<PAGE>   1

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                ----------------

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


(MARK ONE)

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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001

                                       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                           (I.R.S. EMPLOYER
   INCORPORATION OR ORGANIZATION)                           IDENTIFICATION NO.)


                               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.

Common Stock, no par value                                    20,026,252
        (Class)                                  (Outstanding at August 1, 2001)

================================================================================
<PAGE>   2

                               ARADIGM CORPORATION

                                      INDEX

<TABLE>
<CAPTION>
                                                                                         PAGE
                                                                                          NO.
                                                                                          ---
<S>                                                                                      <C>
                          PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements
        Statements of Operations (Unaudited)
             Three months ended June 30, 2001 and 2000 ...........................        1
             Six months ended June 30, 2001 and 2000 .............................        2
        Balance Sheets
             June 30, 2001 (Unaudited) and December 31, 2000 .....................        3
        Statements of Cash Flows (Unaudited)
             Six months ended June 30, 2001 and 2000 .............................        4
        Notes to Unaudited Financial Statements ..................................        5

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
        Operations................................................................        7

ITEM 3. Quantitative and Qualitative Disclosure About Market Risk ................       10

                           PART II. OTHER INFORMATION

ITEM 2. Changes in Securities and Use of Proceeds ................................       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>

<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,
                                                                   ------------------------
                                                                     2001            2000
                                                                   --------        --------
                                                                         (UNAUDITED)
<S>                                                                <C>             <C>
Contract revenues ..........................................       $  8,520        $  4,804
                                                                   --------        --------
Expenses:
  Research and development .................................         15,298          11,509
  General and administrative ...............................          2,322           2,453
                                                                   --------        --------
          Total expenses ...................................         17,620          13,962
                                                                   --------        --------
Loss from operations .......................................         (9,100)         (9,158)
Interest income ............................................            299             969
Interest expense and other .................................           (364)           (367)
                                                                   --------        --------
Net loss ...................................................       $ (9,165)       $ (8,556)
                                                                   ========        ========
Basic and diluted net loss per share .......................       $  (0.47)       $  (0.48)
                                                                   --------        --------
Shares used in computing basic and diluted net loss
  per share ................................................         19,338          17,810
                                                                   ========        ========
</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,
                                                                   ------------------------
                                                                     2001            2000
                                                                   --------        --------
                                                                           (UNAUDITED)
<S>                                                                <C>             <C>
Contract revenues ..........................................       $ 15,207        $ 10,504
                                                                   --------        --------
Expenses:
  Research and development .................................         29,458          22,405
  General and administrative ...............................          4,650           4,526
                                                                   --------        --------
          Total expenses ...................................         34,108          26,931
                                                                   --------        --------
Loss from operations .......................................        (18,901)        (16,427)
Interest income ............................................            967           1,364
Interest expense and other .................................           (626)           (688)
                                                                   --------        --------
Loss before extraordinary gain .............................        (18,560)        (15,751)
Extraordinary gain .........................................          6,675              --
                                                                   --------        --------
Net loss ...................................................       $(11,885)       $(15,751)
                                                                   ========        ========

Basic and diluted net loss per share:
Loss before extraordinary gain .............................       $  (0.97)       $  (0.96)
Extraordinary gain .........................................           0.35              --
                                                                   --------        --------
Net loss per share .........................................       $  (0.62)       $  (0.96)
                                                                   --------        --------

Shares used in computing basic and diluted net loss
  per share ................................................         19,090          16,328
                                                                   ========        ========
</TABLE>



                             See accompanying notes.



                                       2
<PAGE>   5

                               ARADIGM CORPORATION

                                 BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARES DATA)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                        JUNE 30,        DECEMBER 31,
                                                                          2001             2000
                                                                        ---------        ---------
                                                                       (UNAUDITED)
<S>                                                                    <C>              <C>
Current assets:
  Cash and cash equivalents .....................................       $  12,593        $  20,732
  Short-term investments ........................................           8,244           23,649
  Receivables ...................................................             341               70
  Prepaid expenses and other current assets .....................           1,314              735
                                                                        ---------        ---------
          Total current assets ..................................          22,492           45,186
Property and equipment, net .....................................          47,982           25,323
Notes receivable from officers and employees ....................             105              119
Other assets ....................................................             615              743
                                                                        ---------        ---------
          Total assets ..........................................       $  71,194        $  71,371
                                                                        =========        =========

                 LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable ..............................................       $   4,521        $   4,894
  Accrued clinical and cost of other studies ....................           1,005              517
  Accrued compensation ..........................................           2,598            1,246
  Deferred revenue ..............................................           8,740            6,622
  Other accrued liabilities .....................................           1,051            2,234
  Notes payable .................................................             773            6,712
  Current portion of capital lease obligations ..................           3,453            3,099
                                                                        ---------        ---------
         Total current liabilities ..............................          22,141           25,324
Noncurrent portion of deferred revenue ..........................           2,618            2,032
Capital lease obligations, less current portion .................           4,407            6,230
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,
 2001 -- 19,930,095; December 31, 2000 -- 18,266,955  ...........         164,496          148,573
Shareholder notes receivable ....................................             (21)            (131)
Deferred compensation ...........................................            (135)            (216)
Accumulated deficit .............................................        (122,312)        (110,441)
                                                                        ---------        ---------
          Total shareholders' equity ............................          42,028           37,785
                                                                        ---------        ---------
          Total liabilities and shareholders' equity ............       $  71,194        $  71,371
                                                                        =========        =========
</TABLE>



                             See accompanying notes.



                                       3
<PAGE>   6

                               ARADIGM CORPORATION

                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                SIX MONTHS ENDED
                                                                                     JUNE 30,
                                                                             ------------------------
                                                                               2001            2000
                                                                             --------        --------
                                                                                    (UNAUDITED)
<S>                                                                        <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss ...........................................................       $(11,885)       $(15,751)
  Adjustments to reconcile net loss to cash used in
    operating activities:
     Depreciation and amortization ...................................          2,100           1,379
     Extraordinary gain related to Genentech note ....................         (6,675)             --
     Issuance of common stock for services ..................... .....             48              --
     Amortization of deferred compensation ...........................             81              81
     Changes in operating assets and liabilities:
       Receivables ...................................................           (271)          2,001
       Prepaid expenses and other current assets .....................           (579)            505
       Other assets ..................................................            128              --
       Accounts payable ..............................................           (373)           (213)
       Accrued compensation ..........................................          1,352             771
       Other accrued liabilities .....................................             40           1,152
       Deferred revenue ..............................................          2,704          (2,423)
                                                                             --------        --------
Net cash used in operating activities ................................        (13,330)        (12,498)
                                                                             --------        --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures ...............................................        (24,758)         (3,108)
  Purchase of available-for-sale investments .........................         (5,733)         (4,822)
  Proceeds from maturities of available-for-sale investments .........         21,152          20,825
                                                                             --------        --------
Net cash provided by (used in) investing activities ..................         (9,339)         12,895
                                                                             --------        --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of common stock, net ........................         15,875          45,151
  Proceeds from notes payable ........................................             --           2,224
  Proceeds from repayments of shareholder notes ......................            110              22
  Proceeds from notes receivable from officers .......................             14              34
Proceeds from equipment loans ........................................             --           1,275
Payments on lease obligations and equipment loans ....................         (1,469)           (979)
                                                                             --------        --------
Net cash provided by financing activities ............................         14,530          47,727
                                                                             --------        --------
Net (decrease) increase in cash and cash equivalents .................         (8,139)         48,124
Cash and cash equivalents at beginning of period .....................         20,732           9,347
                                                                             --------        --------
Cash and cash equivalents at end of period ...........................       $ 12,593        $ 57,471
                                                                             ========        ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 Cash paid for interest ..............................................       $    502        $    435
                                                                             ========        ========
</TABLE>



                             See accompanying notes.



                                       4
<PAGE>   7

                               ARADIGM CORPORATION

                   NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
                                  JUNE 30, 2001

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.

        The accompanying unaudited 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. 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.

        The Balance Sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

Net Loss Per Share

        Historical net loss per share has been calculated under Statement of
Financial Accounting Standards No. 128, "Earnings 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 January 2001, the Company raised $5 million through the sale of
339,961 common shares at an average price of $14.71 per share to GlaxoSmithKline
plc ("GlaxoSmithKline"). The sale was made pursuant to the exercise of a put
option by the Company under the terms of the collaboration agreement with
GlaxoSmithKline.

        In February 2001, the Company had a sale of common stock to Acqua
Wellington North American Equities Fund, Ltd. ("Acqua") under the terms of an
equity sales agreement signed with them in November, 2000. The Company raised $5
million through the sale of 436,110 common shares at an average price of $11.46
per share.

        In June 2001, the Company raised $5 million through the sale of 708,216
common shares at an average price of $7.06 per share to Novo Nordisk A/S ("Novo
Nordisk"). The sale was made pursuant to the exercise of a put option by the
Company under the terms of the collaboration agreement with Novo Nordisk.


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



                                       5
<PAGE>   8

decision to enter into an exclusive collaboration with Novo Nordisk 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. 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 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. Trial date has been set for November 2001.
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 financial position, results of operations or cash flows. However,
there can be no assurance that the Company will prevail in this case.


4.   RECENT ACCOUNTING PRONOUNCEMENTS

        In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"), which establishes accounting
and reporting standards for derivative instruments and hedging activities. FAS
133 requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value. In
June 1999, the FASB issued Statement No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133", which amended FAS 133 by deferring the effective date to the
fiscal year beginning after June 30, 2000. In June 2000, the FASB issued
Statement No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities -- an Amendment to FASB Statement No. 133", which amended FAS
133 with respect to four specific issues. The Company adopted FAS 133, as
amended, as of January 1, 2001. The adoption of this statement had no material
effect on the financial position, results of operations or cash flows.



                                       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. Our 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 filed with the
Securities and Exchange Commission on March 30, 2001, as amended.

        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, 2001, we had an accumulated
deficit of $122.3 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 revenue
from product sales during 2001. 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 Novo Nordisk A/S ("Novo Nordisk"), to manage diabetes
using insulin and other blood glucose regulating compounds, and with
GlaxoSmithKline plc ("GlaxoSmithKline"), to manage acute and breakthrough pain
using opioid analgesics.

        The collaborative agreement with Novo Nordisk provides 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
this development partner based on revenues from 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 our collaborative agreement as the
research and development expenses are incurred, to the extent they are
reimbursable.

        During December 2000, GlaxoSmithKline and we amended the product
development and commercialization agreement whereby we assumed full control and
responsibility for conducting and financing the remainder of all development
activities. Under the amendment, unless we have terminated the agreement,
GlaxoSmithKline can restore its rights to participate in development and
commercialization of the product under the amended agreement upon payment of a
restoration fee to us. We anticipate that GlaxoSmithKline will review its
restoration election upon the delivery of Phase 2b trial results, which are
expected to be available before year end, but there can be no assurance that
GlaxoSmithKline will elect to restore its rights. If we elect to terminate the
agreement and continue or intend to continue any development activities, either
alone or in collaboration with a third party, we will be obligated to pay an
exit fee to GlaxoSmithKline.

        In February 2001, we announced that we had mutually agreed with
Genentech to discontinue the development of rhDNase using our proprietary AERx
system. We also entered into a new agreement allowing Genentech to evaluate the
feasibility of using the AERx Pulmonary Drug Delivery System for pulmonary
delivery of other Genentech compounds. Under the terms of the agreement,
Genentech did not require us to repay the loan of funds required to conduct
product development to date under the discontinued program. Forgiveness of the
loan and accrued interest resulted in an extraordinary gain during the first
quarter of 2001 of approximately $6.7 million. We will be required to reimburse
Genentech $773,000 for unspent project prepayments.



                                       7
<PAGE>   10

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2001 AND 2000

        Contract Revenues: Contract revenues for the three months ended June 30,
2001 increased to $8.5 million from $4.8 million for the same period in 2000.
The revenue increase results primarily from an increase in partner-funded
project development revenue from Novo Nordisk. 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, 2001 increased to $15.3 million from $11.5
million for the same period in 2000. The increase resulted primarily from the
hiring of additional scientific personnel and the expansion of research and
development efforts to support the ongoing program with Novo Nordisk.

        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 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, 2001 decreased to $2.3 million from $2.5
million for the same period in 2000. The decrease resulted primarily from lower
business development expenses.

        Interest Income: Interest income for the three months ended June 30,
2001 decreased to $299,000 from $969,000 for the same period in 2000. The
decrease is due to income being earned on lower cash and investment balances.

        Interest Expense and Other: Interest expense for the three months ended
June 30, 2001 decreased to $364,000 from $367,000 for the same period in 2000.

SIX MONTHS ENDED JUNE 30, 2001 AND 2000

        Contract Revenues: Contract revenues for the six months ended June 30,
2001 increased to $15.2 million from $10.5 million for the same period in 2000.
The revenue increase results primarily from an increase in partner-funded
project development revenue from Novo Nordisk offset by the reduction in
partner-funded project development revenue from GlaxoSmithKline. Costs
associated with contract revenues are included in research and development
expenses.

        Research and Development Expenses: Research and development expenses for
the six months ended June 30, 2001 increased to $29.5 million from $22.4 million
for the same period in 2000. The increase resulted primarily from the hiring of
additional scientific personnel and the expansion of research and development
efforts to support the ongoing program with Novo Nordisk.

        General and Administrative Expenses: General and administrative expenses
for the six months ended June 30, 2001 increased to $4.7 million from $4.5
million for the same period in 2000. The increase resulted primarily from the
hiring of additional personnel and leased facilities to support our expansion of
research, development and manufacturing.

        Interest Income: Interest income for the six months ended June 30, 2001
decreased to $967,000 from $1.4 million for the same period in 2000. The
decrease is due to interest income being earned on lower cash and investment
balances.

        Interest Expense and Other: Interest expense for the six months ended
June 30, 2001 decreased to $626,000 from $688,000 for the same period in 2000.

        Extraordinary Gain: For the six months ended June 30, 2001, we reported
an extraordinary gain of approximately $6.7 million. The extraordinary gain
results from the cancellation of outstanding loans and accrued interest required
to conduct development for the Pulmozyme program that had been funded by
Genentech.



                                       8
<PAGE>   11

LIQUIDITY AND CAPITAL RESOURCES

        The Company 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, 2001, we have received approximately $164.5 million in net
proceeds from sales of capital stock. As of June 30, 2001, we had cash, cash
equivalents and short-term investments of approximately $20.8 million.

        In January 2001, we raised $5 million through the sale of 339,961 common
shares at an average price of $14.71 per share to GlaxoSmithKline. The sale was
made pursuant to the exercise of a put option by us under the terms of the
collaboration agreement with GlaxoSmithKline.

        In February 2001, we sold common stock to Acqua Wellington North
American Equities Fund under the terms of the equity sales agreement signed with
them in November, 2000. We raised $5 million through the sale of 436,110 common
shares at an average price of $11.46 per share.

        In June 2001, we raised $5 million through the sale of 708,216 common
shares at an average price of $7.06 per share to Novo Nordisk. The sale was made
pursuant to the exercise of a put option by us under the terms of the
collaboration agreement with Novo Nordisk.

        Net cash used in operating activities for the six months ended June 30,
2001 increased to $13.3 million from $12.5 million for the same period in 2000.
The increase in net cash used resulted primarily from a decrease in accounts
payable combined with increases in receivables, prepaid expenses and other
current assets and net loss before extraordinary gain partially offset by
increases in deferred revenue and accrued compensation. The decrease in the net
loss was primarily due to the forgiveness of outstanding notes payable under the
cancellation of the development agreement with Genentech.

        Net cash used by investing activities for the six months ended June 30,
2001 was $9.3 million compared to cash provided by investing activities of $12.9
million for the same period in 2000. The change results primarily from increased
capital expenditures relating to construction of the large-scale commercial
manufacturing facility.

        Net cash provided by financing activities for the six months ended June
30, 2001 decreased to $14.5 million from $47.7 million for the same period in
2000. The second quarter of 2000 included the 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.

        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 continue to review our planned operations through the end of 2001,
and beyond, focusing particularly on capital spending requirements to ensure
that capital outlays are not expended sooner than is necessary. We now expect
our total capital outlays for 2001 will be in the range of $35 to $37 million.
We believe that our existing cash balances, together with proceeds from the
equity line and other equipment lease financing agreements, should be sufficient
to meet our needs through the end of the year.

        If we continue to make good progress in our development programs, we
would expect our cash requirements for capital spending and operations to
increase in future periods. We will need to raise additional capital to fund our
capital spending and operations before we become profitable. We may seek
additional funding through collaborations, borrowing arrangements or through
public or private equity financings. There can be no assurance that additional
financing can be obtained on acceptable terms, or at all. Dilution to
shareholders may result if funds are raised by issuing additional equity
securities. If adequate funds are not available, we may be required to delay, to
reduce the scope of, or to eliminate one or more of our research and development
programs, or to obtain funds through arrangements with collaborative partners or
other sources that may require us to relinquish rights to certain of our
technologies or products that we would not otherwise relinquish.



                                       9
<PAGE>   12

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, 2001, we had cash and cash equivalents and short-term
investments of $20.8 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

        Pursuant to a Stock Purchase Agreement between the Company and Novo
Nordisk, dated June 2, 1998, the Company issued 708,216 shares of common stock
of the Company to Novo Nordisk in exchange for an aggregate purchase price of $5
million. The shares were issued in reliance on Rule 506 of Regulation D of the
Securities Act of 1933, as amended.


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

(a)     The Annual Meeting of Shareholders of Aradigm Corporation was held on
        May 18, 2001.

(b)     Frank H. Barker, Wayne I. Roe, Richard P. Thompson, Virgil D. Thompson,
        Igor Gonda, and Stan Benson 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 respect 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:          14,796,594            Against:             594,546

        (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:          14,797,194            Against:             593,946

        (3)     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:          12,792,792            Against:           2,598,348

        (4)     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:          14,796,513            Against:             594,627

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

                For:          12,793,942            Against:           2,597,198

        (6)     The election of Stan Benson as Director to hold office until the
                next Annual Meeting of Shareholders and until his successor is
                elected and qualified:

                For:          14,797,394            Against:             593,746

        (7)     Approval of an amendment to the Employee Stock Purchase Plan
                increasing the total number of shares of common stock authorized
                for issuance by 250,000 shares:

                For:            9,728,558           Against:             555,192
                Abstained:         47,977
                No Vote:        5,059,413



                                       11
<PAGE>   14

        (8)     Approval of an amendment to the 1996 Equity Incentive Plan to
                include evergreen provisions which will automatically increase
                the number of shares reserved under the plan by 6% of the issued
                and outstanding common stock of the Company:

                For:            6,940,510           Against:           3,339,194
                Abstained:         51,082
                No Vote:        5,060,354

        (9)     Ratification of the selection of Ernst & Young LLP as
                independent auditors of the company for its fiscal year ended
                December 31, 2001:

                For:          15,287,230            Against:              65,358
                Abstained:        10,311


ITEM 6. EXHIBITS

        (a)     Exhibits

        10.1*   Employee Stock Purchase Plan, as amended.

        10.2*   Equity Incentive Plan, as amended.

        10.26a  Amendment No. 1 to Standard Office/Warehouse Lease, dated March
                1, 2001, by and between the Company and Winton Industrial
                Center, Inc.

----------

        *      Filed as an exhibit to the Company's Proxy Statement filed April
               11, 2001 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, 2001.



                                       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 13, 2001

                                           ARADIGM CORPORATION
                                           (Registrant)


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

                                           /s/        MICHAEL MOLKENTIN
                                           ------------------------------------
                                           Michael Molkentin
                                           Acting Chief Financial Officer





                                       13
<PAGE>   16

                                INDEX TO EXHIBITS

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

  10.2*             Equity Incentive Plan, as amended.

  10.26a            Amendment No. 1 to Standard Office/Warehouse Lease, dated
                    March 1, 2001, by and between the Company and Winton
                    Industrial Center, Inc.
</TABLE>


*       Filed as an exhibit to the Company's Proxy Statement filed April 11,
        2001 and incorporated herein by reference.



                                       14