dose may be required in young children
without previous exposure to influenza or influenza vaccines. Two doses of the
inactivated injectable influenza vaccine are recommended annually for young
children receiving influenza prophylaxis for the first time. The Company
enrolled 1,602 children at 10 clinical sites in the pivotal Phase 3 clinical
trial, of which 1,314 were vaccinated with a second dose 46 to 74 days after
initial vaccination. The primary endpoint of the first stage of the study was
defined as protection of children from culture-confirmed influenza during
naturally occurring epidemics of influenza.


                                       10
<PAGE>   11

    In May 1998, data from the first year of this trial of FLUMIST(TM) were
published in The New England Journal of Medicine. In the randomized,
placebo-controlled study, results show that only 14 of the 1,070 children
vaccinated with FLUMIST(TM) experienced culture-confirmed influenza, while 95 of
the 532 placebo recipients experienced culture-confirmed influenza. Of the
children who received FLUMIST(TM), only one child developed influenza-associated
otitis media (ear infection), while 20 of the placebo recipients developed
influenza-associated ear infections. Throughout the entire cough, cold and flu
season, 1,070 children vaccinated with FLUMIST(TM) experienced 30 percent fewer
ear infections with fever than children who received placebo and a 35 percent
reduction in related antibiotic use.

    The children who participated in the first year of this study were invited
back to participate for a second year of the trial during the 1997-98 flu
season, and they were vaccinated with either a single dose of FLUMIST(TM) or a
placebo spray. In September 1998, the results of Year 2 of the Phase 3 efficacy
trial of FLUMIST(TM) in children, conducted in collaboration with NIAID, were
presented at the Interscience Conference on Antimicrobial Agents and
Chemotherapy (ICAAC). The study showed that FLUMIST(TM) provided 87 percent
protection against culture-confirmed influenza overall, 86 percent protection
against A/Sydney, an unexpected variant which was the predominant strain of
influenza circulating during the 1997-98 flu season, and 100 percent protection
against the influenza strains included in the 1997-98 vaccine. Among the 1,358
participants, there were five cases of influenza due to influenza strains
included in the vaccine and 66 cases caused by A/Sydney. Two percent of children
vaccinated with FLUMIST(TM) (15 out of 917) experienced culture-confirmed
influenza, all of which was attributable to the A/Sydney strain, while 13
percent of the placebo recipients (56 out of 441) experienced culture-confirmed
influenza. The difference between these two influenza attack rates is used to
calculate the overall protection rate of 87 percent.

    The incidence of pneumonia and other lower respiratory diseases was also
reduced in those children vaccinated with FLUMIST(TM), compared to placebo in
Year 2 of the study. Eight children in the placebo group developed
influenza-related wheezing, bronchitis or pneumonia, all of which were due to
the A/Sydney strain. No children who received FLUMIST(TM) experienced such lower
respiratory complications. Among the 15 of the 917 children in the FLUMIST(TM)
group who did contract influenza, the illness appeared to be milder than in the
control group, based on frequency of complications and duration of fever.

    The Company began a large scale clinical trial in August 1998 to assess the
impact of community-wide influenza immunization. The three-year trial, taking
place in Temple, Texas, is expected to enroll up to 15,000 children and is
funded by a $3 million grant from the NIAID awarded to the Baylor College of
Medicine. More than 4,000 children were vaccinated in the first year of the
trial. As of November 9, 1999, more than 3,000 children have been vaccinated in
the second year of the trial that commenced in September 1999. The trial will
evaluate the impact of vaccinating pre-school and school-age children with
FLUMIST(TM) on the incidence of doctor visits for flu-related illness.

Clinical Trials in Healthy Adults

    FLUMIST(TM) has been tested in a double-blind, placebo-controlled challenge
efficacy study at two Vaccine Treatment Evaluation Units (VTEUs) involving 92
healthy young adults. Subjects were randomized to receive either FLUMIST(TM),
the inactivated injectable vaccine, or placebo. There were no serious adverse
events attributable to FLUMIST(TM) seen in any subjects, and there were no
statistically significant differences in the occurrence of any potential
reactions assessed in the study between either vaccine or placebo.

    Following vaccination and subsequent intranasal administration of the
wild-type challenge virus, the incidence of laboratory-documented influenza, a
prospectively defined primary endpoint of the trial, was seven percent in
subjects vaccinated with FLUMIST(TM), 13 percent in subjects vaccinated with the
inactivated injectable influenza vaccine and 45 percent in subjects who received
placebo. The reduction in laboratory-documented influenza compared to placebo
was statistically significant for FLUMIST(TM) and the inactivated vaccine. These
data have not been peer reviewed. No assurance can be given that the conclusions
drawn from this analysis will not change as a result of further study by the
Company or during the peer review process.


                                       11
<PAGE>   12

    The Company conducted a Phase 3 trial in 4,561 healthy working adults to
assess the impact of immunization on the frequency of influenza-like illness,
utilization of health care services, and absenteeism from work. Results of this
study were published in the July 14, 1999 issue of the Journal of the American
Medical Association. The double-blind, placebo-controlled study was conducted at
13 clinical sites nationwide during the 1997-98 flu season. The participants,
aged 18 to 65, each received one dose of vaccine. FLUMIST(TM) recipients had
reduced illness by multiple definitions including days of febrile illness (22.9
percent less), days of severe febrile illness (27.3 percent less) and days of
febrile upper respiratory tract illness (24.8 percent less).

    Reductions in illness-associated absenteeism and health resource use were
observed across several illness definitions. For example, those receiving
FLUMIST(TM) missed 28.4 percent fewer work days due to febrile upper respiratory
illness and had a 40.9 percent reduction in health care provider visits. In
addition, FLUMIST(TM) recipients experienced a 45.2 percent reduction in days of
prescription antibiotic use and 28.0 percent fewer days of OTC medication due to
febrile upper respiratory illness. Data from this study are expected to be part
of the Company's BLA submission to the FDA.

Clinical Trials in High-Risk Adults

    The Company has completed a clinical trial for safety in 200 elderly
high-risk adults for the use of FLUMIST(TM) for co-administration with the
inactivated injectable influenza vaccine. As this trial was not designed to
generate efficacy data on use of FLUMIST(TM) in high-risk adults, there can be
no assurance that data from this trial, combined with data from the Company's
other clinical trials and prior trials, will be sufficient to support FDA
approval for use of FLUMIST(TM) in high-risk adults even if the FDA were
satisfied with the safety data submitted. Early in the fourth quarter of 1998,
the Cooperative Studies program of the Department of Veterans Affairs Office of
Research and Development began a one-year trial to evaluate the potential
additional benefit of co-administration of FLUMIST(TM) with the flu shot,
compared to the flu shot alone, in high-risk patients with chronic obstructive
pulmonary disease. This study involved over 2,000 volunteers at 20 participating
VA Medical Centers in the United States. Results from this trial are being
prepared for analysis by the VA.

Clinical Trials for Manufacturing Consistency and Process

    In February 1998, the Company reported positive results from a manufacturing
consistency lot trial of bulk vaccine manufactured, blended, and filled into
sprayers at Medeva Pharma. The Company conducted a randomized, double-blind,
placebo-controlled trial in 500 children, designed to evaluate the safety and
immunogenicity of three new manufacturing lots of FLUMIST(TM). The children were
vaccinated between April and September 1997. Analysis of patient diary cards and
antibody responses following two doses of FLUMIST(TM) showed consistent safety
and immunogenicity for the different lots according to the pre-defined
endpoints.

    On June 9, 1999, the Company announced completion of a bridging study on
FLUMIST(TM) designed to compare FLUMIST(TM) blended and filled at Aviron's
facility at Packaging Coordinators, Inc. (PCI) in Philadelphia, Pennsylvania, to
vaccine manufactured with the process used in earlier clinical trials, blended
and filled by Medeva Pharma.

    The study's primary endpoint was to show that FLUMIST(TM) blended and filled
at Aviron's PCI facility had similar immunogenicity for all three 1997-98
influenza strains to the vaccine blended and filled at Medeva Pharma. The
secondary endpoint was to show that the two lots of vaccine had similar safety
and tolerability profiles.

    The 225-person trial was conducted in Australia from December 1998 through
March 1999. Participants were children aged 12 to 42 months, randomized to
receive vaccine blended and filled at one of the two manufacturing sites. The
study was conducted in collaboration with CSL Limited, Aviron's Australian
marketing partner for FLUMIST(TM). The Company's preliminary analysis indicates
that the results appear to meet all of the Company's objectives. Aviron will
include data from this clinical study in its licensing application for the
vaccine.


                                       12
<PAGE>   13


Partnering Agreements

    The Company has entered into several development and marketing agreements
with respect to its products.

    In January 1999, the Company announced a worldwide collaboration for the
marketing of FLUMIST(TM) with Wyeth Lederle Vaccines, a business unit of
Wyeth-Ayerst Laboratories, the pharmaceutical division of American Home Products
Corporation (Wyeth), under which Wyeth and the Company will co-promote
FLUMIST(TM) in the United States, while Wyeth will have the exclusive right to
market the product outside the United States, except for Korea, Australia, New
Zealand and certain countries in the South Pacific region. Wyeth and the Company
will collaborate on the regulatory, clinical and marketing programs for
FLUMIST(TM). In June 1998, the Company announced the signing of an agreement
with CSL Limited to develop, sell and distribute FLUMIST(TM) in Australia, New
Zealand and certain countries in the South Pacific region. Under the agreement,
CSL Limited and Aviron will jointly carry out additional trials in Australia for
FLUMIST(TM). Expenses associated with these agreements are expected to increase
as the Company continues preclinical testing and clinical trials and prepares
for the potential commercial launch of FLUMIST(TM). No assurance can be given,
however, that the Company will receive any future payments from CSL Limited or
Wyeth.

    In October 1995, the Company signed an agreement with SmithKline Beecham
defining a collaboration on the Company's EBV vaccine technology. Under the
terms of this agreement, the Company granted SmithKline Beecham an exclusive
license to produce, use and sell non-live EBV vaccines incorporating the
Company's technology for prophylactic and therapeutic uses on a worldwide basis,
except in Korea. The Company retained U.S. co-marketing rights to a monovalent
EBV vaccine formulation which will be supplied by SmithKline Beecham. The
Company is entitled to royalties from SmithKline Beecham based on net sales of
the non-live EBV vaccine. No assurance can be given, however, that the Company
will receive any future payments from SmithKline Beecham or that SmithKline
Beecham will not terminate this agreement.

    In May 1995, the Company entered into a Development and License Agreement
with Sang-A Pharm. Co., Ltd. (Sang-A). The Company granted to Sang-A certain
exclusive clinical development and marketing rights in Korea for specified
products developed by the Company, including vaccines for influenza
(cold-adapted and recombinant), PIV, EBV, CMV, HSV-2 and RSV on meeting certain
conditions. However, the Company is under no obligation to develop any product.
Sang-A also will make payments to the Company upon Sang-A's meeting certain
regulatory milestones for each product in Korea and will pay a royalty to the
Company on net sales of such products in South and North Korea. No assurance can
be given, however, that the Company will receive any future payments from Sang-A
or that Sang-A will not terminate its agreement with the Company. In January
1997, Sang-A declared bankruptcy. The Company is unable to predict what, if any,
long-term effect the bankruptcy will have on Sang-A and on the Company's
agreement with Sang-A.

Manufacturing Facilities

    In April 1997, the Company entered into an agreement with Medeva Pharma for
the commercial manufacture of FLUMIST(TM) through December 2001. In July 1999,
the agreement with Medeva Pharma was revised and extended through December 2005.

    In October 1997, the Company entered into an agreement with PCI for the
blending, filling, labeling and packaging of FLUMIST(TM) in the United States
until October 2004. In 1998, Aviron and PCI opened a 34,000-square-foot
manufacturing suite in Philadelphia, Pennsylvania at PCI's site, in which PCI
blended, filled and packaged doses of FLUMIST(TM) for use in 1998-99 clinical
trials. In April 1999, the employees performing the blending and filling
activities were transferred to the Company's payroll. All activities at this
site will henceforth be referred to collectively as Aviron PA. If regulatory
approval is received, this Aviron PA facility is expected to be used to blend,
fill, label, package and store FLUMIST(TM).

    The agreements with Medeva Pharma 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.


                                       13
<PAGE>   14

    In February 1999, the Company leased a 69,000 square-foot building in Santa
Clara, California. The facility will provide additional laboratory, pilot plant,
manufacturing and office space to accommodate growth. This additional space will
require the commitment of significant additional funds during 1999, 2000, and
2001 for renovation, equipment and furnishings.

     The Company may be capacity constrained in its supply of FLUMIST(TM). In
order to secure future production capacity, the Company may extend and expand
its existing arrangements, collaborate with other third parties, or expand its
own manufacturing facilities. Using an alternative supplier or expanding its
proprietary facility would require a substantial amount of funds and additional
clinical trials and testing. There can be no assurance that an alternative
source of supply will be established on a timely basis, or that the Company will
have or be able to obtain funds sufficient for building or equipping such
additional facilities.

    The Company is currently evaluating the costs and benefits of developing
internal manufacturing capabilities or contracting for expanded or alternative
sources of supply from third-party manufacturers for products other than
FLUMIST(TM).

Research Grants

    During 1998, the Company received notice from the NIAID of a Small Business
Innovation Research (SBIR) grant to support development of its live attenuated
vaccine for the prevention of disease caused by CMV in amounts totaling
approximately $950,000. In September 1999, the Company received notification of
an additional award from the NIAID for CMV in the amount of $600,000. A portion
of the award has been used to produce recombinant CMV vaccine candidates for
human testing. The remainder of the award will be used to determine the safety
and immunogenicity of these vaccine candidates in a Phase 1 clinical trial in
collaboration with the NIAID Vaccine Treatment and Evaluation Unit network. No
assurance can be given, however, that the Company will receive any future grants
to support its research or that such research will result in commercially viable
products. This trial will be conducted under an Investigational New Drug (IND)
which has been filed by the NIH.

    As of September 1999, approximately $925,000 of these awards has been
utilized.

Business Risks

    The Company's business is subject to significant risks, including but not
limited to manufacturing uncertainties; 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
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 commercial
scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties. See also the section
entitled "Risk Factors" in the Company's Registration Statement on Form S-3 (No.
333-87185), filed in September 1999.

RESULTS OF OPERATIONS

         THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

Revenues

    The Company earned $1.4 million in revenues for the three months ended
September 30, 1999, compared to $107,000 for the three months ended September
30, 1998.


                                       14
<PAGE>   15
 The 1999 revenues were comprised principally of expense reimbursement from
Wyeth under the FLUMIST(TM) collaboration agreement, combined with research
grants and revenues from other contracts. The 1998 revenues came from contract
services rendered to other biotechnology companies.

Operating Expenses

    Research and development expenses increased to $19.6 million in the three
months ended September 30, 1999 from $12.5 million for the three months ended
September 30, 1998. The increase was due primarily to an increase in development
activities, depreciation, documentation, validation, and other expenses
associated with the commercial scale-up of the manufacturing facilities
associated with FLUMIST(TM). The Company expects these expenses to continue to
increase during the remainder of 1999 as development and manufacturing
activities expand in preparation for potential commercialization of FLUMIST(TM).
These expenses are expected to increase in the future in continued support of
these activities.

    General, administrative and marketing expenses increased to $3.6 million in
the three months ended September 30, 1999 from $2.7 million for the three months
ended September 30, 1998. This increase was due to additional staffing, legal
and other infrastructure costs necessary to support the development of
FLUMIST(TM) and other products. These expenses are also expected to increase in
the future in continued support of these activities.

Net Interest Income (Expense)

    Net interest income decreased to a net expense of $786,000 in the three
months ended September 30, 1999, as compared to net interest income of $62,000
for the three months ended September 30, 1998. The decrease in net interest is
primarily due to the reduced cash, cash equivalents, and investment balances as
funds have been used to meet operating expenses and capital requirements.

         NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

Revenues

    The Company earned $19.8 million in revenues for the nine months ended
September 30, 1999, compared to $494,000 for the nine months ended September 30,
1998. The 1999 revenues are comprised primarily of amounts earned from Wyeth
under the FLUMIST(TM) collaboration agreement, which included a non-refundable
initial payment in the amount of $15.0 million, $3.7 million in expense
reimbursement from Wyeth, and revenues from other contracts and research grants.
The 1998 revenues were from a grant payment from the NIH for research on the
Company's CMV vaccine and from payments received for services rendered to other
biotechnology companies.

Operating Expenses

    Research and development expenses increased to $48.0 million in the nine
months ended September 30, 1999, from $33.1 million for the nine months ended
September 30, 1998. The increase was due primarily to an increase in development
activities, depreciation, documentation, validation, and other expenses
associated with the commercial scale-up of the manufacturing facilities
associated with FLUMIST(TM). The Company expects these expenses to increase
during the remainder of 1999 as development and manufacturing activities expand
in preparation for potential commercialization of FLUMIST(TM). These expenses
are expected to increase in the future in continued support of these activities.

    General, administrative and marketing expenses increased to $9.4 million in
the nine months ended September 30, 1999, from $7.3 million for the nine months
ended September 30, 1998. This increase was due to additional staffing, legal
and other infrastructure costs necessary to support the development of
FLUMIST(TM) and other products. These expenses are expected to increase in the
future in continued support of these activities.


                                       15
<PAGE>   16

Net Interest Income (Expense)

    Net interest decreased to a net expense of $1.7 million for the nine months
ended September 30, 1999, as compared to net interest income of $1.2 million for
the nine months ended September 30, 1998. The decrease in net interest is due to
a combination of increased interest expense associated with the issuance of the
Company's convertible debt on March 30, 1998 and decreased interest income
associated with a reduction in the average balances of cash, cash equivalents,
and investments as funds have been used to meet operating expenses and capital
requirements.

LIQUIDITY AND CAPITAL RESOURCES

    The Company had cash, cash equivalents and marketable securities at
September 30, 1999 of approximately $48.9 million. In order to preserve
principal and maintain liquidity, the Company's funds are invested in United
States Treasury and agency 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 a
private placement of convertible subordinated notes in March 1998. Through
September 30, 1999, the Company had raised approximately $236.3 million from
such activities net of offering expenses. During 1999, the Company entered into
two new credit facilities that could provide a total of up to $27 million of
additional financing during 1999 and 2000. (See Note 5 to the financial
statements.) Cash used in operations was $35.9 million and $34.9 million for the
first nine months of 1999 and 1998, respectively. The increase in cash used in
operating activities was primarily due to increases in operating expenses, which
was partially offset by the receipt of the $15.0 million payment from Wyeth. The
Company expects expenditures for research and development, clinical trials and
general, administrative and marketing expenses to continue to increase during
the remainder of 1999 and beyond as the Company develops its products, expands
its clinical trials and prepares for the potential commercial launch of
FLUMIST(TM). Cash expended for capital additions and to repay lease financing
arrangements amounted to approximately $10.9 million and $11.9 million for the
nine months ended September 30 of 1999 and 1998, respectively. Capital
expenditures decreased in 1999 primarily due to a decrease in the level of
expenditures for facilities and equipment at PCI and Medeva, which is partially
offset by increases in expenditures for the Santa Clara and Mountain View
facilities. Capital expenditures are expected to increase during the last
quarter of 1999 and beyond, primarily in connection with the Santa Clara
facility.

    The Company anticipates that its existing cash, cash equivalents and
short-term investments, revenues and other advances available under existing
collaborations, and borrowings under its existing credit facilities will enable
it to maintain its current and planned operations into 2000. The Company's
future cash requirements beyond 1999 will depend on numerous factors, including
the time and costs involved in obtaining regulatory approvals; the ability to
successfully launch FLUMIST(TM) in the United States; 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; the timing of receipt of
milestone payments and loans, if any, under such collaborative agreements;
progress with preclinical testing and clinical trials; the cost involved in
preparing, filing, prosecuting, maintaining and enforcing patent claims; the
cost of constructing or expanding any or all of its manufacturing facilities,
and product commercialization activities.

    The Company anticipates raising outside funding through additional debt or
equity financings in 2000. There can be no assurance that 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 could
materially adversely affect the Company's business, financial condition and
results of operations.


                                       16
<PAGE>   17

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 failures.

    The Company has completed its assessment of Y2K related problems. Four
potential areas of exposure -- (a) internal information systems (b) scientific
equipment (c) facility support systems (d) the readiness of significant third
parties with whom the company has material business relationships -- have been
evaluated. The results of the assessment and the status of remedial action and
testing are as indicated below.

1.  Internal Information Systems

    The Company uses a number of computers and software programs throughout its
entire operations. An inventory has been performed of computer equipment and
programs, to determine if Y2K problems exist which may affect the Company's
internal information processes.

-   The Company has completed the process of upgrading its older financial and
    accounting programs to Y2K compliant systems. These systems were tested and
    have been verified to be Y2K compliant.

-   During 1998, the Company also completed the installation of internal systems
    for the accumulation and statistical evaluation of clinical trial data.
    These systems were tested and have been verified to be Y2K compliant.

-   To date, no other significant internal information systems have been
    identified as non-Y2K compliant.

-   Procedures have been enacted to verify the Y2K compliance of new systems.

2.  Scientific Equipment

    All major pieces of scientific equipment have been inventoried. As part of
its assessment, the Company made 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.

-   Only one piece of laboratory equipment was found to require remediation in
    the form of an inexpensive software upgrade.

-   To date, no other significant pieces of scientific equipment have been
    identified as non-Y2K compliant.

-   Procedures have been enacted to verify the Y2K compliance of new scientific
    equipment.

3.  Facility Support Systems

    The Company has made inquiries of its internal staff and third-party vendors
of utilities, communication and other facility support systems at the Mountain
View and Santa Clara facilities, to determine if Y2K problems exist which may
affect communications, administrative or support functions.

-   Remediation was determined to be necessary for certain of the communication
    and process systems and for certain of the building control, access and
    alarm systems. With the exception of one environmental monitoring system and
    certain access control systems, remediation efforts in this area have been
    completed. Certain hardware replacements and software upgrades were
    completed as of the end of the third quarter of 1999 at a cost of less than
    $20,000. These systems will be tested to verify Y2K compliance.

-   Remediation efforts on one environmental monitoring system will be completed
    during the fourth quarter of 1999 at an estimated cost of less than $10,000.
    This system will then be tested to verify Y2K compliance.

-   Manual controls are being identified to address access control issues and
    will be in place prior to the end of 1999.


                                       17
<PAGE>   18

4.  Third Parties with Major Business Relationships

    The Company currently has no products available for commercial sale. In
preparation for the potential commercial launch of FLUMIST(TM), the Company has
contacted its third party manufacturers and its marketing and distribution
partners to determine their level of Y2K readiness. All of these parties have
advised us that they have a Y2K plan in place and that remediation steps, if
any, will be completed prior to December 1999. It is not possible for the
Company to undertake an independent verification and testing of the readiness of
these parties for all potential Y2K issues. The failure of any of these parties
to successfully identify and remedy the impact of Y2K upon their businesses
could have a material adverse effect on the Company's business, including
delaying or adversely affecting the potential commercial launch of FLUMIST(TM).

    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 the Company's
assessment of Y2K's potential impact will not change as we complete our
remediation steps and continue to monitor the issue, or that Y2K will not
ultimately cause a material disruption in the business of the Company.


                                       18
<PAGE>   19


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The Company is exposed to market risk, including changes to interest rates
and foreign currency exchange rates. The Company's exposure to such market risk
has not changed substantially since December 31, 1998 and reference is made to
the more detailed disclosures of market risk included in the Company's Annual
Report on Form 10K for such period.

    Interest Rates -- The Company's investments and interest income are
sensitive to changes in the general level of interest rates, primarily U.S.
interest rates. In this regard, changes in U.S. interest rates primarily affect
the market value of the Company's cash equivalents and investments. To mitigate
market risk, the Company places its cash in investments that meet high credit
standards, as specified in the Company's investment policy guidelines, and
staggers the maturity of the investments to meet expected cash demands. The
policy also limits the amount of credit exposure to any one issue, issuer, or
type of investment and does not permit derivative financial instruments in its
investment portfolio. As a result, the Company does not expect any material loss
with respect to its investment portfolio.

    Foreign Currency Exchange Rates -- The Company pays for the costs of
manufacturing and development activities, equipment, and facilities
modifications at Medeva Pharma, which is located in the United Kingdom (U.K.) in
British Pounds Sterling. As a result, the Company's financial results could be
affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in the U.K. The Company is exposed to changes in exchange
rates in the United Kingdom. When the U.S. dollar strengthens against the
British Pounds Sterling, the U.S. dollar value of British Pounds Sterling-based
expenses decreases; when the U.S. dollar weakens, the U.S. dollar value of
British Pounds Sterling-based expenses increases. Accordingly, changes in
exchange rates, and in particular a weakening of the U.S. dollar, may adversely
affect the Company's financial position as expressed in U.S. dollars.



                                       19
<PAGE>   20


                                     AVIRON

PART II.     OTHER INFORMATION

    ITEM 1.  LEGAL PROCEEDINGS

                 On June 30, 1999 the European Patent Office held oral
             proceedings in an Opposition filed by American Cyanamid against
             Aviron's granted European Patent No. 0490972 relating to methods
             and compositions of recombinant negative-strand RNA viruses. At the
             oral proceedings, the Opposition Division of the European Patent
             Office informed the Company of its intent to issue a written
             opinion which upholds claims limited to influenza and denies claims
             directed to non-segmented negative-strand RNA viruses. This
             decision will not affect Aviron's FLUMIST(TM) cold-adapted
             influenza product. Aviron intends to appeal the decision insofar as
             it relates to the denied claims; the appeal will request the
             Technical Board of Appeals to reverse the decision with respect to
             the denial of the claims directed to non-segmented RNA viruses.
             There can be no assurance that Aviron will be successful in
             obtaining claims directed to non-segmented RNA viruses as a result
             of the appeal. If Aviron does not succeed in the appeal of the
             claims directed to non-segmented RNA viruses it could negatively
             impact Aviron's ability to exclude others from commercializing an
             RSV vaccine based on genetically engineered candidates in Europe.

                 On July 8, 1999 a lawsuit entitled Joany Chou v. The University
             of Chicago, ARCH Development Corp., Bernard Roizman and Aviron
             Company, was filed in the U.S. District Court for the Northern
             District of Illinois, Eastern Division by an individual formerly
             associated with the University of Chicago. On September 30, 1999,
             this individual filed an amended complaint against the same
             defendants. This amended complaint appears to purport to assert
             claims of inventorship relating to United States Patent Nos.
             5,328,688; 5,795,713; 5,922,328; their foreign counterparts; and
             potentially other patents and applications, unjust enrichment,
             fraud, conversion, breach of fiduciary duty, breach of contract and
             breach of implied contract. The amended complaint seeks, among
             other things, money damages, an order correcting the inventorship
             and ownership of the patents referenced above, disgorgement, a
             constructive trust, possible injunctive and equitable relief,
             punitive damages, attorneys' fees, costs, and interest. All of the
             claims appear to relate to patents and patent applications for HSV,
             and none appear to relate to Aviron's FLUMIST(TM) cold-adapted
             influenza product or technology or any other pipeline products in
             research or development. Dr. Roizman is a founder and director of
             Aviron and a member of its Scientific Advisory Board. Aviron
             believes the allegations of the lawsuit are unfounded and intends
             to vigorously defend itself in the matter. There can be no
             assurance that the Company will prevail in the defense of this
             lawsuit.



                                       20
<PAGE>   21


    ITEM 2.  CHANGES IN SECURITIES.

             None

    ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

             None

    ITEM 5.  OTHER INFORMATION.

             None

    ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

             (a)  EXHIBITS

<TABLE>
<CAPTION>
                  ITEM          DESCRIPTION
                  ----          -----------
<S>                             <C>
                  10.28         Master Loan and Security Agreement by and
                                between the Registrant and FINOVA Capital
                                Corporation dated July 23, 1999

                  27.1          Financial Data Schedule.
</TABLE>

                  ----------

             (b)  REPORTS ON FORM 8-K

             None



                                       21
<PAGE>   22


                                     AVIRON

                                   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.


                                        AVIRON


Date:  November 15, 1999                By:  /s/ J. Leighton Read, M.D.
     ---------------------------           -----------------------------------
                                        J. Leighton Read, M.D.
                                        Chairman and
                                        Chief Executive Officer

Date:  November 15, 1999                By:  /s/ Fred Kurland
     ---------------------------           -----------------------------------
                                        Fred Kurland
                                        Senior Vice President and
                                        Chief Financial Officer




                                       22
<PAGE>   23


                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number                           Description
------                           -----------
<S>                      <C>
10.28                    Master Loan and Security Agreement by and between the
                         Registrant and FINOVA Capital Corporation dated July
                         23, 1999

27.1                     Financial Data Schedule.
</TABLE>