<PAGE>

                         SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 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, 1998.


[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
                                          
                          Commission File number 000-19809
                                          
                             DURA PHARMACEUTICALS, INC.
               (Exact name of registrant as specified in its charter)
                                          
             DELAWARE                                     95-3645543
(State or other jurisdiction of                     (I.R.S. Employer 
incorporation or organization)                    Identification Number)

7475 LUSK BLVD., SAN DIEGO, CALIFORNIA                         92121
(Address of principal executive offices)                    (Zip Code)

        REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE IS (619) 457-2553

     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.         [ X ] Yes   [   ]  No

The number of shares of the Registrant's Common Stock outstanding as of July 
31, 1998 was 46,366,092.


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

<PAGE>

PART I - FINANCIAL INFORMATION

Item 1.         Financial Statements
                             DURA PHARMACEUTICALS, INC.
                            CONSOLIDATED BALANCE SHEETS
                         IN THOUSANDS, EXCEPT SHARE AMOUNTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                           DECEMBER 31,    JUNE 30,
ASSETS                                                                         1997          1998
                                                                           ------------   -----------
                                                                                          (unaudited)
<S>                                                                      <C>            <C>
CURRENT ASSETS:
  Cash and cash equivalents                                                 $  72,003     $  119,076
  Short-term investments                                                      313,218        291,286
  Accounts and other receivables                                               40,987         34,255
  Inventory                                                                    15,201         10,846
                                                                           ------------   -----------

     Total current assets                                                     441,409        455,463

License agreements and product rights                                         250,781        249,756
Property                                                                       48,525         64,826
Other assets                                                                   34,165         33,695
                                                                           ------------   -----------

TOTAL                                                                      $  774,880     $  803,740
                                                                           ------------   -----------
                                                                           ------------   -----------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable and accrued liabilities                                  $  45,741      $  53,920
  Current portion of long-term obligations                                      2,798          2,896
                                                                           ------------   -----------

     Total current liabilities                                                 48,539         56,816

Convertible subordinated notes                                                287,500        287,500
Other long-term obligations                                                     9,564          9,944
                                                                           ------------   -----------

     Total liabilities                                                        345,603        354,260

STOCKHOLDERS' EQUITY:
  Preferred stock, par value $.001; shares authorized - 5,000,000;
    no shares issued or outstanding
  Common stock, par value $.001; shares authorized - 200,000,000;
    issued and outstanding - 45,608,414 and 46,363,738, respectively               46             46
  Additional paid-in capital                                                  604,991        608,560
  Accumulated other comprehensive income                                          176             93
  Warrant subscriptions receivable                                            (12,252)       (10,876)
  Accumulated deficit                                                        (163,684)      (148,343)
                                                                           ------------   -----------

     Total stockholders' equity                                               429,277        449,480
                                                                           ------------   -----------

TOTAL                                                                      $  774,880     $  803,740
                                                                           ------------   -----------
                                                                           ------------   -----------
</TABLE>

See accompanying notes to consolidated financial statements.


                                      2
<PAGE>

                             DURA PHARMACEUTICALS, INC.
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                       IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
                                    (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                 THREE MONTHS ENDED            SIX MONTHS ENDED
                                                      JUNE 30,                     JUNE 30,
                                              ------------------------      ----------------------
                                                1997            1998          1997          1998
                                              ------------------------      ----------------------
<S>                                         <C>            <C>            <C>          <C>
REVENUES:
  Sales                                       $  35,404      $  34,912      $  69,339    $  70,798  
  Contract                                        8,227         17,026         15,184       29,906  
                                              ---------      ---------      ---------    ---------

       Total revenues                            43,631         51,938         84,523      100,704
                                              ---------      ---------      ---------    ---------  

OPERATING COSTS AND EXPENSES:
  Cost of sales                                   7,976          7,457         15,946       15,550  
  Clinical, development and regulatory            6,593         11,488         12,353       21,077  
  Selling, general and administrative            16,760         22,946         32,752       45,461
                                              ---------      ---------      ---------    ---------  

       Total operating costs and expenses        31,329         41,891         61,051       82,088
                                              ---------      ---------      ---------    ---------  

OPERATING INCOME                                 12,302         10,047         23,472       18,616
                                              ---------      ---------      ---------    ---------  

OTHER:
  Interest income                                 2,992          5,937          6,379       11,354  
  Interest expense                                 (116)        (3,069)          (289)      (6,210) 
  Other - net                                        (9)          (519)            11         (506) 
                                              ---------      ---------      ---------    ---------

       Total other                                2,867          2,349          6,101        4,638
                                              ---------      ---------      ---------    ---------

INCOME BEFORE INCOME TAXES                       15,169         12,396         29,573       23,254  
PROVISION FOR INCOME TAXES                        5,887          4,219         11,504        7,913  
                                              ---------      ---------      ---------    ---------

NET INCOME                                     $  9,282       $  8,177      $  18,069    $  15,341  
                                              ---------      ---------      ---------    ---------
                                              ---------      ---------      ---------    ---------

NET INCOME PER SHARE:
  Basic                                        $   0.21       $   0.18      $    0.42    $    0.33  
                                              ---------      ---------      ---------    ---------
                                              ---------      ---------      ---------    ---------
  Diluted                                      $   0.20       $   0.17      $    0.38    $    0.32  
                                              ---------      ---------      ---------    ---------
                                              ---------      ---------      ---------    ---------

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
  Basic                                          43,672         46,302         43,511       46,139  
                                              ---------      ---------      ---------    ---------
                                              ---------      ---------      ---------    ---------
  Diluted                                        47,326         48,073         47,285       48,321  
                                              ---------      ---------      ---------    ---------
                                              ---------      ---------      ---------    ---------

</TABLE>

See accompanying notes to consolidated financial statements.

                                      3
<PAGE>

                             DURA PHARMACEUTICALS, INC.
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    IN THOUSANDS
                                    (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                            SIX MONTHS ENDED
                                                                 JUNE 30,
                                                        ------------------------
                                                           1997           1998
                                                        ------------------------
<S>                                                  <C>             <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES               $  30,241      $  43,633
                                                        ---------      ---------

INVESTING ACTIVITIES:
  Purchases of short-term investments                    (141,604)      (179,606)
  Sales and maturities of short-term investments          105,776        201,454
  Product acquisitions                                    (69,731)        (5,000)
  Capital expenditures                                    (13,735)       (18,582)
  Other                                                    (1,155)          (363)
                                                        ---------      ---------

       Net cash used for investing activities            (120,449)        (2,097)
                                                        ---------      ---------

FINANCING ACTIVITIES:
  Issuance of common stock and warrants - net               3,615          5,537
  Principal payments on long-term obligations              (3,500)             -
                                                        ---------      ---------

       Net cash provided by financing activities              115          5,537
                                                        ---------      ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS      (90,093)        47,073
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD          131,101         72,003
                                                        ---------      ---------

CASH AND CASH EQUIVALENTS AT END OF PERIOD              $  41,008      $ 119,076
                                                        ---------      ---------
                                                        ---------      ---------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the period for:
  Interest (net of amounts capitalized)                 $       0      $   5,832
  Income taxes                                          $   4,438      $   3,479

See accompanying notes to consolidated financial statements.

</TABLE>

                                      4
<PAGE>

                             DURA PHARMACEUTICALS, INC.
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                    (UNAUDITED)

1.   BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been 
prepared by Dura Pharmaceuticals, Inc. ("Dura" or the "Company") in 
accordance with the instructions to Form  10-Q.  The consolidated financial 
statements reflect all adjustments, consisting of only normal recurring 
accruals, which are, in the opinion of management, necessary for a fair 
statement of the results of the interim periods presented.  These 
consolidated financial statements and notes thereto should be read in 
conjunction with the audited financial statements and notes thereto included 
in the Company's 1997 Annual Report to Stockholders, which statements and 
notes are incorporated by reference in the Company's Annual Report on Form 
10-K for the year ended December 31, 1997.  The results of operations for the 
interim periods are not necessarily indicative of results to be expected for 
any other interim period or for the year as a whole.

The consolidated financial statements include the accounts of Dura and its 
wholly-owned subsidiaries.  All intercompany transactions and balances are 
eliminated in consolidation.

The preparation of financial statements in conformity with generally accepted 
accounting principles requires management to make estimates and assumptions 
that affect amounts reported in the consolidated financial statements and 
related notes.  Changes in those estimates may affect amounts reported in 
future periods.

2.   NEW ACCOUNTING STANDARD

Effective January 1, 1998, the Company adopted Statement of Financial 
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").  
SFAS 130 requires reporting and displaying comprehensive income and its 
components which, for Dura, includes net income and unrealized gains and 
losses on investments. In accordance with SFAS 130, the accumulated balance 
of other comprehensive income is disclosed as a separate component of 
stockholders' equity.  Prior year financial statements have been reclassified 
to conform to the requirements of SFAS 130.

                                      5
<PAGE>

For the three months and six months ended June 30, 1997 and 1998, comprehensive
income consisted of (in thousands):

<TABLE>
<CAPTION>


                                         Three Months Ended  Six Months Ended
                                               June 30,          June 30,
                                            1997     1998     1997     1998
                                          -------   ------   -------  -------
   <S>                                  <C>      <C>      <C>       <C>
     Net income                           $ 9,282   $8,177   $18,069  $15,341
     Other comprehensive income (loss):
          Unrealized gain(loss) on
             investments                      579     (167)      114      (83)
                                          -------   ------   -------  -------
     Comprehensive income                 $ 9,861   $8,010   $18,183  $15,258
                                          -------   ------   -------  -------
                                          -------   ------   -------  -------

</TABLE>

3.   CAPITAL STOCK

COMMON STOCK. On May 21, 1998, the Company's stockholders approved an 
amendment to the Company's Certificate of Incorporation increasing the number 
of authorized shares of Common Stock from 100 million to 200 million.

SHAREHOLDER RIGHTS PLAN. In May 1998, the Company adopted a Shareholder 
Rights Plan in which Preferred Stock purchase rights ("Rights") were 
distributed as a dividend at the rate of one Right for each share of Common 
Stock held as of the close of business on June 5, 1998.  Each Right entitles 
stockholders to buy, upon certain events, one one-thousandth of a share of a 
new series of junior participating Preferred Stock of the Company at an 
exercise price of $175.00. The Rights are designed to guard against partial 
tender offers and other abusive tactics that might be used in an attempt to 
gain control of the Company or to deprive stockholders of their interest in 
the long-term value of the Company. The Rights are exercisable only if a 
person or group acquires 15% or more of the Company's Common Stock or 
announces a tender offer of which the consummation would result in ownership 
by a person or group of 15% or more of the Company's Common Stock.  The 
Rights are redeemable for one cent per Right at the option of the Board of 
Directors prior to this event occurring.  The Rights expire on June 5, 2008.

4.   COMMITMENTS AND CONTINGENCIES

TERMINATION OF MERGER AGREEMENT WITH SCANDIPHARM, INC. On December 1, 1997, 
the Company terminated a merger agreement with Scandipharm, Inc. 
("Scandipharm") entered into on October 20, 1997. On January 16, 1998, 
Scandipharm filed suit against the Company for breach of contract. On January 
19, 1998, the Company filed suit against Scandipharm seeking a declaratory 
judgment that Dura's termination of the merger did not breach the merger 
agreement and for damages against Scandipharm. The Company believes that it 
had the right to terminate the merger agreement, and that Scandipharm's 
claims for specific performance under the agreement or for unspecified 
damages are without merit, and that outcome of this matter will not have a 
material adverse effect on the Company's financial position or results of 
operations.  

ACQUISITION OF SPIROS DEVELOPMENT CORPORATION.  On December 19, 1997, the 
Company acquired all of the outstanding callable common stock of Spiros 
Development Corporation.  The Company 


                                      6
<PAGE>

is in the process of determining the appropriate values to be assigned to the 
assets and liabilities assumed in the acquisition.  The Company's estimate of 
these values is subject to revision upon completion of its evaluation which 
may result in an adjustment to the amount recorded in 1997 for the 
acquisition of in-process technology.

5.   SUBSEQUENT EVENTS

On July 28, 1998, the Company entered into a series of agreements with a 
newly-formed, privately held company, DJ Pharma, Inc. ("DJ"), for the 
co-promotion of the Company's Rondec, Keftab, and certain cough, cold and 
allergy product lines. As consideration for the co-promotion of these 
products, the Company will pay DJ fifty percent of the net sales of such 
products in excess of established amounts.  DJ also received an option to 
acquire these products from the Company at predetermined prices which include 
the delivery of a secured promissory note and the right to a percentage of 
the net sales of such products over a four year period following the exercise 
of its option.  The co-promotion and option agreement expires June 30, 1999.

The Company also provided $5 million of financing to DJ in the form of a 
convertible secured promissory note, some or all of which will convert to 
equity upon the closing of a private offering of equity securities currently 
being contemplated by DJ ("DJ Offering").  In addition, the Company has 
committed to providing an additional loan of $5 million to DJ in the form of 
a non-convertible secured promissory note to be funded upon the closing of a 
DJ Offering of at least $15 million.

ACQUISITION OF MYAMBUTOL-Registered Trademark- PRODUCT RIGHTS. On August 3, 
1998, the Company acquired from an affiliate of American Home Products 
("AHP") exclusive U.S. marketing rights to the single-source tuberculosis 
drug Myambutol. The purchase price consisted of a $33.5 million cash 
payment made at closing, plus additional payments over the next four years 
based upon net sales of Myambutol during that period. Based on historical 
sales data for Myambutol provided by AHP, the Company estimates that such 
future payments could approximate $50 million.

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

This information should be read in conjunction with the consolidated 
financial statements and the notes thereto included in Item 1 of this 
Quarterly Report and the audited financial statements and notes thereto and 
Management's Discussion and Analysis of Financial Condition and Results of 
Operations for the year ended December 31, 1997 contained in the Company's 
1997 Annual Report to Stockholders, which is incorporated by reference in the 
Company's Annual Report on Form 10-K for the year ended December 31, 1997.  
See "Risks and Uncertainties" for a discussion of factors known to the 
Company that could cause reported financial information not to be necessarily 
indicative of future results, including discussion of the effects of 
seasonality on 
                                      7
<PAGE>

the Company.  The Company undertakes no obligation to release publicly any 
revisions to these forward-looking statements to reflect events and 
circumstances arising after the date hereof.

RECENT DEVELOPMENTS

On August 3, 1998, the Company acquired from an affiliate of AHP exclusive 
U.S. marketing rights to the single-source tuberculosis drug Myambutol. The 
purchase price consisted of a $33.5 million cash payment made at closing, 
plus additional payments over the next four years based upon net sales of 
Myambutol during that period. Based on historical sales data for Myambutol 
provided by AHP, the Company estimates that such future payments could 
approximate $50 million.

On July 28, 1998, the Company entered into a series of agreements with a 
newly-formed, privately held company, DJ Pharma, Inc. ("DJ"), for the 
co-promotion of the Company's Rondec, Keftab, and certain cough, cold and 
allergy product lines. As consideration for the co-promotion of these 
products, the Company will pay DJ fifty percent of the net sales of such 
products in excess of established amounts.  DJ also received an option to 
acquire these products from the Company at predetermined prices which include 
the delivery of a secured promissory note and the right to a percentage of 
the net sales of such products over a four year period following the exercise 
of its option.  The co-promotion and option agreement expires June 30, 1999.

The Company also provided $5 million of financing to DJ in the form of a 
convertible secured promissory note, some or all of which will convert to 
equity upon the closing of a private offering of equity securities currently 
being contemplated by DJ ("DJ Offering").  In addition, the Company has 
committed to providing an additional loan of $5 million to DJ in the form of 
a non-convertible secured promissory note to be funded upon the closing of a 
DJ Offering of at least $15 million.

On May 21, 1998, the Company's stockholders approved an amendment to the 
Company's Certificate of Incorporation increasing the number of authorized 
shares of Common Stock from 100 million to 200 million.

On February 22, 1998, the Company announced that it planned to begin 
expanding its field sales force immediately from approximately 270 
representatives to approximately 450 representatives by the end of 1998 to 
increase the promotional activity of its current products and to prepare for 
the launch, subject to receiving regulatory approval, of Albuterol 
Spiros-TM-.  The Company expects that the rapid expansion of its sales force 
will result in an increase in fiscal 1998 in its selling, general and 
administrative expenses, both in total and as a percentage of revenues, as 
compared to fiscal 1997.

                                      8
<PAGE>

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1997 AND 1998

Total revenues for the three months ended June 30, 1998 were $51.9 million, 
an increase of $8.3 million, or 19%, over the same period in 1997.  Net 
income for the three months ended June 30, 1998 was $8.2 million, or $0.17 
per diluted share, a decrease of $1.1 million from the same period in 1997.  
The principal factors causing these changes are discussed below.

Pharmaceutical sales for the three months ended June 30, 1998 were $34.9 
million, a decrease of  $500,000, or 1%, over the same period in 1997.  This 
decrease is due primarily to a decrease in sales of certain of the Company's 
older cough, cold and allergy products, partially offset by an increase in 
sales of Nasarel-Registered Trademark- and Nasalide-Registered Trademark-, 
acquired in May 1997.

Gross profit (pharmaceutical sales less cost of sales) for the three months 
ended June 30, 1998 was $27.5 million compared to $27.4 million for the same 
period in 1997.  Gross profit as a percentage of sales was 79% for the three 
months ended June 30, 1998 compared to 77% for the same period in 1997.

Contract revenue relates primarily to amounts received by the Company for the 
development of Spiros-Registered Trademark-, the Company's proprietary dry 
powder pulmonary drug delivery system.  Pursuant to agreements with several 
companies, the Company conducts feasibility testing and development work on 
various compounds for use with Spiros. Contract revenues include payment for 
feasibility and development work performed by the Company as well as 
milestone and technology access payments.  Contract revenue for the three 
months ended June 30, 1998 was $17 million, an increase of $8.8 million, or 
107%, over the same period in 1997.  This increase is due to increased 
development activity conducted on behalf of Spiros Development Corporation, 
Inc. II ("Spiros Corp. II") and other pharmaceutical company partners.  
Contract revenues from Spiros-related development and feasibility agreements 
totaled $16.9 million for the three months ended June 30, 1998 as compared to 
$7.8 million for the same period in 1997, including $12.6 million from Spiros 
Corp. II as compared to $6.8 million from Spiros Development Corporation for 
the same period in 1997.

Clinical, development and regulatory expenses for the three months ended June 
30, 1998 were $11.5 million, an increase of $4.9 million, or 74%, over the 
same period in 1997. The increase reflects additional expenses incurred by 
the Company under feasibility and development agreements covering the use of 
various compounds with Spiros as discussed above.

Selling, general and administrative expenses for the three months ended June 
30, 1998 were $22.9 million, an increase of $6.2 million, or 37%, over the 
same period in 1997, and increased as a percentage of total revenues to 44% 
for the three months ended June 30, 1998 as compared to 38% for the second 
quarter of 1997.  The dollar and percentage increases are primarily due to 
increased costs associated with expanding the Company's sales force (increase 
of $6.4 million). On February 22, 1998, the Company announced that it planned 
to begin expanding its field sales force immediately from approximately 270 
representatives to approximately 450 representatives by the 


                                      9
<PAGE>

end of 1998 to increase the promotional activity of its current products and 
to prepare for the launch, subject to receiving regulatory approval, of 
Albuterol Spiros.  The Company expects that the rapid expansion of its sales 
force will result in an increase in fiscal 1998 in its selling, general and 
administrative expenses, both in total and as a percentage of revenues, as 
compared to fiscal 1997.

Interest income for the three months ended June 30, 1998 was $5.9 million, an 
increase of $2.9 million, or 98%, as compared to the same period in 1997.  
The increase is due to higher balances of cash and short-term investments 
resulting primarily from the 3 1/2% Convertible Subordinated Notes issued in 
the third quarter of 1997 (see "Liquidity and Capital Resources" below), as 
well as cash generated from operations.

Interest expense for the three months ended June 30, 1998 was $3.1 million as 
compared to $116,000 for the same period in 1997.  The increase is primarily 
due to interest expense on the 3 1/2% Convertible Subordinated Notes (see 
"Liquidity and Capital Resources" below).

The Company records interim provisions for income taxes based on the 
estimated effective combined tax rate to be applicable for the fiscal year.  
This estimate is reevaluated by management each quarter based on forecasts of 
income before income taxes for the year as well as anticipated adjustments 
from statutory federal and state tax rates. The Company's effective tax rate 
for the three months ended June 30, 1998 was 34%, compared to 39% for the 
same period in 1997. This reduction is due primarily to an increase in 1998 
in income earned at foreign subsidiaries which is taxed at lower rates.

SIX MONTHS ENDED JUNE 30, 1997 AND 1998

Total revenues for the six months ended June 30, 1998 were $100.7 million, an 
increase of $16.2 million, or 19%, over the same period in 1997.  Net income 
for the six months ended June 30, 1998 was $15.3 million, or $0.32 per 
diluted share, a decrease of $2.7 million from the same period in 1997.  The 
principal factors causing these changes are discussed below.

Pharmaceutical sales for the six months ended June 30, 1998 were $70.8 
million, an increase of  $1.5 million, or 2%, over the same period in 1997.  
This increase is due primarily to sales of Nasarel and Nasalide, acquired in 
May 1997, offset by a decrease in sales of certain of the Company's older 
cough, cold and allergy products.

Gross profit (pharmaceutical sales less cost of sales) for the six months 
ended June 30, 1998 was $55.2 million, an increase of $1.9 million, or 3%, as 
compared to the same period in 1997.  This increase is due to the increase in 
pharmaceutical sales discussed above.  Gross profit as a percentage of sales 
was 78% for the six months ended June 30, 1998 compared to 77% for the same 
period in 1997.

Contract revenue relates primarily to amounts received by the Company for the 
development of Spiros, the Company's proprietary dry powder pulmonary drug 
delivery system.  Pursuant to agreements with several companies, the Company 
conducts feasibility testing and development 


                                      10
<PAGE>

work on various compounds for use with Spiros. Contract revenues include 
payment for feasibility and development work performed by the Company as well 
as milestone and technology access payments.  Contract revenue for the six 
months ended June 30, 1998 was $29.9 million, an increase of $14.7 million, 
or 97%, over the same period in 1997. This increase is due to increased 
development activity conducted on behalf of Spiros Corp. II and other 
pharmaceutical company partners. Contract revenue from Spiros-related 
development and feasibility agreements for the six months ended June 30, 1998 
totaled $29.4 million as compared to $14.6 million for the same period in 
1997, including $23 million from Spiros Corp. II as compared to $12.2 million 
from Spiros Development Corporation for the same period in 1997.

Clinical, development and regulatory expenses for the six months ended June 
30, 1998 were $21 million, an increase of $8.7 million, or 71%, over the same 
period in 1997. The increase reflects additional expenses incurred by the 
Company under feasibility and development agreements covering the use of 
various compounds with Spiros as discussed above.

Selling, general and administrative expenses for the six months ended June 
30, 1998 were $45.5 million, an increase of $12.7 million, or 39%, over the 
same period in 1997, and increased as a percentage of total revenues to 45% 
for the six months ended June 30, 1998 as compared to 39% for the six months 
ended June 30, 1997.  The dollar and percentage increases are primarily due 
to increased costs incurred to support the Company's sales and contract 
revenue growth, including costs associated with expanding the Company's sales 
force (increase of $11.3 million) and increased operating costs related to 
general corporate activities (increase of $1.4 million).  On February 22, 
1998, the Company announced that it planned to begin expanding its field sales 
force immediately from approximately 270 representatives to approximately 450 
representatives by the end of 1998 to increase the promotional activity of 
its current products and to prepare for the launch, subject to receiving 
regulatory approval, of Albuterol Spiros.  The Company expects that the rapid 
expansion of its sales force will result in an increase in fiscal 1998 in its 
selling, general and administrative expenses, both in total and as a 
percentage of revenues, as compared to fiscal 1997.

Interest income for the six months ended June 30, 1998 was $11.4 million, an 
increase of $5 million, or 78%, as compared to the same period in 1997.  The 
increase is due to higher balances of cash and short-term investments 
resulting primarily from the 3 1/2% Convertible Subordinated Notes issued in 
the third quarter of 1997 (see "Liquidity and Capital Resources" below), as 
well as cash generated from operations.

Interest expense for the six months ended June 30, 1998 was $6.2 million 
compared to $289,000 for the same period in 1997.  The increase is primarily 
due to interest expense on the 3 1/2% Convertible Subordinated Notes (see 
"Liquidity and Capital Resources" below).

The Company records interim provisions for income taxes based on the 
estimated effective combined tax rate to be applicable for the fiscal year.  
This estimate is reevaluated by management each quarter based on forecasts of 
income before income taxes for the year as well as anticipated adjustments 
from statutory federal and state tax rates. The Company's effective tax rate 
for the six months ended June 30, 1998 was 34%, compared to 39% for the same 
period in 
                                      11
<PAGE>

1997.  This reduction is due primarily to an increase in 1998 in income 
earned at foreign subsidiaries which is taxed at lower rates.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and short-term investments increased by $25.2 million 
to $410.4 million at June 30, 1998 from $385.2 million at December 31, 1997. 
The increase is due primarily to cash generated from operations, partially 
offset by capital expenditures. Working capital increased by $5.7 million to 
$398.6 million at June 30, 1998 from $392.9 million at December 31, 1997.  As 
discussed in Note 5 to the consolidated financial statements, on August 3, 
1998 the Company acquired from an affiliate of American Home Products 
Corporation exclusive U.S. marketing rights to the single-source tuberculosis 
drug Myambutol for $33.5 million, which was paid at closing, plus additional 
payments over the next four years based upon future net sales.

In the third quarter of 1997, the Company issued $287.5 million principal 
amount of 3 1/2% Convertible Subordinated Notes ("Notes") due July 15, 2002 
with interest payable semiannually.  Proceeds from the offering of the Notes 
are expected to be used for general corporate purposes, including (i) to 
acquire, in-license, co-promote, develop and commercialize pharmaceuticals 
targeted at the Company's physician base or in areas related or otherwise 
complementary to its existing business; (ii) to fund Spiros development 
programs; and (iii) for working capital and facilities expansion.  The Notes 
are convertible, at the option of the holder, into shares of Dura's Common 
Stock at any time prior to maturity or redemption at a conversion price of 
$50.635 per share.  At June 30, 1998, in addition to the Notes, the Company 
had outstanding an aggregate of $12.8 million in current and other long-term 
obligations, of which $2.8 million is to be paid during the next 12 months.  
Also as of June 30, 1998, additional future contingent obligations totaling 
$87.5 million relating to product acquisitions are due through 2004, 
including $5 million due in 1998.  Dura is also required to make additional 
payments related to the August 1998 Myambutol acquisition over the next four 
years based upon future net sales of Myambutol.

The Company has entered into a loan agreement which provides for the 
borrowing of up to $50 million, subject to maintaining certain financial 
ratios, on an unsecured basis through May 1, 1999.  As of June 30, 1998, no 
borrowings were outstanding under this agreement.

The Company anticipates that its existing capital resources, together with 
cash expected to be generated from operations and available bank borrowings, 
will be sufficient to finance its operations and working capital through at 
least the next 12 months.  Significant additional resources, however, may be 
required in connection with product or company acquisitions or in-licensing 
opportunities. There can be no assurance that such additional resources will 
be available to the Company when needed or on terms acceptable to the 
Company.  At present, the Company is actively pursuing the acquisition of 
rights to products and/or companies which may require the use of substantial 
capital resources; however there are no present agreements or commitments 
with respect to such acquisitions.  

The Company recognizes the need to ensure its operations will not be 
adversely impacted by the inability of the Company's systems to process data 
having dates on or after January 1, 2000 


                                      12
<PAGE>

("Year 2000").  Processing errors due to software failure arising from 
calculations using the Year 2000 date are a recognized risk.  The Company is 
currently addressing the risk, with respect to the availability and integrity 
of its financial systems and the reliability of its operating systems, and is 
in the process of communicating with suppliers, customers, financial 
institutions and others with whom it conducts business to assess whether they 
are or will be Year 2000 compliant. While the Company believes its planning 
efforts are adequate to address the Year 2000 concerns, there can be no 
assurance that the systems of other companies on which the Company's systems 
and operations rely will be converted on a timely basis and will not have a 
material effect on the Company.  In addition, the potential impact of the 
Year 2000 on others with whom the Company does business and any resulting 
effects on the Company cannot be reasonably estimated at this time. The cost 
of the Company's Year 2000 is not expected to be material to the Company's 
results of operations or financial position.

RISKS AND UNCERTAINTIES

FORWARD-LOOKING STATEMENTS. The Company cautions readers that the statements 
in this Quarterly Report that are not descriptions of historical facts may be 
forward-looking statements that are subject to risks and uncertainties.  
Actual results could differ materially from those currently anticipated due 
to a number of factors, including those identified below.

REDUCTION IN GROSS MARGINS.  There is no proprietary protection for most of 
the products sold by Dura and substitutes for such products are sold by other 
pharmaceutical companies.  Dura expects average selling prices for many of 
its products to decline over time due to competitive and reimbursement 
pressures. While Dura will seek to mitigate the effect of this decline in 
average selling prices, there can be no assurance that Dura will be 
successful in these efforts.

THIRD-PARTY REIMBURSEMENT; PRICING PRESSURES.  The Company's commercial 
success will depend in part on the availability of adequate reimbursement 
from third-party healthcare payors, such as government and private health 
insurers and managed care organizations.  Third-party payors are increasingly 
challenging the pricing of medical products and services.  There can be no 
assurance that reimbursement will be available to enable the Company to 
achieve market acceptance of its products or to maintain price levels 
sufficient to realize an appropriate return on the Company's investment in 
product acquisition, in-licensing and development.  The market for the 
Company's products may be limited by actions of third-party payors.  For 
example, many managed healthcare organizations are now controlling the 
pharmaceuticals that are on their formulary lists.  The resulting competition 
among pharmaceutical companies to place their products on these formulary 
lists has created a trend of downward pricing pressure in the industry.  In 
addition, many managed care organizations are pursuing various ways to reduce 
pharmaceutical costs and are considering formulary contracts primarily with 
those pharmaceutical companies that can offer a full line of products for a 
given therapy sector or disease state.  There can be no assurance that the 
Company's products will be included on the formulary lists of managed care 
organizations or that downward pricing pressure in the industry generally 
will not negatively impact the Company's operations. 

                                      13
<PAGE>

DEPENDENCE ON ACQUISITION OF RIGHTS TO PHARMACEUTICALS.  Dura's strategy for 
growth is dependent, in part, upon acquiring, in-licensing and co-promoting 
pharmaceuticals to targeted physicians.  Other companies, including those 
with substantially greater resources, are competing with Dura for the rights 
to such products.  There can be no assurance that Dura will be able to 
acquire, in-license or co-promote additional pharmaceuticals on acceptable 
terms, if at all. The failure to acquire, in-license, co-promote, develop or 
market commercially successful pharmaceuticals would have a material adverse 
effect on the Company's business, financial condition and results of 
operations.  Furthermore, there can be no assurance that Dura, once it has 
obtained rights to a pharmaceutical and committed to payment terms, will be 
able to generate sales sufficient to create a profit or otherwise avoid a 
loss on such product.

DEVELOPMENT RISKS ASSOCIATED WITH SPIROS.  Spiros will require significant 
additional development efforts.  There can be no assurance that development 
of Spiros will be completed successfully, that Spiros will not encounter 
problems in clinical trials that will cause the delay or suspension of such 
trials, that current or future testing will show any Spiros product to be 
safe or efficacious or that any Spiros product will receive regulatory 
approval in a timely manner, if at all.  In addition, regulatory approvals 
will have to be obtained for each drug to be delivered through the use of 
Spiros prior to commercialization. Moreover, even if Spiros does receive 
regulatory approval, there can be no assurance that Spiros will be 
commercially successful, have all of the patent and other protections 
necessary to prevent competitors from producing similar products and not 
infringe on patent or other proprietary rights of third parties.  The failure 
of any Spiros product to receive timely regulatory approval and achieve 
commercial success would have a material adverse effect on the Company's 
business, financial condition or results of operations.

CUSTOMER CONCENTRATION; CONSOLIDATION OF DISTRIBUTION NETWORK.  The 
distribution network for pharmaceutical products is largely controlled by a 
few large wholesale distributors, and, in recent years, the number of 
independent and small chain drug stores has decreased.  Further consolidation 
among, or any financial difficulties of, distributors or retailers could 
result in the combination or elimination of warehouses thereby stimulating 
product returns to Dura.  Further consolidation or financial difficulties 
could also cause customers to reduce their inventory levels or otherwise 
reduce purchases of Dura's products which could result in a material adverse 
effect on Dura's business, financial condition or results of operations. 

Dura's principal customers are wholesale drug distributors and major drug 
store chains.  For the six months ended June 30, 1998, one wholesale customer 
(McKesson Corporation) accounted for 13% of sales. For the same period in 
1997, four wholesale customers (Bergen Brunswig Corporation, Cardinal Health, 
Inc., McKesson Corporation, and AmeriSource Health Corporation) individually 
accounted for 18%, 17%, 15%, and 14% of sales, respectively.

SEASONALITY AND FLUCTUATING QUARTERLY RESULTS.  Historically, as a result of 
the winter cold and flu season, industry-wide demand for respiratory products 
has been stronger in the first and fourth quarters than in the second and 
third quarters of the year.  In addition, variations in the timing and 
severity of the winter cold and flu season have influenced Dura's results of 
operations in the past.  While the growth and productivity of Dura's sales 
force and the introduction by Dura of new products have historically 
mitigated the impact of seasonality on Dura's results of 


                                      14
<PAGE>

operations, recent product acquisitions by Dura, especially Keftab and 
Ceclor-Registered Trademark- CD, which are used to treat respiratory 
infections, increase the impact of seasonality on Dura's results of 
operations.  No assurances can be given that Dura's results of operations 
will not be materially adversely affected by the seasonality of product 
sales. 

COMPETITION.  Many companies, including large pharmaceutical firms with 
financial and marketing resources and development capabilities substantially 
greater than those of Dura, are engaged in developing, marketing and selling 
products that compete with those offered or planned to be offered by Dura.  
The selling prices of such products typically decline as competition 
increases. Further, other products now in use or under development by others 
may be more effective than Dura's current or future products.  The industry 
is characterized by rapid technological change, and competitors may develop 
their products more rapidly than Dura.  Competitors may also be able to 
complete the regulatory process sooner, and therefore, may begin to market 
their products in advance of Dura's products.  Dura believes that competition 
among both prescription pharmaceuticals and pulmonary drug delivery systems 
aimed at the respiratory infection, allergy, cough and cold, and asthma and 
chronic obstructive pulmonary disease markets will be based on, among other 
things, product efficacy, safety, reliability, availability and price. 

There are at least 25 other companies in the U.S. that are currently engaged 
in developing, marketing and selling respiratory pharmaceuticals.  
Additionally, there are at least 10 companies currently involved in the 
development, marketing or sales of dry powder pulmonary drug delivery 
systems.  There are two types of dry powder inhalers ("DPIs") currently in 
commercial use worldwide, individual dose and multiple dose.  Individual dose 
DPIs currently marketed in the U.S. include the Rotohaler-TM- (developed and 
marketed by Glaxo Wellcome ("Glaxo")) and the Spinhaler-Registered Trademark- 
(developed and marketed by Fisons Limited).  The Turbuhaler-Registered 
Trademark- (developed and marketed by Astra Pharmaceuticals, Inc. ("Astra")), 
a multiple dose DPI, is the leading DPI in worldwide sales.  In June 1997, 
the FDA approved the first Turbuhaler product, the Pulmicort Turbuhaler, for 
marketing in the U.S., which Astra launched in early 1998.  Recently the FDA 
also approved two multiple dose DPIs developed by Glaxo, the 
Flovent-Registered Trademark- Rotadisk-Registered Trademark- and the 
Serevent-Registered Trademark- Diskus-Registered Trademark-, both launched by 
Glaxo in early 1998.

DEPENDENCE ON THIRD PARTIES.  Dura's strategy for development and 
commercialization of certain of its products, including Spiros, is dependent 
upon entering into various arrangements with corporate partners, licensors 
and others and upon the subsequent success of these partners, licensors and 
others in performing their obligations.  There can be no assurance that Dura 
will be able to negotiate acceptable arrangements in the future or that such 
arrangements or its existing arrangements will be successful.  In addition, 
partners, licensors and others may pursue alternative technologies or develop 
alternative compounds or drug delivery systems either on their own or in 
collaboration with others, including Dura's competitors.  Dura has limited 
experience manufacturing products for commercial purposes and currently does 
not have the capability to manufacture its pharmaceutical products and 
therefore is dependent on contract manufacturers for the production of such 
products for development and commercial purposes.  The manufacture of Dura's 
products is subject to cGMP regulations prescribed by the FDA.  Dura relies 
on a single manufacturer for each of its products.  There can be no assurance 
that 
                                      15
<PAGE>

Dura will be able to continue to obtain adequate supplies of such products in 
a timely fashion at acceptable quality and prices. Also, there can be no 
assurance that Dura will be able to enter into agreements for the manufacture 
of future products, including Spiros products, with manufacturers whose 
facilities and procedures comply with cGMP and other regulatory requirements. 
In the event that Dura is unable to obtain or retain third-party 
manufacturing, it may not be able to commercialize its products as planned.  
Dura's current dependence upon others for the manufacture of its products may 
adversely affect future profit margins on the sale of those products and 
Dura's ability to develop and deliver products on a timely and competitive 
basis. 

LIMITED MANUFACTURING EXPERIENCE.  Dura's principal manufacturing facility is 
intended to be used to formulate, mill, blend and manufacture drugs to be 
used with Spiros, pending regulatory approval. Equipment purchases and 
validation are currently scheduled through 1998.  Dura's manufacturing 
facility must be registered with and licensed by various regulatory 
authorities and must comply with current cGMP requirements prescribed by the 
FDA and the State of California.  Dura will need to significantly scale up 
its current manufacturing operations and comply with cGMPs and other 
regulations prescribed by various regulatory agencies in the U.S. and other 
countries to achieve the prescribed quality and required levels of production 
of such products to obtain marketing approval.  Any failure or significant 
delay in the validation of or obtaining a satisfactory regulatory inspection 
of the new facility, failure to successfully scale up or failure to maintain 
necessary regulatory approvals for such facilities could have a material 
adverse effect on the ability of Dura to manufacture products in connection 
with Spiros.  Dura intends to utilize third parties to produce components of 
and assemble the Spiros aerosol generator. Such third parties have only 
produced limited quantities of components and assembled limited numbers of 
generators and will be required to significantly scale up their activities 
and to produce components on a timely and consistent basis and which meet 
applicable specifications.  There can be no assurance that such third parties 
will be successful in attaining acceptable service levels or meeting cGMP 
requirements.  Any failure or delay in the scale up or supply associated with 
aerosol generator manufacturing would have a material adverse effect on the 
ability of Dura to commercialize Spiros products. 

MANAGING GROWTH OF BUSINESS.  Dura has experienced significant growth as 
total revenues increased 102% in 1996, 74% in 1997, and 19% for the first 
half of 1998 as compared to prior periods, primarily as a result of the 
acquisition and in-licensing of additional respiratory pharmaceutical 
products.  Due to Dura's emphasis on acquiring and in-licensing respiratory 
pharmaceutical products, Dura anticipates that the integration of the 
recently acquired products, as well as any future acquisitions, will require 
significant management attention and expansion of its sales force.  On 
February 22, 1998, the Company announced that it planned to begin expanding 
its field sales force immediately from approximately 270 representatives to 
approximately 450 representatives by the end of 1998 to increase the 
promotional activity of its current products and to prepare for the launch, 
subject to receiving regulatory approval, of Albuterol Spiros. Dura's ability 
to achieve and maintain profitability is based on management's ability to 
manage its changing business effectively.

                                      16
<PAGE>

UNCERTAINTY OF PROFITABILITY; NEED FOR ADDITIONAL FUNDS.  Dura has 
experienced significant operating losses in the past, and at June 30, 1998, 
Dura's accumulated deficit was $148.3 million.  The acquisition and 
in-licensing of products, the expansion and maintenance of Dura's sales force 
in response to acquisition, in-licensing, and enhanced promotion of products 
and planned introduction of Spiros products, the upgrade and expansion of its 
facilities, continued pricing pressure on its pharmaceutical products, or the 
exercise of the Stock Purchase Option or Product Options (defined below) will 
require the commitment of substantial capital resources and may also result 
in significant impairment of profits, or losses.  Depending upon, among other 
things, the acquisition and in-licensing opportunities available, Dura may 
need to raise additional funds for these purposes.  Adequate funds for these 
purposes may not be available when needed or on terms acceptable to Dura.  
Insufficient funds may require Dura to delay, scale back or suspend some or 
all of its product acquisition, in-licensing and promotional programs, the 
upgrade and expansion of its facilities, or the potential exercise of the 
Stock Purchase Option and/or the Product Options.  Dura anticipates that its 
existing capital resources, together with cash expected to be generated from 
operations and available bank borrowings, should be sufficient to finance its 
current operations and working capital requirements through at least the next 
12 months. 

EFFECT OF EXERCISE OF THE STOCK PURCHASE OPTION AND THE PRODUCT OPTIONS; 
DILUTION.  Dura has a purchase option with respect to the outstanding shares 
of callable common stock of Spiros Corp. II which expires on December 31, 
2002 ("Stock Purchase Option").  If Dura exercises the Stock Purchase Option, 
it will be required to make a substantial cash payment or to issue shares of 
Dura Common Stock, or both.  A payment in cash would reduce Dura's capital 
resources.  A payment in shares of Dura Common Stock would result in a 
decrease in the percentage ownership of Dura's stockholders at that time.  If 
Dura determines to exercise the Stock Purchase Option, it will likely be 
required Dura to record a significant charge to earnings and may have an 
adverse impact on future operating results.  If Dura does not exercise the 
Stock Purchase Option prior to its expiration, Dura's rights in and to Spiros 
with respect to certain compounds will terminate. 

As part of Dura's contractual relationship with Spiros Corp. II, Dura 
received options to purchase certain rights to the use of Spiros with 
albuterol and with an additional product other than albuterol ("Product 
Options").  If Dura exercises either of the Product Options, it will be 
required to make a significant cash payment which could have an adverse 
effect on its capital resources.  Dura may not have sufficient capital 
resources to exercise the Product Options, which may result in Dura's loss of 
valuable rights. 

GOVERNMENT REGULATION; NO ASSURANCE OF FDA APPROVAL.  Development, testing, 
manufacturing and marketing of pharmaceutical products including drug 
delivery systems are subject to extensive regulation by numerous governmental 
authorities in the U.S. and other countries.  The process of obtaining FDA 
approval of pharmaceutical products and drug delivery systems is costly and 
time consuming. Any new pharmaceutical product must undergo rigorous 
preclinical and clinical testing and an extensive regulatory approval process 
mandated by the FDA.  Such regulatory review includes the determination of 
manufacturing capability and product performance.  Marketing of drug delivery 
systems also requires FDA approval, which can be 


                                      17
<PAGE>

costly and time consuming to obtain.  A separate regulatory approval will 
need to be obtained for each Spiros drug delivery system.  There can be no 
assurance that the pharmaceutical products currently in development by Dura 
or those products acquired or in-licensed will be approved by the FDA.  In 
addition, there can be no assurance that all necessary approvals will be 
granted for future products or that FDA review or actions will not involve 
delays caused by the FDA's request for additional information or testing that 
could adversely affect the time to market and sale of the products.  For both 
currently marketed products and future products of Dura, failure to comply 
with applicable regulatory requirements can, among other things, result in 
the suspension of regulatory approval, as well as possible civil and criminal 
sanctions.

The FDA is continuing an evaluation of the effectiveness of all drug products 
containing ingredients marketed prior to 1962 (the year of enactment of the 
"Drug Amendments of 1962" to the Federal Food, Drug and Cosmetic Act) as part 
of its DESI program and will determine which drugs are considered "new drugs" 
requiring approval through an NDA for marketing.  A Policy Guide (CPG 
440.100) issued by the FDA indicates that the FDA will implement procedures 
to determine whether the new drug provisions are applicable to existing 
products.  This Policy Guide requires that products covered by paragraph B 
not be similar or related to any drug included in the DESI program or have a 
different formulation or conditions for use than products marketed before 
November 13, 1984.  If a final determination is made that a particular drug 
required an approved NDA, such approval will be required for marketing to 
continue.  If such a determination is made, the FDA might impose various 
requirements; for example, it might require that the current product be the 
subject of an approved NDA, that the product be reformulated and an NDA 
approval be obtained, that the product must be sold on an over-the-counter 
basis rather than as a prescription drug or that the products must be removed 
from the market.  Dura believes that twenty-one of its prescription 
pharmaceutical products may be covered by paragraph B of the Policy Guide or 
may be DESI-related.  Also, Dura is not aware of evidence to substantiate 
that three of its products have the same formulation or conditions for use as 
products marketed before November 13, 1984.  There can be no assurance as to 
which regulatory course the FDA will follow, if any, with respect to many of 
Dura's pharmaceutical products or whether Dura will be able to obtain any 
approvals that the FDA may deem necessary.  If any negative actions are taken 
by the FDA, such actions could have a material adverse effect on business of 
Dura.  Dura's Health Script Pharmacy Services, Inc. ("Health Script") 
subsidiary is subject to regulation by state regulatory authorities, 
principally state boards of pharmacy.  In addition, Health Script is subject 
to regulation by other state and federal agencies with respect to 
reimbursement for prescription drug benefits provided to individuals covered 
primarily by publicly funded programs.

PATENTS AND PROPRIETARY RIGHTS.  Dura's success will depend in part on its 
ability to obtain patents on current or future products or formulations, 
defend its patents, maintain trade secrets and operate without infringing 
upon the proprietary rights of others both in the U.S. and abroad.  However, 
only six of the pharmaceuticals currently marketed by Dura are covered by 
patents.  Dura also has licenses or license rights to certain other U.S. and 
foreign patent and patent applications.  There can be no assurance that 
patents, U.S. or foreign, will be obtained, or that, if issued or licensed to 
Dura, they will be enforceable or will provide substantial protection from 
competition or be of commercial benefit to Dura or that Dura will possess the 
financial resources 
                                      18
<PAGE>

necessary to enforce or defend any of its patent rights.  Federal court 
decisions establishing legal standards for determining the validity and scope 
of patents in the field are in transition.  There can be no assurance that 
the historical legal standards surrounding questions of validity and scope 
will continue to be applied or that current defenses as to issued patents in 
the field will offer protection in the future.  The commercial success of 
Dura will also depend upon avoiding the infringement of patents issued to 
competitors and upon maintaining the technology licenses upon which certain 
of Dura's current products are, or any future products under development 
might be, based. Litigation, which could result in substantial cost to Dura, 
may be necessary to enforce Dura's patent and license rights or to determine 
the scope and validity of proprietary rights of third parties.  If any of 
Dura's products are found to infringe upon patents or other rights owned by 
third parties, Dura could be required to obtain a license to continue to 
manufacture or market such products. There can be no assurance that licenses 
to such patent rights would be made available to Dura on commercially 
reasonable terms, if at all.  If Dura does not obtain such licenses, it could 
encounter delays in marketing affected products while it attempts to design 
around such patents or it could find that the development, manufacture or 
sale of products requiring such licenses is not possible.  Dura currently has 
certain licenses from third parties and in the future may require additional 
licenses from other parties to develop, manufacture and market commercially 
viable products effectively.  There can be no assurance that such licenses 
will be obtainable on commercially reasonable terms, if at all, or that the 
patents underlying such licenses will be valid and enforceable.

PRODUCT LIABILITY AND RECALL.  Dura faces an inherent business risk of 
exposure to product liability claims in the event that the use of its 
technologies or products is alleged to have resulted in adverse effects.  
Such risks will exist even with respect to those products that receive 
regulatory approval for commercial sale. While Dura has taken, and will 
continue to take, what it believes are appropriate precautions, there can be 
no assurance that it will avoid significant product liability exposure.  Dura 
currently has product liability insurance; however, there can be no assurance 
that the level or breadth of any insurance coverage will be sufficient to 
fully cover potential claims.  There can be no assurance that adequate 
insurance coverage will be available in the future at acceptable costs, if at 
all, or that a product liability claim or recall would not materially and 
adversely affect the business or financial condition of Dura. 

ATTRACTION AND RETENTION OF KEY PERSONNEL.  The Company is highly dependent 
on the principal members of its management staff, the loss of whose services 
might impede the achievement of corporate objectives. Although the Company 
believes that it is adequately staffed in key positions and that it will be 
successful in retaining skilled and experienced management, operational and 
scientific personnel, there can be no assurance that the Company will be able 
to attract and retain such personnel on acceptable terms.  The loss of the 
services of key scientific, technical and management personnel could have a 
material adverse effect on the Company, especially in light of the Company's 
recent significant growth.

TERMINATION OF MERGER AGREEMENT WITH SCANDIPHARM, INC.  On December 1, 1997, 
the Company terminated a merger agreement with Scandipharm entered into on 
October 20, 1997.  On January 16, 1998, Scandipharm filed suit against the 
Company for breach of contract.  On January 19, 1998, the Company filed suit 
against Scandipharm seeking a declaratory judgment that Dura's 

                                      19
<PAGE>

termination of the merger did not breach the merger agreement, and for 
damages against Scandipharm.  The Company believes that it had the right to 
terminate the merger agreement and that Scandipharm's claims for specific 
performance under the agreement or for unspecified damages are without merit, 
and that outcome of this matter will not have a material adverse effect on 
the Company's financial position or results of operations.

CHANGE IN CONTROL.  Certain provisions of Dura's charter documents and terms 
relating to the acceleration of the exercisability of certain warrants and 
options in the event of a change in control may have the effect of delaying, 
deferring or preventing a change in control of Dura, thereby possibly 
depriving stockholders of receiving a premium for their shares of the Dura 
Common Stock. In addition, upon a Change in Control (as defined), Dura will 
be required to offer to purchase for cash all of the outstanding Notes at a 
purchase price of 100% of the principal amount thereof, plus accrued but 
unpaid interest through the Change in Control Purchase Date (as defined).  
The Change in Control purchase features of the Notes may in certain 
circumstances have an anti-takeover effect.  If a Change in Control were to 
occur, there can be no assurance that Dura would have sufficient funds to pay 
the Change in Control Purchase Price (as defined) for all Notes tendered by 
the holders thereof and to repay other indebtedness that may become due as a 
result of any Change in Control. 

In May 1998, the Company adopted a Shareholder Rights Plan in which Preferred 
Stock purchase rights ("Rights") were distributed as a dividend at the rate 
of one Right for each share of Common Stock held as of the close of business 
on June 5, 1998.  Each Right entitles stockholders to buy, upon certain 
events, one one-thousandth of a share of a new series of junior participating 
Preferred Stock of the Company at an exercise price of $175.00.  The Rights 
are designed to guard against partial tender offers and other abusive tactics 
that might be used in an attempt to gain control of the Company or to deprive 
stockholders of their interest in the long-term value of the Company.  The 
Rights are exercisable only if a person or group acquires 15% or more of the 
Company's Common Stock or announces a tender offer of which the consummation 
would result in ownership by a person or group of 15% or more of the 
Company's Common Stock. The Rights are redeemable for one cent per Right at 
the option of the Board of Directors prior to this event occurring.  The 
Rights expire on June 5, 2008.

VOLATILITY OF DURA STOCK PRICE.  The market prices for securities of emerging 
companies, including Dura, have historically been highly volatile.  Future 
announcements concerning Dura or its competitors may have a significant 
impact on the market price of the Dura Common Stock.  Such announcements 
might include financial results, the results of testing, regulatory 
developments, technological innovations, new commercial products, changes to 
government regulations, government decisions on commercialization of 
products, developments concerning proprietary rights, litigation or public 
concern as to safety of Dura's products. 

ABSENCE OF DIVIDENDS.  The Company has never paid any cash dividends on its 
Common Stock.  In accordance with a bank loan agreement, Dura is prohibited 
from paying cash dividends without prior bank approval.  Dura currently 
anticipates that it will retain all available funds for use in its business 
and does not expect to pay any cash dividends in the foreseeable future. 

                                      20
<PAGE>

YEAR 2000 COMPLIANCE CONSIDERATIONS.  The Company recognizes the need to 
ensure its operations will not be adversely impacted by the inability of the 
Company's systems to process data having dates on or after January 1, 2000.  
Processing errors due to software failure arising from calculations using the 
Year 2000 date are a recognized risk.  The Company is currently addressing 
the risk, with respect to the availability and integrity of its financial 
systems and the reliability of its operating systems, and is in the process 
of communicating with suppliers, customers, financial institutions and others 
with whom it conducts business to assess whether they are or will be Year 
2000 compliant. While the Company believes its planning efforts are adequate 
to address the Year 2000 concerns, there can be no assurance that the systems 
of other companies on which the Company's systems and operations rely will be 
converted on a timely basis and will not have a material effect on the 
Company.  In addition, the potential impact of the Year 2000 on others with 
whom the Company does business and any resulting effects on the Company 
cannot be reasonably estimated at this time.  The cost of the Company's Year 
2000 initiatives is not expected to be material to the Company's results of 
operations or financial position.  

ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.


                            PART II - OTHER INFORMATION

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

CHANGES IN SECURITIES

In May 1998, the Company's stockholders approved an amendment to the 
Company's Certificate of Incorporation increasing the number of authorized 
shares of Common Stock from 100 million to 200 million.

In May 1998, the Company adopted a Shareholder Rights Plan in which Preferred 
Stock purchase rights ("Rights") were distributed as a dividend at the rate 
of one Right for each share of Common Stock held as of the close of business 
on June 5, 1998.  Each Right entitles stockholders to buy, upon certain 
events, one one-thousandth of a share of a new series of junior participating 
Preferred Stock of the Company at an exercise price of $175.00.  The Rights 
are designed to guard against partial tender offers and other abusive and 
coercive tactics that might be used in an attempt to gain control of the 
Company or to deprive stockholders of their interest in the long-term value 
of the Company.  The Rights will be exercisable only if a person or group 
acquires 15% or more of the Company's Common Stock or announces a tender 
offer of which the consummation would result in ownership by a person or 
group of 15% or more of the Company's Common Stock.  The Rights are 
redeemable for one cent per Right at the option of the Board of Directors 
prior to this event occurring.  The Rights expire on June 5, 2008.


                                      21
<PAGE>

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

On May 21, 1998, the Company's Annual Meeting of Stockholders was held in La
Jolla, California for the following purposes:

(a)  The following five directors were elected to serve two-year terms to expire
at the 2000 Annual Meeting of Stockholders:

<TABLE>
<CAPTION>


                                 FOR     AGAINST  WITHHELD
   <S>                      <C>           <C>   <C>
     James C. Blair           41,865,373     0    213,373
     Joseph C. Cook, Jr.      41,867,412     0    211,334
     Cam L. Garner            41,865,172     0    213,574
     David F. Hale            41,865,355     0    213,391
     David S. Kabakoff        41,865,010     0    213,736
     
</TABLE>

     The following directors were elected at the May 28, 1997 Annual Meeting of
     Stockholders and are currently serving terms that will expire in 1999 (with
     the exception of Mr. Spath, who resigned as a director effective June 30,
     1998).
     
        Herbert J. Conrad
        Gordon V. Ramseier
        Charles G. Smith
        Walter F. Spath
     
(b)  The Stockholders approved the amendment to the Company's Certificate of
     Incorporation to increase the number of authorized shares of Common Stock
     from 100,000,000 to 200,000,000.  The total number of votes cast for,
     against and abstained was 40,187,285, 1,806,390 and 85,071, respectively.

(c)  The Stockholders approved an amendment to the Company's 1992 Stock Option
     Plan to increase the authorized number shares of Common Stock available for
     issuance under such Plan by 1,000,000 shares to a total of 8,607,360.  The
     total number of votes cast for, against and abstained was 25,688,103,
     16,248,353 and 139,500, respectively.

                                      22
<PAGE>

(d)  The Stockholders ratified the appointment of Deloitte & Touche LLP as the
     Company's independent public accountants for the year ending December 31,
     1998.  The total number of votes cast for, against and abstained was
     41,883,978, 115,190, and 79,478, respectively.


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
     
(a)  Exhibits

<TABLE>
<CAPTION>

EXHIBIT  NO.   DESCRIPTION
------------   ------------
<S>         <C>
(1)  3.1       Certificate of Incorporation.
             
(2)  3.2       Certificate of Amendment of Certificate of Incorporation, effective
               May 21, 1998.
             
(3)  4.1       Rights Agreement, dated as of May 21, 1998, between the Company and
               ChaseMellon Shareholder Services, L.L.C., which includes the form 
               of Certificate of Designation for the Series A Junior Participating
               Preferred Stock as Exhibit A, the form of Rights Certificate as 
               Exhibit B and the Summary of Rights to Purchase Series A Junior 
               Preferred Stock as Exhibit C.
             
     4.2       Specimen Stock Certificate for Dura Common Stock.
             
     10.1      Amendment No. 4 to Business Loan Agreement dated June 25, 1998
               between the Company and Bank of America National Trust and Savings
               Association.
             
     10.2      1992 Stock Option Plan, as amended.
             
     11        Statements re Computations of Net Income Per Share
             
     27        Financial Data Schedule

</TABLE>

(1)  Incorporated by reference to the Company's Form 10-Q for the quarter ended
     June 30, 1997.
(2)  Incorporated by reference to the Company's Registration Statement on Form
     8-A filed on May 22, 1998.
(3)  Incorporated by reference to the Company's Form 8-K, dated May 21, 1998.


(b) Reports on Form 8-K
           
     On May 22, 1998, the Company filed a Current Report on Form 8-K dated May
     21, 1998, reporting the adoption of a Shareholder Rights Plan.

                                      23
<PAGE>

                                      SIGNATURES

     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.

                                      DURA PHARMACEUTICALS, INC.


                         
DATE    AUGUST 12, 1998            /s/ ERLE T. MAST              
------------------------           ------------------------------
                                   ERLE T. MAST
                                   VICE PRESIDENT, FINANCE
                                   (Principal Financial and Accounting Officer)

                                      24
<PAGE>

                                   EXHIBIT INDEX
                                         TO
                                     FORM 10-Q
                                          
                                          
                             DURA PHARMACEUTICALS, INC.

<TABLE>
<CAPTION>

Exhibit No.    Description
----------     -----------
<S>         <C>
(1)  3.1       Certificate of Incorporation.
              
(2)  3.2       Certificate of Amendment of Certificate of Incorporation, effective
               May 21, 1998.
              
(3)  4.1       Rights Agreement, dated as of May 21, 1998, between the Company and
               ChaseMellon Shareholder Services, L.L.C., which includes the form of
               Certificate of Designation for the Series A Junior Participating
               Preferred Stock as Exhibit A, the form of Rights Certificate as
               Exhibit B and the Summary of Rights to Purchase Series A Junior
               Preferred Stock as Exhibit C.
              
     4.2       Specimen Stock Certificate for Dura Common Stock.
              
    10.1       Amendment No. 4 to Business Loan Agreement dated June 25, 1998
               between the Company and Bank of America National Trust and Savings
               Association.
              
    10.2       1992 Stock Option Plan, as amended.
              
     11        Statements re Computations of Net Income Per Share
              
     27        Financial Data Schedule

</TABLE>

(1)  Incorporated by reference to the Company's Form 10-Q for the quarter ended
     June 30, 1997.
(2)  Incorporated by reference to the Company's Registration Statement on Form
     8-A filed on May 22, 1998.
(3)  Incorporated by reference to the Company's Form 8-K, dated May 21, 1998.