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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 SEPTEMBER 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 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.
 
<TABLE>
<S>                                            <C>
        Common Stock $.001 par value                         15,718,991 shares
                   (Class)                           (Outstanding at November 4, 1998)
</TABLE>
 
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                                     AVIRON
 
                               TABLE OF CONTENTS
 
                         PART I. FINANCIAL INFORMATION
 
<TABLE>
<CAPTION>
                                                                       PAGE
                                                                       ----
<S>      <C>                                                           <C>
ITEM 1.  FINANCIAL STATEMENTS (Unaudited)............................    3
         Condensed Balance Sheets as of September 30, 1998 and
         December 31, 1997...........................................    3
         Condensed Statements of Operations for the three and
         nine-month periods ended September 30, 1998 and 1997........    4
         Condensed Statements of Cash Flows for the nine-month
         periods ended September 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
</TABLE>
 
                           PART II. OTHER INFORMATION
 
<TABLE>
<S>      <C>                                                           <C>
ITEM 1.  LEGAL PROCEEDINGS...........................................   12
ITEM 2.  CHANGES IN SECURITIES.......................................   12
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.............................   12
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........   12
ITEM 5.  OTHER INFORMATION...........................................   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>
                                                              SEPTEMBER 30,    DECEMBER 31,
                                                                  1998             1997
                                                              -------------    ------------
                                                               (UNAUDITED)       (NOTE 1)
<S>                                                           <C>              <C>
CURRENT ASSETS:
  Cash and cash equivalents.................................    $  44,316        $ 15,239
  Short-term investments....................................       55,986          47,285
  Prepaid expenses and other current assets.................        1,055           1,030
                                                                ---------        --------
          Total Current Assets..............................      101,357          63,554
  Long-term investments.....................................       11,584          12,587
  Property and equipment, net...............................       17,149           7,582
  Debt issuance costs, deposits and other assets............        5,728           1,602
                                                                ---------        --------
          TOTAL ASSETS......................................    $ 135,818        $ 85,325
                                                                =========        ========
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable..........................................    $   5,185        $  3,636
  Accrued compensation......................................          348             756
  Accrued clinical trial costs..............................          540           3,592
  Accrued interest..........................................        2,891              --
  Accrued expenses and other liabilities....................          938             513
  Current portion of capital lease obligations..............          378             477
                                                                ---------        --------
          Total Current Liabilities.........................       10,280           8,974
  Deferred rent.............................................          484              88
  Capital lease obligations, noncurrent.....................          246             521
  Long-term debt............................................      100,000              --
                                                                ---------        --------
          Total Long-Term Liabilities.......................      100,730             609
                                                                ---------        --------
STOCKHOLDERS' EQUITY:
  Preferred stock, $0.001 par value; 5,000,000 shares
     authorized, issuable in series; none outstanding at
     September 30, 1998 and December 31, 1997...............           --              --
  Common stock, $0.001 par value; 30,000,000 shares
     authorized; 15,716,974 and 16,082,476 shares issued and
     outstanding at September 30, 1998 and December 31,
     1997, respectively.....................................           16              16
  Additional paid-in capital................................      130,228         142,840
  Notes receivable from stockholders........................         (115)           (115)
  Deferred compensation.....................................         (281)           (588)
  Accumulated deficit.......................................     (105,040)        (66,411)
                                                                ---------        --------
          Total Stockholders' Equity........................       24,808          75,742
                                                                ---------        --------
          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........    $ 135,818        $ 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      NINE MONTHS ENDED
                                                      SEPTEMBER 30,          SEPTEMBER 30,
                                                   -------------------    --------------------
                                                     1998       1997        1998        1997
                                                   --------    -------    --------    --------
<S>                                                <C>         <C>        <C>         <C>
TOTAL REVENUES:..................................  $    107    $    32    $    494    $    446
OPERATING EXPENSES:
  Research and development.......................    12,469      5,119      33,126      14,016
  Marketing, general and administrative..........     2,673      1,677       7,325       4,298
                                                   --------    -------    --------    --------
          TOTAL OPERATING EXPENSES...............    15,142      6,796      40,451      18,314
                                                   --------    -------    --------    --------
LOSS FROM OPERATIONS.............................   (15,035)    (6,764)    (39,957)    (17,868)
OTHER INCOME/(EXPENSE):
  Interest income................................     1,668        712       4,468       1,289
  Interest expense...............................    (1,606)       (43)     (3,267)       (141)
                                                   --------    -------    --------    --------
          TOTAL OTHER INCOME, NET................        62        669       1,201       1,148
                                                   --------    -------    --------    --------
NET LOSS.........................................  $(14,973)   $(6,095)   $(38,756)   $(16,720)
                                                   ========    =======    ========    ========
Basic net loss per share.........................  $  (0.95)   $ (0.43)   $  (2.46)   $  (1.30)
                                                   ========    =======    ========    ========
Shares used in computing basic net loss per
  share..........................................    15,643     14,350      15,739      12,932
</TABLE>
 
                            See accompanying notes.
 
                                        4
<PAGE>   5
 
                                     AVIRON
 
                       CONDENSED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                               NINE MONTHS ENDED
                                                                 SEPTEMBER 30,
                                                              --------------------
                                                                1998        1997
                                                              --------    --------
<S>                                                           <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss....................................................  $(38,756)   $(16,720)
Adjustment to reconcile net loss to net cash used in
  operating activities:
  Depreciation and amortization.............................     1,918         477
  Amortization of debt issuance costs.......................       279          --
  Amortization of deferred compensation.....................       307         504
Changes in assets and liabilities:
  Accounts receivable.......................................        29         471
  Prepaid expenses and other current assets.................       (54)        142
  Deposits and other assets.................................      (405)       (421)
  Accounts payable..........................................     1,549       1,441
  Accrued expenses and other liabilities....................      (144)       (452)
  Deferred rent.............................................       396          --
                                                              --------    --------
Net Cash Used in Operating Activities.......................   (34,881)    (14,558)
                                                              --------    --------
Cash Flows From Investing Activities:
  Purchases of investments..................................   (55,305)    (38,168)
  Maturities of investments.................................    47,734       8,952
  Expenditures for property and equipment...................   (11,485)       (689)
                                                              --------    --------
Net Cash Used in Investing Activities.......................   (19,056)    (29,905)
                                                              --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Principal payments on capital lease obligation............      (374)       (464)
  Proceeds from convertible debt offering, net..............    96,000          --
  Repurchase of Common Stock................................   (13,337)         --
  Proceeds from issuance of Common Stock, net...............       725      83,096
                                                              --------    --------
Net Cash Provided by Financing Activities...................    83,014      82,632
                                                              --------    --------
Net Increase in Cash and Cash Equivalents...................    29,077      38,169
Cash and Cash Equivalents at Beginning of Period............    15,239      12,166
                                                              --------    --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................  $ 44,316    $ 50,335
                                                              ========    ========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING
  ACTIVITIES:
Equipment acquired under lease line of credit...............        --         153
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
                         SEPTEMBER 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 September 30, 1998 and for the three months
and nine months ended September 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 then 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 PRONOUNCEMENT
 
     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 the year 2000, if at all. Aviron has
incurred cumulative net losses of approximately $105.0 million as of September
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 investigational intranasal
influenza vaccine. On August 31, Aviron 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. These developments make it highly
unlikely that FLUMIST(TM) will be available for the 1999/2000 flu season. Aviron
intends to resubmit applications for U.S. licensure for FLUMIST(TM) to prevent
influenza and its complications in children and adults. 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. Data from the first
year of this two-year, 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.
 
     In the study published in the NEJM, 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, a 98
percent reduction of influenza-associated otitis media (ear infections). When
all cases of otitis media were considered (whether associated with influenza
diagnosis or not), 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
 
                                        7
<PAGE>   8
 
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.
 
     In September 1998, new data was presented from the second year of this
trial. The data showed that FLUMIST(TM) provided 86 percent protection against
A/Sydney, an unexpected variant which was the predominant strain of flu
circulating during last year's flu season, and 87 percent protection against all
culture-confirmed influenza. The new data also indicated that FLUMIST(TM)
provided 94 percent protection against influenza-related otitis media and 100
percent protection against influenza-related lower respiratory tract disease.
Study data was presented at the 1998 Interscience Conference on Antimicrobial
Agents and Chemotherapy (ICAAC).
 
     In another study among healthy adults, subjects receiving FLUMIST(TM)
experienced an 85 percent protection rate against laboratory-documented
influenza. 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 symptom being transient sore throat.
 
     Data on a study of FLUMIST(TM) in 4561 healthy working adults is expected
to be presented at the International Symposium on Influenza and Other
Respiratory Viruses in December 1998. The symposium is sponsored by the
International Association for Antiviral Research and the National Institute of
Allergy and Infectious Diseases, a unit of the National Institutes of Health.
 
     During August 1998, dosing of FLUMIST(TM) began in a large clinical trial
to assess the impact of community-wide pediatric influenza immunization. The
three-year trial, taking place in Temple, Texas, is eventually expected to
enroll up to 15,000 children. It is funded by a $3 million grant from the
National Institute of Allergy and Infectious Diseases of the National Institutes
of Health awarded to the Baylor College of Medicine. The trial will evaluate the
impact of vaccinating preschool and school-age children with FLUMIST(TM) on the
incidence of doctor visits for flu-related illnesses and on the impact of these
vaccinations on the incidence of flu-like illness in other segments of the
population.
 
     In October 1998, the Cooperative Studies program of the Department of
Veterans Affairs Office of Research and Development began a clinical 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 lung disease. Volunteers in this trial, which is co-sponsored by the
Company and the VA, will be aged 50 or older with underlying chronic obstructive
pulmonary disease and emphysema. The one-year study is planned to involve
approximately 4000 volunteers at 20 participating VA medical centers nationwide.
 
     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 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. 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.
 
                                        8
<PAGE>   9
 
     In June 1998, the Company announced the signing of an agreement with CSL
Limited, 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 August 1998, Aviron announced the signing of a worldwide multiyear
supply agreement with Becton Dickinson and Company, in which Becton Dickinson
will supply its AccuSpray(TM) non-invasive nasal spray delivery system for
administration of FLUMIST(TM). Under terms of the supply agreement, Becton
Dickinson will supply the delivery system exclusively to Aviron through the
2001-2002 flu season.
 
     In August, 1998 the Company announced receipt of a Small Business
Innovation Research (SBIR) grant from the NIAID to support development of its
live attenuated vaccine for the prevention of disease caused by human
cytomegalovirus (CMV). 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.
 
     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 SEPTEMBER 30, 1998 AND 1997
 
  Revenues
 
     The Company earned $107,000 in revenue for the three months ended September
30, 1998, compared to $32,000 for the three months ended September 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 $12.4 million in the three
months ended September 30, 1998 from $5.1 million for the three months ended
September 30, 1997. These increases were primarily due to increased activities
surrounding FLUMIST(TM), including increased clinical trial and product
development activities 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, product development and clinical
trial activities.
 
     Marketing, general and administrative expenses increased to $2.7 million in
the three months ended September 30, 1998 from $1.7 million for the three months
ended September 30, 1997. These increases were primarily due to increases in
staffing and market research and development activities associated principally
with FLUMIST(TM) and additions to the infrastructure necessary to support the
Company's research and
 
                                        9
<PAGE>   10
 
development activities. These expenses are expected to increase in the future in
continued support of these activities.
 
  Net Interest Income
 
     Net interest income decreased to $62,000 in the three months ended
September 30, 1998 from $669,000 for the three months ended September 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.
 
     NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
 
  Revenues
 
     The Company earned $494,000 in revenue for the nine months ended September
30, 1998, compared to $446,000 for the nine months ended September 30, 1997. 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 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 $33.1 million in the nine
months ended September 30, 1998, from $14.0 million for the nine months ended
September 30, 1997. These increases were primarily due to increases in research
and development activities and 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 for FLUMIST(TM),
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, product development, and clinical trial activities.
 
     Marketing, general and administrative expenses increased to $7.3 million in
the nine months ended September 30, 1998, from $4.3 million for the nine months
ended September 30, 1997. These increases were primarily the result of market
research regarding FLUMIST(TM) and additions to the infrastructure 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 nine months ended September 30, 1998 was $1.2
million, as compared to $1.1 million for the nine months ended September 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 September
30, 1998 of approximately $111.9 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
 
                                       10
<PAGE>   11
 
Note offering in March 1998. Through September 30, 1998, the Company had raised
approximately $236.3 million from such activities, net of offering expenses.
Cash used in operations was $34.9 million and $14.5 million for the first nine
months of 1998 and 1997, respectively. Capital expenditures totaled $11.4
million for the first nine 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
marketable securities, and revenues from existing collaborations, will enable it
to maintain its current and planned operations into 2000. 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 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 1999 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. The Company expects 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-2000 at the earliest. The Company has contacted its third party
manufacturers to determine their level of Y2K compliance. This assessment is
expected to be completed by the end of 1998.
 
                                       11
<PAGE>   12
 
     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 on the Company will not change as it
completes its 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
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
     None
 
ITEM 5. OTHER INFORMATION
 
     None
 
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: November 13, 1998                   By: /s/J. LEIGHTON READ, M.D.
                                            ------------------------------------
                                                   J. Leighton Read, M.D.
                                                        Chairman and
                                                  Chief Executive Officer
 
Date: November 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>
    10.19*       Supply Agreement between the Company and Becton, Dickinson
                   and Company, dated
                 July 1, 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 for portions
   of this exhibit.