<PAGE>   1

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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                            ------------------------

                                   FORM 10-Q
                            ------------------------

(MARK ONE)

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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

                                       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)

<TABLE>
<S>                                            <C>
                  CALIFORNIA                                     94-3133088
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)
</TABLE>

                              3929 POINT EDEN WAY
                               HAYWARD, CA 94545
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)

                                 (510) 265-9000
              (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.

<TABLE>
<S>                                            <C>
          Common Stock, no par value                             17,960,647
                   (CLASS)                            (OUTSTANDING AT AUGUST 3, 2000)
</TABLE>

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<PAGE>   2

                              ARADIGM CORPORATION

                                     INDEX

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           NO.
                                                                         --------
<S>      <C>                                                             <C>
                          PART I. FINANCIAL INFORMATION
ITEM 1.  Financial Statements
         Statements of Operations (Unaudited)
         Three months ended June 30, 2000 and 1999...................        1
         Six months ended June 30, 2000 and 1999.....................        2
         Balance Sheets
         June 30, 2000 (Unaudited) and December 31, 1999.............        3
         Statements of Cash Flows (Unaudited)
         Six months ended June 30, 2000 and 1999.....................        4
         Notes to Unaudited Financial Statements.....................        5
ITEM 2.  Management's Discussion and Analysis of Financial Condition         7
         and Results of Operations...................................
ITEM 3.  Quantitative and Qualitative Disclosure About Market Risk...       10

                           PART II. OTHER INFORMATION
ITEM 1.  Legal Proceedings...........................................       11
ITEM 4.  Submission of Matters to a Vote of Security Holders.........       11
ITEM 6.  Exhibits and Reports on Form 8-K............................       12
Signature............................................................       13
Exhibits.............................................................       14
</TABLE>

                                        i
<PAGE>   3

                         PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                              ARADIGM CORPORATION

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

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                   JUNE 30,
                                                              ------------------
                                                               2000       1999
                                                              -------    -------
                                                                 (UNAUDITED)
<S>                                                           <C>        <C>
Contract revenues...........................................  $ 4,804    $ 3,551
Expenses:
  Research and development..................................   11,509      7,620
  General and administrative................................    2,453      2,312
                                                              -------    -------
          Total expenses....................................   13,962      9,932
                                                              -------    -------
Loss from operations........................................   (9,158)    (6,381)
Interest income.............................................      969        574
Interest expense and other..................................     (367)      (220)
                                                              -------    -------
Net loss....................................................  $(8,556)   $(6,027)
                                                              =======    =======
Basic and diluted net loss per share........................  $ (0.48)   $ (0.41)
                                                              -------    -------
Shares used in computing basic and diluted net loss per
  share.....................................................   17,810     14,661
                                                              =======    =======
</TABLE>

                            See accompanying notes.

                                        1
<PAGE>   4

                              ARADIGM CORPORATION

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

<TABLE>
<CAPTION>
                                                                SIX MONTHS ENDED
                                                                    JUNE 30,
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
                                                                  (UNAUDITED)
<S>                                                           <C>         <C>
Contract revenues...........................................  $ 10,504    $  7,137
Expenses:
  Research and development..................................    22,405      15,207
  General and administrative................................     4,526       3,921
                                                              --------    --------
          Total expenses....................................    26,931      19,128
                                                              --------    --------
Loss from operations........................................   (16,427)    (11,991)
Interest income.............................................     1,364         994
Interest expense and other..................................      (688)       (508)
                                                              --------    --------
Net loss....................................................  $(15,751)   $(11,505)
                                                              ========    ========
Basic and diluted net loss per share........................  $  (0.96)   $  (0.84)
                                                              --------    --------
Shares used in computing basic and diluted net loss per
  share.....................................................    16,328      13,704
                                                              ========    ========
</TABLE>

                            See accompanying notes.

                                        2
<PAGE>   5

                              ARADIGM CORPORATION

                                 BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT SHARE INFORMATION)

                                     ASSETS

<TABLE>
<CAPTION>
                                                               JUNE 30,     DECEMBER 31,
                                                                 2000           1999
                                                              -----------   ------------
                                                              (UNAUDITED)
<S>                                                           <C>           <C>
Current assets:
  Cash and cash equivalents.................................   $ 57,471       $  9,347
  Short-term investments....................................      5,907         21,912
  Receivables...............................................      1,885          3,886
  Other current assets......................................        682          1,187
                                                               --------       --------
          Total current assets..............................     65,945         36,332
Property and equipment, net.................................     15,889         14,160
Notes receivable from officers..............................         96            130
Other assets................................................        168            168
                                                               --------       --------
          Total assets......................................   $ 82,098       $ 50,790
                                                               ========       ========

                          LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................   $  2,293       $  2,506
  Accrued compensation......................................      2,046          1,275
  Deferred revenue..........................................      5,754          7,361
  Other accrued liabilities.................................      1,508            356
  Current portion of capital lease obligations..............      2,343          1,863
                                                               --------       --------
          Total current liabilities.........................     13,944         13,361
Notes payable...............................................      6,180          3,956
Noncurrent portion of deferred revenue......................      2,847          3,663
Capital lease obligations, less current portion.............      5,467          5,653
Commitments and contingencies
Shareholders' equity:
  Preferred stock, no par value; 5,000,000 shares
     authorized; no shares issued or outstanding............         --             --
  Common stock, no par value; 40,000,000 shares authorized;
     issued and outstanding shares: June 30,
     2000 -- 17,949,246; December 31, 1999 -- 14,749,777....    144,754         99,603
Shareholder notes receivable................................       (141)          (163)
Deferred compensation.......................................       (298)          (379)
Accumulated deficit.........................................    (90,655)       (74,904)
                                                               --------       --------
          Total shareholders' equity........................     53,660         24,157
                                                               --------       --------
          Total liabilities and shareholders' equity........   $ 82,098       $ 50,790
                                                               ========       ========
</TABLE>

                            See accompanying notes.

                                        3
<PAGE>   6

                              ARADIGM CORPORATION

                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                SIX MONTHS ENDED
                                                                    JUNE 30,
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
                                                                  (UNAUDITED)
<S>                                                           <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss..................................................  $(15,751)   $(11,505)
  Adjustments to reconcile net loss to cash used in
     operating activities:
     Depreciation and amortization..........................     1,379       1,050
     Amortization of deferred compensation..................        81          81
     Changes in operating assets and liabilities:
       Receivables..........................................     2,001      (1,957)
       Other current assets.................................       505         (81)
       Other assets.........................................        --         (90)
       Accounts payable.....................................      (213)       (912)
       Accrued liabilities..................................     1,923        (522)
       Deferred revenue.....................................    (2,423)       (491)
                                                              --------    --------
          Net cash used in operating activities.............   (12,498)    (14,427)
                                                              --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures......................................    (3,108)       (884)
  Sale (purchase) of available-for-sale investments.........    (4,822)        109
  Proceeds from maturities of available-for-sale
     investments............................................    20,825       3,035
                                                              --------    --------
          Net cash provided by investing activities.........    12,895       2,260
                                                              --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of common stock, net...............    45,151      25,352
  Issuance of notes payable.................................     2,224          --
  Proceeds from repayments of shareholder notes.............        22          40
  Notes receivable from officers............................        34          13
  Proceeds from equipment loans.............................     1,275       2,243
  Payments on lease obligations and equipment loans.........      (979)       (675)
                                                              --------    --------
          Net cash provided by financing activities.........    47,727      26,973
                                                              --------    --------
Net increase in cash and cash equivalents...................    48,124      14,806
Cash and cash equivalents at beginning of period............     9,347      10,765
                                                              --------    --------
Cash and cash equivalents at end of period..................  $ 57,471    $ 25,571
                                                              ========    ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest....................................  $    435    $    462
                                                              ========    ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
  Issuance of warrants for services.........................  $     --    $    221
                                                              ========    ========
</TABLE>

                            See accompanying notes.

                                        4
<PAGE>   7

                              ARADIGM CORPORATION

                  NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
                                 JUNE 30, 2000

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Organization and Basis of Presentation

     Aradigm Corporation (the "Company") is a California corporation. Since
inception, Aradigm has been engaged in the development and commercialization of
non-invasive pulmonary drug delivery systems. Through June 1997, the Company was
in the development stage. The Company does not anticipate receiving significant
revenue from the sale of products in the upcoming year. Principal activities to
date have included obtaining financing, recruiting management and technical
personnel, securing operating facilities, conducting research and development,
and expanding commercial production capabilities. These factors indicate that
the Company's ability to continue its research, development and
commercialization activities is dependent upon the ability of management to
obtain additional financing as required.

     In the opinion of management, the financial statements reflect all
adjustments, which are of a normal recurring nature, necessary for a fair
presentation. The accompanying financial statements should be read in
conjunction with the financial statements and notes thereto included with the
Company's Annual Report on Form 10-K, as amended. The results of the Company's
operations for the interim periods presented are not necessarily indicative of
operating results for the full fiscal year or any future interim period.

  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 notes. The Company's short-term investments consist of commercial
paper and corporate notes with maturities ranging from three to twelve 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.

  Depreciation and Amortization

     The Company records property and equipment at cost and calculates
depreciation using the straight-line method over the estimated useful lives of
the respective assets, generally three to seven years. Machinery and equipment
acquired under capital leases is amortized over the useful lives of the assets.
Leasehold improvements are amortized over the shorter of the term of the lease
or useful lives of the improvements.

  Revenue Recognition

     Contract revenues consist of revenue from collaboration agreements and
feasibility studies. The Company recognizes revenue under the agreements as
reimbursable costs are incurred. Deferred revenue represents the portion of
research payments received that has not been earned. In accordance with contract
terms, milestone payments from collaborative research agreements are considered
reimbursements for costs incurred under the agreements and, accordingly, are
generally deferred when received and recognized as revenue based on actual

                                        5
<PAGE>   8
                              ARADIGM CORPORATION

            NOTES TO THE UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
                                 JUNE 30, 2000

efforts expended over the remaining terms of the agreements. Costs of contract
revenues approximate such revenue and are included in research and development
expenses. Refundable development and license fee payments are deferred until the
specified performance criteria are achieved.

  Net Loss Per Share

     Basic net loss per share has been computed using the weighted average
number of shares of common stock outstanding less the weighted average number of
shares subject to repurchase during the period. No diluted loss per share
information has been presented in the accompanying statements of operations
since potential common shares from stock options and warrants are antidilutive.

2. SHAREHOLDERS' EQUITY

     In April 2000, the Company completed a follow-on public offering of common
stock, which raised approximately $42.6 million in net proceeds with the
issuance of 2,875,000 shares of common stock. In March 1999, the Company
completed a private offering, which raised approximately $24.8 million in net
proceeds with the issuance of 2,428,338 shares of common stock.

3. CONTINGENCIES

     In June 1998, Eli Lilly and Company ("Lilly") filed a complaint against the
Company in the United States District Court for the Southern District of
Indiana. The complaint made various allegations against the Company, arising
from the Company's decision to enter into an exclusive collaboration with Novo
Nordisk A/S with respect to the development and commercialization of a pulmonary
delivery system for insulin and insulin analogs. The Company has sponsored
various studies of the pulmonary delivery of insulin analogs using materials
supplied by Lilly under a series of agreements dating from January 1996. The
Company and Lilly had also conducted negotiations concerning a long-term supply
agreement under which Lilly would supply bulk insulin to the Company for
commercialization in the Company's AERx Diabetes Management System, and a
separate agreement under which the Company would license certain intellectual
property to Lilly. These negotiations were terminated after the Company
proceeded with its agreement with Novo Nordisk A/S. The complaint seeks a
declaration that Lilly scientists were co-inventors of a patent application
filed by the Company relating to pulmonary delivery of an insulin analog or, in
the alternative, enforcement of an alleged agreement to grant Lilly a
nonexclusive license under such patent application. The complaint also contains
allegations of misappropriation of trade secrets, breach of fiduciary duty,
conversion and unjust enrichment and seeks unspecified damages and injunctive
relief. The Company filed an answer denying all material allegations of the
complaint and a motion for summary judgment directed against all claims in Eli
Lilly's complaint. The Court has issued two written rulings on the Company's
motion substantially limiting the claims against the Company. Specifically, the
Court granted the Company's motion as to Lilly's claim to enforce an alleged
license agreement, for misappropriation of trade secrets, breach of fiduciary
duty, conversion, estoppel and breach of contract (in part) and dismissed those
claims from the case. The Court denied the Company's motion to Lilly's claims
for declaratory relief, unjust enrichment and breach of contract (in part),
based on factual disputes between the parties, and those issues remain to be
resolved. No trial date has been set. Management believes that it has
meritorious defenses against each of Eli Lilly's claims and that this litigation
will not have a material adverse effect on the Company's results of operations,
cash flows or financial position. However, there can be no assurance that the
Company will prevail in this case.

                                        6
<PAGE>   9

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

     The discussion below contains forward-looking statements that are based on
the beliefs of management, as well as assumptions made by, and information
currently available to management. Future results, performance or achievements
could differ materially from those expressed in, or implied by, any such
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/A filed with the
Securities and Exchange Commission on March 30, 2000.

     The business is subject to significant risks including, but not limited to,
the success of research and development efforts, dependence on corporate
partners for marketing and distribution resources, obtaining and enforcing
patents important to the business, clearing the lengthy and expensive regulatory
process and possible competition from other products. Even if the 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
may be found to be ineffective during clinical trials, fail to receive necessary
regulatory approvals, are difficult to manufacture on a large scale, are
uneconomical to market, are precluded from commercialization by proprietary
rights of third parties or may not gain acceptance from health care
professionals and patients. Readers are cautioned not to place undue reliance on
the forward-looking statements contained herein. We undertake no obligation to
publicly release the results of any revision to these forward-looking statements
which may be made to reflect events or circumstances occurring after the date
hereof or to reflect the occurrence of unanticipated events.

OVERVIEW

     Since our inception in 1991, we have been engaged in the development of
pulmonary drug delivery systems. As of June 30, 2000, we had an accumulated
deficit of $90.7 million. We have not been profitable since inception and expect
to incur additional operating losses over the next several years as research and
development efforts, preclinical and clinical testing activities and
manufacturing scale-up efforts expand and as we plan and build our late-stage
clinical and early commercial production capabilities. To date, we have not had
any material product sales and do not anticipate receiving significant revenue
from product sales during 2000. The sources of working capital have been equity
financings, equipment lease financings, contract revenues and interest earned on
investments.

     We have performed initial feasibility work on a number of compounds and
have been compensated for expenses incurred while performing this work in
several cases pursuant to feasibility study agreements with third parties. Once
feasibility is demonstrated with respect to a potential product, we seek to
enter into development contracts with pharmaceutical corporate partners. We
currently have such agreements pursuant to which we are developing pulmonary
delivery systems with Genentech, to manage cystic fibrosis with dornase alfa,
the active ingredient in Pulmozyme, with Novo Nordisk, to manage diabetes using
insulin and other blood glucose regulating compounds and with SmithKline
Beecham, to manage acute and breakthrough pain using opioid analgesics.

     Our collaborative agreements with Novo Nordisk and SmithKline Beecham
provide for reimbursement of research and development expenses as well as
additional payments to us as we achieve certain significant milestones. We also
expect to receive royalties from these development partners based on revenues
from partner sales of product and to receive revenue from the manufacturing of
unit dose packets and hand-held devices. We recognize revenues under the terms
of these collaborative agreements as research and development expenses are
incurred, but only to the extent they are reimbursable.

     Our collaborative development agreement with Genentech, entered into May
21, 1999, provides that certain expense reimbursements received from Genentech
under this agreement are subject to repayment if the product does not receive
approval from the Food and Drug Administration ("FDA"). Genentech reimburses
development expenses incurred in the form of loans supported by promissory notes
bearing interest at 2% over the prime rate. Upon receipt of FDA approval, we
will receive a milestone payment that is larger than the loan principal and
accrued interest, allowing the loan to be fully repaid at that time. We will
also receive certain milestone payments at various points of product
development.

                                        7
<PAGE>   10

RESULTS OF OPERATIONS

  Three Months Ended June 30, 2000 and 1999

     Contract Revenues: Contract revenues for the three months ended June 30,
2000 increased to $4.8 million from $3.6 million for the same period in 1999.
The revenue increase results primarily from the expansion of partner-funded
project development programs with Novo Nordisk and SmithKline Beecham. Costs
associated with contract revenues are included in research and development
expenses.

     Research and Development Expenses: Research and development expenses for
the three months ended June 30, 2000 increased to $11.5 million from $7.6
million for the same period in 1999. The increase results primarily from the
hiring of additional scientific personnel and the expansion of research and
development efforts to support the ongoing programs with Novo Nordisk,
SmithKline Beecham and Genentech.

     These expenses represent proprietary research expenses as well as costs
related to contract revenues and include salaries and benefits of scientific and
development personnel, laboratory supplies, consulting services and expenses
associated with the development of manufacturing processes. We expect research
and development spending to increase significantly over the next few years as we
continue to expand our development activities to support current and potential
future collaborations and initiate commercial manufacturing of the AERx systems.
The increase in research and development expenditures cannot be predicted
accurately as it depends in part upon future success in pursuing existing
development collaborations, as well as obtaining new collaborative agreements.

     General and Administrative Expenses: General and administrative expenses
for the three months ended June 30, 2000 increased to $2.5 million from $2.3
million for the same period in 1999. The increase results primarily from
additional personnel and leased facilities to support our expansion of research,
development and manufacturing activities, and increased efforts to develop
collaborative relationships with corporate partners.

     Interest Income: Interest income for the three months ended June 30, 2000
increased to $969,000 from $574,000 for the same period in 1999. The increase is
due to the Company maintaining larger cash and investment balances. The higher
cash and investment balances in the current period are due to the Company
receiving net proceeds from a follow-on public offering of common stock for
approximately $42.6 million in April 2000. The cash and investment balances for
the same prior year period are due to the Company receiving net proceeds from a
private offering of common stock for approximately $24.8 million in March 1999.

     Interest Expense and Other: Interest expense and other for the three months
ended June 30, 2000 increased to $367,000 from $220,000 for the same period in
1999. The increase is the result of higher outstanding capital lease and
equipment loan balances under existing equipment and lease lines of credit.

  Six Months Ended June 30, 2000 and 1999

     Contract Revenues: Contract revenues for the six months ended June 30, 2000
increased to $10.5 million from $7.1 million for the same period in 1999. The
revenue increase resulted primarily from the expansion of our partner-funded
project development programs with Novo Nordisk and SmithKline Beecham.

     Research and Development Expenses: Research and development expenses for
the six months ended June 30, 2000 increased to $22.4 million from $15.2 million
for the same period in 1999. The increase is primarily attributable to the
hiring of additional scientific personnel and the expansion of research and
development efforts to support the ongoing programs with Novo Nordisk,
SmithKline Beecham and Genentech.

     General and Administrative Expenses: General and administrative expenses
for the six months ended June 30, 2000 increased to $4.5 million from $3.9
million for the same period in 1999. The increase results primarily from
additional personnel and leased facilities to support our expansion of research,
development and manufacturing activities, and increased efforts to develop
collaborative relationships with corporate partners.

                                        8
<PAGE>   11

     Interest Income: Interest income for the six months ended June 30, 2000
increased to $1.4 million from $1.0 million for the same period in 1999. The
increase is due to the Company maintaining larger cash and investment balances.
The higher cash and investment balances in the current period are due to the
Company receiving net proceeds from a follow-on public offering of common stock
for approximately $42.6 million in April 2000. The cash and investment balances
in the same prior year period are due to the Company receiving net proceeds from
a private offering of common stock for approximately $24.8 million in March
1999.

     Interest Expense and Other: Interest expense and other for the six months
ended June 30, 2000 increased to $688,000 from $508,000 for the same period in
1999. The increase is the result of higher outstanding capital lease and
equipment loan balances under existing equipment and lease lines of credit.

LIQUIDITY AND CAPITAL RESOURCES

     The business has financed its operations since inception primarily through
private placements and public offerings of capital stock, proceeds from
equipment lease financing, contract revenues and interest earned on investments.
As of June 30, 2000, we have received approximately $144.8 million in net
proceeds from sales of capital stock. All equipment lines of credit have been
fully utilized by June 2000. As of June 30, 2000, we had cash, cash equivalents
and short-term investments of approximately $63.4 million. In April 2000, we
completed a follow-on public offering of common stock, which raised
approximately $42.6 million in net proceeds with the issuance of 2,875,000
shares of common stock.

     Net cash used in operating activities for the six months ended June 30,
2000 decreased to $12.5 million from $14.4 million for the same period in 1999.
The decrease in net cash used resulted from increases in accrued liabilities and
decreases in receivables, other current assets, accounts payable, and deferred
revenue partially offset by an increase in the net loss.

     Net cash provided by investing activities for the six months ended June 30,
2000 increased to $12.9 million from $2.3 million for the same period in 1999.
The increase results primarily from increased maturities of available-for-sale
investments partially offset by increased purchases of investments and capital
expenditures.

     Net cash provided by financing activities for the six months ended June 30,
2000 increased to $47.7 million from $27.0 million for the same period in 1999.
The increase primarily reflects receipt of proceeds from the completion of a
follow-on public offering of common stock in April 2000 which raised
approximately $42.6 million in net proceeds, issuance of notes payable
supporting loans received under a collaborative development agreement with
Genentech, and net proceeds from the use of an existing equipment line of
credit.

     The development of our technology and proposed products will require a
commitment of substantial funds to conduct the costly and time-consuming
research, preclinical studies and clinical trial activities necessary to develop
and refine the technology and proposed products and bring such products to
market. Future capital requirements will depend on many factors, including
continued progress and results from research and development for the technology
and drug delivery systems, the ability to establish and maintain favorable
collaborative arrangements with others, progress with preclinical studies and
clinical trials and the results thereof, the time and costs involved in
obtaining regulatory approvals, the cost of development and the rate of scale-up
for the required production technologies, the costs involved in preparing,
filing, prosecuting, maintaining and enforcing patent claims and the need to
acquire licenses or other rights to new technology.

     We expect that our cash requirements will increase in future periods and
that the business will need to raise additional capital before it becomes
profitable. Based on projected cash requirements, we believe that existing
capital resources and committed funding from the collaborative partners,
together with the proceeds from the April 2000 offering and projected interest
income will enable the business to maintain current and planned operations,
including anticipated capital spending requirements of approximately $50
million, through the end of 2001. However, there can be no assurance the
business will not need to raise substantial additional capital to fund the
operations and capital spending during this period. We may seek additional
funding through collaborations or through public or private equity or debt
financing. There cannot be any assurance that

                                        9
<PAGE>   12

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 business may
be required to delay, reduce the scope of, or eliminate one or more of the
research and development programs, or obtain funds through arrangements with
collaborative partners or other sources that may require the business to
relinquish rights to certain technologies or products that would otherwise not
be relinquished.

NEW ACCOUNTING PRONOUNCEMENTS

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." SAB
101 provides guidance on the recognition, presentation and disclosure of revenue
in financial statements of all public registrants. Any change in our revenue
recognition policy resulting from the interpretation of SAB 101 is to be
reported as a change in accounting principle in the quarter ending December 31,
2000. We have not fully assessed the impact of the adoption of SAB 101.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  Market Risk Disclosures

     In the normal course of business, our financial position is routinely
subject to a variety of risks, including market risk associated with interest
rate movement. We regularly assess these risks and have established policies and
business practices to protect against these and other exposures. As a result, we
do not anticipate material potential losses in these areas.

     As of June 30, 2000, we had cash and cash equivalents and short-term
investments of $63.4 million consisting of cash and highly liquid short-term
investments. Our short-term investments will decline by an immaterial amount if
market interest rates increase, and therefore, our exposure to interest rate
changes has been immaterial. Declines of interest rates over time will, however,
reduce our interest income from our short-term investments. Our outstanding
capital lease obligations are all at fixed interest rates and, therefore, have
minimal exposure to changes in interest rates.

                                       10
<PAGE>   13

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     In June 1998, Eli Lilly and Company ("Lilly") filed a complaint against the
Company in the United States District Court for the Southern District of
Indiana. The complaint made various allegations against the Company, arising
from the Company's decision to enter into an exclusive collaboration with Novo
Nordisk A/S with respect to the development and commercialization of a pulmonary
delivery system for insulin and insulin analogs. The Company has sponsored
various studies of the pulmonary delivery of insulin analogs using materials
supplied by Lilly under a series of agreements dating from January 1996. The
Company and Lilly had also conducted negotiations concerning a long-term supply
agreement under which Lilly would supply bulk insulin to the Company for
commercialization in the Company's AERx Diabetes Management System, and a
separate agreement under which the Company would license certain intellectual
property to Lilly. These negotiations were terminated after the Company
proceeded with its agreement with Novo Nordisk A/S. The complaint seeks a
declaration that Lilly scientists were co-inventors of a patent application
filed by the Company relating to pulmonary delivery of an insulin analog or, in
the alternative, enforcement of an alleged agreement to grant Lilly a
nonexclusive license under such patent application. The complaint also contains
allegations of misappropriation of trade secrets, breach of fiduciary duty,
conversion and unjust enrichment and seeks unspecified damages and injunctive
relief. The Company filed an answer denying all material allegations of the
complaint and a motion for summary judgment directed against all claims in Eli
Lilly's complaint. The Court has issued two written rulings on the Company's
motion substantially limiting the claims against the Company. Specifically, the
Court granted the Company's motion as to Lilly's claim to enforce an alleged
license agreement, for misappropriation of trade secrets, breach of fiduciary
duty, conversion, estoppel and breach of contract (in part) and dismissed those
claims from the case. The Court denied the Company's motion to Lilly's claims
for declaratory relief, unjust enrichment and breach of contract (in part),
based on factual disputes between the parties, and those issues remain to be
resolved. No trial date has been set. Management believes that it has
meritorious defenses against each of Eli Lilly's claims and that this litigation
will not have a material adverse effect on the Company's results of operations,
cash flows or financial position. However, there can be no assurance that the
Company will prevail in this case.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     (a) The Annual Meeting of shareholders of Aradigm Corporation was held on
May 19, 2000.

     (b) Frank H. Barker, Wayne I. Roe, Reid M. Rubsamen, Richard P. Thompson
and Virgil D. Thompson were elected to the Board of Directors to hold office
until the next Annual Meeting of Shareholders and until their successors are
elected and qualified.

     (c) The matters voted upon at the meeting and the voting of the
shareholders with respects thereto were as follows:

          (1) The election of Frank H. Barker as Director to hold office until
     the next Annual Meeting of Shareholders and until his successor is elected
     and qualified:

                     For: 14,197,595       Against: 27,107

          (2) The election of Wayne I. Roe as Director to hold office until the
     next Annual Meeting of Shareholders and until his successor is elected and
     qualified:

                     For: 14,197,995       Against: 26,707

          (3) The election of Reid M. Rubsamen as Director to hold office until
     the next Annual Meeting of Shareholders and until his successor is elected
     and qualified:

                     For: 14,202,695       Against: 22,007

                                       11
<PAGE>   14

          (4) The election of Richard P. Thompson as Director to hold office
     until the next Annual Meeting of Shareholders and until his successor is
     elected and qualified:

                     For: 14,192,693       Against: 32,009

          (5) The election of Virgil D. Thompson as Director to hold office
     until the next Annual Meeting of Shareholders and until his successor is
     elected and qualified:

                     For: 14,198,795       Against: 25,907

          (6) Approval of an amendment to the Employee Stock Purchase Plan
     increasing the total number of shares of common stock authorized for
     issuance by 120,000 shares:

         For: 14,155,155       Against: 53,801        Abstained: 15,746

          (7) Ratification of the selection of Ernst & Young LLP as independent
     auditors of the company for its fiscal year ended December 31, 2000:

        For: 14,085,808       Against: 128,583        Abstained: 10,311

ITEM 6. EXHIBITS

     (a) Exhibits

<TABLE>
    <S>       <C>
    10.1*     Employee Stock Purchase Plan, as amended.
    27.1.1    Financial Data Schedule
</TABLE>

---------------
* Filed as an exhibit to the Company's Proxy Statement filed April 19, 2000 and
  incorporated herein by reference.

     (b) Reports on Form 8-K

     The Company did not file any reports on Form 8-K during the quarter ended
June 30, 2000.

                                       12
<PAGE>   15

                                   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: August 10, 2000

                                          ARADIGM CORPORATION
                                          (Registrant)

                                                 /s/ RICHARD P. THOMPSON
                                          --------------------------------------
                                                   Richard P. Thompson
                                          President and Chief Executive Officer

                                                    /s/ NORMAN HALLEEN
                                          --------------------------------------
                                                      Norman Halleen
                                               Vice President, Finance and
                                                      Administration
                                               and Chief Financial Officer

                                       13
<PAGE>   16

                              ARADIGM CORPORATION

                                   FORM 10-Q

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<C>        <S>
 10.1*     Employee Stock Purchase Plan, as amended.
 27.1      Financial Data Schedule
</TABLE>

---------------

* Filed as an exhibit to the Company's Proxy Statement filed April 19, 2000 and
  incorporated herein by reference.

                                       14