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 March 31, 1997

                             OR

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

     For the transition period from ________ to ________
                              
               Commission File Number 0-28402
                              
                     ARADIGM CORPORATION
   (Exact name of registrant as specified in its charter)

          California                    94-3133088
(State or other jurisdiction of incorporation or
organization)  (I.R.S. Employer Identification No.)
                              
                              
         26219 Eden Landing Road, Hayward, CA  94545
 (Address of principal executive offices including zip code)
                              
                              
                       (510) 783-0100
    (Registrant's telephone number, including area code)
                              

     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, no par value    10,199,617 shares
          (Class)             (Outstanding at April 4, 1997)


                     ARADIGM CORPORATION
                              
                              
                            INDEX
                              
                PART I. FINANCIAL INFORMATION
                              

  ITEM 1.   FINANCIAL STATEMENTS               Page No.
                                               
  Statements of Operations (Unaudited)         
                                                   
       Three months ended March 31, 1997 and       
       1996 and period from January 30, 1991
       (inception) through March 31, 1997          3
                                                   
  Balance Sheets
                                                   
       March 31, 1997 (Unaudited) and December     4
       31, 1996
                                                   
  Statements of Cash Flows (Unaudited)             
                                                   
       Three months ended March 31, 1997 and       
       1996 and period from January 30, 1991       
       (inception) through March 31, 1997          5
        
                                                   
  Notes to Unaudited Financial Statements          6
                                               
  ITEM 2.   MANAGEMENT'S DISCUSSION AND            
  ANALYSIS OF FINANCIAL CONDITION AND RESULTS      
  OF OPERATIONS                                    8

                 PART II.  OTHER INFORMATION
                              
                              
  ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K      11
                                                   
       Signatures                                 12
                                                   
       Exhibits                                   13
PART I.   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS


                                        
                               ARADIGM CORPORATION
                          (A development stage company)
                                        
                            STATEMENTS OF OPERATIONS
                                   (Unaudited)
                                        
                                                    Period from
                                                    January 30,
                                                        1991
                                                    (inception)
                        Three months ended,           through
                      March 31,       March 31,       March 31,
                         1997           1996             1997
 Contract                                         
 revenues          $    570,017   $     86,250       $1,580,017
 Expenses:                                        
  Research and                                    
  development         2,524,659      1,239,185       17,808,604
  General and                                     
  administrative        914,688        591,143        9,103,828
 Total expenses       3,439,347      1,830,328       26,912,432
                                                  
 Loss from                                        
 operations          (2,869,330)    (1,744,078)     (25,332,415)
                                                  
 Interest income        382,110        147,213        1,825,721
 Interest expense       (14,287)       (10,883)        (145,507)
 Net loss           $(2,501,507)   $(1,607,748)    $(23,652,201)
                                                                
 Net loss per                                                   
 share             $   (0.25)       $    (0.40)
                   
                                                                
 Shares used in                                                 
 computation of                   
 net loss per                     
 share               10,209,242      4,006,108
                                     
                                        
                             See accompanying notes.

                     ARADIGM CORPORATION
                (A development stage company)
                              
                       BALANCE SHEETS
                              
                               March 31,     December 31,
                                  1997           1996
  Assets                      (unaudited)          
  Current assets:                            
    Cash and cash             $14,757,036    $18,553,831
    equivalents
    Short-term investments     10,209,306      6,977,331
                              
    Other current assets          844,076        451,220
                              
     Total current assets      25,810,418     25,982,382
                              
  Investments                           -      3,002,445
  Property and equipment,                    
  net                           1,451,422      1,452,968
  Notes receivable from                      
  officers                        222,814        219,739
  Other assets                     68,242         75,657
                              
      Total assets            $27,552,896    $30,733,191
                                                          
  Liabilities and                                         
  shareholders' equity
  Current liabilities:                                    
    Accounts payable            $ 801,111     $  601,230
    Accrued clinical and                     
    other studies                       -        898,635
    Accrued compensation          550,662        279,985
                              
    Other accrued                            
    liabilities                    66,180        278,985
                              
    Deferred revenue              156,083        169,500
                              
    Current portion of                       
    capital lease                            
    obligations                   268,514        268,514
                             
      Total current                          
       liabilities              1,842,550      2,496,849
                              
  Noncurrent portion of                      
  capital lease obligations       274,974        350,171
                              
  Commitments                                
  Shareholders' equity:                      
    Preferred stock, no par                  
     value; 5,000,000 shares
     authorized; none issued           
     or outstanding                    -              -
    Common stock, no par                     
     value, 40,000,000
     shares authorized;
     issued and outstanding
     shares: March 31, 1997-                 
     10,199,617; December                    
     31, 1996 - 10,214,054    49,811,777      49,821,157
                              
                                             
  Notes receivable from                      
  shareholders                 (460,544)        (482,805)
                              
  Deferred compensation        (257,021)        (308,239)
                              
  Deficit accumulated during                 
  development stage         (23,658,840)     (21,143,942)
      Total shareholders'                    
       equity                25,435,372       27,886,171
      Total liabilities and                  
       shareholders' equity $27,552,896      $30,733,191
                                                          
                              
                              
                   See accompanying notes.
                              

                               ARADIGM CORPORATION
                          (A development stage company)
                                        
                            STATEMENTS OF CASH FLOWS
                Increase (decrease) in cash and cash equivalents
                                   (Unaudited)
                                        
                                                   Period from
                                                   January 30,
                                                       1991
                       Three months ended          (inception)
                            March 31,                through
                      1997             1996         March 31,
                                                       1997
 Cash flows used                                  
 in operating
 activities
 Net loss         $(2,501,507)     $(1,607,748)   $(23,652,201)
 Adjustments to                                   
 reconcile net
 loss to net
 cash flow used                                   
 in operating
 activities
 Depreciation                                     
 and                                              
 amortization          133,413          81,598          852,872
 Amortization of                                  
 deferred                                         
 compensation           51,218          33,000          237,872
 Accrued                    
 interest on                                      
 note exchanged                                   
 for preferred                                    
 stock                       -               -           32,622
                                                        
 Loss on                                          
 disposal of                                      
 property and                                     
 equipment                   -               -           37,666
 Loss on sale-                                    
 leaseback                                        
 transaction                 -               -           95,294
 Changes in                                       
 assets and
 liabilities
 Contract                                         
 receivable                  -         260,000               -
 Other current                                    
 assets                (392,856)        (6,234)        (844,076)
 Other assets             7,415         (6,964)         (68,242)
 Accounts                                         
 payable               199,881           3,518          801,111
 Accrued                                          
 liabilities          (840,763)        (13,288)         616,842
 Deferred                                         
 revenue               (13,417)        (86,250)         156,083
 Net cash used                                    
 in operating                                     
 activities         (3,356,616)     (1,342,368)     (21,734,157)
 Cash flows used                                  
 in investing
 activities
 Capital                                          
 expenditures        (131,867)         (16,324)      (1,827,611)
 Purchases of                                     
 investments      (17,586,617)               -     (208,253,264)
Proceeds from                                     
 maturities of                                    
 investments       17,343,696                -      198,037,319
 Net cash used                                    
 in investing                                     
 activities          (374,788)        (16,324)      (12,043,556)
 Cash flows                                                     
 (used in)
 provided by
 financing
 activities
 Proceeds from                                    
 issuance of                                      
 notes payable                                    
 to shareholders             -               -        2,111,395
 Repayment of                                     
 notes payable                                    
 to shareholders             -               -          298,972)
 Proceeds from                                    
 issuance of                                      
 preferred                                        
 stock, net                  -               -       22,274,014
 Proceeds from                                    
 issuance of                                      
 common stock,                                    
 net                          -         52,721       24,710,973
 Repurchase of                                    
 common stock                 -              -           (6,574)
 Proceeds from                                    
 repayment of                                     
 shareholder                                      
 notes                   12,881              -           12,881
 Proceeds from                                    
 sale of                                          
 equipment in                                     
 sale-leaseback                                   
 transaction                 -               -          389,621
 Notes                                            
 receivable from                                  
 officers               (3,075)        (11,703)        (222,814)
 Payments on                                      
 lease                                            
 obligations           (75,197)        (20,220)        (435,775)
 Net cash (used                                   
 in) provided by                                  
 financing                                        
 activities            (65,391)         20,798       48,534,749
 Net (decrease)                                   
 increase in                                      
 cash and cash                                    
 equivalents        (3,796,795)     (1,337,894)      14,757,036
 Cash and cash                                    
 equivalents at                                   
 beginning of                                     
 period             18,553,831      12,117,355               -
 Cash and cash                                    
 equivalents at                                   
 end of period     $14,757,036     $10,779,461      $14,757,036
                                                  
                                                  
 Supplemental                                     
 investing and
 financing
 activities
 Common stock                                     
 issued in                                        
 exchange for                                     
 equipment        $         -     $         -    $      20,000
 Common stock                                     
 issued in                                        
 exchange for                                     
 notes                                            
 receivable       $         -     $   204,157    $     513,385
 Common stock                                     
 canceled upon                                    
 cancellation of                                  
 notes                                            
 receivable       $      9,380     $        -    $       9,380
 Preferred stock                                  
 issued in                                        
 exchange for                                     
 debt             $          -     $        -    $   1,812,423
 Acquisition of                                   
 equipment under                                  
 capital leases   $          -     $   149,294   $     979,263
                                        
                                        
                             See accompanying notes.
                    

                      ARADIGM CORPORATION
                (A development stage company)
                              
         NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
                       March 31, 1997


1.  Summary of Significant Accounting Policies

Organization and Description of Business
Aradigm Corporation (the "Company") was incorporated in the State of
California on January 30, 1991.  Since inception, the Company has been
engaged in the development of non-invasive pulmonary drug delivery products.
The Company's principal activities to date have been conducting research and
development, recruiting personnel, focusing on business development, raising
capital and acquiring assets.  Accordingly, the Company is considered a
development stage company.

Basis of Presentation
The financial information at March 31, 1997 and for the three-month periods
ended March 31, 1997 and 1996 is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) that 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.  Results for the
interim periods are not necessarily indicative of the results for the entire
year.  The accompanying financial statements should be read in conjunction
with the Company's audited financial statements for the year ended December
31, 1996, included in the Company's Form 10-K filed with the SEC on March 28,
1997.

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

Cash Equivalents and Investments
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.  The Company places
its cash and cash equivalents in money market funds, commercial paper and
corporate master notes.  The Company's short-term investments consist of
corporate notes with maturities ranging from 3 to 12 months.   Other
investments consist of corporate notes with maturities greater than 12 months.
     
The Company classifies its investments as available-for-sale.  Available-for-
sale investments are recorded at fair value with unrealized gains and losses
reported in the statement of shareholders' equity.  Fair values of investments
are based on quoted market prices, where available.  Realized gains and losses,
which have been immaterial to date, are included in interest and other income
and are derived using the specific identification method for determining the
cost of investments sold.  Dividend and interest income is recognized when 
earned.

Net Loss Per Share
Net loss per share is computed using the weighted average number of shares of
common stock outstanding.  Common equivalent shares from stock options and
warrants are excluded from the computation as their effect is antidilutive,
except that, pursuant to the Securities and Exchange Commission Staff
Accounting Bulletins, common and common equivalent shares issued at prices
below the Company's June 20, 1996 initial public offering price during the
12-month period prior to the offering have been included in the calculation
as if they were outstanding for all periods through the offering (using the
treasury stock method and the initial public offering price).

As described above, the antidilutive effect of certain stock options is
included in the calculation of loss per share for all periods through June 20,
1996, but is excluded from the calculation after that date.  Pro forma per
share data is provided to show the calculation on a consistent basis for 1997
and 1996.  It has been computed as described above, but includes the 
retroactive effect from the date of issuance of the conversion of convertible
preferred stock to common shares upon the closing of the Company's initial
public offering.

  Pro forma per share information
  calculated on the above basis is as
  follows:
                                                        
                                    Three Months Ended
                                         March 31,
                                    1997          1996     
                                                           
  Pro forma net loss per share   $ (0.25)      $  (0.21)   
                                                           
  Shares used in computation of  10,209,242    7,509,576   
  pro forma net loss per share


In  February 1997, the Financial Accounting Standards  Board
issued  Statement  No. 128, "Earnings Per Share",  which  is
required to be adopted on December 31, 1997.  At that  time,
the  Company will be required to change the method currently
used  to compute earnings per share and to restate all prior
periods.  Under the new requirements for calculating primary
earnings  per  share, the dilutive effect of  stock  options
will be excluded.  The impact is not expected to result in a
change  in  net loss per share for the quarters ended  March
31,  1997  and  March 31, 1996 as the Company  incurred  net
losses in those periods and, accordingly, the calculation of
earnings per share for those periods excluded stock  options
as their effect was antidilutive.


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

     The following discussion of the financial condition and
results  of  operations of the Company  should  be  read  in
conjunction  with the Financial Statements and  the  related
Notes  thereto  included  in this  Form  10-Q.   Except  for
historical  information contained herein, the discussion  in
this section contains forward-looking statements, including,
without  limitation, statements regarding timing and results
of   clinical   trials,  the  establishment   of   corporate
partnering    arrangements,   the   anticipated   commercial
introduction of the Company's products and the timing of the
Company's  cash requirements.  The Company's actual  results
could  differ  materially from those  anticipated  in  these
forward-looking  statements as a result of certain  factors,
including,  but  not  limited to, those  discussed  in  this
section,  as well as in the section entitled "Risk  Factors"
and  elsewhere in the Company's Form 10-K filed with the SEC
on March 28, 1997.

      The Company's business is subject to significant risks
including,  but not limited to, the success of its  research
and   development  efforts,  its  dependence  on   corporate
partners for marketing and distribution resources, obtaining
and  enforcing patents important to the Company's  business,
clearing  the lengthy and expensive regulatory  process  and
possible  competition  from other  products.   Even  if  the
Company's  products appear promising at  various  stages  of
development  they may not reach the market  or  may  not  be
commercially  successful  for a  number  of  reasons.   Such
reasons  include, but are not limited to, the  possibilities
that  the potential products will be found to be ineffective
during clinical trials, fail to receive necessary regulatory
approvals, be difficult to manufacture on a large scale,  be
uneconomical  to market, be precluded from commercialization
by  proprietary  rights of third parties  or  may  not  gain
acceptance from health care professionals and patients.

Overview

      Since  its  inception  in 1991,  Aradigm  has  been  a
development  stage  company engaged in  the  advancement  of
pulmonary drug delivery systems.  As of March 31,  1997  the
Company  had  an accumulated deficit of $23.7 million.   The
Company has been unprofitable each year and expects to incur
further significant and increasing operating losses over the
next  several  years  primarily  due  to  the  expansion  of
research   efforts and to the establishment of manufacturing
capabilities to support clinical trials and, if any  of  its
products  are  successfully developed and receive  necessary
regulatory  approvals, commercialization of  such  products.
To  date,  Aradigm has not sold any products and, while  the
Company does expect to launch its first product in 1997,  it
does  not anticipate receiving any significant revenue  from
products  or  product royalties in the  current  year.   The
Company has not declared or paid any cash dividends  on  its
capital  stock and does not anticipate paying cash dividends
in the foreseeable future.

      The Company anticipates that its results of operations
may  fluctuate  for the foreseeable future  due  to  several
factors,  including the timing of research  and  development
expenses  (including  clinical trial-related  expenditures),
actions  related to regulatory and third-party reimbursement
matters,  the Company's ability to manufacture its products,
if   any,   efficiently,   the   timing   of   new   product
introductions,  if any, and competition.  In  addition,  the
Company's  results  of operations will be  affected  by  its
ability to enter into corporate collaborations.

Results of Operations
                              
     Three Months Ended March 31, 1997 and 1996
                              
     Contract Revenue.  Contract revenue for the three-month
period  ended  March  31, 1997 increased  to  $570,000  from
$86,000 for the same period in 1996.  This increase resulted
from  revenue  recognized  on three  additional  feasibility
research contracts that were entered into late in the fourth
quarter of 1996 and the first quarter of 1997.

       Research  and  Development  Expenses.   Research  and
development expenses for the three-month period ended  March
31, 1997 increased to $2.5 million from $1.2 million for the
same  period  in 1996.  This increase was primarily  due  to
increased  staffing and costs associated with the  expansion
of  research and development efforts on the AERx system  and
the  expansion of the SmartMist system program.  The Company
expects   research  and  development  spending  to  increase
significantly over the next few years as the Company expands
its development efforts.

      General  and  Administrative  Expenses.   General  and
administrative  expenses  for the three-month  period  ended
March, 1997 increased to $915,000 from $591,000 for the same
period  in  1996.   These increases were  primarily  due  to
increases   in   staffing,  administrative  and   facilities
expenses  related  to  general  corporate  activities.   The
Company  expects to incur significantly greater general  and
administrative  expenses in the future  as  it  expands  its
operations,  increases its efforts to develop  collaborative
relationships   with  corporate  partners  and   meets   its
obligations as a public company.

      Interest  Income.  Interest income for the three-month
period  ended  March  31, 1997 increased  to  $382,000  from
$147,000 for the same period in 1996.  This increase was due
to  interest income earned on the proceeds received from the
sale of common shares in the initial public offering in June
1996.

     Interest Expense.  Interest expense for the three-month
period  ended  March  31,  1997 increased  to  $14,000  from
$11,000 for the same period in 1996.  This increase was  due
to  higher  outstanding  capital lease  balances  under  the
Company's equipment line of credit.

Liquidity and Capital Resources

     The Company has financed its operations since inception
primarily  through  public  and private  placements  of  its
capital   stock,  proceeds  from  financings  of   equipment
acquisitions,  contract  revenue  and  interest  earned   on
investments. As of March 31, 1997, the Company had  realized
approximately  $48.8 million in net proceeds from  sales  of
its  capital  stock.  The Company also has a  $1.75  million
equipment  line  of  credit. At  March  31,  1997,  $770,000
remained  available under the line of credit  for  purchases
through  June 1997.  As of March 31, 1997, the  Company  had
cash,  cash  equivalents  and investments  of  approximately
$25.0 million.

      Net  cash  used in operating activities in  the  three
months  ending March 31, 1997, was $3.4 million compared  to
$1.3  million in 1996.  The increase resulted primarily from
the  increase in the net loss of $900,000, net decreases  in
accrued liabilities and increases in current assets.

      Net  cash  used in investing activities in  the  three
months  ending  March  31, 1997, was  $375,000  compared  to
$16,000  in 1996.  The increase resulted primarily from  the
Company's net purchase of available-for-sale investments and
additional capital expenditures.

      Net  cash  used in financing activities in  the  three
months   ending  March  31,  1997,  was  $65,000   resulting
primarily   from   increased  payments  on   capital   lease
obligations.   Net cash provided by financing activities  in
the three months ending March 31, 1996 was $21,000 resulting
primarily from proceeds of issuances of common stock  offset
partially by payments on capital lease obligations.

      The  Company  expects that its cash requirements  will
increase  due to expected increases in expenses  related  to
research  and  development  activities,  the  scale  up   of
manufacturing  processes  and  increases  in   general   and
administrative  costs. The Company's cash requirements  will
also  be  affected by the extent and duration of the foreign
and domestic regulatory approval processes for its potential
products.  Although  there  can be  no  assurance  that  the
Company  will  receive regulatory approval for  any  of  its
products, if the Company does so, its cash requirements  may
increase  due  to  the significant expenses associated  with
initial  commercial production and marketing efforts.  These
expenses  include,  but  are not limited  to,  increases  in
personnel  and related costs, capital expenditures,  product
prototype  development expenses and the costs of  facilities
expansion.

     The   Company   expects  that  its   existing   capital
resources,   existing  contract  research  and   development
revenue,  interest income and equipment financing capability
will  enable  the  Company to maintain current  and  planned
operations  through  the first half of 1998.  The  Company's
cash  requirements, however, may vary materially from  those
now  planned  because of results of research and development
efforts,  including capital expenditures and the funding  of
preclinical  and  clinical  trials,  manufacturing   process
development in connection with the commercialization of  the
SmartMist    system,   and   manufacturing   capacity    for
preclinical,   clinical   and   full   scale   manufacturing
requirements  of  the  AERx system.  The  Company  may  seek
additional funding through collaborations or through  public
or  private equity or debt financings. The Company  has  not
yet established any corporate development collaborations and
there  can be no assurance that it will be able to do so  on
reasonable terms, or at all. Nor can there be any  assurance
that  additional  financing can be  obtained  on  acceptable
terms,  or at all. If additional funds are raised by issuing
equity  securities, dilution to shareholders may result.  If
adequate  funds  are  not  available,  the  Company  may  be
required  to delay, to reduce the scope of, or to  eliminate
one or more of its research and development programs, or  to
obtain   funds   through  arrangements  with   collaborative
partners  or other sources that may require the  Company  to
relinquish rights to certain of its technologies or products
that the Company would not otherwise relinquish.


PART II   OTHER INFORMATION

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

     (a) Exhibits

          11.1      Statement Regarding Computation of Net Loss Per
                    Share
          27.1      Financial Data Schedule (SEC EDGAR Version only)

     (b) Reports on Forms 8-K.
          The Company filed no reports on Form 8-K during
          the quarter ended March 31, 1997.






                          SIGNATURE
                              
                              
                              
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.

Dated:  May 9, 1997

                              ARADIGM CORPORATION
                              (Registrant)



                              /s/Richard P. Thompson
                              Richard P. Thompson
                              President, Chief Executive
                              Officer and Director
                              (Principal Executive Officer)




                          ARADIGM CORPORATION
                               FORM 10Q
                           INDEX TO EXHIBITS


Exhibit Number       Description

11.1                 Statement Regarding Computation of Net Loss Per Share












                                             EXHIBIT 11.1
                                                            
                                                            
                              
                     ARADIGM CORPORATION
    STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE



                             Three Months Ended March 31,
                                  1997          1996
                                            
   Net loss                  $(2,501,507)   $(1,607,748)
                                            
                                            
   Shares used in computation               
   of net loss per share:
                                            
    Weighted average Common                 
      shares outstanding      10,209,242     1,318,153
    Shares related to SAB                   
      Nos. 55, 64, and 83              -     2,687,955
    Shares used in                          
      computing net loss per                
      share                   10,209,242     4,006,108
                                            
   Net loss per share         $     (.25)  $      (.40)
                                            
                                            
                                            
   Shares used in computation               
   of pro forma net loss
   per share:                               
                                            
    Shares used in                          
      computing net loss per                
      share                   10,209,242    4,006,108
    Adjustment to reflect                   
     effect of assumed
     conversion of preferred
     stock from date of                     
     issuance                         -     3,503,468
    Shares used in                          
      computing pro forma net               
      loss per share          10,209,242    7,509,576
   Pro forma net loss per                   
   share                      $     (.25)  $     (.21)