<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K/A

    X          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---------      EXCHANGE ACT OF 1934

                     For fiscal year ended December 31, 1999

                                                                  OR

               TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---------      SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)


              For the transition period from ________ to ________.

                        COMMISSION FILE NUMBER: 000-19809

                           DURA PHARMACEUTICALS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                      DELAWARE                              95-3645543
            (State or other jurisdiction                 (I.R.S. Employer
          or incorporation or organization)             Identification No.)

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


        Registrant's telephone number, including area code (858) 457-2553

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                    COMMON STOCK, PAR VALUE $.001 PER SHARE,
           PREFERRED STOCK PURCHASE RIGHTS, PAR VALUE $.001 PER SHARE,
          WARRANTS TO PURCHASE ONE-FOURTH OF ONE SHARE OF COMMON STOCK,
                            PAR VALUE $.001 PER SHARE

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].


<PAGE>


         The aggregate market value of the voting common stock held by
non-affiliates of the registrant as of March 15, 2000 was $602.8 million. For
the purposes of this calculation, shares owned by officers, directors (and their
affiliates) and 10% or greater shareholders known to the registrant have been
excluded. This exclusion is not intended, nor shall it be deemed, to be an
admission that such persons are affiliates of the Registrant.

         The number of shares of the Registrant's common stock outstanding as of
March 15, 2000 was 44,333,113.

DOCUMENTS INCORPORATED BY REFERENCE

         Portions of Registrant's Proxy Statement for the 2000 Annual Meeting of
Shareholders (the "Proxy Statement") are incorporated in Part III.

         Certain exhibits filed with the Registrant's prior registration
statements and Forms 10-K and 10-Q are incorporated in Part IV.


<PAGE>


                                      INDEX

<TABLE>

<S>                                                                                                <C>
Part I:
         Item 1.         Business....................................................................1
         Item 2.         Properties.................................................................19
         Item 3.         Legal Proceedings..........................................................20
         Item 4.         Submission of Matters to a Vote of Security Holders........................20

Part II:
         Item 5.         Market for Registrant's Common Equity and Related
                         Shareholder Matters........................................................20
         Item 6.         Selected Financial Data....................................................21
         Item 7.         Management's Discussion and Analysis of Financial
                         Condition and Results of Operations........................................22
         Item 7A.        Quantitative and Qualitative Disclosures about Market Risk ................27
         Item 8.         Financial Statements and Supplementary Data................................27
         Item 9.         Changes in and Disagreements with Accountants on
                         Accounting and Financial Disclosure........................................27

Part III:
         Item 10.        Directors and Executive Officers of the Registrant.........................27
         Item 11.        Executive Compensation.....................................................28
         Item 12.        Security Ownership of Certain Beneficial Owners and
                         Management.................................................................28
         Item 13.        Certain Relationships and Related Transactions.............................28

Part IV:
         Item 14.        Exhibits, Financial Statement Schedules and Reports on Form 8-K............29

                         Signatures.................................................................34

</TABLE>


<PAGE>


                                     PART I

 ITEM 1.  BUSINESS

The discussion of our business contained in this Annual Report on Form 10-K may
contain projections, estimates and other forward-looking statements that involve
many risks and uncertainties. For a discussion of factors which may affect the
outcome projected in these statements, see "Risks and Uncertainties" on pages 16
through 19 of this Annual Report on Form 10-K. While this outlook represents our
current judgment on the future direction of our business, these risks and
uncertainties could cause our actual results to differ materially from any
projected future performance described below. We undertake no obligation to
release publicly the results of any revisions to these forward-looking
statements to reflect events or circumstances arising after the date of this
Annual Report on Form 10-K.

OVERVIEW

We are a specialty pharmaceutical company that develops, markets and sells
prescription products that treat respiratory conditions and infectious diseases.
We have built an effective sales and marketing organization that includes
approximately 475 territories and focuses on the high prescribing physician
groups in our target markets. We currently market a portfolio of 12 patent
protected and/or branded prescription products. Our proprietary
Spiros-Registered Trademark- pulmonary drug delivery system, which we are
developing to improve the delivery of inhaled medications, represents a
significant opportunity for us and is an essential component of our future
growth. Leveraging both our sales and marketing organization by
opportunistically acquiring products and late-stage product development
candidates and our Spiros platform technology by developing products for
delivery through Spiros are essential to our future growth.

We target the respiratory and infectious diseases markets because they are large
and growing. The U.S. market for products that treat respiratory conditions
totaled approximately $9.1 billion in 1999, an increase of 21% over 1998. The
market for infectious disease products in the U.S. was also substantial,
totaling approximately $11.1 billion in 1999, an increase of 14% over 1998.
These markets are also attractive to us because identifiable groups of
physicians write a large majority of the total prescriptions in these markets.
This concentration of high volume prescribers enables us to effectively promote
our products with a smaller and more focused sales and marketing organization
than would be required for other markets.

Our sales and marketing organization is composed of approximately 600 people and
includes a field sales force and a hospital sales force. The field sales force
includes approximately 325 territories and our hospital sales force includes
approximately 150 territories, all of which are located in the U.S. The field
sales representatives principally call on primary care physicians, allergists,
ear, nose and throat specialists, pulmonologists and a selected subset of
pediatricians. These physicians collectively write a majority of the total
prescriptions for the products our field sales force promotes. These physicians
also treat a large number of asthma patients, the target of our first two Spiros
products currently under development. The hospital sales representatives call on
pulmonologists, infectious disease specialists, surgeons, internal medicine
physicians, hematologists and oncologists. These physicians write a significant
portion of the total prescriptions for injectable antibiotics, while
pulmonologists will also be important to the launch of our Spiros respiratory
products.

Leveraging our sales and marketing organization by acquiring rights to market
prescription pharmaceutical products and late-stage product development
candidates is a foundation of our growth strategy. We have historically focused
on products that we judged to have significant commercial potential but were
underpromoted or had not been launched at the time of our acquisition. We have
also focused on increasing the number of patented and/or branded products in our
portfolio. Sales of these products represented 74% of our total pharmaceutical
sales in 1999, a substantial increase from 1995 when these products represented
only 13% of our total pharmaceutical sales. Our product portfolio includes the
following products and product development candidates:


                                       1
<PAGE>


<TABLE>
<CAPTION>

    --------------------------------- --------------------- -------------- ---------------------------------
     PRODUCT/PRODUCT CANDIDATE         INDICATION            STATUS         TARGET PHYSICIAN GROUPS
     --------------------------------- --------------------- -------------- ---------------------------------
     <S>                               <C>                   <C>            <C>
     --------------------------------- --------------------- -------------- ---------------------------------
     RESPIRATORY CONDITIONS
     --------------------------------- --------------------- -------------- ---------------------------------
      ALLERGY
     --------------------------------- --------------------- -------------- ---------------------------------
         Nasarel-Registered Trademark-/
         Nasalide-Registered Trademark-  Allergic rhinitis     Approved       Allergy, Primary Care
     --------------------------------- --------------------- -------------- ---------------------------------
       Alocril-TM-                       Itch associated       Approved       Allergy, Primary Care
                                         with allergic
                                         conjunctivitis
     --------------------------------- --------------------- -------------- ---------------------------------
       Entex-Registered Trademark-       Symptoms of nasal     Approved       Allergy, Primary Care
                                         congestion
     --------------------------------- --------------------- -------------- ---------------------------------
      ASTHMA
     --------------------------------- --------------------- -------------- ---------------------------------
       Beclomethasone Spiros-TM-         Asthma                Phase III      Allergy, Pulmonology, Primary
                                                                               Care
     --------------------------------- --------------------- -------------- ---------------------------------
       Budesonide Spiros-TM-             Asthma                Phase II       Allergy, Pulmonology, Primary
                                                                              Care
     --------------------------------- --------------------- -------------- ---------------------------------
     INFECTIOUS DISEASES
     --------------------------------- --------------------- -------------- ---------------------------------
       Ceclor-Registered Trademark- CD   Bacterial infections  Approved       Primary Care, ENT
     --------------------------------- --------------------- -------------- ---------------------------------
       Maxipime-Registered Trademark-    Bacterial infections  Approved       Infectious Disease,
                                                                              Pulmonology,
                                                                              Hematology, Oncology
     --------------------------------- --------------------- -------------- ---------------------------------
       Azactam-Registered Trademark-     Bacterial infections  Approved       Surgery, Infectious Disease,
                                                                              Internal Medicine
     --------------------------------- --------------------- -------------- ---------------------------------
       Tuberculosis products             Tuberculosis          Approved       Infectious Disease
     --------------------------------- --------------------- -------------- ---------------------------------
       Furadantin-Registered Trademark-  Urinary tract         Approved       Primary Care
                                         infections
     --------------------------------- --------------------- -------------- ---------------------------------
     DIABETES
     --------------------------------- --------------------- -------------- ---------------------------------
       Inhaled insulin                   Diabetes              Not disclosed  Marketing rights held by Eli
                                                                              Lilly
     --------------------------------- --------------------- -------------- ---------------------------------

</TABLE>

     The following words used in the table above have the following meanings:

     -    "Approved" indicates the product is approved for marketing and sale in
          the U.S.

     -    "Phase III" indicates the product candidate is being evaluated for
          safety and efficacy in large-scale clinical trials.

     -    "Phase II" indicates the product candidate is being evaluated for
          preliminary indications of safety and therapeutic response in clinical
          trials or for establishing dosing for new dosage forms.

Our exclusive rights to market and sell Alocril are limited to the primary care
and respiratory market segments for a multi-year period. Allergan, Inc., or
Allergan, has retained all other rights to Alocril. We are developing insulin
for delivery through our Spiros drug delivery system in collaboration with Eli
Lilly and Company, or Lilly. Under our collaboration agreement, we receive
research and development and progress payments during development as well as
revenues from the supply of and royalties from the sale of commercial products.
Lilly holds all rights to market and sell the commercial product.

Our sales and marketing organization has established a track record of
effectively marketing and selling our products. For example, Ceclor CD was first
in its class and Nasarel was second in its class in percentage growth of total
prescriptions during 1999. Total prescriptions of Ceclor CD were 31% higher in
1999 than in 1998, and total prescriptions of Nasarel during 1999 were 57%
higher than during 1998. Maxipime (cefepime hydrochloride) for Injection was the
fastest growing injectable antibiotic in the U.S. during 1999, with sales 158%
higher than in 1998.

We plan to continue to leverage our sales and marketing organization by
opportunistically acquiring products and late-stage product development
candidates that are prescribed by our target physician groups. For example, in
February 2000 we entered into a multi-year, multi-product agreement with
Allergan Sales, Inc. to market and promote selected Allergan products in the
U.S. primary care and respiratory markets. Under this agreement, we co-launched
Alocril, Allergan's patented product for the treatment of eye itch associated
with allergic conjunctivitis, in March 2000. The


                                       2
<PAGE>


agreement also includes a commitment to launch a second product to the same
market segments at an unspecified date and a joint structure to evaluate
additional opportunities for us to promote specific product candidates Allergan
is developing.

We believe our hospital sales force also provides new growth opportunities for
us. Many product classes are prescribed by identifiable physician groups that
practice primarily in the hospital. Our sales and marketing presence in the
hospital enables us to further expand our business by selectively acquiring
products and product development candidates in these product classes.

Another cornerstone of our growth strategy is to develop our proprietary Spiros
pulmonary drug delivery system. Spiros is designed to aerosolize pharmaceuticals
in dry powder formulations for delivery to and through the lungs. We believe
that Spiros, if approved by the FDA, may provide advantages over other currently
available pulmonary drug delivery systems for respiratory products and could
also provide a significant benefit to patients being treated with
biopharmaceuticals, which today are delivered primarily by injection. We plan to
continue to leverage our Spiros platform technology by:

   -   Developing Spiros for the local delivery of pharmaceuticals to the lungs
       to treat respiratory conditions, for our own account and in collaboration
       with third parties, and

   -   Developing Spiros, generally in collaboration with third parties, for the
       systemic delivery of biopharmaceuticals, including proteins and peptides,
       through the lungs to treat non-respiratory conditions as an alternative
       to current invasive delivery techniques.

We are currently developing beclomethasone and budesonide, two inhaled steroids
frequently prescribed to treat asthma, for use in Spiros on behalf of Spiros
Development Corporation II, Inc., or Spiros Corp. II. Beclomethasone Spiros is
in Phase III clinical trials, and we plan to initiate Phase III clinical trials
for Budesonide Spiros in 2000. We are collaborating with Lilly to develop
inhaled insulin in our Spiros delivery system. The size of the inhaled insulin
opportunity is significant and strategically important to our collaboration. We
are also conducting feasibility studies for our own account and with several
companies to assess the effectiveness of Spiros in delivering other drugs.

In March 2000 we entered into a merger agreement to acquire Spiros Corp. II.
Under the agreement, for each share of callable common stock Spiros Corp. II
shareholders will receive $13.25 in cash and one five-year warrant to purchase a
fractional share of our common stock at $17.94 per share, which represents a 25%
premium over the average closing price of our common stock for the 10 trading
days prior to the date of the merger agreement. The exact fraction of a share of
our common stock purchasable under the warrant will be determined based on the
average closing price of our common stock for the 10 trading days prior to the
vote of the Spiros Corp. II shareholders on the merger and will result in a
calculated Black-Scholes value for each warrant of between $3.22 and $1.81. The
total consideration for the merger as of the date of the merger agreement was
calculated to be $100.8 million, or $15.75 per share of callable common stock.
Closing of the transaction is subject to Hart-Scott-Rodino clearance,
effectiveness of the registration statement for our warrants, and Spiros Corp.
II stockholder approval. We have received voting agreements in favor of the
merger from holders of approximately 22% of Spiros Corp. II's outstanding
callable common stock. A special committee of independent members of the Spiros
Corp. II board, formed in December 1999 to evaluate strategic alternatives for
Spiros Corp. II, Inc, has approved the merger agreement and is recommending that
the Spiros Corp. II shareholders approve the merger.


                                       3
<PAGE>


STRATEGY

Our objective is to be a leader in developing, marketing and selling
pharmaceutical products that treat respiratory conditions and infectious
diseases. Our strategy to achieve this objective includes the following
elements:

   -   LEVERAGING OUR FOCUSED SALES AND MARKETING ORGANIZATION. We have built an
       effective sales and marketing organization that targets the high
       prescribing physician groups that treat respiratory conditions and
       infectious diseases. We believe the concentration of high volume
       prescribers in our target markets enables us to effectively promote our
       products with a smaller and more focused sales and marketing organization
       than would be required for other markets. We intend to acquire or
       in-license products and late-stage product development candidates and to
       develop products in Spiros that will leverage the capacity of our sales
       and marketing organization as well as the relationships we have
       established with our target physician groups.

   -   ACQUIRING OR IN-LICENSING APPROVED PHARMACEUTICALS. We have historically
       grown our business by acquiring or in-licensing rights to market and sell
       prescription pharmaceuticals and we intend to continue to grow in this
       manner. We are particularly focused on products that treat respiratory
       conditions or infectious diseases and that are underpromoted by large
       pharmaceutical companies. We believe the significant consolidation that
       is occurring in the pharmaceutical industry continues to raise the
       threshold for products that large pharmaceutical companies can promote
       effectively and should create attractive opportunities for us to acquire
       additional products. We are actively pursuing the acquisition of rights
       to market and sell additional products which, if successful, may require
       the use of substantial capital resources.

   -   ACQUIRING OR IN-LICENSING LATE-STAGE PRODUCT DEVELOPMENT CANDIDATES. We
       also selectively seek to acquire or in-license late-stage product
       development candidates. We are focused on product development candidates
       that are ready for or have already entered Phase III clinical trials and
       should therefore present less development risk than product candidates at
       an earlier stage of development. We focus on product development
       candidates that would be prescribed by our target physician groups or by
       other identifiable physician groups that practice primarily in the
       hospital. We believe that our established sales and marketing
       organization and our strong cash position make us an attractive
       commercialization partner for many biotechnology companies with
       late-stage product development candidates. We are actively pursuing the
       acquisition of rights to product development candidates which, if
       successful, may require the use of substantial capital resources.

   -   DEVELOPING SPIROS. Our Spiros platform technology is an essential
       component of our future growth. We plan to continue to leverage our
       Spiros platform technology by developing Spiros for the local delivery of
       pharmaceuticals to the lungs to treat respiratory conditions, for our own
       account and in collaboration with third parties, and by developing Spiros
       for the systemic delivery of biopharmaceuticals, including proteins and
       peptides, through the lungs to treat non-respiratory conditions as an
       alternative to current invasive delivery techniques, generally in
       collaboration with third parties. We believe our Spiros technology
       platform, including recently developed motorless Spiros systems, offers
       significant long-term value for our shareholders, and we intend to
       continue to develop it aggressively.

PRODUCT PORTFOLIO

We are focused on developing, marketing and selling pharmaceutical products that
treat respiratory conditions and infectious diseases.

RESPIRATORY CONDITIONS

The market for products that treat respiratory conditions is significant and
growing. The U.S. market for these products was approximately $9.1 billion in
1999, an increase of 21% over 1998. Major segments in this market include
allergy, asthma, chronic obstructive pulmonary disease and cough, cold.

         ALLERGY. While the causes of allergies, which can be seasonal or
perennial, vary, nasal congestion, sneezing and eye itch are common symptoms of
many allergies. The U.S. market for therapeutic drugs to treat allergies was


                                       4
<PAGE>


approximately $4.2 billion in 1999. Antihistamines and
antihistamine/decongestant combinations are the most widely used forms of
therapy and represent the largest portion of the allergy market in the U.S.
Additional products for allergies include intranasal steroids, which are
increasingly being prescribed for allergic rhinitis, and products that treat eye
allergies. The U.S. market for intranasal steroids was approximately $1.2
billion in 1999, an increase of 19% over 1998. The U.S. market for products that
treat eye allergies was approximately $210 million in 1999, an increase of 27%
over 1998.

We promote three products that treat the causes and/or symptoms of allergies:
Nasarel, Nasalide and Alocril. Nasarel and Nasalide are intranasal steroids, and
Alocril is approved for the treatment of eye itch associated with allergic
conjunctivitis.

Nasarel and Nasalide are used to treat the underlying cause and symptoms of
seasonal and perennial allergic rhinitis, including runny nose, nasal congestion
and sneezing. The active ingredient in Nasarel and Nasalide is flunisolide
hemihydrate, a synthetic steroid that reduces inflammation in allergic
reactions. Allergists and primary care physicians write the majority of
prescriptions for Nasarel and Nasalide. We acquired exclusive U.S. rights to
market and promote Nasarel and Nasalide in 1997.

Alocril is a mast cell stabilizer developed by Allergan and is approved for the
treatment of eye itch associated with allergic conjunctivitis. In the primary
care and respiratory markets, allergists and primary care physicians write the
majority of prescriptions for Alocril. We acquired exclusive U.S. rights to
market and promote Alocril to primary care and respiratory physicians in
February 2000. We launched Alocril with Allergan in March 2000.

         ASTHMA. Asthma is a complex physiological disorder characterized by
airway hyperactivity to a variety of stimuli such as dust, pollen, stress or
physical exercise, resulting in airway obstruction that is partially or
temporarily reversible. The U.S. asthma population has grown steadily in recent
years. The market for therapeutic drugs to treat asthma was approximately $7.7
billion in the major countries of the world in 1999. The U.S. market represented
approximately $3.5 billion of this total. These drugs include beta-agonists,
like albuterol, which are typically used to provide rapid symptomatic relief of
reversible bronchospasm, steroids, like beclomethasone and budesonide, which are
increasingly used as maintenance therapy to treat the inflammatory component of
asthma, and anticholinergic bronchodilators, like ipratropium, which are
commonly prescribed for patients that do not respond well to beta-agonists.
Physicians are increasingly prescribing oral inhaled steroids as maintenance
therapy to treat the inflammatory component of asthma in an effort to prevent
acute attacks. The market for oral inhaled steroids in the major countries of
the world was approximately $2.7 billion in 1998 and grew at a rate of 13% per
year from 1994 through 1998.

We are developing, on behalf of Spiros Corp. II, beclomethasone and budesonide
for use in our proprietary Spiros pulmonary drug delivery system. Beclomethasone
is a steroid used to treat the inflammatory component of asthma and selected
symptoms of chronic obstructive pulmonary disease. Sales of beclomethasone in
1998 in the major countries of the world were approximately $700 million.
Budesonide is a new generation steroid used to treat the inflammatory component
of asthma. Sales of budesonide in 1998 in the major countries of the world were
approximately $720 million.

Beclomethasone Spiros is currently in Phase III clinical trials, and we plan to
initiate Phase III clinical trials for Budesonide Spiros in 2000. The status of
our development programs for these two products and our relationship with Spiros
Corp. II are described in greater detail below under "SPIROS--DEVELOPMENT
PROGRAMS" AND "--RELATIONSHIP WITH SPIROS CORP. II."

INFECTIOUS DISEASES

The market for products that treat infectious diseases is also large and
growing. The U.S. market for these products was approximately $11.1 billion in
1999, an increase of 14% over 1998. Major segments in this market include
respiratory infections, hospital-acquired bacterial infections and fungal
infections.

         RESPIRATORY INFECTIONS. Respiratory infections caused by a variety of
bacteria can affect either the nasal cavity, the sinuses and throat or the
lungs. The resulting diagnoses include sinusitis, tonsillitis and bronchitis.
These infections are treated with antibiotics, which kill the bacteria causing
the symptoms. There are a variety of classes of antibiotics


                                       5
<PAGE>


that treat specific ranges, or spectrums, of bacteria. Classes used to treat
respiratory infection include cephalosporins, broad spectrum macrolides and
quinolones. The U.S. market for these classes is very large, totaling $6.6
billion in 1999 for the oral forms alone. The cephalosporin class accounted for
approximately $824 million of this total.

Ceclor CD is an oral cephalosporin antibiotic used primarily for the treatment
of bronchitis. It is prescribed predominantly by primary care physicians and
ear, nose and throat specialists. It is approved for the treatment of bacterial
bronchitis, uncomplicated skin and skin structure infections, pharyngitis and
tonsillitis. We acquired exclusive U.S. rights to market and promote Ceclor CD
in 1996.

         HOSPITAL-ACQUIRED BACTERIAL INFECTIONS. Bacterial infections pose a
threat to seriously ill patients in the hospital and long-term care settings.
These infections are associated with increased hospital stays, more intensive
therapy and high mortality. Increasing bacterial resistance among both Gram
positive and Gram negative organisms further complicates treatment. Therapy is
most often initiated with broad-spectrum injectable antibiotics, including third
and fourth generation cephalosporins, extended spectrum penicillins,
carbapenems, quinolones and aminoglycosides, either alone or in combination. The
U.S. market for all injectable antibiotics was approximately $2.4 billion during
1999, and the U.S. market for broad-spectrum injectable antibiotics totaled
approximately $1.7 billion in 1999.

Maxipime and Azactam (aztreonam) for Injection are both injectable antibiotics.
Maxipime is a fourth-generation cephalosporin antibiotic used to treat patients
with life-threatening infections. Pulmonologists, infectious disease
specialists, internal medicine physicians, hematologists and oncologists
prescribe Maxipime for patients with severe hospital-based respiratory and
non-respiratory conditions such as pneumonia, urinary tract infection and
febrile neutropenia. An important attribute of Maxipime is its broad spectrum of
activity, including activity against many pathogens resistant to other
antibiotics. Azactam is a monobactam and is principally used by surgeons,
infectious disease specialists and internal medicine physicians to treat
pneumonia, post-surgical infections and septicemia and has an excellent safety
profile. We acquired exclusive U.S. rights to both products in late 1998 and
have significantly increased sales of Maxipime since that time.

         TUBERCULOSIS. Tuberculosis is a highly infectious, airborne disease
caused by the bacterium MYCOBACTERIUM TUBERCULOSIS. The clinical symptoms of
tuberculosis vary, but generally include weight loss, fatigue, and weakness.
Pulmonary tuberculosis is the most common form of the active disease, leading to
progressive destruction of the infected lung. Standard treatment of the disease,
as outlined by the American Lung Association, includes a dosing regimen of four
antibiotic drugs administered over a six-month period. Some patients are
infected with resistant strains of MYCOBACTERIUM TUBERCULOSIS and do not respond
to first-line treatment with the traditional oral antibiotic drug therapies.
These patients must be treated more intensively with stronger antibiotics,
including injectable products.

We market three products for the treatment of tuberculosis: Myambutol-Registered
Trademark-, Capastat-Registered Trademark- and Seromycin-Registered Trademark-.
Myambutol is an oral tablet and is one of the four antibiotics typically used as
first-line therapy for all patients diagnosed with tuberculosis during the
initial treatment period. Capastat and Seromycin are antibiotics approved for
the treatment of multiple drug resistant tuberculosis. We believe the
tuberculosis market is an attractive segment of the infectious disease market
because treatment protocols are firmly established and the products require
minimal promotional effort.

SALES AND MARKETING ORGANIZATION

Our sales and marketing organization is composed of approximately 600 people,
and includes a field sales force, a hospital sales force and a managed markets
sales and marketing group.


                                       6
<PAGE>


FIELD SALES FORCE

Our field sales force includes approximately 325 territories, all of which are
located in the U.S. The field sales representatives principally call on primary
care physicians, allergists, ear, nose and throat specialists, pulmonologists
and a selected subset of pediatricians. These physicians collectively write a
majority of the total prescriptions for the respiratory infection and allergy
products that our field sales force promotes. These physicians also treat a
large number of asthma patients, the target of our first two Spiros products
currently under development.

HOSPITAL SALES FORCE

Our hospital sales force includes approximately 150 territories, all of which
are located in the U.S. The hospital sales representatives call principally on
hospital-based pulmonologists, infectious disease specialists, surgeons,
internal medicine physicians, hematologists and oncologists. These physicians
write a significant portion of the total prescriptions for injectable
antibiotics, while pulmonologists will also be important to the launch of our
Spiros respiratory products.

MANAGED MARKETS SALES AND MARKETING GROUP

We have also established a dedicated managed markets sales and marketing group
that focuses on sales to large regional and national managed care organizations
and retail pharmacy chains. These organizations include health maintenance
organizations, group purchasing organizations, long-term care providers,
wholesale distributors and retail chains and mail order pharmacies. A primary
goal of the managed markets sales and marketing group is to place our products
on approved formulary lists of health maintenance organizations, group
purchasing organizations and long-term care providers.

SPIROS

Spiros is our proprietary pulmonary drug delivery system that we are developing
to aerosolize pharmaceuticals in dry powder formulations for delivery to the
lungs. Our program for Spiros includes developing Spiros both for the local
delivery of pharmaceuticals to the lungs for the treatment of respiratory
conditions and for the systemic delivery of biopharmaceuticals, including
proteins and peptides, through the lungs as an alternative to current invasive
delivery techniques.

SPIROS MARKET OPPORTUNITY

There are currently many approved products for the delivery of medication to the
lungs, primarily for the treatment of respiratory conditions.
Biopharmaceuticals, in contrast, are primarily delivered orally or by injection.
We believe Spiros has the opportunity to significantly improve the delivery of
medication for both local delivery to the lungs and systemic delivery through
the lungs.

INHALATION DEVICES

Most currently-approved inhalation devices are one of the following three types:

-      METERED DOSE INHALERS. Metered dose inhalers, also known as MDIs, are
       currently the most widely used inhalation delivery system due to their
       relative convenience and portability. MDIs consist of a suspension or
       solution of drug filled into a canister, sealed with a metering valve and
       pressurized using a propellant, most commonly a chloroflorcarbon or CFC.
       Unfortunately, it is estimated that only 10% to 20% of the dose from an
       MDI actually reaches the lung, with the remainder of the drug being
       deposited in the mouth and throat or the stomach where it has no
       therapeutic effect and may cause unwanted side effects. The limited
       amount of drug that reaches the lung is caused primarily by the inability
       of most patients to coordinate their inhalation with the initiation of
       the delivery system and the resulting high velocity of the
       propellant-driven aerosol. To increase the amount of drug that actually
       reaches the lung, patients are sometimes prescribed spacers to use with
       their MDIs, thereby increasing the complexity and reducing the
       portability of the device.


                                       7
<PAGE>


-      JET NEBULIZERS. Jet nebulizers aerosolize a liquid solution of medicine,
       either ultrasonically or with compressed air, creating a fine mist that
       patients inhale slowly over several minutes. Jet nebulizers are much
       larger than other inhalation delivery systems and, because of their size,
       are primarily used to deliver aerosol to hospitalized patients, patients
       with acute asthma and patients unable to coordinate the use of other
       inhalation delivery devices. Jet nebulizers are generally considered to
       be less convenient and less portable because of their size and the
       complexity of use.

-      DRY POWDER INHALERS. Dry powder inhalers represent a significant
       advancement in the development of inhalation delivery systems. Dry powder
       inhalers are relatively convenient and portable, and are CFC-free. They
       are breath actuated, so they eliminate the need for the press-and-breathe
       coordination associated with MDIs. Although dry powder inhalers overcome
       the need to coordinate inhalation with the initiation of the device,
       currently marketed dry powder inhalers require high inspiratory flow
       rates, making the ultimate dose delivered to the patient dependent on the
       patient's inspiratory effort. This high inspiratory flow rate is
       difficult to achieve for children, the elderly and patients with
       breathing difficulties.

We believe the development of respiratory drugs for delivery through Spiros is a
significant opportunity for us. We anticipate that dry powder inhalers like
Spiros will gradually replace MDIs as the leading pulmonary delivery systems,
due primarily to the phasing out of CFC propellants and coordination problems
associated with many MDIs. Some companies are studying alternative propellants,
such as hydrofluorocarbons, for use in MDIs. We believe, however, that any
product using an alternative propellant will still suffer from many of the
limitations of currently marketed MDIs, including the need for patients to
coordinate breathing with actuation of the drug delivery system. In Europe,
where several pharmaceutical companies have marketed dry powder inhalers for a
number of years, sales of dry powder inhalers had increased to 27% of the total
sales of inhaled asthma products in 1999.

DELIVERY OF BIOPHARMACEUTICALS

Genetically engineered drugs or biopharmaceuticals are relatively new treatments
in the field of medicine. The first genetically engineered drug approved by the
FDA was human insulin, which was approved in 1982. Since then, the FDA has
approved over 55 biopharmaceuticals and many more are currently being developed.
Analysts estimate that the U.S. market for these drugs in 1999 exceeded $13
billion. Most of these drugs are currently delivered by injection. Injections
are invasive and not widely accepted by patients due to inconvenience,
discomfort and the possibility of infection. To date, alternative methods of
delivery such as oral, nasal and transdermal have not been commercially
attractive due to the relatively low amount of drug that reaches the blood.
Initial work suggests that inhalation may be an attractive alternative to
injection for select biopharmaceuticals.

We believe our Spiros drug delivery system also represents a significant
opportunity for improving the delivery of biopharmaceuticals. The lung has long
been used for the delivery of respiratory products where a local lung effect is
desired and for the systemic administration of drugs (both conventional small
molecules and biopharmaceuticals). Depending upon the formulation, the aerosol
can be directed to the larger more central airways or to the smaller airways in
the deep lung. The lung provides a large surface area for absorption and is in
close proximity to the blood supply. Pulmonary delivery bypasses
gastrointestinal degradation and hepatic metabolism, which typically destroy
biopharmaceuticals delivered orally. Delivery of medications through the lung is
also patient friendly and non-invasive and could expand the market for
biopharmaceuticals by increasing patient acceptance and providing new
therapeutic indications.

POTENTIAL ADVANTAGES OF SPIROS

We believe Spiros, if approved by the FDA, may provide advantages over other
currently available pulmonary drug delivery systems and could provide a
significant benefit to patients being treated with biopharmaceuticals:

-      INSPIRATORY FLOW RATE INDEPENDENCE AND LOW FLOW RATE CAPABILITY. Spiros
       is designed to deliver a relatively consistent drug dose to the lungs
       over a wide range of inspiratory flow rates, which can vary depending on
       a patient's health, age, effort or physical abilities. Tests of Spiros on
       human subjects have shown a relatively consistent amount of drug
       deposition throughout the clinically relevant inspiratory range. Existing
       dry powder


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<PAGE>


       inhalers can vary significantly in their level of drug deposition
       depending on the patient's inspiratory flow rate. Many of them also
       require high inspiratory flow rates for the patient to obtain the labeled
       dose of the drug. Therefore, they may deliver significantly less drug at
       the lower flow rates typically associated with compromised pulmonary
       function. For many proteins and peptides, accurate dosing is critical,
       and a pulmonary delivery system such as Spiros, which is designed to
       provide relatively consistent dosing over a variety of inspiratory flow
       ranges, may better meet the requirements for optimal pulmonary delivery
       of biopharmaceuticals.

-      MINIMUM NEED FOR PATIENT COORDINATION. Spiros is breath actuated and does
       not require the user to coordinate inhalation and actuation of the drug
       delivery system. MDIs generally require users to coordinate their
       breathing with initiation of the MDI. Studies indicate that a significant
       percentage of patients, particularly young children and the elderly, do
       not use MDIs correctly. Spiros is designed to solve these coordination
       problems by delivering the drug to patient's lungs as they inhale.

-      PATIENT CONVENIENCE. Spiros is designed to be convenient for patients,
       with features such as breath actuation and portability due to its light
       weight and small size, quick delivery time, simple operation, dose
       delivery feedback and multi-dose capability. Spiros also allows the
       patient to see the actual number of doses remaining in a cassette or
       blister pack and an LED light alerts the patient of the need to replace
       Spiros prior to the end of its useful life. Many biopharmaceuticals that
       currently must be administered by injection could be delivered by Spiros,
       thereby significantly improving patient convenience and potentially
       improving compliance.

-      FREE OF CHLOROFLUOROCARBON PROPELLANTS. Spiros does not use CFCs while
       most MDIs, currently the most popular form of aerosol drug delivery, use
       CFCs. CFC propellants have ozone destructive characteristics. Virtually
       all of the world's industrial nations, under the auspices of the United
       Nations Environmental Program, have pledged to cease use of CFCs by the
       year 2000. Continued use of CFCs in medical products has been permitted
       under annual exemptions. As a result of the planned phase out of CFCs, we
       believe that DPIs will become a leading method for pulmonary drug
       delivery.

THE SPIROS PULMONARY DRUG DELIVERY SYSTEM

Spiros uses electromechanical energy to aerosolize pharmaceuticals in dry powder
formulations for delivery to the lungs while providing advantages over
traditional pulmonary delivery systems. The Spiros system is appropriate for use
both with respiratory medications for topical delivery to the lung and with
biopharmaceuticals, which are delivered to the deep lung for systemic
administration.

CORE TECHNOLOGY

The core technology contained in the Spiros system is an aerosol generator that
uses electromechanical energy to disperse dry powder to form an aerosol for
inhalation. The main components of the aerosol generator include the impeller,
the motor, the breath-actuated switch, and the dosing chamber. When the switch
is activated, the electric circuit is completed and the impeller rotates. The
action of the impeller on the dry powder formulation supplies the energy to
disperse the drug and provide a cloud of aerosolized drug for inhalation. The
cloud of aerosolized drug is suspended in the dosing chamber and is delivered to
the lungs only as the patient inhales. This technology controls both the powder
dispersion to form the aerosol and allows for patient-actuated inhalation,
making the drug delivery independent of the inspiratory force generated by the
patient. Virtually the same dose is delivered at low and high inspiratory
efforts, making the system relatively flow rate independent.

Products are currently under development in two separate Spiros systems, a
cassette system and a blisterdisk system, both using the same core technology
with different powder storage systems. Because of the physical and chemical
requirements of the specific drugs deliverable by Spiros, as well as the varying
needs of the patients and marketplace, we believe that our cassette and
blisterdisk systems will provide flexibility for delivery of many different
types of drugs.

         CASSETTE SYSTEM. The cassette system was the first Spiros system
developed. The powder storage device in this system is a 30-dose plastic
cassette packed in a foil pouch. To use the cassette system, a patient first
removes the cassette from the pouch and opens the lid of the Spiros generator to
load the cassette. When the lid is closed, the


                                       9
<PAGE>


cassette rotates to deliver a dose of drug into the dosing chamber. An impeller
is located within the dosing chamber. When the patient inhales through the
mouthpiece, the impeller is automatically activated at a relatively low flow
rate. The action of the impeller on the powder in the chamber generates the
aerosol, which the patient inhales. When the cassette is empty, the patient
opens the lid, removes the empty cassette and loads a new cassette.

         BLISTERDISK SYSTEM. Although many drugs and powder formulations are
sufficiently stable using the cassette system, some drugs, including many
biopharmaceuticals, are sensitive to relative humidity. We have developed a
blisterdisk system for drugs that require a barrier against moisture or light.
This system uses powder-filled sealed foil blisters, which prevent moisture
contact with the powder. The powder storage device in this system is a 16-dose
blisterdisk and is sufficiently flexible to accommodate a wide variety of drugs.
To use the blisterdisk system, a patient opens the mouthpiece cover, pushes a
button to open the blister and inhales through the mouthpiece to actuate the
impeller and aerosolize the dose. As the patient closes the mouthpiece cover,
the next blister is advanced to the dosing position. When the blisterdisk is
empty, the patient opens the lid, removes the empty blisterdisk and loads a new
blisterdisk.

SPIROS DEVELOPMENT PROGRAM

Our development program for Spiros consists of two principal components. The
first component entails developing for ourselves or third parties drugs that are
currently used to treat respiratory conditions for delivery in Spiros. The
second component entails developing Spiros for the systemic delivery of
biopharmaceuticals, including proteins and peptides, through the lungs as an
alternative to current invasive delivery techniques, generally in collaboration
with third parties.

RESPIRATORY PRODUCTS

We are currently developing beclomethasone and budesonide, two drugs frequently
prescribed to treat asthma, for use in Spiros on behalf of Spiros Corp. II.

         BECLOMETHASONE. In the first quarter of 1997, we completed dose ranging
studies for one dosage strength of beclomethasone in the Spiros cassette system
under an investigational new drug application. In the fourth quarter of 1997, we
commenced a late-stage 12-week trial in humans to demonstrate safety and
efficacy. Enrollment of patients was completed by the second quarter of 1998.
The study demonstrated that Beclomethasone Spiros provided improved potency and
comparable safety and efficacy to the approved MDI product to which it was
compared. After receiving feedback from the FDA, we reformulated Beclomethasone
Spiros and finalized the commercial Spiros inhaler design. In the fourth quarter
of 1999, we initiated the first in a new series of pivotal clinical studies for
Beclomethasone Spiros. An important objective of these studies is to demonstrate
the reliability of the Spiros system, to confirm the results of the earlier
trials and to demonstrate that comparable efficacy and potentially improved
safety may be achieved with Beclomethasone Spiros using lower dosages than
currently approved MDI formulations. If the clinical trials are successful , we
currently plan to file a new drug application for Beclomethasone Spiros in late
2000 or early 2001 and, if the product is approved by the FDA, to launch the
product in late 2001 or 2002.

         BUDESONIDE. We completed a dose-targeting study for Budesonide Spiros
in the first quarter of 2000 and plan to begin a pivotal clinical program in the
second half of 2000. If the clinical trials are successful, we currently plan to
file a new drug application for Budesonide Spiros in late 2002 and, if the
product is approved by the FDA, to launch the product in 2003.

INHALED INSULIN

Approximately 15.7 million Americans, or 5.9% of the U.S. population, have
diabetes. It is estimated that 10.3 million Americans have been diagnosed and
the remaining 5.4 million people are not aware that they have the disease.
Diabetes is a disorder of metabolism--it occurs when a person's pancreas either
produces little or no insulin, or the body cells do not respond to the insulin
that is produced. As a result, glucose collects in the blood and is not
delivered to the body's cells to use for growth and energy. Instead, glucose
overflows into the urine and passes out of the body, thereby eliminating the
body's main source of fuel. Over time, high levels of blood glucose can lead to
debilitating complications, such as retinopathy, neuropathy, cardiovascular
disease, and end-stage renal disease.


                                       10
<PAGE>


There are two types of diabetes: Type 1, or insulin-dependent diabetes mellitus,
and Type 2, or non-insulin dependent diabetes mellitus. Type 1 patients, all of
whom require insulin therapy, account for between 5% and 10% of the U.S.
diabetes population. Their diabetes is usually managed most effectively with an
insulin regimen that combines a long-acting insulin with a rapid-onset insulin,
administered multiple times throughout the day to cover glucose peaks that occur
after meals. Type 2 patients comprise the remaining 90% to 95% of diagnosed
diabetes patients in the U.S. Although some Type 2 diabetes may be managed with
a careful regimen of diet and exercise, most Type 2 patients progress through
various stages of therapy from oral diabetes medications to insulin therapy.
This insulin therapy may mimic the regimen that Type 1 patients utilize--long
acting insulin to provide a basal level of insulin, with multiple injections of
rapid-onset insulin. Although insulin may be the final option for controlling
diabetes, most Type 2 patients try to avoid initiation of insulin therapy,
predominantly due to the fear and inconvenience of injections.

We are collaborating with Lilly to develop an inhaled form of insulin with our
Spiros drug delivery system. Under this collaboration, we supply the inhaler and
formulate and manufacture the insulin, which is supplied by Lilly, using our
proprietary protein and peptide pulmonary delivery technology. We also receive
research and development and progress payments during development and revenues
and royalties from supply of commercial product. Lilly conducts the clinical
trial program and holds worldwide marketing rights to the inhaled insulin
product.

We believe the Spiros inhaled insulin program represents a significant
opportunity to improve insulin therapy for diabetes patients. Spiros for inhaled
insulin incorporates many of the same features displayed in the Beclomethasone
Spiros and Budesonide Spiros systems: portability, simple operation, breath
actuation, multi-dose capability. And, perhaps more importantly, Spiros for
inhaled insulin eliminates the inconvenience and fear associated with insulin
injections.

This collaboration also represents an important opportunity for us and a
substantial recognition of the potential of the Spiros technology platform and
its application to systemic delivery of biopharmaceuticals.

NEXT GENERATION INHALERS

Our scientists have recently invented new technologies for forming and
delivering aerosols from powder formulations. The technologies are based on
earlier developments with Spiros and could provide excellent aerosol delivery
using a motorless inhaler system. The technologies could utilize either our
existing powder storage systems or new unit dose systems. Broad patent coverage
is being sought for these new technologies which we plan to develop by ourselves
and with potential partners.

RELATIONSHIP WITH SPIROS CORP. II

In late 1997, Spiros Corp. II completed a $101 million public offering. Under
agreements with us, the net proceeds of $94 million from the offering and a $75
million contribution from us were targeted to develop Spiros and Spiros
applications for use with the drugs albuterol, beclomethasone, budesonide,
ipratropium, an albuterol-ipratropium combination and additional designated
compounds. The offering consisted of 6,325,000 units sold at $16.00 per unit.
Each unit consisted of one share of Spiros Corp. II callable common stock and a
warrant to purchase one-fourth of one share of our common stock. These warrants
are exercisable from January 1, 2000 through December 31, 2002 at an exercise
price of $54.84 per share. In consideration for the warrants and the $75 million
contribution, we have the right through December 31, 2002 to purchase all, but
not less than all, of the then outstanding callable common stock of Spiros Corp.
II at predetermined prices. We also have an option, through specified dates, to
acquire Spiros Corp. II's exclusive rights for the use of Spiros with albuterol
and for the use of Spiros with a second product other than albuterol. The
purchase price for the stock purchase option may be paid, at our option, in
cash, shares of our common stock, or any combination of the two. The purchase
price for the product options may only be paid in cash.

In March 2000 we entered into a merger agreement to acquire Spiros Corp. II.
Under the agreement, for each share of callable common stock Spiros Corp. II
shareholders will receive $13.25 in cash and one five-year warrant to purchase a
fractional share of our common stock at $17.94 per share. The total
consideration for the merger as of the date of the merger agreement was
calculated to be $100.8 million, or $15.75 per share of callable common stock.


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<PAGE>


Closing of the transaction is subject to standard conditions. We have received
voting agreements in favor of the merger from holders of approximately 22% of
Spiros Corp. II's outstanding callable common stock. A special committee of
independent members of the Spiros Corp. II board has approved the merger
agreement and is recommending that the Spiros Corp. II shareholders approve the
merger.

In connection with our agreement to acquire Spiros Corp. II, we announced that
upon successful completion of the acquisition we would discontinue development
activities on albuterol in the existing Spiros cassette system. Albuterol was
the first product developed in the Spiros system. We filed a new drug
application for Albuterol Spiros in 1997, and in November 1998 we received a
complete response letter from the FDA. The response letter indicated that the
new drug application would not be approved unless specified deficiencies were
addressed. The FDA requested that we resolve several chemistry, manufacturing,
and control issues, as well as specified electromechanical reliability issues.
After several meetings with the FDA, we identified the requirements that would
address the issues raised by the FDA and support a resubmission of the Albuterol
Spiros new drug application. We were addressing the chemistry, manufacturing and
control issues for Albuterol Spiros at the time we made our decision to
discontinue development activities. Our decision was based largely on market
considerations, including an evaluation of the potential market for and the
potential return on the investment required to complete development of the
product.

In connection with the Spiros Corp. II initial public offering, we also entered
into the following additional agreements with Spiros Corp. II:

         TECHNOLOGY LICENSE AGREEMENT. Under this agreement, we granted to
         Spiros Corp. II, subject to existing agreements, an exclusive,
         worldwide, perpetual, royalty-bearing license to use Spiros in
         connection with the designated compounds.

         ALBUTEROL AND PRODUCT OPTION AGREEMENT. Under this agreement, we have
         the option to acquire the rights to use Spiros with albuterol and a
         second product other than albuterol.

         DEVELOPMENT AGREEMENT. Under this agreement, Spiros Corp. II engaged us
         to develop the Spiros products and provide general management services.

         MANUFACTURING AND MARKETING AGREEMENT. Under this agreement, Spiros
         Corp. II granted to us an exclusive worldwide license to manufacture
         and market the Spiros products in exchange for a royalty of 7% on net
         product sales, as defined in the agreement.

HEALTHSCRIPT

HealthScript is a mail service pharmacy specializing in dispensing respiratory
pharmaceuticals that we acquired in 1995. Mail order services are particularly
well suited for respiratory patients who are long-term, chronic users of certain
pharmaceuticals and to whom the convenience of mail order is appealing.
HealthScript currently dispenses approximately 100 respiratory medications
manufactured by third parties. HealthScript is focused on working with doctors,
home healthcare providers and patients to coordinate respiratory medication
services and patients management programs. HealthScript markets its services
through specialty field sales representatives and telemarketing. The patient
base is maintained by telephone contact to monitor compliance with their
doctors' prescriptions.

HealthScript is also developing Internet capabilities that will provide a
convenient, value oriented shopping experience offering consumers a wide range
of information and products designed to promote healthy lifestyles. HealthScript
will feature a comprehensive range of personal healthcare products at
competitive prices, a full-service, licensed pharmacy, along with an extensive
range of health-related information and other tools designed to help our
customers make informed purchasing decisions.

COMPETITION

Many companies, including large pharmaceutical firms with financial and
marketing resources and development capabilities substantially greater than
ours, are engaged in developing, marketing and selling products that compete
with those we offer or plan to offer. We believe that competition among both
prescription pharmaceuticals aimed at the markets for respiratory conditions and
infectious diseases and pulmonary drug delivery systems will be based on,


                                       12
<PAGE>


among other things, product efficacy, safety, reliability, availability and
price. As the respiratory and infectious disease markets continue to evolve,
there will be numerous products and devices that will continue to offer
competitive advantages to already existing products and devices in the market
place.

There are at least 25 other companies in the U.S. that are developing, marketing
and selling pharmaceuticals to treat respiratory conditions and infectious
diseases. Additionally, there are at least 10 companies currently developing,
marketing or selling single and/or multiple dose dry powder pulmonary drug
delivery systems, many of which are major pharmaceutical companies.

There are currently at least two other companies developing inhaled insulin
delivery systems, Aradigm Corporation and Inhale Therapeutic Systems, Inc. In
1998, Aradigm announced a collaboration with Novo Nordisk for inhaled insulin.
In 1999, Inhale announced that it is in Phase III clinical trials in its
collaboration with Pfizer for inhaled insulin.

PATENTS AND PROPRIETARY RIGHTS

We presently hold 12 U.S. patents and 13 U.S. patent applications relating to
the Spiros technology. The issued patents include a patent with claims covering
the use in Spiros of an impeller to create an aerosol cloud of a drug intended
for inhalation, which expires in 2011. We have also filed selected continuations
in part and foreign patent applications relating to Spiros. All of the above
patents and patent applications, relating to the Spiros technology, together
with their respective continuations in part and foreign patent applications,
have been licensed to Spiros Corp. II for specified uses under our technology
license agreement.

Our scientists have recently invented new technologies for forming and
delivering aerosols from powder formulations. The technologies are based on
earlier developments with Spiros and could provide excellent aerosol delivery
using a motorless inhaler system. The technologies could utilize either our
existing powder storage systems or new unit dose systems. Broad patent coverage
is being sought for these new technologies which we plan to develop by ourselves
and with potential partners.

We consider the protection of discoveries in connection with our development
activities important to our business. We intend to seek patent protection in the
U.S. and selected foreign countries where deemed appropriate. We also rely on
trade secrets, unpatented proprietary know-how and continuing technological
innovation to develop our competitive position. We enter into confidentiality
agreements with some of our employees under which these employees agree to
assign to us any inventions relating to our business made by them while in our
employ.

In connection with one of the patents described above, in 1993 we entered into
an agreement with the principal inventor of the Spiros technology which, among
other things, provides compensation to the inventor over the life of the patent
which is linked to annual sales of products related to such patent. Such
compensation amounts to approximately $1 million of the first $50 million of
annual sales of such products, and $1 million of the next $100 million of annual
sales, with a maximum aggregate annual compensation of $6 million.

The Alocril, Ceclor CD, Nasarel, Nasalide, Maxipime and Azactam products or
processes to make such products are covered by patents that expire between 2004
and 2008. For a discussion of risks related to our intellectual property, please
see "Risks and Uncertainties" below.

GOVERNMENT REGULATION

The manufacturing and marketing of our products are subject to regulation by
various Federal and state government authorities. In the U.S., pharmaceuticals
and drug delivery systems, including Spiros, are also subject to rigorous FDA
regulation and may be subject to regulation by other jurisdictions, including
the State of California. The Federal Food, Drug, and Cosmetic Act and the Public
Health Service Act govern the testing, manufacture, safety, efficacy, labeling,
storage, record keeping, approval, advertising and promotion of our products.
Product development and approval within this regulatory framework takes a number
of years and involves the expenditure of substantial resources.

To obtain FDA approval for each of the Spiros products, we must conduct each of
the following and possibly other steps:


                                       13
<PAGE>


-      laboratory and possibly animal tests,
-      the submission to the FDA of an investigational new drug application,
       which must become effective before human testing may commence,
-      adequate and well-controlled human testing to establish safety and
       efficacy,
-      the submission of a new drug application to the FDA for marketing
       approval, and
-      FDA approval of the new drug application prior to any commercial sale or
       shipment.

The new drug application must include, in addition to a compilation of
preclinical and clinical data, complete information about product performance
and manufacturing facilities and processes. Prior to completion of the
regulatory review process, the FDA may conduct an inspection of the facility,
manufacturing procedures, operating systems and personnel qualifications. In
addition to obtaining FDA approval for each product, each domestic drug and/or
device manufacturing facility must be registered with and approved by the FDA.
Domestic manufacturing facilities are subject to biennial inspections by the FDA
and inspections by other jurisdictions and must comply with current good
manufacturing practice for both drugs and devices. To supply products for use in
the U.S., foreign manufacturing establishments must comply with current good
manufacturing practice and other requirements and are subject to periodic
inspection by the FDA or by regulatory authorities in such countries under
reciprocal agreements with the FDA.

Preclinical testing includes laboratory evaluation of product chemistry and
animal studies, if appropriate, to assess the safety and efficacy of the product
and its formulation. The results of the preclinical tests are submitted to the
FDA as part of an IND application, and unless the FDA objects, the IND
application will become effective 30 days following its receipt by the FDA, thus
allowing the product to be tested in humans.

Clinical trials involve the administration of the pharmaceutical product to
healthy volunteers or to patients identified as having the condition for which
the pharmaceutical agent is being tested. The pharmaceutical product is
administered under the supervision of a qualified principal investigator.
Clinical trials are conducted in accordance with Good Clinical Practice and
protocols previously submitted to the FDA as part of the investigational new
drug application that detail the objectives of the study, the parameters used to
monitor safety and the efficacy criteria evaluated. Each clinical study is
conducted under the auspices of an independent Institutional Review Board at the
institution at which the study is conducted. The review board considers, among
other things, the design of the study, ethical factors, the safety of the human
subjects and the possible liability risk for the institution.

Clinical trials for new products are typically conducted in three sequential
phases that may overlap. In Phase I, the initial introduction of the
pharmaceutical into healthy human volunteers, the emphasis is on testing for
safety and adverse effects, dosage tolerance, metabolism, distribution,
excretion and clinical pharmacology. Phase II involves studies in a limited
patient population to determine the initial efficacy of the pharmaceutical for
specific targeted indications, to determine dosage tolerance and optimal dosage
and to identify possible adverse side effect and safety risks. Once a compound
is found to be effective and to have an acceptable safety profile in Phase II
evaluations, Phase III trials are undertaken to more fully evaluate clinical
outcomes. The FDA reviews both the clinical plans and the results of the trials
and may require the study to be discontinued at any time if there are
significant safety issues.

The results of the preclinical and clinical trials for pharmaceutical drug
products such as those currently marketed or being developed by us are submitted
to the FDA in the form of a new drug application for marketing approval. FDA
approval can take several months to several years, or approval may be denied.
The approval process can be affected by a number of factors, including the
severity of side effects, the availability of alternative treatments and the
risks and benefits demonstrated in clinical trials. Additional animal studies or
clinical trials may be requested during the FDA review process and may delay
marketing approval. After FDA approval for the initial indication, further
clinical trials are necessary to gain approval for the use of the product for
any additional indications. The FDA may also require post-marketing testing and
surveillance to monitor for adverse effects, which can involve significant
additional expense.

Although the FDA has considerable discretion to decide what requirements must be
met prior to approval, we believe, based upon the FDA's historical practice with
respect to drug inhalers, that the FDA is likely to regulate each combination of
Spiros with a compound as a discrete pharmaceutical or drug product requiring
separate approval as a


                                       14
<PAGE>


new drug. Although the safety and efficacy of the compounds being developed on
behalf of Spiros Corp. II in Spiros have already been established in currently
marketed formulations and delivery mechanisms, the approved requirements for new
pulmonary delivery systems such as Spiros are quite rigorous.

For both currently marketed and future products, failure to comply with
applicable regulatory requirements after obtaining regulatory approval can,
among other things, result in the suspension of regulatory approval, as well as
possible civil and criminal sanctions.
In addition, changes in regulations could have a material adverse effect on us.

HealthScript is subject to regulation by state regulatory authorities,
principally state boards of pharmacy. In addition, HealthScript 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. For a description of the risks related to government
regulation, please see "Risks and Uncertainties" below.

MANUFACTURING

Our manufacturing facility is located near our headquarters in San Diego,
California. The facility initially will be used to formulate, mill, blend and
manufacture drugs to be used with Spiros, pending regulatory approval. Our
manufacturing facility must be registered with and licensed by various
regulatory authorities and must comply with current good manufacturing practice
requirements prescribed by the FDA and other governmental authorities. We will
need to significantly scale up our current manufacturing operations from
clinical supply scale to commercial scale and comply with 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 and to
obtain marketing approval. Any failure or significant delay in the validation of
or obtaining a satisfactory regulatory inspection of the new facility or failure
to successfully scale up could have a material adverse effect on our ability to
manufacture products in connection with Spiros.

We do not have the capability to manufacture the pharmaceutical products we
currently sell. As a result, we are dependent on third-party contract
manufacturers for the supply of all of our products. These products are supplied
under short-term and long-term supply agreements. If these manufacturers were
unable to supply product, it could be difficult for us to secure alternative
sources of supply in a timely manner. This would impair our ability to ship
product to our customers and could have an adverse effect on our business and
results of operations.

HUMAN RESOURCES

We had 1,022 employees as of December 31, 1999, consisting of 565 people in
sales and marketing, 119 in corporate services, 245 in clinical, regulatory and
research and development and 93 at Health Script. None of our employees are
represented by a labor union, and we believe we maintain positive relations with
both field and corporate personnel.


                                       15
<PAGE>


RISKS AND UNCERTAINTIES

WE FACE RISKS ASSOCIATED WITH OUR OPERATIONS.

BEFORE WE CAN MARKET ANY SPIROS PRODUCT, WE WILL HAVE TO OBTAIN REQUIRED
GOVERNMENTAL APPROVALS, WHICH IS NOT ASSURED.

The development, testing, manufacturing and marketing of pharmaceutical products
are subject to extensive regulation by governmental authorities, including the
FDA. The FDA must approve each Spiros product before that product can be
manufactured or marketed for commercial sale. The review and approval process
mandated by the FDA is very rigorous, requiring extensive preclinical and
clinical testing as well as determining manufacturing capability and product
performance. The FDA may never approve any of the Spiros products currently in
development by us or in collaboration with third parties. Failure to obtain any
such approval would have an adverse effect on our business and results of
operations.

ALTERNATIVE SUPPLIERS TO OUR THIRD-PARTY MANUFACTURERS MAY NOT BE AVAILABLE ON A
TIMELY BASIS WHICH WOULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.

We do not have the capability to manufacture the pharmaceutical products we
currently sell. As a result, we are dependent on third-party contract
manufacturers for the supply of all of our products. These products are supplied
under short-term and long-term supply agreements. If these manufacturers were
unable to supply product, it could be difficult for us to secure alternative
sources of supply in a timely manner. This would impair our ability to ship
product to our customers and could have an adverse effect on our business and
results of operations.

WE INTEND TO CONTINUE TO PURSUE OUR STRATEGY OF ACQUIRING COMPLEMENTARY PRODUCTS
AND LATE-STAGE PRODUCT DEVELOPMENT CANDIDATES, WHICH COULD RESULT IN SIGNIFICANT
CHARGES TO EARNINGS AND REQUIRE THE USE OF CAPITAL RESOURCES.

As part of our business strategy, we intend to continue to pursue the
acquisition of complementary products and late-stage product development
candidates. Such acquisitions could result in significant charges to earnings in
the related period as well as require the use of a large amount of our available
capital resources. Depending on the acquisition opportunities available and our
use of existing funds to satisfy existing capital and operating needs, we may
need to raise additional funds to finance such transactions. If adequate funds
are not available when needed on terms acceptable to us, our ability to complete
acquisitions could be limited. We may not have sufficient funds to develop any
late-stage product development candidates that we may acquire, any development
we conduct may not be successful and any funds we spend on product development
may reduce our earnings below the levels expected by securities analysts.
Further, reimbursement may not be available to enable us to achieve market
acceptance of any products we may acquire or develop or to maintain price levels
sufficient to realize an appropriate return on our investment in these products.

WE WILL NEED TO SIGNIFICANTLY EXPAND OUR MANUFACTURING CAPABILITY AND COMPLY
WITH GOVERNMENT REGULATIONS BEFORE WE CAN MANUFACTURE ANY SPIROS PRODUCTS.

We will need to significantly expand our current manufacturing operations and
comply with regulations prescribed by various regulatory agencies to achieve the
quality and required levels of production of our Spiros products to obtain
marketing approval. In addition, our manufacturing facility must be registered
with and licensed by various regulatory authorities and must comply with current
good manufacturing practice requirements prescribed by the FDA and other
governmental authorities. We intend to utilize third parties to produce
components of and assemble the Spiros inhaler. Such third parties have only
produced limited quantities of components and assembled limited numbers of
inhalers. These third parties will be required to significantly scale up their
activities and to produce components which meet applicable specifications on a
timely and consistent basis. Such third parties may not be successful in
attaining acceptable service levels or meeting regulatory requirements which
would have an adverse effect on our ability to commercialize the Spiros
products.


                                       16
<PAGE>


IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL
AS NECESSARY, IT COULD IMPAIR OUR SALES AND MARKETING ORGANIZATION AND DELAY OUR
PRODUCT DEVELOPMENT PROGRAMS.

Our success depends on the principal members of our scientific and management
staff. If we lose the services of one or more of these people, we may be unable
to achieve our development objectives.

None of our employees, other than Mr. Garner, Mr. Whitehead and Dr. Kabakoff, is
currently employed under an employment contract. Mr. Garner, Mr. Whitehead and
Dr. Kabakoff are employed under separate letter agreements, which are
automatically extended for successive one-year periods.

We may not be able to recruit and retain management and qualified scientific
personnel to perform research and development work in the future due to intense
competition for such personnel among pharmaceutical and other technology-based
businesses, universities and research institutions, particularly in the San
Diego area.

WE MAY NOT BE ABLE TO EFFECTIVELY MARKET MAXIPIME AND AZACTAM.

Effective January 1, 1999, we acquired the rights to Maxipime and Azactam, our
first acquisition of products used in hospitals. Under a co-promotion agreement
with Bristol-Myers Squibb Company, their hospital sales force promoted the
products during 1999, while we built our hospital sales force. Beginning in
2000, we assumed full responsibility for promoting these products. We may not be
able to effectively promote these products solely through our own hospital sales
force.

WE MAY HAVE TO REFINANCE OUR $287.5 MILLION OF OUTSTANDING NOTES ON TERMS THAT
MAY NOT BE ATTRACTIVE TO US.

We issued $287.5 million principal amount of 3 1/2% convertible subordinated
notes due 2002. We may desire to refinance the notes at a time when we are not
able to do so or on terms that are not attractive to us. Any inability to
refinance the notes on attractive terms could have a material adverse effect on
us and the market value of our common stock.

SEASONALITY AND THE TIMING AND SEVERITY OF THE WINTER COLD AND FLU SEASON CAN
HAVE AN ADVERSE EFFECT ON OUR OPERATING 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 our results of operations in the past and may influence them again in
the future.

WE COMPETE WITH MANY COMPANIES FOR THE ACQUISITION OF RIGHTS TO NEW PRODUCTS AND
TECHNOLOGIES.

Our strategy for growth is dependent, in part, on our ability to continue to
acquire rights to new products and technologies. The failure to successfully
acquire, develop or market new products or technologies would have an adverse
effect on our business, including our ability to achieve our targeted growth
rates. Other companies, including those with substantially greater resources,
are competing with us for the rights to such products. We may not be able to
acquire additional products or technologies on acceptable terms, or at all.

GROSS MARGINS ON PHARMACEUTICAL PRODUCTS MAY DECREASE AS A RESULT OF COMPETITIVE
PRESSURES.

We do not have proprietary protection for several of the products we sell, and
other pharmaceutical companies sell substitutes for such products. In addition,
the average selling prices for many of our products may decline over time due to
competitive and reimbursement pressures. We may not be successful in any efforts
we take to mitigate the effect of a decline in average selling prices. Our
commercial success will depend in part on the price that third-party healthcare
payors, such as government and private health insurers and managed care
organizations, are willing to pay for our products. Third-party payors
continually challenge the pricing of medical products and services. Many managed
care organizations limit the number of pharmaceutical products they approve for
reimbursement. The competition between pharmaceutical companies to get their
products approved for reimbursement may also result in


                                       17
<PAGE>


downward pricing pressure in the industry. Any of these factors causing a
decline in our average selling prices would also reduce the gross margins we
achieve and negatively impact our business.

OUR ABILITY TO OBTAIN PATENTS AND PROTECT OUR PROPRIETARY RIGHTS IS UNCERTAIN
AND COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.

Our ability to obtain patents on current or future products or technologies,
defend our patents, maintain trade secrets and operate without infringing upon
the proprietary rights of others both in the U.S. and abroad is uncertain.
Patents may never issue from the applications we have filed. Even if issued or
licensed to us, patents may not be enforceable, provide substantial protection
from competition or be of commercial benefit to us. Even if all these are true,
we may not possess the financial resources necessary to enforce or defend any
patent rights we obtain. Our commercial success will also depend upon avoiding
the infringement of patents issued to competitors and upon maintaining the
technology licenses upon which certain of our products are based. Litigation,
which is costly, may be necessary to enforce our patent and license rights or to
determine the scope and validity of proprietary rights of third parties. If any
of our products or technologies are found to infringe upon patents or other
rights owned by third parties, we could be required to obtain a license to
continue to manufacture or market such products or technologies. Licenses to
such patent rights may not be available to us on commercially reasonable terms,
or at all. If we do not obtain such licenses, we could encounter delays in
marketing affected products or technologies or we could find that the
development, manufacture or sale of products requiring such licenses is not
possible.

WE ARE INVOLVED IN A LAWSUIT AND CANNOT PREDICT ITS OUTCOME.

We are involved in shareholder litigation as described in Note 13 of the
consolidated financial statements. The outcome of this lawsuit and any other
suits in which we may become involved cannot be predicted. An adverse outcome in
any of these actions could have an adverse effect on our business or results of
operations.

OUR PRODUCTS MAY CAUSE PRODUCT LIABILITY CLAIMS OR MAY NEED TO BE RECALLED,
EITHER OF WHICH WOULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.

We face an inherent business risk of exposure to product liability claims in the
event that the use of our products or technologies is alleged to have resulted
in adverse effects. The level or breadth of any insurance coverage we currently
maintain may not be sufficient to fully cover potential claims. Adequate
insurance coverage may not be available in the future at acceptable costs, if at
all.

WE FACE RISKS ASSOCIATED WITH THE PENDING ACQUISITION OF SPIROS CORP. II.

THE FAILURE TO COMPLETE THE ACQUISITION MAY RESULT IN A DECREASE IN THE MARKET
VALUE OF OUR COMMON STOCK.

The acquisition is subject to a number of contingencies, including approval by
the shareholders of Spiros Corp. II and other customary closing conditions. As a
result, the acquisition may not be completed. If the acquisition is not
completed for any reason, the trading price of our common stock may fall.

THE MERGER WILL SIGNIFICANTLY REDUCE OUR CONTRACT REVENUES AND WILL LIKELY
RESULT IN A MATERIAL CHARGE TO OUR EARNINGS IN THE PERIOD IN WHICH THE EVENT
OCCURS.

We record contract revenue for payments from Spiros Corp. II for development
costs we incur on Spiros Corp. II's behalf and for technology access fees.
Contract revenues from Spiros Corp. II totaled $55.5 million for the year ended
December 31, 1999. The merger will likely result in a significant reduction of
contract revenue to us. In addition, we expect that a material charge for
acquired in-process technology will likely be recorded in the period in which
the acquisition is effected.


                                       18
<PAGE>


WE FACE RISKS ASSOCIATED WITH OUR MARKET.

THE PHARMACEUTICAL INDUSTRY IS EXTREMELY COMPETITIVE.

Many companies, including large pharmaceutical firms with financial and
marketing resources and development capabilities substantially greater than
ours, are engaged in developing, marketing and selling products that compete
with those that we offer or plan to offer. Our failure to effectively respond to
the competitive pressures of our industry would have an adverse effect on our
business and results of operations. 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 our current or future
products. The industry is characterized by rapid technological change, and
competitors may develop their products more rapidly than we do. Competitors may
also be able to complete the regulatory process sooner, and therefore, may begin
to market their products in advance of our products.

SOME OF OUR CHARTER AND OTHER CONTRACTUAL PROVISIONS MAY PREVENT A CHANGE OF
CONTROL WHICH COULD BE BENEFICIAL TO OUR SHAREHOLDERS.

Certain provisions of our charter documents, outstanding securities (including
certain warrants, options and our notes), certain contracts (including the
executive severance agreements), and our shareholder rights plan may have the
effect of delaying, deferring or preventing a change in control. This could
deprive you of an opportunity to receive a premium for your shares of common
stock.

OUR STOCK PRICE IS VOLATILE.

The market prices for securities of emerging companies, including ours, have
historically been highly volatile. Future announcements concerning us or our
competitors may have a significant impact on the market price of our common
stock. Such announcements might include:

-        financial results,
-        the results of clinical testing of our or our competitors' products,
-        regulatory developments,
-        technological innovations,
-        new commercial products,
-        changes to government regulations,
-        regulatory decisions on commercialization of products,
-        developments concerning proprietary rights,
-        litigation or public concern as to safety of our products, or
-        our failure to achieve securities analysts' expectations concerning our
         earnings per share or revenues.


ITEM 2.  PROPERTIES

We own and occupy our campus in San Diego, California consisting of a 77,000
square foot headquarters facility and a 155,000 square foot research and
development facility which we completed in January 1999. We own two other
buildings that are situated on another parcel of land near our headquarters. One
building, consisting of approximately 34,000 square feet, is partially occupied
and is being used for manufacturing purposes. The second building, consisting of
approximately 49,000 square feet, contains our manufacturing facility that will
be used to formulate, mill, blend and fill drugs to be used with Spiros and is
also used for warehouse space.

We also lease approximately 28,560 square feet of space in Denver, Colorado and
4,375 square feet of space in Rainsville, Alabama, which comprise the operations
of Health Script's mail service pharmacy. The lease terms expire in January 2003
and January 2001, respectively.

We consider our facilities adequate for our current needs and believe that
additional space can be obtained in the future, if necessary.


                                       19
<PAGE>


ITEM 3.  LEGAL PROCEEDINGS

SETTLEMENT OF THE TERMINATION OF MERGER AGREEMENT WITH SCANDIPHARM, INC. - On
December 1, 1997, we terminated a merger agreement with Scandipharm, Inc.
entered into on October 20, 1997. On January 16, 1998, Scandipharm filed suit
against us for breach of contract. On January 20, 1998, we filed suit against
Scandipharm seeking a declaratory judgment that our termination of the merger
agreement did not breach the agreement and damages against Scandipharm. On
October 4, 1999, we settled all litigation with Scandipharm. Under the terms of
the settlement, we paid $3.5 million to Scandipharm, and the parties dismissed
all lawsuits filed against one another. The $3.5 million charge was included
with other expense in the accompanying consolidated statements of operations for
the year ended December 31, 1999.

SHAREHOLDER CLASS ACTION LITIGATION - Commencing on January 27, 1999, several
class action suits were filed against us and a number of current or former
officers and directors of the Company in the United States District Court for
the Southern District of California. The lawsuits, which have been consolidated
into one action, allege violations of the federal securities laws, and purport
to seek damages on behalf of a class of shareholders who purchased our common
stock during a defined period. We believe that the claims in the lawsuit are
without merit and intend to defend against them vigorously.


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

None.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
        RELATED SHAREHOLDER MATTERS

Our common stock is traded on the Nasdaq National Market under the symbol
"DURA." The following table sets forth the high and low sale prices of our
common stock as reported on Nasdaq, without retail mark-up, mark-down or
commissions, during each quarter in 1998 and 1999:

<TABLE>
<CAPTION>

                                      High               Low
                                      ----               ---
<S>                                  <C>              <C>
1998

First quarter                        $48.625          $20.75
Second quarter                       $29.00           $21.375
Third quarter                        $26.875          $ 9.938
Fourth quarter                       $15.625          $ 8.000

1999
First quarter                        $17.688          $12.625
Second quarter                       $15.00           $10.063
Third quarter                        $15.063          $ 9.75
Fourth quarter                       $14.813          $11.875

</TABLE>

On March 15, 2000 the closing price of our common stock was $13.625. At March
15, 2000 there were approximately 620 holders of record of our common stock. No
cash dividends were declared or paid in 1998 or 1999.


                                       20
<PAGE>


We currently intend to retain all available funds for use in our business, and
do not anticipate paying any cash dividends in the foreseeable future. Any
future determination relating to our dividend policy will be made at the
discretion of our board of directors and will depend on a number of factors,
including future earnings, capital requirements, financial condition and future
prospects and other factors the board of directors may deem relevant.


ITEM 6.  SELECTED FINANCIAL DATA


                    SELECTED CONSOLIDATED FINANCIAL DATA
                   (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                                            Year Ended December 31,
                                             ------------------------------------------------------
                                               1999       1998        1997       1996        1995
                                             ------------------------------------------------------
<S>                                          <C>        <C>         <C>        <C>         <C>
STATEMENT OF OPERATIONS DATA (1)

Total revenues                               $301,426   $199,152    $181,323   $104,119    $ 51,502
Net income (loss) (2)                        $ 30,004   $  2,733    $(84,692)  $ 24,328    $(35,778)
Net income (loss) per share (2):
          Basic                              $   0.68   $   0.06    $  (1.93)  $   0.68    $  (1.53)
          Diluted                            $   0.66   $   0.06    $  (1.93)  $   0.60    $  (1.53)

BALANCE SHEET DATA (1)
Cash, cash equivalents and
     short-term investments                  $274,413   $269,412    $385,221   $240,345    $ 67,820
Working capital                              $255,925   $248,237    $392,870   $219,864    $ 59,105
Total assets                                 $883,474   $825,459    $774,880   $504,670    $143,997
Long-term obligations                        $354,154   $352,839    $297,064   $  6,670    $ 15,427
Shareholders' equity                         $441,739   $410,372    $429,277   $443,577    $109,097

</TABLE>

(1)      Selected Consolidated Financial Data reflect various product rights and
         company acquisitions, including Maxipime and Azactam (1999), Myambutol
         (1998), Nasarel and Nasalide (1997), the Entex product line, Ceclor CD
         and Keftab-Registered Trademark- (1996), and HealthScript (1995). See
         note 4 of the notes to consolidated financial statements.

(2)      In 1999, Dura incurred a $3.5 million charge for the settlement of the
         Scandipharm litigation (see note 13 of the notes to the consolidated
         financial statements). In 1998, 1997 and 1995, Dura incurred charges
         for acquired in-process technology, purchase options and other
         nonrecurring items totaling $29.3 million, $137.6 million and $43.8
         million, respectively, as described in note 12 of the notes to
         consolidated financial statements. In addition, the nonrecurring
         consolidation of DJ Pharma, Inc.'s operations in 1998 reduced net
         income by $4.9 million. If these charges were excluded, Dura would have
         reported net income of $32.4 million, or $0.73 per share (basic) and
         $0.71 per share (diluted) for 1999, net income of $25.5 million, or
         $0.55 per share (basic) and $0.53 per share (diluted) for 1998, net
         income of $47.4 million, or $1.08 per share (basic) and $0.99 per share
         (diluted) for 1997, and $8.0 million, or $0.34 per share (basic) and
         $0.28 per share (diluted) for 1995.


                                       21
<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following comments should be read in conjunction with the consolidated
financial statements and notes contained elsewhere in this annual report. See
"Risks and Uncertainties" for trends and uncertainties known to us that could
cause reported financial information not to be necessarily indicative of future
results.

OVERVIEW

We are engaged in developing and marketing prescription pharmaceutical products
for the treatment of respiratory conditions and infectious diseases. We execute
our business strategy by (1) acquiring currently marketed or late-stage
development products, and companies developing or marketing such
pharmaceuticals, to support our presence in high-prescribing physicians' offices
and the hospital market, and (2) developing Spiros-Registered Trademark-, a
pulmonary drug delivery system for both topical and systemic delivery of
medications. We currently sell 10 prescription product lines and also own a
separate mail service pharmacy, Health Script Pharmacy Services, Inc., which
dispenses respiratory pharmaceuticals. Our operations are divided into two
business segments: (1) Pharmaceutical Products and (2) Research and Development.
The Pharmaceutical Products segment markets prescription pharmaceutical products
for the treatment of respiratory conditions and infectious diseases. The
Research and Development segment manages the development of Spiros. Each of the
Company's segments operates solely within the United States.

The following table summarizes total revenues and operating income (loss) by
segment for 1999, 1998, and 1997 (in thousands):

<TABLE>
<CAPTION>

                                                     PHARMACEUTICAL    RESEARCH AND
                                                        PRODUCTS        DEVELOPMENT      CONSOLIDATED
         <S>                             <C>         <C>               <C>               <C>
         Total revenues                  1999             $  232,589        $  68,837        $  301,426
                                         1998             $  138,025        $  61,127        $  199,152
                                         1997             $  151,850        $  29,473        $  181,323

         Operating income (loss)         1999             $   37,458        $  11,599        $   49,057
                                         1998             $  (20,600)       $  13,191        $   (7,409)
                                         1997             $   43,965        $(121,982)       $  (78,017)

</TABLE>

During 1998, we made significant acquisitions of product rights and licenses
that impact the comparability of the Company's operations for the years ended
December 31, 1999, 1998 and 1997. On December 31, 1998, we acquired exclusive
U.S. distribution rights for the patented hospital antibiotic products Maxipime
(cefepime hydrochloride) for Injection and Azactam (aztreonam) for Injection
from Bristol-Myers Squibb Company. The Company began selling these products
effective January 1, 1999. In August 1998, we acquired from an affiliate of
American Home Products exclusive U.S. marketing rights to the single-source
tuberculosis drug Myambutol (ethambutol hydrochloride).


                                       22
<PAGE>


RESULTS OF OPERATIONS

The following table summarizes our results of operations for 1999, 1998, and
1997 (in thousands, except per share amounts):

<TABLE>
<CAPTION>

                                                          1999            1998            1997

         <S>                                           <C>             <C>             <C>
         Total revenues                                $ 301,426       $ 199,152       $ 181,323
         Operating income (loss)                          49,057          (7,409)        (78,017)
         Net income (loss)                                30,004           2,733         (84,692)
         Earnings (loss) per share (diluted)                0.66            0.06           (1.93)

</TABLE>

NET INCOME

Net income for 1999 was $30 million, or $0.66 per diluted share, which included
a $3.5 million pre-tax charge in other expense for settling all litigation with
Scandipharm, Inc. Net income for 1998 was $2.7 million, or $0.06 per diluted
share, which included a pre-tax charge totaling $29.3 million for the write-down
of product rights whose values we deemed impaired, as well as the $4.9 million
after-tax impact of consolidating the operations of DJ Pharma. Net loss for 1997
was $84.7 million, or $1.93 per diluted share, which included pre-tax charges
totaling $137.6 million for acquired in-process technology, purchase options and
other items. If these charges were excluded, we would have reported net income
of $32.4 million, or $0.71 per diluted share, for 1999, net income of $25.5
million, or $0.53 per diluted share, for 1998, and net income of $47.4 million,
or $0.99 per diluted share, for 1997. A more detailed discussion of these
charges is presented below under "Nonrecurring Items."

SALES AND GROSS PROFIT

Sales for 1999 increased $95.6 million, or 70%, over 1998. This increase is due
primarily to +sales of Maxipime and Azactam, which we acquired in December 1998
and began selling effective January 1999, as well as increases in the sales of
our promoted products Ceclor CD and Nasarel. Gross profit, or sales less cost of
sales, for 1999 increased $79 million, or 74%, over 1998 as a result of the
increase in sales in 1999. Gross profit as a percentage of sales increased to
80% in 1999 compared to 79% in 1998 and 1997. Sales in 1998 decreased $14.3
million, or 9%, from 1997 due primarily to a decline in sales of some of our
cough, cold and allergy products, partially offset by an increase in sales of
Myambutol, acquired in August 1998. Gross profit for 1998 decreased $11.5
million, or 10%, from 1997 as a result of the decrease in sales in 1998.

CONTRACT REVENUE

Contract revenue relates primarily to amounts received by us for development
work we perform on our Spiros pulmonary drug delivery system, as well as
milestone and technology access payments, under agreements with Spiros Corp. II
and Lilly. Contract revenues for 1999 were $69.7 million, of which $55.5 million
was from Spiros Corp. II, as compared to $63 million, of which $47.8 million was
from Spiros Corp. II, for 1998. Contract revenues for 1998 increased $32.1
million, or 104%, over 1997 due to increased development activity conducted
under the agreements discussed above. Contract revenues totaled $25.9 million
from Spiros Development Corporation and Spiros Corp. II in 1997. Contract
revenues may fluctuate from period to period based on the level of research
funding received as well as the achievement of milestones and receipt of
technology access payments from our partners. See "Liquidity and Capital
Resources" below and note 6 of the notes to the consolidated financial
statements for discussion of the Company's March 2000 definitive merger
agreement with Spiros Corp. II. The merger with Spiros Corp. II, if completed,
will likely result in a significant reduction of our contract revenue even
though the Company will continue to incur the related development costs.


                                       23
<PAGE>


CLINICAL, DEVELOPMENT AND REGULATORY EXPENSES

Clinical, development and regulatory expenses increased $9.1 million, or 21%,
from 1998 to 1999 and increased $18.6 million, or 74% from 1997 to 1998 due to
increased development activity conducted under the agreements covering the use
of various compounds with Spiros as discussed above.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses for 1999 increased $42 million, or
46%, over 1998 but decreased as a percentage of total revenues from 46% in 1998
to 44% in 1999. The dollar increase is primarily due to costs incurred to expand
our field sales force (increase of $41.9 million), higher marketing costs
relating to our recently acquired products (increase of $3.4 million) and costs
related to general corporate activities (increase of $2.9 million). The
increases were offset by the $6 million impact of the consolidation of DJ Pharma
into our 1998 financial statements as described in note 11 of the notes to the
consolidated financial statements. Selling, general and administrative expenses
for 1998 increased $38.6 million, or 73%, over 1997 and increased as a
percentage of total revenues to 46% for 1998 from 29% for 1997. The dollar and
percentage increases are primarily due to costs incurred to expand our field
sales force (increase of $27.6 million), costs related to general corporate
activities (increase of $4.2 million) and the consolidation of DJ Pharma into
our 1998 financial statements (increase of $6 million). For both 1999 and 1998,
the expansion of our sales force was in response to the acquisition of
distribution rights to new products as well as to increase the promotion of
certain existing products in our portfolio.

PRODUCT RIGHTS AMORTIZATION

Product rights amortization for 1999 increased $7.4 million, or 58%, over 1998,
and increased as a percentage of total revenues from 6% in 1998 to 7% in 1999.
The dollar and percentage increases are due to the purchase of Myambutol in
August 1998, as well as the purchases of Maxipime and Azactam on December 31,
1998. These increases were partially offset by a decrease in amortization of $1
million resulting from the write down of the Rondec product rights in 1998.
Product rights amortization for 1998 increased $1.2 million, or 10%, over 1997,
and remained consistent as a percentage of total revenues at 6% in 1997 and
1998. The dollar increase is due to the purchase of Myambutol in August 1998 and
the purchases of Nasarel and Nasalide in May 1997.

NONRECURRING ITEMS

SETTLEMENT OF THE TERMINATION OF MERGER AGREEMENT WITH SCANDIPHARM, INC. - On
December 1, 1997, we terminated a merger agreement with Scandipharm, Inc.
entered into on October 20, 1997. On January 16, 1998, Scandipharm filed suit
against us for breach of contract. On January 20, 1998, we filed suit against
Scandipharm seeking a declaratory judgment that our termination of the merger
agreement did not breach the agreement and damages against Scandipharm. On
October 4, 1999, we settled all litigation with Scandipharm. Under the terms of
the settlement, we paid $3.5 million to Scandipharm, and the parties dismissed
all lawsuits filed against one another. The $3.5 million charge was included
with other expense in the accompanying consolidated statements of operations for
the year ended December 31, 1999.

IMPAIRMENT OF LONG-TERM ASSETS - We periodically evaluate our ability to recover
the carrying value of our long-term assets. In the fourth quarter of 1998,
management concluded that we would not recover the carrying value of the Rondec
product line and, accordingly, recorded a nonrecurring charge of $29.3 million.
The primary event that led management to conclude that the value of the Rondec
product line was impaired was the licensing of the marketing and distribution
rights for these products to DJ Pharma. The four-year period in which we are to
receive royalties from the sale of these products is significantly less than the
number of years management would have expected to receive cash flows from these
products had they not been out-licensed. In addition, sales of the Rondec
products declined significantly beginning in 1998 as we focused our promotion
efforts away from our branded generic products such as Rondec and toward our
patent protected and proprietary products. The impairment write down was
measured based on a discounted cash flow forecast taking into consideration the
terms of the licensing agreement with DJ Pharma.


                                       24
<PAGE>


In 1997, management concluded that the decline in the fair value of an
investment in equity securities was "other than temporary" as our carrying value
of the securities exceeded their fair value for the entire second half of 1997.
Accordingly, we recorded a charge of $2.9 million to write down the investment
to its estimated fair value, which was determined based on quoted market prices.

ACQUIRED IN-PROCESS TECHNOLOGY - The charge for acquired in-process technology
in 1997 relates to our acquisition of Spiros Corp. At the date of the
acquisition, Spiros Corp. owned the rights to develop and market Spiros with
certain compounds. The use of Spiros with each of these compounds required
significant further development and regulatory approval before they could be
made available for sale. The excess of the purchase price over the fair value of
the net tangible assets was allocated to in-process technology. We concluded
that due to the additional development and testing to be performed and
regulatory approvals required, the commercial viability of the technology
acquired in this acquisition had not yet been established. As such, a charge to
earnings was recorded for the portion of the purchase price allocated to
in-process technology.

ACQUIRED PURCHASE OPTIONS - In connection with the formation of Spiros Corp. II
in 1997, we contributed $75 million as consideration for the options to acquire
the rights to certain products from Spiros Corp. II. We concurrently recorded
charges for this purchase option for the amount of cash contributed to Spiros
Corp. II.

BUY-OUT OF ROYALTY AGREEMENT - In December 1997, we terminated a ten-year
royalty agreement which we entered into in 1994. The agreement required us to
make quarterly royalty payments based on sales in specified sales territories.
As consideration for terminating the agreement, we made a cash payment of $11.3
million (paid in January 1998) and issued a warrant to purchase 200,000 shares
of our common stock for $45.12 per share. The estimated fair value of the
warrant at issuance was $2.5 million which, when combined with the cash payment,
resulted in a nonrecurring charge in 1997 of $13.8 million.

INTEREST INCOME

Interest income for 1999 decreased $4.4 million, or 20%, from 1998 due to lower
balances of cash, cash equivalents and short-term investments during 1999
resulting from the acquisition of product rights and the repurchase of shares of
our common stock in the second half of 1998. Interest income for 1998 increased
$3.8 million, or 21%, over 1997. The increase is due to higher balances of cash,
cash equivalents and short-term investments during 1998 resulting primarily from
the investment of the net proceeds of our notes offering completed in the third
quarter of 1997.

INTEREST EXPENSE

Interest expense for 1999 increased $6.1 million, or 51%, over 1998 due to
interest on obligations incurred in connection with the acquisition of product
rights completed in the second half of 1998. Interest expense for 1998 increased
$6.2 million, or 107%, over 1997 due to interest expense on our notes offering
which we completed in the third quarter of 1997.

PROVISION FOR INCOME TAXES

Our effective tax rate was 32% for 1999, as compared to a tax benefit of
$907,000 on pre-tax income of $1.8 million for 1998. The 1999 effective tax rate
is mainly attributable to the realization of research and development credits
and the utilization of net operating loss carryforwards. The primary reason for
recognizing a tax benefit in 1998 in spite of achieving pre-tax earnings was the
availability of federal research and development and other tax credits. A
significant portion of the nonrecurring charges incurred in 1997 was not
deductible for tax purposes. As such, an $18.8 million tax provision was
recorded despite incurring a pre-tax loss. Excluding the impact of nonrecurring
charges, our effective tax rate for 1997 was 34%.


                                       25
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and short-term investments increased by $5 million from
$269.4 million at December 31, 1998 to $274.4 million at December 31, 1999.
Working capital increased by $7.7 million from $248.2 million at December 31,
1998 to $255.9 million at December 31, 1999.

We have outstanding $287.5 million principal amount of notes due July 15, 2002
with interest payable semiannually at a coupon rate of 3.5%. The notes are
convertible, at the option of the holder, into shares of common stock at any
time prior to maturity or redemption at a conversion price of $50.635 per share.

In addition to the notes, as of December 31, 1999, we had outstanding an
aggregate of $68.5 million in current and other long-term obligations related to
our product acquisitions, of which $1.9 million is to be paid during the next 12
months. As of December 31, 1999, additional payments totaling approximately $140
million, estimated based on historical sales levels of the related products, are
contingent upon the levels of future sales of certain products, and
approximately $70 million are contingent upon the continued absence of competing
formulations of certain products as defined in the respective agreements. Such
contingent amounts are payable through 2004, including approximately $48 million
contingently due within the next 12 months.

We have entered into various agreements with Spiros Corp. II for the development
of Spiros with certain compounds including beclomethasone and budesonide. In
1997, we licensed the use of these and other compounds with Spiros to Spiros
Corp. II on an exclusive basis. We have the right to purchase all, but not less
than all, of the then outstanding shares of Spiros Corp. II callable common
stock at predetermined prices. In addition, we have the right to acquire from
Spiros Corp. II the exclusive rights for the use of Spiros with albuterol and
for the use of Spiros with a second product other than albuterol. Both the stock
purchase option and the product purchase option expire the earlier of December
31, 2002 or upon the use of substantially all of Spiros Corp. II's funds.

Spiros Corp. II has engaged us to develop the Spiros products under license from
us. We record contract revenue for payments from Spiros Corp. II for development
costs we incur on its behalf and for technology access fees. Contract revenues
from Spiros Corp. II totaled $55.5 million for the year ended December 31, 1999.
Based on the current development plan of Spiros Corp. II, we expect that it will
expend all of its existing cash during the second half of 2000. Further, we do
not believe that Spiros Corp. II's existing funds will be sufficient to complete
the development of any Spiros product.

In March 2000 we entered into a merger agreement to acquire Spiros Corp. II.
Under the agreement, for each share of callable common stock Spiros Corp. II
shareholders will receive $13.25 in cash and one five-year warrant to purchase a
fractional share of our common stock at $17.94 per share, which represents a 25%
premium over the average closing price of our common stock for the ten trading
days prior to the date of the merger agreement. The exact fraction of a share of
our common stock purchasable under the warrant will be determined based on the
average closing price of our common stock for the ten trading days prior to the
vote of the Spiros Corp. II shareholders on the merger and will result in a
calculated Black-Scholes value for each warrant of between $3.22 and $1.81. The
total consideration for the merger as of the date of the merger agreement was
calculated to be $100.8 million, or $15.75 per share of callable common stock.
Closing of the transaction is subject to Hart-Scott-Rodino clearance,
effectiveness of the registration statement for our warrants, and Spiros Corp.
II shareholder approval. We have received voting agreements in favor of the
merger from holders of approximately 22% of Spiros Corp. II's outstanding
callable common stock. A special committee of independent members of the Spiros
Corp. II's board, formed in December 1999 to evaluate strategic alternatives for
Spiros Corp. II, has approved the merger agreement and is recommending that the
Spiros Corp. II shareholders approve the merger.

The discontinuation of contract revenue from Spiros Corp. II due to the
acquisition of its stock by us would significantly reduce our earnings as well
as cash generated from operating activities. In addition, we expect that a
charge for acquired in-process technology will be recorded in the period in
which the merger is effected.

We anticipate that our existing capital resources and cash generated from
operations will be sufficient to finance our operations through at least the
next 12 months. Product or company acquisitions or in-licensing opportunities,
however, may require significant additional capital resources. Such additional
capital resources may not be available


                                       26
<PAGE>


when needed or on terms acceptable to us. We are actively pursuing the
acquisition of rights to products and/or companies that may require the use of
substantial capital resources; however, there are no present agreements or
commitments for any such acquisitions.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
         MARKET RISK

We invest our excess cash and short-term investments in U.S. government and
corporate debt securities with high quality credit ratings and maturities of
less than two years. These investments are not held for trading or other
speculative purposes. Changes in interest rates affect the investment income we
earn on our investments and, therefore, impact our cash flows and results of
operations. At December 31, 1999, we had outstanding subordinated notes totaling
$287.5 million, which mature in July 2002. The notes have a fixed interest rate
of 3 1/2 percent. Accordingly, while changes in interest rates may affect the
fair market value of the notes, they do not impact our cash flows or results of
operations. As of December 31, 1999, the notes had a fair market value of $234.3
million. We are not exposed to risks for changes in foreign currency exchange
rates, commodity prices, or any other market rates.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Index to consolidated financial statements below for a list of the
financial statements included in this Form 10-K.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
         ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Identification of Directors. The information under the caption "Election of
Directors," appearing in the Proxy Statement to be filed for the 2000 Annual
Meeting of Shareholders is incorporated herein by reference.

(b) Identification of Executive Officers. The information under the caption
"Executive Officers," appearing in the Proxy Statement to be filed for the 2000
Annual Meeting of Shareholders is incorporated herein by reference.

(c) Compliance with Section 16(a) of the Exchange Act. The information under the
caption "Section 16(a) Beneficial Ownership Reporting Compliance," appearing in
the Proxy Statement to be filed for the 2000 Annual Meeting of Shareholders is
incorporated herein by reference.


                                       27
<PAGE>


ITEM 11. EXECUTIVE COMPENSATION

The information under the heading "Executive Compensation and Other Information"
appearing in the Proxy Statement to be filed for the 2000 Annual Meeting of
Shareholders is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information under the headings "Principal Stockholders" and "Security
Ownership of Management," appearing in the Proxy Statement to be filed for the
2000 Annual Meeting of Shareholders is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information under the headings "Election of Directors," "Executive
Compensation and Other Information" and "Certain Relationships and Related
Transactions," appearing in the Proxy Statement to be filed for the 2000 Annual
Meeting of Shareholders is incorporated herein by reference.


                                       28
<PAGE>


                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)      (1)  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

See attached Index to Consolidated Financial Statements.

(a)      (2)  FINANCIAL STATEMENT SCHEDULES

                                   SCHEDULE II


                           DURA PHARMACEUTICALS, INC.
                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
                                  IN THOUSANDS

<TABLE>
<CAPTION>

                                  BALANCE AT                                       BALANCE AT
                                  BEGINNING                                            END
                                   OF YEAR        ADDITIONS        DEDUCTIONS        OF YEAR
<S>                               <C>            <C>             <C>               <C>
Allowance for
   doubtful accounts:

         1999                      $ 3,739       $ 1,938 (a)     $ (2,091) (b)      $ 3,586

         1998                      $ 3,215       $ 2,333 (a)     $ (1,809) (b)      $ 3,739

         1997                      $ 1,420       $ 2,566 (a)     $   (771) (b)      $ 3,215

Accrued product
   returns:

         1999                      $ 3,840       $ 8,896 (a)     $ (8,148) (c)      $ 4,588

         1998                      $ 2,699       $10,433 (a)     $ (9,292) (c)      $ 3,840

         1997                      $ 3,741       $ 2,501 (a)     $ (3,543) (c)      $ 2,699

</TABLE>

(a) Provision charged to earnings.
(b) Accounts written off.
(c) Product returns received.


                                       29
<PAGE>


(a)(3)  EXHIBITS

       Exhibit No.   Description
       ----------    -----------
11)     3.1          Certificate of Incorporation.

17)     3.2          Certificate of Amendment of Certificate of Incorporation,
                     effective May 21, 1998.

17)     3.3          Certificate of Designation of Series A Junior Participating
                     Preferred Stock.

11)     3.4          Bylaws.

18)     4.1          Specimen Common Stock Certificate.

12)     4.2          Indenture, including form of Note, dated July 30, 1997,
                     between the Company and Chase Manhattan Bank and Trust
                     Company, successor to Chase Trust Company of California, as
                     trustee, with respect to the 3 1/2% Convertible
                     Subordinated Notes due 2002.

12)     4.3          Form of 3 1/2% Convertible Subordinated Note (included in
                     Exhibit 4.2).

13)     4.4          Warrant Agreement dated December 22, 1997 between the
                     Company and ChaseMellon Shareholder Services, L.L.C., as
                     warrant agent, including form of SDCII Warrant.

3)      4.5          Form of Series W Warrant.

6)      4.6          Form of Series S Warrant.

16)     4.7          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.

22)     4.8          First Amendment to the Rights Agreement dated December 10,
                     1998 between the Company and ChaseMellon Shareholder
                     Services, L.L.C.

        4.9          Specimen SDCII Warrant.

1)      10.1         License Agreement dated June 1, 1990 between the Company
                     and Mark B. Mecikalski, M.D. (with certain confidential
                     portions omitted).

12) +   10.2         Form of Indemnification Agreement between the Company and
                     each of its directors.

12) +   10.3         Form of Indemnification Agreement between the Company and
                     each of its officers.

18) +   10.4         1992 Stock Option Plan, as amended and restated.

14) +   10.5         Form of Notice of Grant of Stock Option.

14) +   10.6         Form of Stock Option Agreement.

2) +    10.7         Employment letter agreement dated May 7, 1990 between the
                     Company and Cam L. Garner.


                                       30
<PAGE>


4)      10.8         Assignment Agreement dated March 12, 1993 between the
                     Company and Mark B. Mecikalski, M.D. (with certain
                     confidential portions omitted).

5)                   10.9 Technology Access License and Royalty Agreement dated
                     September 5, 1994 between Elan Corporation, plc and the
                     Company (with certain confidential portions omitted).

6)      10.10        Investors' Rights Agreement dated December 29, 1995 between
                     the Company and the investors listed on Schedule A thereto.

7)                   10.11 Agreement for Purchase and Sale of Assets dated June
                     17, 1996 between the Company and Procter & Gamble
                     Pharmaceuticals, Inc. (with certain confidential portions
                     omitted) re: Entex-Registered Trademark-.

8)      10.12        Licensing Agreement dated August 21, 1996 between the
                     Company and Eli Lilly and Company (with certain
                     confidential portions omitted) re: Ceclor-Registered
                     Trademark-CD and Keftab-Registered Trademark-.

9)      10.13        Manufacturing Agreement dated August 21, 1996 between the
                     Company and Eli Lilly and Company (with certain
                     confidential portions omitted) re: Ceclor-Registered
                     Trademark- CD and Keftab-Registered Trademark-.

11)     10.14        Business Loan Agreement dated April 14, 1997 between the
                     Company and Bank of America National Trust and Savings
                     Association.

10)     10.15        Syntex Asset Purchase Agreement dated March 27, 1997
                     between the Company and Syntex (USA), Inc. re:
                     Nasarel-Registered Trademark-and Nasalide-Registered
                     Trademark-.

10)     10.16        SPIL Asset Purchase Agreement dated March 27, 1997 between
                     the Company and Syntex Pharmaceuticals International
                     Limited re: Nasarel-Registered Trademark-and
                     Nasalide-Registered Trademark-.

12)     10.17        Amendment No. 1 to Business Loan Agreement dated May 8,
                     1997 between the Company and Bank of America National Trust
                     and Savings Association.

12)     10.18        Amendment No. 2 to Business Loan Agreement dated July 30,
                     1997 between the Company and Bank of America National Trust
                     and Savings Association.

15)     10.19        Amendment No. 3 to Business Loan Agreement dated October
                     28, 1997 between the Company and Bank of America National
                     Trust and Savings Association.

15) +   10.20        Deferred Compensation Plan.

13)                  10.21 Technology License Agreement dated December 22, 1997
                     between the Company, Dura Delivery Systems, Inc., Spiros
                     Development Corporation and Spiros Development Corporation
                     II, Inc.

13)     10.22        Development Agreement dated December 22, 1997 between the
                     Company and Spiros Development Corporation II, Inc.

13)     10.23        Albuterol and Product Option Agreement dated December 22,
                     1997 between the Company and Spiros Development Corporation
                     II, Inc.

13)     10.24        Manufacturing and Marketing Agreement dated December 22,
                     1997 between the Company and Spiros Development Corporation
                     II, Inc.

13)     10.25        Services Agreement dated December 22, 1997 between the
                     Company and Spiros Development Corporation II, Inc.


                                       31
<PAGE>


15) +   10.26        Employment letter agreement dated May 1, 1996 between the
                     Company and David S. Kabakoff.

18)     10.27        Amendment No. 4 to Business Loan Agreement dated June 25,
                     1998 between the Company and Bank of America National Trust
                     and Savings Association.

19)     10.28        Amendment No. 5 to Business Loan Agreement dated October
                     12, 1998 between the Company and Bank of America National
                     Trust and Savings Association.

19)     10.29        Amendment No. 6 to Business Loan Agreement dated November
                     13, 1998 between the Company and Bank of America National
                     Trust and Savings Association.

19) +   10.30        Employment letter agreement dated July 1, 1998 between the
                     Company and Robert S. Whitehead.

19) +   10.31        Notice of Grant of Stock Option dated July 10, 1998 between
                     the Company and Robert S. Whitehead.

20)     10.32        Distribution Agreement for Maxipime-Registered Trademark-
                     and Azactam-Registered Trademark- dated December 21, 1998
                     between the Company and Bristol-Myers Squibb Company (with
                     certain confidential portions omitted).

20)     10.33        Supply Agreement for Maxipime-Registered Trademark- and
                     Azactam-Registered Trademark-dated December 21, 1998
                     between the Company and Bristol-Myers Squibb Company (with
                     certain confidential portions omitted).

21)     10.34        Amendment No. 7 to Business Loan Agreement dated December
                     31, 1998 between the Company and Bank of America National
                     Trust and Savings Association.

        10.35        Amendment No. 8 to Business Loan Agreement dated April 30,
                     1999 between the Company and Bank of America National Trust
                     and Savings Association.

        10.36        Amendment No. 9 to Business Loan Agreement dated June 30,
                     1999 between the Company and Bank of America National Trust
                     and Savings Association.

        10.37        Amended and Restated Purchase & License Agreement dated
                     January 25, 1999 between the Company, DJ Pharma, Inc., and
                     Dura (Bermuda) Trading Company Ltd. re: Keftab-Registered
                     Trademark-, Rondec-Registered Trademark-, & CCA products *
                     (with certain confidential portions omitted).

        10.38        Amendment No. 1 to Amended and Restated Purchase & License
                     Agreement dated December 30, 1999 between the Company, DJ
                     Pharma, Inc., and Dura (Bermuda) Trading Company Ltd. *
                     (with certain confidential portions omitted).

+       10.39        Board of Directors Deferred Compensation Plan

        10.40        Form of Executive Change of Control Severance Agreement
                     dated January 1, 2000 between the Company and each of its
                     officers.

        11           Statements Re Computations of Net Income (Loss) Per Share.

        21           Subsidiaries of the Registrant

        23           Independent Auditors' Consent.

        24           Power of Attorney (See signature page).


                                       32
<PAGE>


        27           Financial Data Schedule for the year ended December 31,
                     1999.



 1)  Incorporated by reference to the Company's Registration Statement on Form
     S-1 (No. 33-44525), filed December 13, 1991, as amended.
 2)  Incorporated by reference to the Company's Form 10-K for the year ended
     December 31, 1992, as amended.
 3)  Incorporated by reference to the Company's Registration Statement
     on Form S-3 (No. 33-71798), filed December 13, 1993.
 4)  Incorporated by reference to the Company's Form 10-K for the year ended
     December 31, 1993, as amended.
 5)  Incorporated by reference to the Company's Form 10-Q for the quarter ended
     September 30, 1994, as amended.
 6)  Incorporated by reference to the Company's Form 8-K, dated December 29,
     1995, as amended.
 7)  Incorporated by reference to the Company's Form 8-K, dated July 3, 1996.
 8)  Incorporated by reference to the Company's Form 8-K, dated September 5,
     1996, as amended.
 9)  Incorporated by reference to the Company's Form 10-K for the year ended
     December 31, 1996.
10)  Incorporated by reference to the Company's Form 8-K, dated May 7, 1997.
11)  Incorporated by reference to the Company's Form 10-Q for the quarter ended
     June 30, 1997.
12)  Incorporated by reference to the Company's Form 10-Q for the quarter ended
     September 30, 1997.
13)  Incorporated by reference to the Company's Form 8-K, dated December 19,
     1997.
14)  Incorporated by reference to the Company's Registration Statement on Form
     S-8 (No. 333-34551), filed August 28, 1997.
15)  Incorporated by reference to the Company's Form 10-K for the year ended
     December 31, 1997.
16)  Incorporated by reference to the Company's Form 8-K, dated May 21, 1998.
17)  Incorporated by reference to the Company's Registration Statement on Form
     8-A, filed May 22, 1998.
18)  Incorporated by reference to the Company's Form 10-Q for the quarter ended
     June 30, 1998.
19)  Incorporated by reference to the Company's Form 10-Q for the quarter ended
     September 30, 1998.
20)  Incorporated by reference to the Company's Form 8-K, dated January 1, 1999.
21)  Incorporated by reference to the Company's Form 10-K for the year ended
     December 31, 1998.
22)  Incorporated by reference to the Company's Form 8-A/A, dated December 10,
     1998.

+ Management contract or compensation plan or arrangement.

* Certain confidential portions of this Exhibit were omitted by means of marking
  such portions with an asterisk (the "Mark"). This Exhibit has been filed with
  the Secretary of the Commission without the Mark pursuant to the Company's
  application requesting confidential treatment under Rule 24b-2 under the
  Securities Exchange Act of 1934, as amended.

(b)      REPORTS ON FORM 8-K

None.

SUPPLEMENTAL INFORMATION

No Annual Report to Shareholders or Proxy materials have been sent to
shareholders as of the date of this report. The Annual Report to Shareholders
and Proxy material will be furnished to the Company's shareholders subsequent to
the filing of this report and the Company will furnish such material to the
Securities and Exchange Commission at that time.


                                       33
<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
amendment no. 1 to the Annual Report on Form 10-K/A to be signed on its
behalf by the undersigned, thereunto duly authorized.

Date:      July 31, 2000              DURA PHARMACEUTICALS, INC.
       ---------------------

                                      By:   /s/ Cam L. Garner
                                            ------------------------------------
                                            Cam L. Garner,
                                            Chairman and Chief Executive Officer


         PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS AMENDMENT NO. 1 TO THE ANNUAL REPORT ON FORM 10-K/A HAS BEEN SIGNED
BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE
CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>


Signature                                         Title                            Date
---------                                         -----                            ----
<S>                                       <C>                                    <C>

/s/ Cam L. Garner                              Chairman and                      July 31, 2000
--------------------------------           Chief Executive Officer               -------------
(Cam L. Garner)                         (Principal Executive Officer)

/s/ Michael T. Borer                      Senior Vice President and              July 31, 2000
--------------------------------           Chief Financial Officer               -------------
(Michael T. Borer)                (Principal Financial and Accounting Officer)

/s/ James C. Blair, Ph.D.*                       Director                        July 31, 2000
--------------------------------                                                 -------------
(James C. Blair, Ph.D.)

/s/ Joseph C. Cook, Jr.*                         Director                        July 31, 2000
--------------------------------                                                 -------------
(Joseph C. Cook, Jr.)

/s/ David F. Hale*                               Director                        July 31, 2000
--------------------------------                                                 -------------
(David F. Hale)

/s/ F. Richard Nichol, Ph.D.*                    Director                        July 31, 2000
--------------------------------                                                 -------------
(F. Richard Nichol, Ph.D.)

/s/ Gordon V. Ramseier*                          Director                        July 31, 2000
--------------------------------                                                 -------------
(Gordon V. Ramseier)

/s/ Charles G. Smith, Ph.D.*                     Director                        July 31, 2000
--------------------------------                                                 -------------
(Charles G. Smith, Ph.D.)

*By:  /s/ Cam L. Garner
--------------------------------
(Cam L. Garner)
ATTORNEY-IN-FACT AND AGENT

</TABLE>


                                       34
<PAGE>


                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>

<S>                                                                          <C>
   Consolidated Balance Sheets...............................................F-1

   Consolidated Statements of Operations.....................................F-2

   Consolidated Statements of Cash Flows.....................................F-3

   Consolidated Statements of Shareholders' Equity...........................F-4

   Notes to Consolidated Financial Statements................................F-5

   Independent Auditors' Report ............................................F-20

</TABLE>


<PAGE>


--------------------------------------------------------------------------------
DURA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                                                DECEMBER 31,
                                                                                            1999            1998
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>             <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                             $     63,631    $     31,113
  Short-term investments                                                                     210,782         238,299
  Accounts and other receivables                                                              44,632          24,627
  Inventory                                                                                   12,938           9,006
  Other current assets                                                                        11,523           7,440
--------------------------------------------------------------------------------------------------------------------
     Total current assets                                                                    343,506         310,485

License agreements and product rights                                                        389,631         377,250
Property                                                                                      93,333          85,374
Other assets                                                                                  57,004          52,350
--------------------------------------------------------------------------------------------------------------------
Total                                                                                   $    883,474    $    825,459
                                                                                        ============    ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                                      $     11,411    $      8,893
  Accrued liabilities                                                                         74,305          46,557
  Current portion of long-term obligations                                                     1,865           6,798
--------------------------------------------------------------------------------------------------------------------
     Total current liabilities                                                                87,581          62,248

Convertible subordinated notes                                                               287,500         287,500
Other long-term obligations                                                                   66,654          65,339
--------------------------------------------------------------------------------------------------------------------
     Total liabilities                                                                       441,735         415,087
--------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 4, 6, 8 and 13)

Shareholders' 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 - 44,239,660 (1999) and 44,083,652 (1998)                              44              44
  Additional paid-in capital                                                                 579,929         580,210
  Accumulated other comprehensive income (loss)                                               (1,230)            454
  Warrant subscriptions receivable                                                            (6,057)         (9,385)
  Accumulated deficit                                                                       (130,947)       (160,951)
--------------------------------------------------------------------------------------------------------------------
     Total shareholders' equity                                                              441,739         410,372
--------------------------------------------------------------------------------------------------------------------
Total                                                                                   $    883,474    $    825,459
                                                                                        ============    ============

</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-1
<PAGE>


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

                                                                                    YEAR ENDED DECEMBER 31,
                                                                         --------------------------------------------
                                                                             1999            1998            1997
---------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>             <C>             <C>
Revenues:
  Sales                                                                  $   231,776     $   136,193     $   150,476
  Contract                                                                    69,650          62,959          30,847
---------------------------------------------------------------------------------------------------------------------
     Total revenues                                                          301,426         199,152         181,323

Operating costs and expenses:
  Cost of sales                                                               45,839          29,263          32,081
  Clinical, development and regulatory                                        52,977          43,876          25,288
  Selling, general and administrative                                        133,311          91,283          52,728
  Product rights amortization                                                 20,242          12,807          11,604
  Charges for acquired in-process technology, purchase
    options and other nonrecurring items (Note 12)                                            29,332         137,639
---------------------------------------------------------------------------------------------------------------------
     Total operating costs and expenses                                      252,369         206,561         259,340
---------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                                       49,057          (7,409)        (78,017)
---------------------------------------------------------------------------------------------------------------------
Other:
  Interest income                                                             17,363          21,780          17,960
  Interest expense                                                           (18,175)        (12,059)         (5,816)
  Other - net                                                                 (3,797)           (486)            (14)
---------------------------------------------------------------------------------------------------------------------
     Total other                                                              (4,609)          9,235          12,130
---------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                             44,448           1,826         (65,887)
Provision (benefit) for income taxes                                          14,444            (907)         18,805
---------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                           $ 30,004     $     2,733     $   (84,692)
                                                                            =========================================

Net income (loss) per share:
  Basic                                                                     $   0.68     $      0.06     $     (1.93)
  Diluted                                                                   $   0.66     $      0.06     $     (1.93)

Weighted average number of common shares:
  Basic                                                                       44,132          46,028          43,828
  Diluted                                                                     45,672          47,809          43,828

</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-2
<PAGE>


--------------------------------------------------------------------------------
DURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                            YEAR ENDED DECEMBER 31,
                                                                                 --------------------------------------------
                                                                                    1999             1998             1997
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>               <C>             <C>
Operating activities:
      Net income (loss)                                                          $  30,004         $  2,733        $ (84,692)
      Adjustments to reconcile net income (loss) to net cash
        provided by (used for) operating activities:
        Depreciation and amortization                                               32,058           20,454           15,209
        Noncash portion of charges for acquired in-process
          technology, purchase options and other                                                     29,332           49,146
        Changes in assets and liabilities:
          Accounts and other receivables                                           (20,005)          16,360          (16,040)
          Inventory                                                                 (3,758)           6,195           (7,739)
          Other assets                                                               7,254          (21,776)          (5,215)
          Accounts payable and accrued liabilities                                  27,952            9,956           35,574
-----------------------------------------------------------------------------------------------------------------------------
               Net cash provided by (used for) operating activities                 73,505           63,254          (13,757)
-----------------------------------------------------------------------------------------------------------------------------
Investing activities:
      Sales and maturities of short-term investments                               300,110          385,570          177,367
      Purchases of short-term investments                                         (274,277)        (310,374)        (381,127)
      Capital expenditures                                                         (17,420)         (42,201)         (24,079)
      Company and product acquisitions                                             (40,557)        (107,827)         (76,973)
      Other                                                                         (5,531)          (6,250)          (1,514)
-----------------------------------------------------------------------------------------------------------------------------
               Net cash used for investing activities                              (37,675)         (81,082)        (306,326)
-----------------------------------------------------------------------------------------------------------------------------
Financing activities:
      Issuance of common stock and warrants                                          4,519            7,164            9,310
      Issuance of convertible subordinated notes - net                                                               278,175
      Repurchase of common stock                                                      (831)         (27,226)
      Principal payments on long-term obligations                                   (7,000)          (3,000)         (26,500)
-----------------------------------------------------------------------------------------------------------------------------
               Net cash provided by (used for) financing activities                 (3,312)         (23,062)         260,985
-----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                                32,518          (40,890)         (59,098)
Cash and cash equivalents at beginning of year                                      31,113           72,003          131,101
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                         $  63,631        $  31,113        $  72,003
                                                                                 ============================================

Supplemental disclosure of cash flow information:
      Cash paid during the year for:
        Interest (net of amounts capitalized)                                    $  10,140        $   9,706
        Income taxes                                                             $   4,506        $   7,418        $   6,578

</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>


--------------------------------------------------------------------------------
DURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                      COMMON STOCK       ADDITIONAL                  ACCUMULATED
                                                                -----------------------    PAID-IN    COMPREHENSIVE   OTHER COMP.
                                                                   SHARES      AMOUNT      CAPITAL       INCOME         INCOME
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>         <C>       <C>          <C>            <C>
 Balance, January 1, 1997                                             43,184   $525,350                              $    (38)

 Exercise of stock options and warrants                                1,527      6,028   $    1,444
 Issuance of par value $.001 common stock in connection with
     reincorporation                                                           (531,333)     531,333
 Issuance of common stock in connection with the purchase of
     Spiros Corp. callable common stock                                  897          1       43,728
 Collections on warrant subscriptions receivable
 Issuance of common stock warrants                                                            15,130
 Income tax benefit from stock options exercised                                              13,356
 Comprehensive income:
     Net loss                                                                                          $ (84,692)
     Other comprehensive income (loss):
        Unrealized gain on available-for-sale short-term
        investments                                                                                          214          214
                                                                                                       ----------
           Comprehensive loss                                                                          $ (84,478)
-----------------------------------------------------------------------------------------------------  ==========  ---------------
 Balance, December 31, 1997                                           45,608         46      604,991                      176

 Collections on warrant subscriptions receivable
 Exercise of stock options and warrants                                  803                   4,306
 Repurchase of common stock                                           (2,327)        (2)     (27,226)
 Income tax effect from stock options exercised and
     collections on warrant subscriptions receivable                                          (1,861)
 Comprehensive income:
     Net income                                                                                        $   2,733
     Other comprehensive income:
        Unrealized gain on available-for-sale short-term
           investments                                                                                       278          278
                                                                                                       ---------
           Comprehensive income                                                                        $   3,011
-----------------------------------------------------------------------------------------------------  =========  ----------------
 Balance, December 31, 1998                                           44,084         44      580,210                      454

 Collections on warrant subscriptions receivable
 Exercise of stock options and warrants                                  231                   1,191
 Repurchase of common stock                                              (75)                   (831)
 Income tax effect from stock options exercised and
collections
     on warrant subscriptions receivable                                                        (641)
 Comprehensive income:
     Net income                                                                                        $  30,004
     Other comprehensive income:
        Unrealized loss on available-for-sale short-term
           investments                                                                                    (1,684)      (1,684)
                                                                                                       ---------
           Comprehensive income                                                                        $  28,320
----------------------------------------------------------------------------------------------------   =========  ----------------
 Balance, December 31, 1999                                           44,240   $     44   $  579,929                 $ (1,230)

</TABLE>

<TABLE>
<CAPTION>

                                                                 WARRANT
                                                               SUBSCRIPTIONS     ACCUMULATED
                                                                 RECEIVABLE        DEFICIT       TOTAL
                                                             ------------------------------------------
<S>                                                             <C>             <C>               <C>
 Balance, January 1, 1997                                        $   (2,743)     $   (78,992)  $  443,577

 Exercise of stock options and warrants                                                             7,472
 Issuance of par value $.001 common stock in connection with
     reincorporation
 Issuance of common stock in connection with the purchase of
     Spiros Corp. callable common stock                                                            43,729
 Collections on warrant subscriptions receivable                      3,141                         3,141
 Issuance of common stock warrants                                  (12,650)                        2,480
 Income tax benefit from stock options exercised                                                   13,356
 Comprehensive income:
     Net loss                                                                        (84,692)     (84,692)
     Other comprehensive income (loss):
        Unrealized gain on available-for-sale short-term
        investments                                                                                   214

           Comprehensive loss
---------------------------------------------------------------------------------------------------------
 Balance, December 31, 1997                                         (12,252)        (163,684)     429,277

 Collections on warrant subscriptions receivable                      2,867                         2,867
 Exercise of stock options and warrants                                                             4,306
 Repurchase of common stock                                                                       (27,228)
 Income tax effect from stock options exercised and
     collections on warrant subscriptions receivable                                               (1,861)
 Comprehensive income:
     Net income                                                                        2,733        2,733
     Other comprehensive income:
        Unrealized gain on available-for-sale short-term
           investments                                                                                278

           Comprehensive income
---------------------------------------------------------------------------------------------------------
 Balance, December 31, 1998                                          (9,385)        (160,951)     410,372

 Collections on warrant subscriptions receivable                      3,328                         3,328
 Exercise of stock options and warrants                                                             1,191
 Repurchase of common stock                                                                          (831)
 Income tax effect from stock options exercised and
collections
     on warrant subscriptions receivable                                                             (641)
 Comprehensive income:
     Net income                                                                       30,004       30,004
     Other comprehensive income:
        Unrealized loss on available-for-sale short-term
           investments                                                                             (1,684)

           Comprehensive income
---------------------------------------------------------------------------------------------------------
 Balance, December 31, 1999                                      $   (6,057)     $  (130,947)  $  441,739

</TABLE>

 See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   THE COMPANY AND ITS BUSINESS

ORGANIZATION - Dura Pharmaceuticals, Inc. ("Dura" or the "Company") is engaged
in developing and marketing prescription pharmaceutical products for the
treatment of respiratory conditions and infectious diseases. The Company
executes its business strategy by (1) acquiring currently-marketed or late-stage
development products, and companies developing or marketing such
pharmaceuticals, to support its presence in high-prescribing physicians' offices
and the hospital market, and (2) developing Spiros-Registered Trademark-, a
pulmonary drug delivery system for both topical and systemic delivery of
medications.

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Dura and its wholly owned subsidiaries. In addition, the 1998
financial statements include the accounts of DJ Pharma, Inc. (see Note 11). All
intercompany transactions and balances are eliminated in consolidation. Certain
reclassifications have been made to amounts included in the prior years'
financial statements to conform to the presentation for the year ended December
31, 1999.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GENERAL - 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.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS - The Company considers cash
equivalents to include only highly liquid securities with an original maturity
of three months or less. Investments with an original maturity of more than
three months are considered short-term investments and have been classified by
management as available-for-sale. Such investments are carried at fair value,
with unrealized gains and losses included with accumulated other comprehensive
income as a separate component of shareholders' equity.

CONCENTRATION OF CREDIT RISK - The Company invests its excess cash in U.S.
government securities and debt instruments of financial institutions and
corporations with strong credit ratings. The Company has established guidelines
to diversify its cash investments and their maturities that are designed to
maintain safety and liquidity. These guidelines are periodically reviewed and
modified to take advantage of trends in yields and interest rates. The Company
has not experienced any significant losses on its cash equivalents or short-term
investments.

The Company extends credit on an uncollateralized basis primarily to wholesale
drug distributors and retail pharmacy chains throughout the United States.
Historically, the Company has not experienced significant credit losses on its
customer accounts. The balance of the Company's allowance for doubtful accounts
at December 31, 1999 and 1998 was $3.6 million and $3.7 million, respectively.

INVENTORY - Inventory is stated at the lower of cost (first-in, first-out
method) or market and is comprised primarily of finished goods and samples.

PROPERTY - Property is stated at cost and depreciated using the straight-line
method over the estimated useful lives of the assets as follows:

<TABLE>
<CAPTION>

         Description                            Lives
         -------------------------------------- ---------------------
         <S>                                    <C>
         Buildings                              7-40 years
         Machinery and equipment                3-10 years
         Furniture and fixtures                 5-7 years

</TABLE>


                                      F-5
<PAGE>


LICENSE AGREEMENTS AND PRODUCT RIGHTS - The cost of license agreements and
product rights are capitalized and amortized on a straight-line basis over the
periods estimated to be benefited, ranging from 6 to 25 years. Useful lives are
estimated by management based on factors such as patent life, market size and
growth trends, barriers to competitive entry, stability of therapeutic class and
strength of competing products.

EVALUATION OF LICENSE AGREEMENTS, PRODUCT RIGHTS AND OTHER INTANGIBLE ASSETS -
The Company continually evaluates the carrying value of the unamortized balances
of license agreements, product rights and other intangible assets to determine
whether any impairment of these assets has occurred or whether any revision to
the related amortization periods should be made. This evaluation is based on
management's projections of the undiscounted future cash flows associated with
each product or underlying business. If management's evaluation were to indicate
that the carrying values of these intangible assets were impaired, such
impairment would be recognized by a write down of the applicable asset to its
estimated fair market value (see Note 12).

In connection with the acquisition of certain product rights and licenses, the
Company made initial payments at the closing of the related transactions and is
required to make additional payments, the amount of which is contingent upon
future events. Such payments, if any, are recorded by the Company as adjustments
to the cost of the product rights as of the date the contingency is resolved.

REVENUE RECOGNITION - Revenues from product sales are recognized upon shipment,
net of allowances for returns, estimated health insurer rebates and wholesaler
chargebacks for contractual price discounts owed to retail pharmacies. The
Company is obligated to accept from customers the return of pharmaceuticals
which have reached their expiration date. Contract revenue from research and
development arrangements is recognized as the contractual services are provided.
None of the contract research and development revenues recognized by the Company
are refundable in the event the related research is unsuccessful. Payments
received in advance of performance are recorded as deferred revenue.

CLINICAL, DEVELOPMENT AND REGULATORY EXPENSES - Clinical, development and
regulatory costs are expensed as incurred.

NET INCOME (LOSS) PER SHARE - The Company presents basic and diluted earnings
per share amounts. Basic earnings per share is calculated based on the weighted
average number of shares outstanding during the year, while diluted earnings per
share also gives effect to all potential dilutive common shares outstanding
during each year such as options, warrants, convertible securities and
contingently issuable shares. The Company incurred a net loss in 1997 and, as
such, the weighted average number of shares used for diluted earnings per share
do not include potential dilutive common shares as their inclusion would be
antidilutive. Potential dilutive common shares which total 10,253,258, 7,753,484
and 14,484,342 as of December 31, 1999, 1998 and 1997, respectively, are
excluded from diluted net income per share as their inclusion would be
antidilutive.

ACCOUNTING FOR STOCK-BASED COMPENSATION - As permitted by Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," the Company accounts for costs of stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." Accordingly, the Company discloses the pro forma
effect on net income (loss) and related per share amounts using the fair
value-based method to account for its stock-based compensation (see Note 9).


                                      F-6
<PAGE>


3.   SHORT-TERM INVESTMENTS

The following is a summary of short-term investments as of December 31, 1999 and
1998 (in thousands):

<TABLE>
<CAPTION>

                                                                           UNREALIZED     ESTIMATED
                                                               COST      GAINS/(LOSSES)   FAIR VALUE
<S>                                                            <C>            <C>            <C>
December 31, 1999:
  U.S. government securities                                   $111,324       $  (964)       $110,360
  U.S. corporate debt securities                                100,688          (266)        100,422
                                                               --------       --------       --------

Total                                                          $212,012       $ (1,230)      $210,782
                                                               ========       ========       ========


December 31, 1998:
  U.S. government securities                                   $ 60,818       $    142       $ 60,960
  U.S. corporate debt securities                                177,027            312        177,339
                                                               --------       --------       --------

Total                                                          $237,845       $    454       $238,299
                                                               ========       ========       ========

</TABLE>

The following is a summary of the amortized cost and estimated fair value of
short-term investments by contractual maturity at December 31, 1999 (in
thousands):

<TABLE>
<CAPTION>

                                                                      ESTIMATED
                                                          COST        FAIR VALUE
<S>                                                    <C>             <C>
Due in one year or less                                $ 134,650       $ 134,195
Due after one year through two years                      77,362          76,587
                                                       ---------       ---------

Total                                                  $ 212,012       $ 210,782
                                                       =========       =========

</TABLE>

4.   LICENSE AGREEMENTS AND PRODUCT RIGHTS

The Company has acquired or in-licensed various prescription pharmaceuticals.
The following is a summary of license agreements and product rights as of
December 31, 1999 and 1998 (in thousands):

<TABLE>
<CAPTION>

                                                                                      AMORTIZATION
                                                              1999          1998         PERIOD
<S>                                                       <C>            <C>          <C>
Products - at cost:
  Maxipime-Registered Trademark-/
    Azactam-Registered Trademark-                         $ 130,860      $ 113,909      25 years
  Ceclor-Registered Trademark-CD                             94,377         79,377      25 years
  Nasarel-Registered Trademark-/
    Nasalide-Registered Trademark-                           85,298         85,298      25 years
  Myambutol-Registered Trademark-                            57,657         44,584      20 years
  Entex-Registered Trademark- products                       44,655         44,655      15 years
  Other                                                      21,940         34,423    6-25 years
                                                            434,787        402,246
Less accumulated amortization                               (45,156)       (24,996)
                                                          ---------      ---------

License agreements and product rights                     $ 389,631      $ 377,250
                                                          =========      =========

</TABLE>


                                      F-7
<PAGE>


MAXIPIME/AZACTAM - On December 31, 1998, the Company acquired from Bristol-Myers
Squibb Company ("BMS") the exclusive U.S. distribution rights for the patented
hospital antibiotic products Maxipime (cefepime hydrochloride) for Injection and
Azactam (aztreonam) for Injection. The purchase price consisted of $60 million
paid in cash at closing, payments totaling $4 million due in 1999 and a payment
of $70 million due in 2003, plus additional contingent payments due from 1999
through 2003 based on sales of Maxipime and Azactam during that period.
Contingent payments totaling $10.6 million were made in 1999. Based on
historical sales data, the Company estimates that future contingent payments
could approximate $100 million in the aggregate.

CECLOR CD - On September 5, 1996, the Company acquired from Eli Lilly and
Company exclusive U.S. marketing rights to the patented antibiotics Ceclor CD
(cefaclor extended release tablets) and Keftab-Registered Trademark- (cephalexin
hydrochloride). The purchase price consisted of $100 million paid in cash at
closing. Additional future contingent payments of $15 million per year starting
in 1999 and ending in 2003 are subject to Ceclor CD remaining available by
prescription only with no competing forms of extended release cefaclor, as
defined in the licensing agreement. Keftab, included in "Other" above, was
licensed to DJ Pharma in January 1999 (see Note 11).

NASAREL/NASALIDE - On May 7, 1997, the Company acquired from Syntex (USA), Inc.
and other members of the Roche Group exclusive U.S. rights to the intranasal
steroid products Nasarel and Nasalide (flunisolide) Nasal Solutions 0.025% for
$70 million, which was paid in cash at closing. Pursuant to the purchase
agreement, contingent payments totaling $5 million in 1997 and $10 million in
1998 were made as the products remained without a competing nasal formulation of
flunisolide.

MYAMBUTOL - On August 3, 1998, the Company acquired from an affiliate of
American Home Products 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 due through August 2002
contingent upon the amount of net sales of Myambutol during that period.
Contingent payments totaling $13.7 million and $4.3 million were made in 1999
and 1998, respectively. Based on historical sales data, the Company estimates
that future contingent payments could approximate $40 million in the aggregate.

ENTEX PRODUCTS - On July 3, 1996, the Company acquired from Procter & Gamble
Pharmaceuticals, Inc. the worldwide rights to the Entex products, consisting of
four prescription upper respiratory drugs. The purchase price of $45 million
consisted of $25 million paid in cash at closing and $20 million paid in cash in
July 1997.

5.   PROPERTY

The following is a summary of property as of December 31, 1999 and 1998 (in
thousands):

<TABLE>
<CAPTION>

                                                          1999          1998
<S>                                                     <C>           <C>
Property - at cost:
  Land                                                  $  4,912      $  4,912
  Buildings                                               42,759        15,882
  Machinery and equipment                                 39,872        26,082
  Furniture and fixtures                                   4,496         3,059
  Construction-in-progress                                21,470        46,444
                                                        --------      --------
                                                         113,509        96,379
Less accumulated depreciation and amortization           (20,176)      (11,005)
                                                        --------      --------

Property                                                $ 93,333      $ 85,374
                                                        ========      ========

</TABLE>

The Company is currently constructing a manufacturing facility that will be used
to formulate, mill, blend and fill drugs to be used with the Company's Spiros
system, pending regulatory approval of Spiros products. Capital expenditures of
$19.3 million relating to the facility are included in construction-in-progress
at December 31, 1999. The Company completed the construction of a research and
development facility in January 1999. Capital


                                      F-8
<PAGE>


expenditures of $25.5 million relating to this facility were included in
construction-in-progress at December 31, 1998.

6.   DEVELOPMENT AGREEMENTS

The Company has a worldwide license from a private inventor to the Spiros
system. This system uses a device to aerosolize pharmaceuticals in dry powder
formulations for intrapulmonary and intranasal administration. The Company is
required to pay the inventor royalties on future sales, if any, of this device.
The Company has entered into various arrangements with third parties for the
development of Spiros as described below.

SPIROS DEVELOPMENT CORPORATION ("SPIROS CORP.") - On December 29, 1995, Spiros
Corp. completed a $28 million private placement to fund the development of
Spiros for use with certain compounds. The private placement consisted of
933,334 units comprised of one share of Spiros Corp. callable common stock and a
Series S warrant (see Note 8) to purchase 2.4 shares of the Company's common
stock. In connection with the private placement, the Company made a $13 million
contribution to Spiros Corp. In exchange for the Series S warrants and the $13
million contribution, the Company received the right to purchase all of the
Spiros Corp. callable common stock. Spiros Corp. engaged the Company to develop
the Spiros Corp. products and provide general management services. During 1997,
Dura recorded contract revenues for development and administrative services
provided for with Spiros Corp. of $19.3 million.

On December 19, 1997, the Company acquired all of the outstanding callable
common stock and options of Spiros Corp. The purchase price of $45.7 million
consisted of 896,606 shares of the Company's common stock and a cash payment of
$2 million. The net assets acquired included cash of $1 million and in-process
technology. The Company concluded, based on an assessment of the additional
development, testing and regulatory approvals required, that the commercial
viability of the technology had not yet been established. In addition, no
alternative future uses of the technology that would not require regulatory
approval have been established. As a result of this assessment, the acquired
in-process technology of $44.7 million was expensed as a charge in 1997 (see
Note 12). Such acquired in-process technology was licensed to Spiros Corp. II
upon its formation (see "Spiros Development Corporation II, Inc." below).

SPIROS DEVELOPMENT CORPORATION II, INC. - On December 22, 1997, Spiros Corp. II
completed a $101 million public offering of units ("Offering"). Under agreements
described below, Spiros Corp. II is using the net proceeds of $94 million from
the Offering and a $75 million contribution from Dura to develop Spiros and
Spiros applications for use with the drugs albuterol, beclomethasone, budesonide
and additional designated compounds ("Compounds"). The Offering consisted of
6,325,000 units sold at $16.00 per unit. Each unit consisted of one share of
Spiros Corp. II callable common stock and a warrant ("SDCII warrants") to
purchase one-fourth of one share of the Company's common stock. The SDCII
warrants are exercisable from January 1, 2000 through December 31, 2002 at an
exercise price of $54.84 per share of Dura common stock. As holder of 100% of
Spiros Corp. II's special common stock, the Company has the right ("Stock
Purchase Option") through December 31, 2002 to purchase all, but not less than
all, of the then outstanding shares of Spiros Corp. II callable common stock at
predetermined prices. However, the Company is not obligated to purchase such
shares of Spiros Corp. II. The purchase price was $24.01 per share (an aggregate
of $151.9 million) through December 31, 1999 and increases on a quarterly basis
thereafter to a maximum of $45.95 per share (an aggregate of $290.6 million) on
December 31, 2002. Such purchase price may be paid, at the Company's option, in
cash, shares of the Company's common stock, or any combination of the two. In
addition, Dura received an option, through specified dates, to acquire Spiros
Corp. II's exclusive rights for the use of Spiros with albuterol and with a
second product other than albuterol. A purchase option expense of $75 million,
representing the cash contributed to Spiros Corp. II, was recorded in 1997. In
1997, the Company also recorded a warrant subscriptions receivable and
corresponding increase in additional paid-in capital of $12.7 million
representing the estimated fair market value of the SDCII warrants. A portion of
the cash payment received from Spiros Corp. II for services provided by the
Company pursuant to the agreements discussed below is allocated to the warrant
subscriptions receivable to reflect collection by the Company of the fair value
of the SDC II warrants as of their issuance date. At December 31, 1999, the
Company had a remaining SDCII warrant subscriptions receivable of $6.1 million.


                                      F-9
<PAGE>


In connection with the Offering, the Company also entered into certain
agreements with Spiros Corp. II which are summarized as follows:

         TECHNOLOGY LICENSE AGREEMENT - Under this agreement, the Company
         granted to Spiros Corp. II, subject to existing agreements, an
         exclusive, worldwide, perpetual, royalty-bearing license to use Spiros
         in connection with the Compounds. In consideration for this license,
         the Company will receive an annual technology access fee from Spiros
         Corp. II equal to the greater of 5% of the net sales of Spiros
         products, or $2 million. Such agreement expires upon the exercise of
         the Stock Purchase Option.

         ALBUTEROL AND PRODUCT OPTION AGREEMENT - Under this agreement, the
         Company has the right to acquire from Spiros Corp. II for specified
         time periods the exclusive rights for the use of Spiros with albuterol
         and for the use of Spiros with a second product other than albuterol
         ("Product Options"). The formula for determining the purchase price for
         each of the products is set forth in the agreement and is based, in
         part, on the costs and expenses incurred by Spiros Corp. II developing
         the products.

         MANUFACTURING AND MARKETING AGREEMENT - Under this agreement, Spiros
         Corp. II granted to the Company an exclusive worldwide license to
         manufacture and market the Spiros products in exchange for a royalty of
         7% on net product sales, as defined. Such agreement expires upon the
         exercise or expiration of the Stock Purchase Option. In the event Dura
         exercises its rights under the Product Options, the Manufacturing and
         Marketing Agreement will terminate with respect to the related product.

         DEVELOPMENT AGREEMENT - Under this agreement, Spiros Corp. II has
         engaged the Company to develop the Spiros products and provide general
         management services to Spiros Corp. II. Dura records contract revenues
         equal to the amounts due from Spiros Corp. II for services provided
         less a pro rata amount allocated to the SDCII warrant subscriptions
         receivable.

During 1999, 1998 and 1997, Dura recorded contract revenues of $55.5 million,
$47.8 million and $6.6 million for services provided under the agreements with
Spiros Corp. II, for which Dura had a receivable totaling $6.8 million and $4.6
million at December 31, 1999 and 1998, respectively.

In March 2000 the Company entered into a merger agreement to acquire Spiros
Corp. II. Under the agreement, for each share of callable common stock Spiros
Corp. II shareholders will receive $13.25 in cash and one five-year warrant to
purchase a fractional share of Dura's common stock at $17.94 per share, which
represents a 25% premium over the average closing price of Dura's common stock
for the ten trading days prior to the date of the merger agreement. The exact
fraction of a share of Dura's common stock purchasable under the warrant will be
determined based on the average closing price of Dura's common stock for the ten
trading days prior to the vote of the Spiros Corp. II shareholders on the merger
and will result in a calculated Black-Scholes value for each warrant of between
$3.22 and $1.81. The total consideration for the merger as of the date of the
merger agreement was calculated to be $100.8 million, or $15.75 per share of
callable common stock. Closing of the transaction is subject to
Hart-Scott-Rodino clearance, effectiveness of the registration statement for
Dura's warrants, and Spiros Corp. II shareholder approval. The Company has
received voting agreements in favor of the merger from holders of approximately
22% of Spiros Corp. II's outstanding callable common stock. A special committee
of independent members of the Spiros Corp. II's board, formed in December 1999
to evaluate strategic alternatives for Spiros Corp. II, has approved the merger
agreement and is recommending that the Spiros Corp. II shareholders approve the
merger.

The merger is to be accounted for as a purchase and, if completed, will likely
result in a significant reduction of contract revenue even though the Company
will continue to incur the related development costs. In addition, the Company
expects that a charge for acquired in-process technology will be recorded in the
period in which the merger is effected.

ELI LILLY AND COMPANY ("LILLY") - On September 23, 1998, the Company announced
its agreement with Lilly to develop pulmonary delivery technology for insulin.
The product under development is based on the Company's Spiros system for
proteins and peptides. Under the terms of the agreement, the Company received an
up-front payment and will receive funding for research as well as additional
payments if defined milestones are achieved. In


                                      F-10
<PAGE>


addition, the Company will receive royalties and manufacturing payments on
products, if any, that reach the market. Lilly received worldwide
commercialization rights for any resulting inhaled insulin products.

7.   CONVERTIBLE SUBORDINATED NOTES AND OTHER LONG-TERM OBLIGATIONS

CONVERTIBLE SUBORDINATED NOTES - In 1997, the Company issued $287.5 million
principal amount of 3 1/2% Convertible Subordinated Notes (the "Notes") due July
15, 2002 with interest payable semiannually. The Notes are convertible, at the
option of the holder, into shares of the Company's common stock at any time
prior to maturity or redemption at a conversion price of $50.635 per share,
subject to adjustment under certain conditions. The Company cannot redeem the
Notes prior to July 15, 2000. Thereafter, the Company can redeem the Notes from
time to time, in whole or in part, at specified redemption prices. The Notes are
unsecured and subordinated to all existing and future senior indebtedness of the
Company. The indenture governing the Notes does not restrict the incurrence of
senior indebtedness or other indebtedness by the Company. Based on quoted market
prices, the fair value of the Notes at December 31, 1999 and 1998 was $234.3
million and $211.3 million, respectively.

OTHER LONG-TERM OBLIGATIONS - Other long-term obligations include $57.5 million
(net of current portion of $1.9 million) which relates to the acquisition of
license agreements and product rights. Also, as discussed in Note 4, in
connection with the acquisition of certain product rights and licenses, the
Company may be obligated to make additional payments through 2004 for such
products, the amount of which is contingent upon future events. Based on
historical sales information on the products and assuming the other events that
trigger the payment of additional consideration occur, the total of these future
contingent payments could approximate $210 million, including approximately $48
million in 2000.

8.   CAPITAL STOCK

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.

TREASURY STOCK - In October 1998, the Board of Directors authorized the Company
to purchase up to $50 million of the Company's common stock. At December 31,
1999, the Company had purchased 2,402,500 shares of its common stock at a cost
of $28.1 million and reduced its additional paid in capital accordingly.


                                      F-11
<PAGE>


COMMON STOCK WARRANTS - The following table summarizes common stock warrants
outstanding at December 31, 1999 (in thousands, except per share amounts):

<TABLE>
<CAPTION>

                                    WARRANTS     SHARES COVERED    EXERCISE PRICE       EXPIRATION
WARRANT DESCRIPTION               OUTSTANDING      BY WARRANTS        PER SHARE            DATE
<S>                               <C>            <C>               <C>                  <C>
Series W warrants                       240               672            $ 2.38      September 2000
Series S warrants                       700             1,680            $19.47      December 2000
SDCII warrants                        6,325             1,581            $54.84      December 2002
Other                                   200               200            $45.12      December 2002
                                    -------           -------
Total outstanding                     7,465             4,133
                                    =======           =======

</TABLE>

9.   STOCK OPTIONS

The Company's 1992 stock option plan (the "Plan") provides for the grant of
options to officers and other key employees of the Company, and to certain
directors, consultants and independent contractors of the Company, to purchase
up to 10,107,360 shares of the Company's common stock. The Plan provides for the
automatic issuance of options to purchase 6,000 and 15,000 shares of the
Company's common stock to non-employee Board members at the date of each annual
shareholders' meeting and upon initial election to the Board of Directors,
respectively. Generally, options are to be granted at prices equal to at least
100% of the fair market value of the stock at the date of grant, expire not
later than ten years from the date of grant and become exercisable ratably over
a four-year period following the date of grant.

The Plan provides that in the event of a change in the controlling ownership of
the Company's common stock all outstanding options shall become fully
exercisable immediately prior to the effective date of such transaction and
shall terminate upon such effective date. The Board of Directors may also grant
officers of the Company limited stock appreciation rights in tandem with their
outstanding options. In addition, limited stock appreciation rights are granted
in connection with all automatic option grants under the Plan. Upon the
occurrence of a hostile takeover, as defined, each outstanding option with such
a limited stock appreciation right in effect for at least six months will
automatically be canceled in return for a cash distribution from the Company in
an amount equal to the excess of the takeover price, as defined, over the
aggregate exercise price. As of December 31, 1999 and 1998, options to purchase
369,000 and 264,000 shares of common stock, respectively, were outstanding with
limited stock appreciation rights.


                                      F-12
<PAGE>


The following table summarizes stock option activity under the Plan:

<TABLE>
<CAPTION>

                                                                 SHARES                        WEIGHTED
                                                    -----------------------------------        AVERAGE
                                                     OPTIONS         OPTIONS AVAILABLE      EXERCISE PRICE
                                                    OUTSTANDING          FOR GRANT             PER SHARE
<S>                                                 <C>              <C>                    <C>
Balance, January 1, 1997                                 3,384,510            344,618           $15.52
  Options authorized                                                        1,600,000
  Options granted                                        1,935,175         (1,935,175)          $36.42
  Options exercised                                       (745,020)                             $ 6.40
  Options canceled                                        (805,478)           805,478           $35.71

Balance, December 31, 1997                               3,769,187            814,921           $22.67
  Options authorized                                                        1,000,000
  Options granted                                        3,458,013         (3,458,013)          $14.90
  Options exercised                                       (310,466)                             $ 6.55
  Options canceled                                      (3,146,620)         3,146,620           $30.02
                                                 ------------------ ------------------

Balance, December 31, 1998                               3,770,114          1,503,528           $10.53
  Options authorized                                                        1,500,000
  Options granted                                        1,880,475         (1,880,475)          $12.72
  Options exercised                                       (158,354)                             $ 7.29
  Options canceled                                        (242,251)           242,251           $10.57
                                                 ------------------ ------------------

Balance, December 31, 1999                               5,249,984          1,365,304           $11.80
                                                 ================== ==================

Exercisable, December 31, 1997                           1,386,911                              $12.61
                                                 ==================

Exercisable, December 31, 1998                           1,325,347                              $10.77
                                                 ==================

Exercisable, December 31, 1999                           2,016,146                              $11.49
                                                 ==================
</TABLE>

Separately during 1998, the Company granted 192,308 options (54,889 exercisable
at December 31, 1999) to a newly-hired executive officer pursuant to a stock
option agreement. The options have an exercise price of $10.31 per share, vest
ratably over a four-year period, and expire ten years from the date of grant.

The following table summarizes information concerning all outstanding and
exercisable options as of December 31, 1999:

<TABLE>
<CAPTION>

                                             OPTIONS OUTSTANDING                   OPTIONS EXERCISABLE
                                      -----------------------------------     ----------------------------
                                        WEIGHTED AVERAGE      WEIGHTED                         WEIGHTED
      RANGE OF            NUMBER      REMAINING CONTRACTUAL    AVERAGE           NUMBER         AVERAGE
  EXERCISE PRICES      OUTSTANDING        LIFE (YEARS)        EXERCISE        EXERCISABLE      EXERCISE
                                                                PRICE                            PRICE
<S>                    <C>             <C>                    <C>             <C>              <C>
$ 0.25 - $ 5.00               256,050          3.6                 $ 3.60            256,050        $ 3.57
$ 5.01 - $10.00             1,225,198          7.7                 $ 8.21            622,662        $ 7.56
$10.01 - $20.00             3,777,665          8.9                 $11.97          1,020,786        $12.44
$20.01 - $30.00               129,379          7.4                 $27.76            118,211        $28.03
$30.01 - $39.94                54,000          7.4                 $39.43             53,326        $39.49
----------------------------------------------------------------------------------------------------------
                            5,442,292          8.3                 $11.38          2,071,035        $11.46
                            ==============================================================================
</TABLE>


                                      F-13
<PAGE>


The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." In accordance with the provisions of
SFAS No. 123, the Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its stock option plans and,
accordingly, no compensation cost has been recognized for stock options granted
to employees in 1999, 1998 or 1997. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at grant date
as prescribed by SFAS No. 123, net income for the year ended December 31, 1999
would have been reduced by $4.4 million ($0.10 per share, basic and diluted),
net income for the year ended December 31, 1998 would have been reduced by $3.6
million ($0.08 per share, basic and diluted), and net loss for the year ended
December 31, 1997 would have been increased by $5.9 million ($0.14 per share,
basic and diluted). Pro forma calculations exclude the effect of stock options
granted prior to 1995. Accordingly, the 1999, 1998 and 1997 pro forma
adjustments are not indicative of future period pro forma adjustments when the
calculation will reflect all applicable stock options. The estimated weighted
average fair value at grant date for the options granted during 1999, 1998 and
1997 were $5.61, $5.86 and $14.30 per option, respectively. The fair value of
options at date of grant was estimated using the Black-Scholes option-pricing
model with the following assumptions:

<TABLE>
<CAPTION>

                                            1999           1998          1997
<S>                                      <C>            <C>            <C>
Expected dividend yield                     None           None          None

Expected stock price volatility              40%            45%           40%

Risk-free interest rate                     5.6%           5.2%          6.1%

Expected life of options                 5 years        5 years       5 years

</TABLE>


                                      F-14
<PAGE>


10.   INCOME TAXES

The provision (benefit) for income taxes consisted of the following components
(in thousands):

<TABLE>
<CAPTION>

                                                        1999             1998             1997
<S>                                                  <C>              <C>              <C>
Current:
  Federal                                            $ 12,633         $ 12,843         $ 21,617
  State                                                   340            1,007            2,833
                                                     --------         --------         --------
Total                                                  12,973           13,850           24,450
                                                     --------         --------         --------
Deferred:
  Federal                                               2,079          (14,448)          (5,424)
  State                                                  (608)            (309)            (221)
                                                     --------         --------         --------

Total                                                   1,471          (14,757)          (5,645)
                                                     --------         --------         --------

Provision (benefit) for income taxes                 $ 14,444         $   (907)        $ 18,805
                                                     ========         ========         ========

</TABLE>

A reconciliation of the income tax provision (benefit) based on federal
statutory rates and income (loss) before income taxes to the provision (benefit)
for income taxes as reported is as follows (in thousands):

<TABLE>
<CAPTION>

                                                                      1999             1998             1997
<S>                                                                <C>               <C>             <C>
Provision (benefit) at statutory rates                             $ 15,557          $   639         $(23,060)
Charges not deductible or recognizable
  for tax purposes                                                                                     43,351
State income tax expense (benefit), net                                (340)             326            1,779
Change in beginning of year deferred tax valuation
  allowance                                                            (652)                           (1,545)
Impact of foreign income taxed at different rates                      (722)            (260)            (364)
NOL carryforwards utilized                                                              (515)          (1,015)
Research and development tax credits                                   (325)            (583)
Federal alternative minimum tax (credit)                                                (235)
Other                                                                   926             (279)            (341)
                                                                   --------          -------         --------

Provision (benefit) for income taxes                               $ 14,444          $  (907)        $ 18,805
                                                                   ========          =======         ========

</TABLE>


                                      F-15
<PAGE>


Deferred tax assets and liabilities reflect the impact of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts recognized for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities as of December
31, 1999 and 1998 are as follows (in thousands):

<TABLE>
<CAPTION>

                                                                    1999           1998
<S>                                                              <C>            <C>
Deferred tax assets:
  Net operating loss carryforwards                               $  17,189      $   18,227
  Capitalized research and development                               6,990           6,990
  Research and development credit carryforwards                      1,036
  Reserves and accruals not currently deductible                    22,661          21,851
  Other                                                                388             593
                                                                 ---------      ----------

           Total deferred tax assets                                48,264          47,661

Deferred tax liabilities:
  Depreciation and amortization                                     (4,458)         (1,732)
  Valuation allowance for deferred tax assets                      (25,610)        (26,262)
                                                                 ---------      ----------

           Total deferred tax liabilities                          (30,068)        (27,994)
                                                                 ---------      ----------

Net deferred tax assets                                          $  18,196      $   19,667
                                                                 =========      ==========

</TABLE>

The Company has provided a valuation allowance against deferred tax assets based
on management's assessment of the likelihood of realizing those assets.
Realization of deferred tax assets is dependent upon having sufficient taxable
income during the period that temporary differences and carryforwards are
expected to be available to reduce taxable income. During the year ended
December 31, 1999, the balance of the beginning of year valuation allowance was
reduced by approximately $650,000 due to a change in management's judgment about
the Company's ability to realize deferred tax assets relating to net operating
loss carryforwards.

At December 31, 1999, the Company had federal net operating loss ("NOL")
carryforwards of approximately $49.4 million, which begin expiring in 2003. This
amount includes NOL carryforwards totaling approximately $21.5 million acquired
in connection with the Company's purchase of the callable common stock of Spiros
Corp. The availability of the NOL carryforwards is subject to annual limitations
pursuant to the "change in ownership" provisions of Section 382 of the Internal
Revenue Code.

The Company does not provide for income taxes which would be payable if
undistributed earnings of its foreign subsidiaries were remitted because the
Company considers these earnings to be invested indefinitely. Tax benefits
realized from the exercise of stock options are credited directly to
shareholders' equity and are reflected on the consolidated statements of
shareholders' equity.

11.  DJ PHARMA, INC.

In July 1998, the Company entered into a series of agreements with a
newly-formed, privately held company, DJ Pharma, Inc. ("DJ Pharma"), for the
co-promotion of the Company's Keftab, Rondec-Registered Trademark-, and certain
cough, cold and allergy product lines. DJ Pharma also received an option to
license from the Company the exclusive U.S. marketing and distribution rights to
these products which it exercised on October 1, 1998. The book value of these
product rights was $18.8 million as of December 31, 1998. In exchange for the
licensing of the products, Dura received interest-bearing notes receivable
totaling $20 million and will receive a percentage of the sales of such products
by DJ Pharma over a four-year period. Up to $8 million of the notes is subject
to forgiveness in the event that the licensed cough, cold and allergy products
cannot be sold on a prescription-only basis through December 31, 2006.


                                      F-16
<PAGE>


In July 1998, the Company provided DJ Pharma with $5 million in financing in the
form of an interest-bearing promissory note, which represented DJ Pharma's sole
source of capital until it completed an independent private equity offering in
January 1999. Through this offering, DJ Pharma raised $25 million, including
$3.6 million from the Company. Subsequent to the offering, Dura holds
approximately 10 percent of DJ Pharma's outstanding voting securities.

As DJ Pharma had not secured financing independent of the Company's $5 million
loan as of December 31, 1998, the accounts of DJ Pharma were included in the
Company's 1998 consolidated financial statements. All transactions between the
Company and DJ Pharma have been eliminated. Accordingly, the licensing of
product rights to DJ Pharma discussed above is not reflected in the accompanying
1998 financial statements and was recorded by the Company in January 1999 after
DJ Pharma secured independent financing. No gain or loss was recorded on the
licensing of these product rights. The primary effect of including DJ Pharma's
activity in the Company's 1998 financial statements was to increase selling,
general and administrative expenses by $6 million and to reduce net income by
$4.9 million ($0.10 per diluted share).

12. CHARGES FOR ACQUIRED IN-PROCESS TECHNOLOGY, PURCHASE OPTIONS AND OTHER
    NONRECURRING ITEMS

Charges for acquired in-process technology, purchase options and other
nonrecurring items in 1998 and 1997 consisted of the following (in thousands):

<TABLE>
<CAPTION>

                                                                  1998            1997
<S>                                                             <C>             <C>
Impairment of long-term assets                                  $29,332         $ 2,870
Acquired in-process technology                                                   45,989
Acquired purchase options                                                        75,000
Buy-out of royalty agreement                                                     13,780
                                                           -------------   -------------
Total                                                           $29,332        $137,639
                                                           =============   =============

</TABLE>

IMPAIRMENT OF LONG-TERM ASSETS - The Company periodically evaluates its ability
to recover the carrying value of its long-term assets. In the fourth quarter of
1998, management concluded that the Company would not recover the carrying value
of the Rondec product line and, accordingly, recorded a nonrecurring charge of
$29.3 million. The primary event that led management to conclude that the value
of the Rondec product line was impaired was the licensing of the marketing and
distribution rights for these products to DJ Pharma (see Note 11). The four-year
period in which the Company is to receive royalties from the sale of these
products is significantly less than the number of years management would have
expected to receive cash flows from these products had they not been
out-licensed. In addition, sales of the Rondec products declined significantly
beginning in 1998 as the Company focused its promotion efforts away from its
branded generic products such as Rondec and toward Dura's patent protected and
proprietary products. The impairment write down was measured based on a
discounted cash flow forecast taking into consideration the terms of the
licensing agreement with DJ Pharma.

In 1997, management concluded that the decline in the fair value of an
investment in equity securities was "other than temporary" as the Company's
carrying value of the securities exceeded their fair value for the entire second
half of 1997. Accordingly, the Company recorded a charge of $2.9 million to
write down the investment to its estimated fair value, which was determined
based on quoted market prices.

ACQUIRED IN-PROCESS TECHNOLOGY - The charge for acquired in-process technology
in 1997 relates to the Company's acquisition of Spiros Corp. (see Note 6). At
the date of the acquisition, Spiros Corp. owned the rights to develop and market
Spiros with certain compounds. The use of Spiros with each of the compounds
required significant further development and regulatory approval before they
could be made available for sale. The excess of the purchase price over the fair
value of the net tangible assets was allocated to in-process technology. The
Company concluded that due to the additional development and testing to be
performed and regulatory approvals required, the commercial


                                      F-17
<PAGE>


viability of the technology acquired in this acquisition had not yet been
established. As such, a charge to earnings was recorded for the portion of the
purchase price allocated to in-process technology. Such acquired in-process
technology was licensed to Spiros Corp. II upon its formation (see Note 6).

ACQUIRED PURCHASE OPTIONS - In connection with the formation of Spiros Corp. II
in 1997, the Company contributed $75 million as consideration for the options to
acquire the rights to certain products from Spiros Corp. II (see Note 6). The
Company concurrently recorded charges for this purchase option for the amount of
cash contributed to Spiros Corp. II.

BUY-OUT OF ROYALTY AGREEMENT - In December 1997, the Company terminated a
ten-year royalty agreement which the Company entered into in 1994. The agreement
required the Company to make quarterly royalty payments based on sales in
specified sales territories. As consideration for terminating the agreement, the
Company made a cash payment of $11.3 million (paid in January 1998) and issued a
warrant to purchase 200,000 shares of the Company's common stock for $45.12 per
share. The estimated fair value of the warrant at issuance was $2.5 million
which, when combined with the cash payment, resulted in a nonrecurring charge in
1997 of $13.8 million.

13.  COMMITMENTS AND CONTINGENCIES

EMPLOYEE SAVINGS PLANS - The Company has a 401(k) plan that allows participating
employees to contribute up to 15% of their salary, subject to annual limits. The
Board may, at its sole discretion, approve Company contributions. The Company
made contributions to the plan totaling $1.9 million, $1.1 million and $867,000
in 1999, 1998 and 1997, respectively.

The Company has a non-qualified deferred compensation plan that allows eligible
employees to defer up to 100% of their compensation. As of December 31, 1999,
$9.2 million has been deferred under this plan which is included in other assets
and other long-term obligations. The amounts deferred under this plan are
transferred to a trust and managed by an investment manager. Included in the
trust investments at December 31, 1999 are 156,250 shares of Spiros Corp. II
callable common stock (see Note 6).

OPERATING LEASES - In 1999, the Company began a car lease program for its field
sales force. Pursuant to non-cancelable lease agreements, the vehicles have a
lease term that expires after the earlier of 45 months or 60,000 miles. Rent
expense totaled $2.4 million for the fleet car program in 1999. As of December
31, 1999, the Company has future minimum lease payments for 2000, 2001, 2002,
and 2003 of $3 million, $2.8 million, $2.7 million, and $590,000, respectively.

SETTLEMENT OF THE TERMINATION OF MERGER AGREEMENT WITH SCANDIPHARM, INC. - On
December 1, 1997, the Company terminated a merger agreement with Scandipharm,
Inc. entered into on October 20, 1997. On January 16, 1998, Scandipharm filed
suit against the Company for breach of contract. On January 20, 1998, the
Company filed suit against Scandipharm seeking a declaratory judgment that
Dura's termination of the merger agreement did not breach the agreement and
damages against Scandipharm. On October 4, 1999, the Company settled all
litigation with Scandipharm. Under the terms of the settlement, the Company paid
$3.5 million to Scandipharm, and the parties dismissed all lawsuits filed
against one another. The $3.5 million charge was included with other expense in
the accompanying consolidated statements of operations for the year ended
December 31, 1999.

SHAREHOLDER CLASS ACTION LITIGATION - Commencing on January 27, 1999, several
class action suits were filed against the Company and a number of current or
former officers and directors of the Company in the United States District Court
for the Southern District of California. The lawsuits, which have been
consolidated into one action, allege violations of the federal securities laws,
and purport to seek damages on behalf of a class of shareholders who purchased
Dura common stock during a defined period. The Company believes that the claims
in the lawsuit are without merit and intends to defend against them vigorously.


                                      F-18
<PAGE>


14.  SEGMENT INFORMATION

The Company operates in two business segments: (1) Pharmaceutical Products and
(2) Research and Development. The Pharmaceutical Products segment markets
prescription pharmaceutical products for the treatment of respiratory conditions
and infectious diseases. The Research and Development segment manages the
development of Spiros. Each of the Company's segments operates solely within the
United States.

Three wholesale customers accounted for 17%, 13%, and 13%, respectively, of 1999
sales. Two wholesale customers accounted for 13% and 11%, respectively, of 1998
sales, and two wholesale customers each individually accounted for 11% of 1997
sales.

The following table summarizes information about the Company's operating
segments for the years ended December 31, 1999, 1998, and 1997 (in thousands):

<TABLE>
<CAPTION>

                                                         PHARMACEUTICAL     RESEARCH AND
                                                           PRODUCTS          DEVELOPMENT     CORPORATE      CONSOLIDATED
<S>                                      <C>              <C>                <C>           <C>            <C>
Total revenues                           1999             $  232,589         $   68,837                      $ 301,426
                                         1998             $  138,025         $   61,127                      $ 199,152
                                         1997             $  151,850         $   29,473                      $ 181,323

Operating income (loss) (1)              1999             $   37,458         $   11,599                      $  49,057
                                         1998             $  (20,600)        $   13,191                      $  (7,409)
                                         1997             $   43,965         $ (121,982)                     $ (78,017)

Identifiable assets                      1999             $  449,832         $   58,330     $ 375,312        $ 883,474
                                         1998             $  413,565         $   75,990     $ 335,904        $ 825,459

Capital expenditures                     1999             $    7,964         $    8,921     $     535        $  17,420
                                         1998             $    1,266         $   40,513     $     422        $  42,201
                                         1997             $      578         $    8,437     $  15,064        $  24,079

Depreciation and amortization            1999             $   23,215         $    6,978     $   1,865        $  32,058
                                         1998             $   14,290         $    4,288     $   1,876        $  20,454
                                         1997             $   11,906         $    2,516     $     787        $  15,209

</TABLE>

(1)  The 1998 operating loss for the Pharmaceutical Products segment was
     increased by $36.8 million for the write-off of the carrying value of the
     Rondec product rights (see Note 12) and for the impact of consolidating DJ
     Pharma (see Note 11). The 1997 operating income for the Research and
     Development segment was decreased by $123.8 million for (1) the in-process
     technology acquired in connection with our acquisition of Spiros Corp. (see
     Note 6), (2) the purchase option charge resulting from the cash
     contribution to Spiros Corp. II (see Note 6) and (3) the write-off of the
     carrying value of a long-term investment (see Note 12). The 1997 operating
     income for the Pharmaceutical Products segment was decreased by $13.8
     million resulting from the termination of a ten-year royalty agreement (see
     Note 12).


                                      F-19
<PAGE>


15.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following is a summary of unaudited quarterly results of operations for the
years ended December 31, 1999 and 1998 (in thousands, except per share amounts).

<TABLE>
<CAPTION>

                                                        FIRST          SECOND           THIRD          FOURTH
1999                                                   QUARTER         QUARTER         QUARTER         QUARTER
<S>                                                    <C>             <C>             <C>             <C>
Total revenues                                         $ 71,247        $ 68,006        $ 71,560        $ 90,613
Gross profit                                             44,590          40,942          43,804          56,601
Operating income                                         11,975          11,566           8,850          16,666
Net income                                                7,766           7,583           3,536          11,119
Net income per share - basic                               0.18            0.17            0.08            0.25
Net income per share - diluted                             0.17            0.17            0.08            0.24

1998

Total revenues                                         $ 48,766        $ 51,938        $ 43,363        $ 55,085
Gross profit                                             27,792          27,455          19,163          32,520
Operating income (loss)                                   8,569          10,047           1,043         (27,068)
Net income (loss)                                         7,164           8,177           2,424         (15,032)
Net income (loss) per share - basic                        0.16            0.18            0.05           (0.33)
Net income (loss) per share - diluted                      0.15            0.17            0.05           (0.33)

</TABLE>

See Notes 4, 6, and 12 for discussions of transactions that occurred during 1999
and 1998 that affect the comparability of the Company's quarterly results of
operations.


                                      F-20
<PAGE>


INDEPENDENT AUDITOR'S REPORT


To the Board of Directors and Shareholders of Dura Pharmaceuticals, Inc.:

We have audited the accompanying consolidated balance sheets of Dura
Pharmaceuticals, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. Our
audits also included the financial statement schedule listed in Item 14 of
Index. These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Dura Pharmaceuticals, Inc. and
subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such
financial statement Schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.

/s/ Deloitte & Touche LLP

San Diego, California
January 24, 2000 (March 20, 2000 as to the merger agreement with Spiros
Development Corporation II, Inc. described in Note 6)


                                      F-21