<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                              __________________

                                   FORM 10-Q


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
     For the Quarterly Period Ended March 31, 2000

                                      OR

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


                        Commission File Number 0-27150


                              __________________

                           PathoGenesis Corporation
            (Exact name of Registrant as specified in its charter)

                  Delaware                               91-1542150
       (State or other jurisdiction of                (I.R.S. Employer
        incorporation or organization)             Identification Number)

              201 Elliott Avenue West, Seattle, Washington  98119
             (Address of Principal Executive Offices)     (Zip Code)

      Registrant's telephone number, including area code:  (206) 467-8100

                              __________________

  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 _______
                                               -------

  On May 10, 2000, the registrant had an aggregate of 16,558,762 shares of
Common Stock issued and outstanding.
<PAGE>

                                     PART I

                             FINANCIAL INFORMATION

Item 1. Financial statements  PathoGenesis Corporation
               Condensed Consolidated Balance Sheets(Unaudited)

<TABLE>
<CAPTION>
                                                                                  March 31, 2000   December 31, 1999
                                                                                  ---------------  ------------------
<S>                                                                               <C>              <C>
ASSETS
Current assets:
  Cash and cash equivalents....................................................    $   6,548,321       $  10,456,031
  Investment securities........................................................       33,009,487          34,549,738
  Accounts receivable, net.....................................................        8,426,607           6,038,299
  Interest receivable..........................................................          399,513             442,676
  Inventories..................................................................       13,686,372          14,613,385
  Other........................................................................        2,075,890           2,110,610
                                                                                   -------------       -------------
       Total current assets....................................................       64,146,190          68,210,739
                                                                                   -------------       -------------
Property and equipment, at cost:
  Land.........................................................................        2,994,188           3,030,938
  Building and improvements....................................................        1,437,210           1,454,850
  Leasehold improvements.......................................................        9,926,435           9,735,242
  Furniture and equipment......................................................       17,437,221          16,948,235
                                                                                   -------------       -------------
                                                                                      31,795,054          31,169,265
  Less accumulated depreciation and amortization...............................       13,925,434          12,957,926
                                                                                   -------------       -------------
       Net property and equipment..............................................       17,869,620          18,211,339
                                                                                   -------------       -------------
License rights, net............................................................       13,348,618          13,591,321
Other assets...................................................................        3,320,443             823,519
                                                                                   -------------       -------------
  Total assets.................................................................    $  98,684,871       $ 100,836,918
                                                                                   =============       =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable.............................................................    $     501,665       $   1,668,775
  Compensation and benefits....................................................        2,580,082           2,524,184
  Clinical development costs...................................................          907,464           1,391,383
  Accrued royalties............................................................          464,651             906,629
  Other accrued expenses.......................................................        2,058,422           2,781,644
  Current portion of long-term liability.......................................        5,259,939           5,149,847
                                                                                   -------------       -------------
       Total current liabilities...............................................       11,772,223          14,422,462
                                                                                   -------------       -------------
Stockholders' equity:
  Preferred stock, $0.01 par value.  Authorized
   1,000,000 shares; none issued and outstanding...............................               --                  --
  Common stock, $0.001 par value.
   Authorized 60,000,000 shares; 16,517,893 shares and 16,451,530 shares
    issued and outstanding at March 31, 2000 and December 31, 1999, respectively          16,518              16,452
  Additional paid-in capital...................................................      195,440,629         194,641,919
  Deferred compensation........................................................         (410,959)           (526,199)
  Accumulated other comprehensive loss.........................................         (629,519)           (582,036)
  Accumulated deficit..........................................................     (107,504,021)       (107,135,680)
                                                                                   -------------       -------------
  Total stockholders' equity...................................................       86,912,648          86,414,456
                                                                                   -------------       -------------
  Total liabilities and stockholders' equity...................................    $  98,684,871       $ 100,836,918
                                                                                   =============       =============
</TABLE>

                            See accompanying notes.

                                       1
<PAGE>

                           PathoGenesis Corporation
          Condensed Consolidated Statements of Operations (Unaudited)


<TABLE>
<CAPTION>
                                                                  Three Months Ended
                                                                       March 31,
                                                       ---------------------------------------
                                                           2000                        1999
                                                       -----------                 -----------
<S>                                                    <C>                         <C>
Revenues:
  Sales.........................................       $19,374,747                 $10,056,135
  Grants and royalties..........................           173,684                     204,263
                                                       -----------                 -----------
       Total revenues...........................        19,548,431                  10,260,398
Operating expenses:
  Cost of sales.................................         3,445,899                   2,202,061
  Research and development......................         8,559,860                   6,840,469
  Selling, general and administrative...........         8,347,802                   6,537,571
                                                       -----------                 -----------
       Total operating expenses.................        20,353,561                  15,580,101
                                                       -----------                 -----------
       Operating loss...........................          (805,130)                 (5,319,703)
                                                       -----------                 -----------
Other income (expense):
  Investment income, net........................           671,752                     827,200
  Interest expense..............................          (110,339)                   (218,380)
  Other expense.................................          (124,624)                    (26,780)
                                                       -----------                 -----------
       Net other income.........................           436,789                     582,040
                                                       -----------                 -----------
       Net loss.................................       $  (368,341)                $(4,737,663)
                                                       ===========                 ===========
Loss per common share - basic and diluted.......       $     (0.02)                $     (0.29)
                                                       ===========                 ===========
Weighted average common shares outstanding -
  basic and diluted.............................        16,488,100                  16,378,828
</TABLE>

                            See accompanying notes.

                                       2
<PAGE>

                            PathoGenesis Corporation

          Condensed Consolidated Statements of Cash Flows (Unaudited)

<TABLE>
<CAPTION>
                                                                                                Three Months Ended
                                                                                                      March 31,
                                                                                       --------------------------------
                                                                                           2000                 1999
                                                                                       -----------         ------------
<S>                                                                                    <C>                 <C>
Cash flows from operating activities:
  Net loss..........................................................................   $  (368,341)        $ (4,737,663)

  Adjustments to reconcile net loss to net cash used in operating
   activities:
    Depreciation and amortization...................................................       972,620              825,302
    Amortization of license rights..................................................       242,702              242,702
    Amortization of discount on long-term liability.................................       110,092              211,094
    Compensation expense from stock options.........................................       190,240              115,240
    Change in certain assets and liabilities:
      Accounts receivable...........................................................    (2,389,202)           6,034,764
      Interest receivable...........................................................        43,163              (88,393)
      Inventories...................................................................       926,796           (2,510,177)
      Other current assets..........................................................        38,686            1,590,503
      Other assets..................................................................        43,183             (838,729)
      Accounts payable..............................................................    (1,172,017)            (334,370)
      Compensation and benefits.....................................................        55,898           (1,348,244)
      Clinical development costs....................................................      (482,894)             326,960
      Accrued royalties.............................................................      (441,978)            (566,765)
      License payable...............................................................            --           (2,000,000)
      Other accrued expenses........................................................      (720,492)            (375,790)
                                                                                       -----------         ------------
       Net cash used in operating activities........................................    (2,951,544)          (3,453,566)
                                                                                       -----------         ------------

Cash flows from investing activities:
  Purchases of investment securities................................................    (7,248,894)         (13,437,697)
  Sales of investment securities....................................................     8,759,859           10,942,724
  Purchase of property and equipment................................................      (692,707)          (1,020,935)
  Investment in AeroGen, Inc........................................................    (2,500,000)                  --
                                                                                       -----------         ------------
       Net cash used in investing activities........................................    (1,681,742)          (3,515,908)
                                                                                       -----------         ------------

Cash flows from financing activities:
  Proceeds from issuance of common stock in connection
      with employee stock purchase plan.............................................       119,560              325,876
  Stock option and warrant exercises................................................       604,216              418,348
                                                                                       -----------         ------------
       Total cash provided by financing activities..................................       723,776              744,224
                                                                                       -----------         ------------

Effect of exchange rate changes on cash.............................................         1,800                   --
                                                                                       -----------         ------------

       Net decrease in cash and cash equivalents....................................    (3,907,710)          (6,225,250)

Cash and cash equivalents at beginning of period....................................    10,456,031            8,139,153
                                                                                       -----------         ------------
Cash and cash equivalents at end of period..........................................   $ 6,548,321         $  1,913,903
                                                                                       ===========         ============
</TABLE>

                            See accompanying notes.

                                       3
<PAGE>

                           PathoGenesis Corporation
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                            MARCH 31, 2000 AND 1999


(1)  BASIS OF PRESENTATION

        We have prepared the accompanying condensed consolidated financial
statements of PathoGenesis Corporation and subsidiaries and these notes in
accordance with Securities and Exchange Commission rules and regulations for
interim financial statements.  As permitted by those rules and regulations, we
have condensed or omitted certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles.  You should read the accompanying condensed consolidated
financial statements and these notes in conjunction with our audited
consolidated financial statements for 1999 included in our annual report on Form
10-K.

        The information furnished reflects, in the opinion of our management,
all adjustments, consisting only of normal recurring items, necessary for a fair
presentation of the results for the interim periods presented. Interim results
are not necessarily indicative of results for a full year.

(2)  INVENTORIES

        Inventories are stated at the lower of cost, as determined by the first-
in, first-out method, or market. Inventories consisted of the following:

<TABLE>
<CAPTION>
                                      March 31, 2000    December 31, 1999
                                      --------------    -----------------
       <S>                            <C>               <C>
       Finished goods                 $    1,982,383    $      2,433,718
       Work in progress                    3,397,703           2,907,128
       Raw materials and supplies          8,306,286           9,272,539
                                      --------------    ----------------

                                      $   13,686,372    $     14,613,385
                                      ==============    ================
</TABLE>

(3)  LOSS PER COMMON SHARE

        We have not included options and warrants to purchase 3,907,839 and
2,960,357 shares of common stock that were outstanding during the first quarters
of 2000 and 1999, respectively, in the computation of diluted loss per share
because the representative share increments would be antidilutive.

(4)  COMPREHENSIVE LOSS

        Total comprehensive loss amounted to $415,824 for the first quarter of
2000 and $4,870,059 for the first quarter of 1999. Our other comprehensive
income (loss) is comprised of unrealized gains and losses on available-for-sale
investment securities and foreign currency translation adjustments.

(5)  BUSINESS SEGMENTS

        In 1998, we adopted Statement of Financial Accounting Standards (SFAS)
No. 131, Disclosures about Segments of an Enterprise and Related Information.
SFAS No. 131 requires an enterprise to report segment information based on how
management internally evaluates the operating performance of its business units
(segments). Our operations are confined to one business segment, the development
of drugs to treat chronic infectious diseases.

                                       4
<PAGE>

(6)  COLLABORATION AND INVESTMENT AGREEMENTS

        In January 2000, we entered into a collaboration with Chiron Corporation
to discover and develop new antibiotics. The collaboration combines Chiron's
combinatorial chemistry library and expertise in high-throughput screening with
our strengths in bacterial target discovery and antibiotic development, as well
as our knowledge of the Pseudomonas aeruginosa genome. The focus of this
collaboration is on the discovery of novel treatments for infectious diseases,
specifically antibiotics with new mechanisms of action to address serious
medical needs, such as antibiotic resistance.

        In March 2000, we entered into an agreement with AeroGen, Inc. to
collaborate on the development and registration of a product combining TOBI and
AeroGen's hand-held, portable AeroDose/(TM)/ Inhaler.  Our goal is to reduce
TOBI's delivery time from 15-20 minutes to 5-10 minutes or less.  Under the
development and supply agreement, we will reimburse AeroGen for costs incurred
in developing the AeroDose Inhaler and will obtain worldwide exclusive
distribution rights to the product.  AeroGen will receive royalties on all
product sales.  Under a separate agreement, we invested $2.5 million in
convertible preferred stock of privately held AeroGen.  This investment is
included in other assets and accounted for under the cost method.

(7)  LEGAL PROCEEDINGS

        On February 18, 2000, the United States District Court for the Western
District of Washington dismissed with prejudice all eight consolidated putative
class action lawsuits that had been filed in March and April 1999 against
PathoGenesis Corporation, our chief executive officer and our chief financial
officer.  The eight consolidated lawsuits purported to allege claims on behalf
of all purchasers of PathoGenesis common stock during the period January 15,
1999 to March 22, 1999.  Plaintiffs had claimed that the company and the
officers violated certain provisions of the federal securities laws by making
statements in early 1999 regarding the company's 1998 financial results.  The
court's order dismissed the consolidated cases and bars plaintiffs from filing
another lawsuit on the matter.  Plaintiffs have appealed the dismissal order to
the United States Court of Appeals for the Ninth Circuit.  We intend to defend
the appeal vigorously.  Although we cannot ascertain the ultimate outcome of the
appeal at this time or predict with certainty the results of legal proceedings,
we currently believe that the resolution of the appeal will not have a material
adverse effect on our financial position or results of operations.

                                       5
<PAGE>

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

     In addition to historical information, this quarterly report on Form 10-Q
contains forward-looking statements.  You may identify these forward-looking
statements by the use of such words as "believe," "anticipate," "expect," "plan"
and "intend," among others.  Since these statements are based on factors that
involve risks and uncertainties, they do not necessarily indicate what our
actual future results will be, and results may vary from quarter to quarter.
Important factors that could cause or contribute to material differences between
our actual results and the results expressed or implied by the forward-looking
statements include, but are not limited to, those discussed in "Item 1.
Business," "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" of our annual report on Form 10-K for 1999, and in
Exhibit 99.1 to the Form 10-K.  These factors include, but are not limited to,
uncertainties related to the fact that PathoGenesis only began commercial
operations in 1998, its dependence on TOBI (tobramycin solution for inhalation),
the degree of penetration of its markets and frequency of TOBI's use by
patients, risks associated with marketing TOBI in international markets, third
party reimbursement and product pricing, seasonal impacts on hospitalizations or
exacerbations experienced by patients, variability in wholesaler ordering
patterns, drug development and clinical trials, uncertain outcome of the U.S.
and international drug approval process, competition and alternative therapies.
We cannot assure you that TOBI -- which is currently our only product -- will
penetrate markets as planned, that our development of TOBI for other uses will
succeed or occur within anticipated time frames, or that we will develop any of
our other drug candidates successfully.


Results of Operations

     Revenues.  Revenues in the first quarter of 2000 totaled $19.5 million,
including $19.4 million from TOBI sales.  Revenues for the corresponding period
in 1999 were $10.3 million, with $10.1 million resulting from sales of TOBI.
TOBI sales volume varies from quarter to quarter depending on a number of
factors, including underlying demand and wholesaler inventory management
practices.  Our analysis suggests that sales in the first quarter of 1999 were
lower as a result of increased patient demand and wholesaler purchases in the
fourth quarter of 1998 and lower than anticipated demand and purchases in the
first quarter of 1999.  We do not believe such factors negatively affected sales
in the first quarter of 2000.

     Operating Expenses.  We incurred total operating expenses of $20.4 million
in the first quarter of 2000, an increase of $4.8 million from $15.6 million in
the first quarter of 1999.  Cost of sales was $3.4 million for the first quarter
of 2000, up $1.2 million from $2.2 million for the corresponding period in 1999.
The increase in cost of sales is directly related to the corresponding increase
in sales.  However, cost of sales as a percentage of sales declined as sales
volumes increased.  Research and development expense for the first quarter of
2000 increased by $1.8 million to $8.6 million from $6.8 million for the first
quarter of 1999, as we invested in a number of programs.  These include
preclinical studies on PA-1806, which is expected to enter Phase I clinical
trials later in 2000.  In addition, we have begun a program to develop the next-
generation TOBI, with the goal of improving convenience and significantly
shortening the time required for a treatment.  In the second quarter of 2000, we
intend to begin a clinical trial of TOBI to be administered using a portable
inhaler made by AeroGen, Inc.  We expect our research and development expenses
to increase over the next several quarters as our efforts in these areas
progress, and as we initiate additional clinical trials of TOBI in cystic
fibrosis and other patients.  Selling, general and administrative expenses
increased to $8.3 million for the first quarter of 2000 from $6.5 million for
the corresponding period in 1999.  This increase is primarily attributable to an
increase in sales and marketing costs.  We have expanded our U.S. sales force
and strengthened our marketing efforts in order to further penetrate the
domestic cystic fibrosis market.  In addition, we have made significant
investments in establishing sales and marketing capabilities in international
markets, including Europe and Canada.  We expect our selling, general and
administrative expenses to increase over the next several quarters as we
continue to expand TOBI's markets.

                                       6
<PAGE>

     Net Loss.  We had an operating loss of $805,000 in the first quarter of
2000, a decrease of $4.5 million from the operating loss of $5.3 million in the
first quarter of 1999.  This decrease in operating loss was due to improved TOBI
sales in the first quarter of 2000.  Including net other income (primarily
income from investment securities), our net loss for the first quarter of 2000
was $368,000, compared to a net loss of $4.7 million for the first quarter of
1999.  In the first quarter of 2000, net investment income decreased by $155,000
to $672,000 from $827,000 for the corresponding period in 1999.  The decrease
was primarily due to lower average invested cash balances.  Interest expense,
most of which represents the amortization of the discount on the remaining
installment of our obligation to the Cystic Fibrosis Foundation, totaled
$110,000 and $218,000 in the first quarters of 2000 and 1999, respectively.


Liquidity and Capital Resources

     Our combined cash, cash equivalents and investment securities totaled $39.6
million at March 31, 2000, a decrease of $5.4 million from the balance of $45.0
million at December 31, 1999.  We expect that these funds, in combination with
expected revenues from sales of TOBI, should be sufficient to meet our operating
expenses and capital requirements for the foreseeable future.  In addition, we
have a $10.0 million revolving line of credit from Harris Trust and Savings
Bank.

     Net cash used in operating activities totaled $3.0 million for the three
months ended March 31, 2000, compared to $3.5 million for the three months ended
March 31, 1999.  We incurred a $368,000 net loss for the three months ended
March 31, 2000, compared to a net loss of $4.7 million for the corresponding
period in the prior year.  Significant changes in working capital components
included a $2.4 million increase in accounts receivable and a $927,000 decrease
in inventories, compared to a $6.0 million decrease in accounts receivable and
$2.5 million increase in inventories for the same period a year ago.  Also, in
the first quarter of 2000, we invested $2.5 million in convertible preferred
stock of privately held AeroGen, Inc.  AeroGen is the developer of the hand-
held, portable AeroDose(TM) Inhaler, which is being developed to administer our
next-generation TOBI.  At March 31, 2000, our working capital was $52.4 million
and current ratio was 5.45 to 1.

     We plan to continue our policy of investing excess funds in government
securities and investment grade, interest-bearing securities, primarily those
with an expected maturity of one-and-one-half years or less.


Quantitative and Qualitative Disclosures about Market Risk

     We are exposed to the impact of interest rate changes and changes in the
market values of our investments, in addition to changes in foreign currency
exchange rates.

     Our exposure to market rate risk for changes in interest rates relates
primarily to debt securities included in our investment portfolio.  We do not
hold any derivative financial instruments.  We invest in government securities
and high-quality corporate obligations.  Investments in both fixed rate and
floating rate interest-earning instruments carry a degree of interest rate risk.
Fixed rate securities may decline in fair market value due to a rise in
prevailing interest rates, while floating rate securities may produce less
income than expected if prevailing interest rates fall.  Due in part to these
factors, our future investment income may fall short of expectations due to
changes in interest rates, or we may suffer losses in principal if forced to
sell securities which have declined in market value due to changes in interest
rates.  At March 31, 2000, we owned $3.2 million in government debt instruments
and $29.8 million in corporate debt securities.  Our exposure to losses as a
result of interest rate changes is managed through investing in securities
predominantly with maturities of one-and-one-half years or less.

     Substantially all the revenue and operating expenses of our subsidiaries
are denominated in local foreign currencies and translated into U.S. dollars at
rates of exchange approximating those existing at the date of the transactions.
Foreign currency translation primarily impacts revenue and operating expenses as
a result of exchange rate fluctuations. Because our inventories are manufactured
in the U.S., foreign currency fluctuations generally do not affect our cost of
sales. Our foreign currency transaction risk is primarily limited to amounts
receivable from our subsidiaries and distributors, which are denominated in
local foreign currencies. We do not currently utilize foreign currency hedging
contracts. If the U.S. dollar uniformly increases in strength by 10% in 2000
relative to the currencies in which our sales are denominated, results of
operations would not be significantly impacted.

                                       7
<PAGE>

                                    PART II

                               OTHER INFORMATION

Item 1    Legal Proceedings

          On February 18, 2000, the United States District Court for the Western
District of Washington dismissed with prejudice all eight consolidated putative
class action lawsuits that had been filed in March and April 1999 against
PathoGenesis Corporation, our chief executive officer and our chief financial
officer.  The eight consolidated lawsuits purported to allege claims on behalf
of all purchasers of PathoGenesis common stock during the period January 15,
1999 to March 22, 1999.  Plaintiffs had claimed that the company and the
officers violated certain provisions of the federal securities laws by making
statements in early 1999 regarding the company's 1998 financial results.  The
court's order dismissed the consolidated cases and bars plaintiffs from filing
another lawsuit on the matter.  Plaintiffs have appealed the dismissal order to
the United States Court of Appeals for the Ninth Circuit.  We intend to defend
the appeal vigorously.  Although we cannot ascertain the ultimate outcome of the
appeal at this time or predict with certainty the results of legal proceedings,
we currently believe that the resolution of the appeal will not have a material
adverse effect on our financial position or results of operations.

Item 2    Changes in Securities

          On January 26, 2000, PathoGenesis issued 10,379 shares of its common
stock upon cashless exercise of outstanding warrants at an exercise price of
$14.40 per share.  Such shares were issued without registration under the
Securities Act of 1933, as amended, in reliance on Section 4(2) of said Act.

Item 3    Defaults Upon Senior Securities

          NONE

Item 4    Submission of Matters to a Vote of Security-Holders

          NONE

Item 5    Other Information

          NONE

Item 6.   Exhibits and Reports on Form 8-K

        (a)  EXHIBITS

               Exhibit Number        Description of Exhibit
               --------------        ----------------------

                 27.1                Financial Data Schedule.

        (b)  REPORTS ON FORM 8-K

             NONE

                                       8
<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, on May 15, 2000.

                                PathoGenesis Corporation

                                By: /s/ Wilbur H. Gantz
                                    -------------------------------------
                                    Wilbur H. Gantz
                                    Chairman and Chief Executive Officer



                                By: /s/ Alan R. Meyer
                                    -------------------------------------
                                    Alan R. Meyer
                                    Executive Vice President and
                                       Chief Financial Officer

                                       9