<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C.  20549

                                    FORM 10-K

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

                         For fiscal year ended December 31, 1996

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)

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

5880 Pacific Center Blvd. San Diego, California      92121-4202
(Address of principal executive offices)              (zip code)


        Registrant's telephone number, including area code (619) 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, NO PAR VALUE



     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        .
                                               -----     ------



<PAGE>

     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  [  ].

     The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 28, 1997 was $1,457,451,662.  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
deemed to be affiliates.

     The number of shares of the Registrant's Common Stock outstanding as of
February 28, 1997 was 43,437,978.

     Portions of Registrant's Proxy Statement for the Annual Meeting of
Shareholders scheduled to be held on May 28, 1997, to be filed with the
Securities and Exchange Commission on or about April 16, 1997,  referred to
herein as the "Proxy Statement," are incorporated as provided in Part III,
and portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1996, attached hereto as Exhibit 13, referred to
herein as the "Annual Report," are incorporated as provided in parts II and
IV.


<PAGE>


                                              INDEX

Part I:
         Item 1.    Business . . . . . . . . . . . . . . . . . . . . . . . 4-22
         Item 2.    Properties . . . . . . . . . . . . . . . . . . . . . . . 22
         Item 3.    Legal Proceedings. . . . . . . . . . . . . . . . . . . . 22
         Item 4.    Submission of Matters to the Vote of Security Holders. . 22

Part II:
         Item 5.    Market for Registrant's Common Equity and Related
                    Stockholder Matters. . . . . . . . . . . . . . . . . . . 23
         Item 6.    Selected Financial Data. . . . . . . . . . . . . . . . . 23
         Item 7.    Management's Discussion and Analysis of Financial
                    Condition and Results of Operations. . . . . . . . . . . 23
         Item 8.    Financial Statements and Supplementary Data. . . . . . . 23
         Item 9.    Changes in and Disagreements with Accountants on
                    Accounting and Financial Disclosure. . . . . . . . . . . 23

Part III:
         Item 10.   Directors and Executive Officers of the Registrant . . . 24
         Item 11.   Executive Compensation . . . . . . . . . . . . . . . . . 24
         Item 12.   Security Ownership of Certain Beneficial Owners and
                    Management . . . . . . . . . . . . . . . . . . . . . . . 24
         Item 13.   Certain Relationships and Related Transactions . . . . . 24

Part IV:
         Item 14.   Exhibits, Financial Statement Schedules and Reports on
                    Form 8-K . . . . . . . . . . . . . . . . . . . . . . .25-28

                    Signatures . . . . . . . . . . . . . . . . . . . . . . . 29


<PAGE>


                                     PART I

ITEM 1. BUSINESS

THE DISCUSSION OF THE COMPANY'S BUSINESS CONTAINED IN THIS REPORT MAY CONTAIN
CERTAIN FORWARD-LOOKING STATEMENTS.  FOR A DISCUSSION OF FACTORS WHICH MAY
AFFECT THE OUTCOME PROJECTED IN SUCH STATEMENTS, SEE "RISKS AND
UNCERTAINTIES" ON PAGES 16 THROUGH 22 OF THIS ANNUAL REPORT ON FORM 10-K.
THE COMPANY UNDERTAKES NO OBLIGATION TO RELEASE PUBLICLY THE RESULTS OF ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS AND
CIRCUMSTANCES ARISING AFTER THE DATE HEREOF.

OVERVIEW

Dura Pharmaceuticals, Inc. ("Dura" or the "Company") is a specialty
respiratory pharmaceutical and pulmonary drug delivery company. The Company
is engaged in developing and marketing prescription pharmaceutical products
for the treatment of asthma, hay fever, chronic obstructive pulmonary disease
("COPD"), the common cold, related respiratory ailments and is developing a
pulmonary drug delivery system. Dura has strategically focused on the U.S.
Respiratory Market because of its size (approximately $9.5 billion in sales
in 1996) and growth opportunities. Additionally, the fragmented nature of the
market and the identifiable base of physician prescribers allow the Company
to achieve significant market penetration with a specialized sales force. The
Company currently markets 29 prescription products, including 25 which are
off-patent. The Company also has a separate mail service pharmacy, Health
Script Pharmacy Services, Inc. ("Health Script"), which dispenses respiratory
pharmaceuticals.

Dura employs a dual marketing strategy utilizing its focused field sales
force of 182 people and a dedicated managed care sales and marketing group
that covers managed care organizations and retail pharmacy chains. Dura's
field sales force targets a physician base which includes approximately
80,000 U.S. allergists, ear, nose, and throat specialists ("ENTs"),
pulmonologists and a selected subset of pediatricians and generalist
physicians, who the Company believes collectively write approximately 75% of
respiratory pharmaceutical prescriptions. Dura believes that its field sales
force calls on approximately one-half of the target physician base. The
Company's managed care sales and marketing group concentrates on sales to
large regional and national managed care organizations. The Company expects
to continue expanding both the field sales force and the managed care sales
and marketing group as warranted by market opportunities.

This marketing strategy has allowed Dura to leverage its distribution
capabilities by acquiring the rights to market additional prescription
pharmaceutical products through acquisition, in-license or co-promotion
arrangements. Since 1992, the Company has acquired 20 products targeted at
the U.S. respiratory market. In July 1996, the Company acquired from Procter
& Gamble Pharmaceuticals, Inc. ("P&G") worldwide rights to the
Entex-Registered Trademark- products, consisting of four prescription upper
respiratory drugs. In September 1996, the Company acquired from Eli Lilly and
Company ("Lilly") U.S. marketing rights to the antibiotics Keftab-Registered
Trademark- and Ceclor-Registered Trademark- CD. The Company began marketing
Keftab in September 1996, and launched Ceclor CD in October 1996.

Another key component of Dura's strategy is to develop the Spiros-TM-
pulmonary drug delivery system ("Spiros").   Spiros is being designed to
aerosolize pharmaceuticals in dry powder formulations for delivery to the
lungs while providing certain advantages over other currently-used methods of
pulmonary drug delivery. The Company has a three-level development program
for Spiros which entails (i) developing, on behalf of  Spiros Development
Corporation ("Spiros Corp."), certain drug applications for use in Spiros,
including in the near-term albuterol, beclomethasone and ipratropium, three
of the most frequently prescribed pharmaceutical agents to treat respiratory
conditions, (ii) licensing Spiros primarily to pharmaceutical companies,
including Mitsubishi Chemical Corporation ("Mitsubishi") and Fujisawa
Pharmaceuticals Co., Ltd. ("Fujisawa"), generally for use with certain of
their proprietary respiratory products, and (iii) developing Spiros,
generally in collaboration with third parties, for the systemic delivery of
compounds, including certain proteins and peptides, through the lungs for
respiratory and non-respiratory indications as an alternative to current
invasive delivery techniques. The Company has licensed certain rights to
Spiros Corp. to continue a significant portion of the development program for
Spiros, including funding of ongoing and future clinical trials of albuterol
and beclomethasone in Spiros, and formulation, preclinical development and
clinical trials of ipratropium in Spiros. The Company has the right to
purchase all of the currently outstanding shares of callable common stock of
Spiros Corp. through December 31, 1999 at predetermined prices.


                                                                         4

<PAGE>

In July 1996, the Company commenced long-term and short-term clinical trials
which, along with earlier studies, are intended to serve as the basis for the
filing of a New Drug Application ("NDA") by Dura in late 1997 seeking U.S.
Food and Drug Administration ("FDA") approval, on behalf of Spiros Corp., to
market albuterol in the Spiros cassette system. The patient dosing clinical
studies which the Company believes to be necessary for this submission have
been completed.  The Company has also filed on behalf of Spiors Corp., an
Investigational New Drug ("IND") Application for U.S. studies on
beclomethasone in the Spiros cassette system.  In the first quarter of 1997,
clinical trials of beclomethasone in the U.S. commenced under this IND.  In
addition, Dura, on behalf of Spiros Corp., has performed powder formulation
work with the peptide drug salmon calcitonin which in a clinical trial
demonstrated the ability to develop macromolecule aerosol powder formulation
which achieved systemic delivery using the Spiros technology.

U.S. RESPIRATORY MARKET

Dura divides the U.S. Respiratory Market into two primary markets: (i) asthma
and COPD; and (ii) respiratory infection, allergy, and cough and cold.

ASTHMA AND COPD

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 to more
than 15 million people, a 66% rise since 1980. COPD is a complex condition
comprising a combination of chronic bronchitis, emphysema and airway
obstruction. The disease affects males more often than females and is
exacerbated by smoking and other insults to the lung. Incidence is as high as
20% of the adult male population, though only a minority are clinically
disabled. The U.S. combined market for therapeutic drugs to treat asthma and
COPD was over $2.8 billion in 1996. The primary categories of therapeutic
drugs used in the treatment of asthma and COPD include bronchodilators and
anti-inflammatories. Bronchodilators dilate the airways and include beta
agonists (such as bitolterol and albuterol), xanthines (such as theophylline)
and anticholinergics (such as ipratropium). Anti-inflammatories reduce
inflammation and include cromolyns and glucocorticoids (such as
triamcinolone, beclomethasone, flunisolide and budesonide).

RESPIRATORY INFECTION, ALLERGY, COUGH AND COLD

Respiratory infections are generally caused by a variety of bacteria and can
affect either the upper respiratory tract (nasal cavity, sinuses and throat)
or the lower respiratory tract (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 that treat specific ranges, or
spectrums, of bacteria.  Classes used to treat respiratory infection include
cephalosporins, broad spectrum macrolides, and quinolores.  The market for
these classes is very large, totaling $4.6 million in 1996 for the oral solid
forms alone.  The cephalosprin class accounts for approximately $1.3 billion
of this total.

While the causes of allergies (which can be seasonal or perennial) and cough
and colds differ, nasal congestion and sneezing are common symptoms of these
diseases. The U.S. combined market for therapeutic drugs to treat allergies,
cough and cold was over $2.1 billion in 1996. Antihistamines and
antihistamine/decongestant combinations are the most widely used forms of
therapy for allergies and represent the largest portion of the allergy, cough
and cold market in the U.S.  Cough and cold preparations represent the next
largest portion of the allergy, cough and cold market and include
decongestant and decongestant/expectorant combinations, cough suppressants
and antihistamine combinations and expectorants.


                                                                         5
<PAGE>

STRATEGY

The Company's objective is to be a leading supplier of respiratory
pharmaceuticals and pulmonary drug delivery systems. The Company attempts to
achieve this objective through the implementation of the following:

-    FOCUSING MARKETING EFFORTS ON RESPIRATORY PHYSICIAN SPECIALISTS.  Dura
     employs a dual marketing strategy utilizing its focused field sales force
     and a dedicated managed care sales and marketing group. Dura's field sales
     force targets a physician base which includes approximately 80,000 U.S.
     allergists, ENTs, pulmonologists and a selected subset of pediatricians and
     generalist physicians, who the Company believes collectively write
     approximately 75% of respiratory pharmaceutical prescriptions. Dura
     believes that its field sales force calls on approximately one-half of the
     target physician base. The Company's managed care sales and marketing group
     concentrates on sales to large regional and national managed care
     organizations. The Company expects to continue expanding both the field
     sales force and the managed care sales and marketing group as warranted by
     market opportunities.

-    ACQUIRING, IN-LICENSING OR CO-PROMOTING RESPIRATORY PRESCRIPTION
     PHARMACEUTICALS.  The Company seeks to acquire, in-license or co-promote
     respiratory prescription pharmaceuticals or companies developing and/or
     marketing such pharmaceuticals. The Company is particularly focused on
     respiratory drugs that are under-promoted by large pharmaceutical
     companies. The Company believes that the pharmaceutical industry is
     undergoing a restructuring that may create greater opportunities for the
     Company. For example, many large pharmaceutical companies are consolidating
     and merging and/or redirecting their sales forces, which may lead to the
     underpromotion of certain products deemed too small for large sales forces
     and create significant acquisition, in-licensing and co-promotion
     opportunities. Additionally, consolidation within the sector may make small
     product lines less desirable to large pharmaceutical companies.  The
     Company is actively pursuing the acquisition of rights to products and/or
     companies, which may require the use of substantial capital resources.

-    DEVELOPING SPIROS.  The Company has a three-level development program for
     Spiros which entails (i) developing, on behalf of Spiros Corp., certain
     drug applications for use in Spiros, including in the near term albuterol,
     beclomethasone and ipratropium, three of the most frequently-prescribed
     pharmaceutical agents to treat respiratory conditions, (ii) licensing
     Spiros primarily to pharmaceutical companies generally for use with certain
     of their proprietary respiratory products, and (iii) developing Spiros,
     generally in collaboration with third parties, for the systemic delivery of
     compounds, including certain proteins and peptides, through the lungs for
     respiratory and non-respiratory indications as an alternative to current
     invasive delivery techniques. These Spiros development programs are
     currently being undertaken primarily through strategic relationships with
     Spiros Corp., Mitsubishi, Fujisawa, and Houghten Pharmaceuticals, Inc.
     ("Houghten").

                                                                           6

<PAGE>


DURA'S CURRENT PRODUCTS

The following prescription pharmaceuticals are currently being marketed by Dura
in the following therapeutic categories:

<TABLE>
<CAPTION>
                                                                                                          RIGHTS             YEAR
                                                                                                     OBTAINED FROM OR     INTRODUCED
                                   PRODUCTS                                                            DEVELOPED BY         BY DURA
                                   --------                                                       ----------------------  ----------
<S>                                                                                               <C>                     <C>

ASTHMA AND COPD
  TORNALATE-Registered Trademark- METERED DOSE INHALER (bitolterol mesylate) . . . . . . . . .      Sanofi-Winthrop, Inc.     1993
  TORNALATE-Registered Trademark- SOLUTION FOR INHALATION, 0.2% (bitolterol mesylate). . . . .      Sanofi-Winthrop, Inc.     1992
ALLERGY, COUGH AND COLD
  DURA-VENT-Registered Trademark- TABLETS (phenylpropanolamine HC1, guaifenesin) . . . . . . .              Dura            Pre-1989
  DURA-VENT/DA-Registered Trademark- TABLETS (chlorpheniramine maleate, phenylephrine HC1,
    methscopolamine nitrate) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              Dura            Pre-1989
  D.A. CHEWABLE-TM- TABLETS (chlorpheniramine maleate, phenylephrine HC1,
    methscopolamine nitrate) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              Dura              1991
  D.A. II-TM- TABLETS (chlorpheniramine maleate, phenylephrine HC1,
    methscopolamine nitrate) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              Dura              1996
  DURA-TAP-Registered Trademark-/PD CAPSULES (chlorpheniramine maleate, pseudoephedrine
    HC1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              Dura            Pre-1989
  DURA-VENT-Registered Trademark-A CAPSULES (chlorpheniramine maleate, phenylpropanolamine
    HC1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              Dura            Pre-1989
  DURA-GEST-Registered Trademark- CAPSULES (phenylephrine HC1, phenylpropanolamine HC1,
    guaifenesin) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              Dura            Pre-1989
    FENESIN-TM- TABLETS (guaifenesin). . . . . . . . . . . . . . . . . . . . . . . . . . . . .              Dura            Pre-1989
    FENESIN-TM- DM TABLETS (guaifenesin, dextromethorphan hydrobromide). . . . . . . . . . . .              Dura              1994
    GUAI-VENT-TM-PSE TABLETS (pseudoephedrine HC1, guaifenesin). . . . . . . . . . . . . . . .              Dura              1994
    CROLOM -TM-(cromolyn sodium opthalmic solution USP 9%) . . . . . . . . . . . . . . . . . .          Bausch & Lomb         1995
  RONDEC-Registered Trademark- ORAL DROPS (carbinoxamine maleate, pseudoephedrine
    hydrochloride) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             Abbott             1995
  RONDEC-Registered Trademark- SYRUP (carbinoxamine maleate, pseudoephedrine
    hydrochloride) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             Abbott             1995
  RONDEC-Registered Trademark--TR TABLET (carbinoxamine maleate, pseudoephedrine
    hydrochloride) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             Abbott             1995
  RONDEC-Registered Trademark- TABLET (carbinoxamine maleate, pseudoephedrine
    hydrochloride) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             Abbott             1995
  RONDEC-Registered Trademark--DM ORAL DROPS (carbinoxamine maleate, pseudoephedrine
    hydrochloride, dextromethorphan hydrobromide). . . . . . . . . . . . . . . . . . . . . . .             Abbott             1995
  RONDEC-Registered Trademark--DM SYRUP (carbinoxamine maleate, pseudoephedrine
    hydrochloride, dextromethorphan hydrobromide). . . . . . . . . . . . . . . . . . . . . . .             Abbott             1995
  RONDEC-Registered Trademark- CHEWABLE TABLETS (brompheniramine maleate, pseudoephedrine
    hydrochloride) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              Dura              1996
    ENTEX-Registered Trademark- LA TABLETS (phenylpropanolamine HC1, guaifenesin). . . . . . .               P&G              1996
    ENTEX-Registered Trademark- PSE TABLETS (pseudoephedrine HC1, guaifenesin) . . . . . . . .               P&G              1996
  ENTEX-Registered Trademark- CAPSULES (phenylephrine HC1, phenylpropanolamine HC1,
    guaifenesin) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               P&G              1996
  ENTEX-Registered Trademark- LIQUID (phenylephrine HC1, phenylpropanolamine HC1,
    guaifenesin) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               P&G              1996
ANTIBIOTICS
  CAPASTAT-Registered Trademark- SULFATE (sterile capreomycin sulfate, USP)
   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              Lilly             1995
    SEROMYCIN-Registered Trademark- (cycloserine capsules, USP). . . . . . . . . . . . . . . .              Lilly             1995
    FURADANTIN-Registered Trademark- ORAL SUSPENSION (nitrofurantoin). . . . . . . . . . . . .               P&G              1996
    KEFTAB-Registered Trademark- (cephalexin hydrochloride). . . . . . . . . . . . . . . . . .              Lilly             1996
    CECLOR-Registered Trademark- CD TABLETS (anhydrous cefaclor) . . . . . . . . . . . . . . .              Lilly             1996

</TABLE>

In July 1996, the Company acquired from P&G worldwide rights to the Entex
products consisting of four prescription upper respiratory drugs. In
September 1996, the Company acquired from Lilly the U.S. rights to the
cephalosporin antibiotics Keftab and Ceclor CD. The U.S. oral antibiotic
market was $4.6 billion in 1996, of which approximately $1.3 billion was
accounted for by cephalosporin antibiotics. The Company believes that this
acquisition complements its existing strategy since approximately 70% of
antibiotics are prescribed for respiratory infections. Keftab is an
antibiotic indicated for respiratory tract, skin and soft tissue infections.
Ceclor CD is a twice-a-day dosage form of cefaclor typically taken for seven
days. Ceclor-Registered Trademark-, Lilly's currently marketed cefaclor, is
normally taken three times a day for 10 days, and generated $161.0 million in
sales in the United States for the 12 months ended June 30, 1996. The Company
launched Ceclor CD in October 1996. The Company believes these product
acquisitions further its strategy

                                                                           7

<PAGE>

of acquiring prescription pharmaceuticals which are marketed by its sales
force to its targeted physicians. To support the introduction and growth of
these products, the Company intends to increase its field sales force to
approximately 250 people during 1997.

Keftab, Ceclor CD, Capastat-Registered Trademark- Sulfate,
Seromycin-Registered Trademark-, and the two Tornalate-Registered Trademark-
products are the subject of approved NDAs. Crolom-TM- is the subject of an
approved Abbreviated New Drug Applications ("ANDA"). The remaining products
are branded pharmaceuticals which are not the subject of NDAs or ANDAs.

SPIROS

Spiros is a proprietary pulmonary dry powder drug delivery system that is
designed to aerosolize pharmaceuticals in dry powder formulations for
delivery to the lungs. Currently, metered dose inhalers ("MDIs") are the most
commonly used inhalation delivery system. The Company believes dry powder
inhalers ("DPIs") will gradually replace MDIs as the leading pulmonary
delivery system, due primarily to the phasing out of chlorofluoro carbons
("CFCs") and coordination problems associated with MDIs. Many companies are
studying alternative propellants, such as hydrofluorocarbons ("HFAs"), for
use in MDIs, and one potential competitor has obtained FDA approval and has
began marketing an albuterol MDI using an HFA propellant. However, the
Company believes any product utilizing alternative propellants 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. There are currently two general classes of DPIs in commercial use
worldwide, individual and multiple dose systems, and both are breath powered
and flow rate dependent. In the U.S., only individual dose DPIs are marketed.
Turbuhaler-Registered Trademark-, a multiple dose DPI and the leading DPI in
worldwide sales, is considered the current industry standard. It has not yet
been approved by the FDA for marketing in the U.S., although the FDA has
issued an approvable letter for the first Turbuhaler product.

POTENTIAL ADVANTAGES OF SPIROS

The Company believes Spiros may have certain advantages over other currently
used methods of drug delivery including the following:

-    INSPIRATORY FLOW RATE INDEPENDENCE.  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,
     effort or physical abilities. Recently-completed tests of Spiros on human
     subjects have shown a relatively consistent and significant level of drug
     deposition throughout the clinically relevant inspiratory range. Currently-
     available DPIs can vary significantly in their level of drug deposition
     depending on the patient's inspiratory flow rate and can deliver
     significantly less drug at the lower flow rates typically associated with
     asthma attacks.

-    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 the user to coordinate their
     breathing with actuation 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 patients' lungs as they inhale.

-    FREE OF CHLOROFLUOROCARBON PROPELLANTS.  CFC propellants have
     ozone destructive characteristics and are subject to worldwide
     regulations aimed at eliminating their usage within the decade.
     Spiros will not use CFCs while most MDIs, currently the most
     popular form of aerosol drug delivery, use CFCs. Virtually all of
     the world's industrial nations, under the auspices of the United
     Nations Environmental Program, pledged to cease use of CFCs by the
     year 2000. As a result of the phase out of CFCs, the Company
     believes that DPIs will become a leading method for pulmonary drug
     delivery.


                                                                           8

<PAGE>



-    REDUCED SIDE EFFECTS.  Spiros is designed to efficiently
     deliver drugs to the lungs thereby reducing drug deposition to the
     mouth and throat which could reduce the possibility of unwanted
     side effects of certain pharmaceutical agents, such as coughing and
     local irritation. With MDIs, a significant portion of the dose is
     delivered to the mouth and throat and is swallowed.

-    PATIENT CONVENIENCE.  Spiros is designed to be convenient for patients,
     with features such as breath actuation (Spiros is triggered by inhalation),
     portability (light weight and small size), quick delivery time, simple
     operation, dose delivery feedback and multi-dose capability.

DEVELOPMENT PROGRAM FOR SPIROS

The Company intends to proceed with a three-level development program for
Spiros. The first level entails developing certain drug applications for use in
Spiros, including in the near-term albuterol, beclomethasone and ipratropium,
three of the most frequently-prescribed pharmaceutical agents to treat
respiratory conditions.  The Company, on behalf of Spiros, is engaged in on-
going discussions with the FDA regarding clinical testing requirements for
Spiros for albuterol, beclomethasone and ipratropium aimed at facilitating the
regulatory approval process.

In 1994, an IND application was filed with the FDA to begin clinical testing
with Dura's own albuterol dry powder formulation with the Spiros cassette
system. Dura has exclusively licensed rights to this formulation to Spiros Corp.
In April 1996, Dura completed dosing of subjects in a clinical trial in the
United States on behalf of Spiros Corp. focusing on dose selection using a
formulation of powdered albuterol with Spiros under an IND application filed
with the FDA. In July 1996, the Company commenced long-term and short-term
clinical trials which, along with earlier studies, are intended to serve as the
basis for the filing of an NDA by Dura in 1997 seeking FDA marketing approval,
on behalf of Spiros Corp., for albuterol in the Spiros cassette system.  In
early 1997, the Company completed the patient dosing clinical studies it
believes are necessary to support an NDA filing for Spiros albuterol and intends
to file an NDA in late 1997.  Considerable formulation work for use of
beclomethasone with Spiros has also been done. A study has been completed in
Canada to evaluate dose selection in 24 subjects. The Company has commenced a
second dose selection study in the U.S. under an IND application for
beclomethasone in Spiros which was filed by Dura on behalf of Spiros Corp. The
Company also intends to conduct clinical trials on ipratropium in the Spiros
system on behalf of Spiros Corp.

Dura, on behalf of Spiros Corp., has performed powder formulation work with the
peptide drug salmon calcitonin which, in a clinical trial, demonstrated the
ability to develop macromolecule aerosol powder formulation that achieved
systemic delivery using the Spiros technology. Particle size reduction
appropriate for aerosol administration was achieved, and IN VITRO measurements
showed good aerosol characteristics in Spiros. The formulation was sufficiently
stable, and a clinical trial batch was manufactured in Dura's facility.

The second level of Spiros development consists of licensing Spiros primarily to
pharmaceutical companies for use with certain of their proprietary respiratory
products. Dura currently has development agreements with Fujisawa and Mitsubishi
and is conducting feasibility studies for other pharmaceutical companies to
assess the suitability of certain compounds to be delivered using Spiros. There
can be no assurance that any of these feasibility studies will prove successful,
or even if successful, that the pharmaceutical companies will proceed to license
Spiros for use with these compounds. See "-- Strategic Alliances."


                                                                           9

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The third level of Spiros development is to develop Spiros, in collaboration
with other companies, for the systemic delivery of compounds through the lungs
for respiratory and non-respiratory indications as an alternative to current
invasive delivery techniques. The Company commenced development efforts on the
use of Spiros with peptides and proteins in 1995. In February 1996, Dura entered
into a collaborative agreement with Houghten to develop inhalation formulations
of new compounds discovered and developed by Houghten.  Dura is also performing
feasibility studies for pharmaceutical companies that desire to develop Spiros
for use with both respiratory drugs and drugs for systemic pulmonary delivery
now being developed by those companies.  See "-- Strategic Alliances."

SALES AND MARKETING

FIELD SALES FORCE

Dura's specialized sales and marketing organization targets a physician base
which includes approximately 80,000 U.S. allergists, ENTs, pulmonologists, and a
selected subset of pediatricians and generalist physicians who treat a large
number of allergy and asthma patients. The Company believes this relatively
small group of physicians writes approximately 75% of respiratory pharmaceutical
prescriptions for the $9.5 billion U.S. Respiratory Market.  This concentration
allows for effective market penetration by a specialized sales and marketing
organization.

As of December 31, 1996, Dura had 182 full-time pharmaceutical sales
representatives nationwide, supervised by 17 district managers and two regional
directors. Dura believes its focused sales force currently calls on
approximately one-half of its target physician base. The Company intends to
continue expansion of its field sales force as warranted by market
opportunities.

The Company believes that the personal relationships of Dura's sales
representatives with their physician customers are essential to the Company's
business. Dura's sales representatives differentiate themselves from the
competition by focusing primarily on asthma and COPD, allergy, repiratory
infections, and cough and cold, and by promoting pharmaceuticals used by
respiratory specialists in treating patients. With a relatively small target
audience, promotional spending by Dura on advertising and direct mail is
generally inexpensive and efficient. The Company regularly participates in
local, regional and national medical meetings of the key specialty groups. The
Company believes that it has established a national awareness of the Dura name
within the U.S. Respiratory Market.

MANAGED CARE SALES AND MARKETING GROUP

To implement Dura's dual marketing strategy, the Company established a dedicated
managed care sales and marketing group, currently consisting of four experienced
national account managers, which concentrates on sales to large regional and
national managed care organizations. These organizations include health
maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"),
large drug merchandising chains, nursing home providers and mail order
pharmacies. A primary goal of the managed care sales and marketing group is to
place Dura's products on approved formulary lists of HMOs and PPOs.

HEALTH SCRIPT

In March 1995, the Company acquired Health Script, located in Denver, Colorado.
Health Script is a mail service pharmacy which dispenses respiratory
pharmaceuticals. Mail order services are particularly well-suited for
respiratory patients who are long-term, chronic users of certain pharmaceuticals
and to whom the convenience and cost efficiency of mail order is appealing.
Health Script was formed in 1990 to supply value-priced respiratory
pharmaceutical products to patients through the mail. Health Script currently
dispenses, to its approximately 30,000 patients nationwide, over 100 respiratory
products manufactured by third parties. Health Script is focused on working with
home healthcare providers and patients to coordinate respiratory medication
services and patients management programs.  Health Script markets its services
through specialty field sales representatives and telemarketing.  The existing
patient base is

                                                                           10

<PAGE>

maintained by telephone contact with patients to monitor compliance with
their doctors' prescriptions.

RELATIONSHIP WITH SPIROS CORP.

In December 1995, Spiros Corp. completed a $28.0 million private placement. The
net proceeds of this private placement and a $13.0 million cash contribution
from Dura are being used by Spiros Corp. to continue a significant portion of
the development program for Spiros, including funding of formulation,
preclinical development and ongoing and future clinical trials of albuterol,
beclomethasone and ipratropium in Spiros.

The financing involved the issuance and sale of 933,334 units at $30.00 per
unit. Each unit consisted of one share of Spiros Corp. callable common stock and
one Series S Warrant exercisable for 2.4 shares of the Company's  common stock
at an exercise price of $19.47 per share. In consideration for the issuance of
the Series S Warrants and Dura's cash contribution, the Company received an
option, which can be exercised through December 31, 1999, to purchase all of the
currently outstanding shares of Spiros Corp. callable common stock at
predetermined prices, beginning at $46.88 per share (an aggregate of $43.7
million) through December 31, 1997 and increasing on a quarterly basis
thereafter to a maximum of $76.17 per share (an aggregate of $71.1 million) on
December 31, 1999 ("Spiros Purchase Option"). Such purchase price may be paid,
at the Company's discretion, in cash, shares of the Company's common stock or a
combination thereof. Any shares of common stock delivered in payment of the
purchase price must be covered by an effective registration statement. If the
development efforts of Spiros Corp. are successful, the Company may exercise its
right to purchase Spiros Corp.'s callable common stock; however, the Company
does not have a legal obligation to do so. In addition, Dura has the option at
any time through the earlier of 60 days after FDA approval of an albuterol
product or December 31, 1999,  to purchase Spiros Corp's. rights for use of
Spiros with albuterol product in a cassette ("Albuterol Purchase Option").  In
the event Dura exercises the Albuterol Purchase Option and does not exercise the
Spiros Purchase Option, Dura will pay a royalty to Spiros Corp. on net sales of
such albuterol product.

In connection with the private placement, the Company entered into the following
agreements with Spiros Corp.:

-    TECHNOLOGY LICENSE AGREEMENT.  Under this agreement, the Company granted to
     Spiros Corp., subject to existing agreements with Mitsubishi, a royalty-
     bearing, perpetual, exclusive license to use Spiros in connection with
     albuterol, beclomethasone and ipratropium and certain other proteins and
     peptides (including salmon calcitonin) and certain non-exclusive rights to
     all other compounds to which Dura has or acquires rights capable of
     transfer during the term of the Development and Management Agreement.

-    INTERIM MANUFACTURING AND MARKETING AGREEMENT.  Under this agreement,
     Spiros Corp. granted to the Company an exclusive license to manufacture and
     market Spiros Corp. products in the U.S. in exchange for a royalty of 10.0%
     on net product sales, as defined in the agreement. This agreement expires
     upon termination or expiration of the Spiros Purchase Option.

-    DEVELOPMENT AND MANAGEMENT AGREEMENT.  Under this agreement, Spiros Corp.
     engaged the Company to develop the Spiros Corp. products and provide
     general management services to Spiros Corp.
     During 1996, the Company recorded contract revenues of $19,138,000 under
     this agreement.

STRATEGIC ALLIANCES

MITSUBISHI CHEMICAL CORPORATION.  In October 1994, Dura and Mitsubishi entered
into a license and supply agreement, under which Mitsubishi was granted the
exclusive right to use and sell Spiros together with a dry powder formulation of
an asthma compound in Japan, Hong Kong, Singapore, the Republic of China
(Taiwan), the Republic of Korea and the People's Republic of China (collectively
the "Territory"). Dura's rights under the agreement were assigned to Spiros
Corp. in December 1995. Spiros Corp. has agreed to develop a dry powder
formulation of such compound for Mitsubishi and will manufacture and supply to

                                                                           11

<PAGE>


Mitsubishi its requirements for both Spiros and such compound. Mitsubishi will
be responsible for conducting all clinical and other work needed to obtain
regulatory approvals of Spiros and such compound in the Territory. In connection
with the license and supply agreement, Mitsubishi is obligated to make milestone
and other payments to Dura and Spiros Corp. in certain circumstances.

FUJISAWA PHARMACEUTICAL CO., LTD.  In April 1995, the Company entered into a
collaborative development agreement with Fujisawa covering the use of Spiros to
deliver one of Fujisawa's new chemical entity asthma compounds. The agreement
was an extension of previous feasibility work completed by Dura. Pursuant to the
agreement, the Company will provide dry powder formulation assistance,
manufacturing process development and clinical trial supplies to Fujisawa
through the earlier of completion of clinical trials in Japan or June 30, 1998.
The Company received an up-front payment and is to receive additional milestone
payments and reimbursement of costs from Fujisawa. Fujisawa can terminate the
agreement upon 30 days' notice to the Company. If Fujisawa's clinical trials are
successful, the parties have agreed to negotiate additional agreements, which
could include license and supply agreements.

HOUGHTEN PHARMACEUTICALS, INC.  In February 1996, the Company entered into a
research and development agreement with Houghten to develop inhalation
formulations of new compounds discovered and developed by Houghten. In addition,
Dura will provide to Houghten, for a four-year period, contract services for
Houghten's drug development programs using Dura's development capabilities and
proprietary formulation and delivery technology. The Company will receive a
percentage of proceeds received by Houghten with respect to jointly-developed
compounds, and will receive contract revenues from Houghten for services
provided.

In addition, the Company has executed agreements with a number of international
pharmaceutical companies to conduct feasibility studies on formulations of
certain compounds for use with Spiros, including growth hormones and proteins
and peptides. There can be no assurance that any of these feasibility studies
will prove successful, or even if successful, that the pharmaceutical companies
will proceed to license Spiros for use with these compounds.


COMPETITION

The Company directly competes with at least 25 other companies in the U.S. which
are currently engaged in developing, marketing and selling respiratory
pharmaceuticals. Additionally, there are at least 10 companies currently
involved in the development, marketing or sales of dry powder pulmonary drug
delivery systems. In the U.S., only individual dose DPIs are marketed, including
the Rotohaler (developed and marketed by Glaxo Wellcome, Inc.) and the Spinhaler
(developed and marketed by  Fisons Limited). The Turbuhaler (developed and
marketed by Astra Pharmaceuticals), a multiple dose DPI and the leading DPI in
worldwide sales, is considered the current industry standard. It is not yet
marketed in the U.S., although the FDA has issued an approvable letter for the
first Turbuhaler product.

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

                                                                           12

<PAGE>

CLINICAL, DEVELOPMENT AND REGULATORY

The Company's clinical, development and regulatory expenses relate primarily to
product development and regulatory compliance activities. Clinical, development
and regulatory expenses were $9,354,000, $8,408,000, and $18,540,000 for the
years ended December 31, 1994, 1995 and 1996, respectively. The clinical,
development and regulatory expenses associated with Spiros development, for
which the Company recorded contract revenues from Dura Delivery Systems, Inc.
(acquired by the Company on December 29, 1995) and Spiros Corp., were
$8,260,000, $6,428,000, and $15,932,000 for the years ended December 31, 1994,
1995, and 1996, respectively.

PATENTS AND PROPRIETARY RIGHTS

The Company considers the protection of discoveries in connection with its
development activities important to its business. The Company intends to seek
patent protection in the U.S. and selected foreign countries where deemed
appropriate. On July 12, 1994, the Company was issued a U.S. patent on Spiros
and the Company has filed a continuation-in-part covering certain improvements
to the Spiors techology. The issued patent covers, among other claims, use in
Spiros of an impeller to create an aerosol cloud of a drug intended for
inhalation. There can be no assurance that the issued patent or subsequent
patents, if issued, will adequately protect the Company's design or that such
patents will provide protection against infringement claims by competitors. Dura
has also filed certain foreign patent applications relating to Spiros
technology. There can be no assurance that additional patents, U.S. or foreign,
will be obtained covering Company products or that, if issued or licensed to the
Company, the patents covering Company products will provide substantial
protection or be of commercial benefit to the Company. Federal court decisions
establishing legal standards for determining the validity and scope of patents
in the field are in transition.  There can be no assurance that the historical
legal standards surrounding questions of validity and scope will continue to be
applied or that current defenses as to issued patents in the field will offer
protection in the future.

The Company also relies upon trade secrets, unpatented proprietary know-how and
continuing technological innovation to develop its competitive position. The
Company enters into confidentiality agreements with certain of its employees
pursuant to which such employees agree to assign to the Company any inventions
relating to the Company's business made by them while in the Company's employ.
There can be no assurance, however, that others may not acquire or independently
develop similar technology or, if patents are not issued with respect to
products arising from research, that the Company will be able to maintain
information pertinent to such research as proprietary technology or trade
secrets.

Tornalate Inhalation Solution and Tornalate MDI are covered by patents filed by
Sanofi-Winthrop, Inc. which expire in the near-term. The Keftab and Ceclor CD
products or processes to make such products are covered by patents which expire
in 2003, 2005 and 2007. The Company's other asthma, allergy, cough and cold
pharmaceuticals are not protected by patents.

GOVERNMENT REGULATION

The manufacturing and marketing of the Company's products are subject to
regulation by Federal and state government authorities, including the FDA, the
Environmental Protection Agency and the Occupational Safety and Health
Administration, in the U.S. and other countries. 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 the Company's
products. Product development and approval within this regulatory framework
takes a number of years and involves the expenditure of substantial resources.

                                                                           13

<PAGE>


To obtain the FDA approval for Spiros and the compounds to be used with it, Dura
is required to conduct each of the following steps and possibly others: (i)
preclinical (laboratory and possibly animal tests), (ii) the submission to the
FDA of an application for an IND, which must become effective before human
clinical trials may commence, (iii) adequate and well-controlled human clinical
trials to establish safety and efficacy, (iv) the submission of an NDA to the
FDA and for marketing approval, and (v) FDA approval of the NDA prior to any
commercial sale or shipment. 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 ("cGMP")
for both drugs and devices. To supply products for use in the U.S., foreign
manufacturing establishments must comply with cGMP 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, and unless the FDA objects, the IND 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 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 IND) 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 ("IRB") at the institution at which the study is
conducted. The IRB 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 (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 are submitted to the FDA in
the form of an NDA (or a Product License Application for biological products)
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 the 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, the Company believes 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 new drug. The Company believes that the
approval process for each drug/delivery combination now under development may be
shorter than the full NDA process described above because the safety and
efficacy of the compounds have already been established in currently marketed
formulations and delivery mechanisms. There can be no assurance,

                                                                           14

<PAGE>

however, that the approval process will be shorter or that any NDA submitted
by the Company will eventually be approved.

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 the Company.

The Federal Food, Drug, and Cosmetic Act requires that any "new drug" must be
approved pursuant to an NDA. The term "new drug" is defined as any drug which
is not generally recognized among qualified experts as safe and effective for
its labeled intended uses. Certain exemptions from this definition exist for
products marketed without change since prior to 1938 (the date of enactment
of the Federal Food, Drug, and Cosmetic Act) or, with respect to the need to
show effectiveness, for drug products marketed prior to October 10, 1962 (the
date of enactment of the "Drug Amendments of 1962"). The Company presently
markets 21 drug products for which the FDA has not yet made a determination
as to their status as new drugs under the Federal Food, Drug, and Cosmetic
Act. The FDA is continuing an evaluation of the effectiveness of all products
containing ingredients marketed prior to 1962 that are not the subject of an
approved NDA as part of its Drug Efficacy Study Implementation ("DESI")
program and will determine which are new drugs requiring approval through an
NDA for marketing. The existence of currently-marketed prescription
pharmaceuticals that contain one or more active ingredients first introduced
in the marketplace before 1962 and that are marketed based on their
manufacturers' belief that such products are not subject to the new drug
provisions of the Act is recognized in paragraph B ("Pre-1962 Prescription
Drugs Not Covered By An NDA") of the Food and Drug Administration's
Compliance Policy Guide, Chapter 32c (Guide 7132c.02). This Policy Guide
indicates that the FDA will implement procedures to determine whether the new
drug provisions are or are not applicable to these products. The Policy Guide
requires that products covered by paragraph B not be similar or related to
any drug included in the DESI program, or have a different formulation or
conditions for use than products marketed before November 13, 1984. If a
product is not covered by paragraph B, the FDA could make a determination as
to whether or not the new drug provisions are applicable to it without first
implementing the procedures called for by the Policy Guide. The Company
believes that nine of its prescription pharmaceutical products may be covered
by paragraph B of the Policy Guide and it is aware that one of its products
may be considered to be similar or related to a DESI drug. Also, it is not
aware of evidence to substantiate that three of its products have the same
formulation or conditions for use as products marketed before November 13,
1984. These products could be subject at any time to an FDA determination
that an NDA is required. If a final determination is made that a particular
drug requires an approved NDA, such approval will be required for marketing
to continue. If such a determination is made, the FDA might impose various
requirements: for example, it might require that the current product be the
subject of an approved NDA, that the product be reformulated and NDA approval
obtained, that the product must be sold on an over-the-counter basis rather
than as a prescription drug, or that the product must be removed from the
market. There can be no such assurance as to which of these courses the FDA
will require or whether the Company will be able to obtain any approvals
which the FDA may deem necessary. If any of these actions are taken by the
FDA, such actions could have a material adverse effect on the Company's
business.

In April 1996, the export provisions of the Federal Food, Drug, and Cosmetic
Act were relaxed to permit the export of unapproved drugs to a foreign
country, provided the product complies with the laws of that country and has
valid marketing authorization in at least one of a list of designated "Tier
1" countries. Once a product is exported to a qualified foreign country, the
Company will be subject to the applicable foreign regulatory requirements
governing human clinical trials and marketing approval in that country. The
requirements relating to the conduct of clinical trials, product licensing,
pricing and reimbursement vary widely from country to country and there can
be no assurance that the Company or any of its collaborators will be able to
meet and fulfill the statutory requirements in a particular country.

Health Script is subject to regulation by state regulatory authorities,
principally state boards of pharmacy. In addition, Health Script is subject to
regulation by other state and Federal agencies with respect to

                                                                           15

<PAGE>

reimbursement for prescription drug benefits provided to individuals covered
primarily by publicly funded programs.

MANUFACTURING

In June 1995, the Company completed the first phase of construction of its
manufacturing facility located in a Company-owned building adjacent to its
headquarters. The facility initially is intended, subject to regulatory
approval, to be used to formulate, mill, blend and manufacture drugs to be
used with Spiros. Equipment purchases for and validation of the facility are
currently scheduled through 1997. The Company's manufacturing facility must
be registered with and licensed by various regulatory authorities and comply
with cGMP requirements prescribed by the FDA and the State of California. The
Company is currently expanding its facilities to provide additional
manufacturing capabilities. The Company relies on a single manufacturer for
certain of its products. Any failure or significant delay in the validation
of or obtaining a satisfactory regulatory inspection of the new facility
could have a material adverse effect on the Company's ability to manufacture
products in connection with Spiros.

The Company has limited experience manufacturing products for commercial
purposes and currently does not have the capability to manufacture its
pharmaceutical products and therefore is dependent on contract manufacturers
for the production of such products for development and commercial purposes.
The Company's current dependence upon others for the manufacture of its
products may adversely affect the future profit margin, if any, on the sale
of those products and the Company's ability to develop and deliver products
on a timely and competitive basis.

HUMAN RESOURCES

The Company employed 462 employees (of which 375 are full-time) as of
December 31, 1996, consisting of 244 people in sales and marketing (of which
182 constitute the field sales force), 39 in administration and finance, 69
in clinical, regulatory and research and development, 24 in operations and 86
at Health Script. None of the Company's employees are represented by a labor
union and the Company believes it maintains positive relations with both
field and corporate personnel.

ENVIRONMENTAL COMPLIANCE

The Company has not incurred any significant costs associated with
environmental regulations and none are anticipated.

RISKS AND UNCERTAINTIES

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

THIRD-PARTY REIMBURSEMENT; PRICING PRESSURES -  The Company's commercial
success will depend in part on the availability of adequate reimbursement
from third-party health care payers, such as government and private health
insurers and managed care organizations. Third-party payers are increasingly
challenging the pricing of medical products and services.  There can be no
assurance that reimbursement will be available to enable the Company to
achieve market acceptance of its products or to maintain price levels
sufficient to realize an appropriate return on the Company's investment in
product acquisition, in-licensing and development.  The market for the
company's products may be limited by actions of third-party payers.  For
example, many managed health care organizations are now controlling the
pharmaceuticals that are on their formulary lists.  The resulting competition
among pharmaceutical companies to place their products on

                                                                           16

<PAGE>

these formulary lists has created a trend of downward pricing pressure in the
industry.  In addition, many managed care organizations are pursuing various
ways to reduce pharmaceutical costs and are considering formulary contracts
primarily with those pharmaceutical companies that can offer a full line of
products for a given therapy sector or disease state.  There can be no
assurance that the Company's products will be included on the formulary lists
of managed care organizations or that downward pricing pressure in the
industry generally will not negatively impact the Company's operations.

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

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

RISKS ASSOCIATED WITH RECENT ACQUISITIONS - In September 1996, the Company
acquired from Lilly exclusive U.S. rights to market and distribute Keftab-
Registered Trademark- and Ceclor-Registered Trademark- CD and entered into a
manufacturing agreement with Lilly which terminates in certain circumstances.
Any interruption in the supply of Keftab or Ceclor CD from Lilly due to
regulatory or other causes could result in the inability of the Company to meet
demand and could have a material adverse impact on the Company.

Both Keftab and Ceclor CD are antibiotics, and the Company has limited or no
experience in marketing such products. There can be no assurance that the
Company will be able to successfully market and distribute Keftab or that Keftab
will continue to be accepted by the market at the levels previously achieved by
Lilly or at a level sufficient to maintain growth of the product.  In addition,
Ceclor CD has not previously been marketed to physicians, and no assurance can
be given that the Company will be able to successfully compete with currently
available products. Failure to successfully market and sell Keftab and Ceclor CD
would have a material adverse effect on the Company's business, financial
condition and results of operations.

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

                                                                           17

<PAGE>

Dura's customers include McKesson Drug Company, Bergen Brunswig Drug Company,
Cardinal Health Inc., Bindley Western Drug Company and major drug store
chains. For 1996, three wholesale customers individually accounted for 17%,
14% and 13% of sales.  Two wholesale customers individually accounted for 16%
and 11% of 1995 sales, three wholesale customers individually accounted for
21%, 14% and 12% of 1994 sales.  The loss of any of these customer accounts
could have a material adverse effect upon the Company's business, financial
condition or results of operations.

SEASONALITY AND FLUCTUATING QUARTERLY RESULTS - Historically, as a result of
the winter cold and flu season, industry-wide demand for respiratory products
has been stronger in the first and fourth quarters than during 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 the Company's
results of operations in the past.  While the growth and productivity of the
Company's sales force and the introduction by the Company of new products
have historically mitigated the impact of seasonality on the Company's
results of operations, recent product acquisitions by the Company are likely
to increase the impact of seasonality on the Company's results of operations.
 No assurances can be given that the Company's results of operations will not
be materially adversely affected by the seasonality of product sales.

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

Dura directly competes with at least 25 other companies in the U.S. which are
currently engaged in developing, marketing and selling respiratory
pharmaceuticals.  Additionally, there are at least 10 companies currently
involved in the development, marketing or sales of dry powder pulmonary drug
delivery systems.  There are two types of dry powder inhalers ("DPIs")
currently in commercial use worldwide.  In the U.S., only individual dose
DPIs are marketed, including the Rotohaler (developed and marketed by Glaxo
Wellcome, Inc. ("Glaxo")) and the Spinhaler (developed and marketed by Fisons
Limited ("Fisons")).  The Turbuhaler (developed and marketed by Astra
Pharmaceuticals ("Astra")), a multiple dose DPI and the leading DPI in
worldwide sales, is considered the current industry standard.  It is not yet
marketed in the U.S., although the Food and Drug Administration ("FDA") has
issued an approvable letter for the first Turbuhaler product.

DEPENDENCE ON THIRD PARTIES; LIMITED MANUFACTURING EXPERIENCE - The Company's
strategy for development and commercialization of certain of its products is
dependent upon entering into various arrangements with corporate partners,
licensors and others and upon the subsequent success of these partners,
licensors and others in performing their obligations.  There can be no
assurance that the Company will be able to negotiate acceptable arrangements
in the future or that such arrangements, or its existing arrangements will be
successful.  In addition, partners, licensors and others may pursue
alternative technologies or develop alternative compounds or drug delivery
systems either on their own or in collaboration with others, including the
Company's competitors.  The Company has limited experience manufacturing
products for commercial purposes and currently does not have the capability
to manufacture its pharmaceutical products and therefore is dependent on
contract manufacturers for the production of such products for development
and commercial purposes.  The manufacture of the Company's products is
subject to current Good Manufacturing Practice ("cGMP") regulations
prescribed by the FDA.  The Company relies on a single manufacturer for each
of its products.  In the event that the Company is unable to obtain or retain
third-party manufacturing, it may not be able to commercialize its products
as planned.

                                                                           18

<PAGE>

There can be no assurance that the Company will be able to continue to obtain
adequate supplies of such products in a timely fashion at acceptable quality
and prices.  Also, there can be no assurance that the Company will be able to
enter into agreements for the manufacture of future products with
manufacturers whose facilities and procedures comply with cGMP and other
regulatory requirements.  The Company's current dependence upon others for
the manufacture of its products may adversely affect future profit margins,
if any, on the sale of those products and the Company's ability to develop
and deliver products on a timely and competitive basis.

In June 1995, the Company completed construction of its manufacturing
facility located in a Company-owned building adjacent to its headquarters.
The Company is currently expanding its facilities to provide additional
manufacturing capabilities.  The facility initially is intended to be used to
formulate, mill, blend and manufacture drugs to be used with Spiros, pending
regulatory approval. Equipment purchases and validation are currently
scheduled through 1997.  The Company's manufacturing facility must be
registered with and licensed by various regulatory authorities and comply
with cGMP requirements prescribed by the FDA and the State of California.
Any failure or significant delay in the validation of or obtaining a
satisfactory regulatory inspection of the new facility could have a material
adverse effect on the Company's ability to manufacture products in connection
with Spiros.

MANAGING GROWTH OF BUSINESS - The Company has experienced significant growth
as total revenues increased 80% in fiscal 1994, 58% in fiscal 1995 and 102%
for 1996 as compared to prior years.  During 1996, the Company executed
agreements relating to the acquisition of the rights to the Entex, Ceclor CD
and Keftab products.  During fiscal 1995, the Company executed three
agreements relating to the acquisition, in-licensing and co-promotion of
products and acquired Health Script.  Due to the Company's emphasis on
acquiring and in-licensing respiratory pharmaceutical products, the Company
anticipates that the integration of the recently acquired businesses and
products, as well as any future acquisitions, will require significant
management attention and expansion of its sales force. The Company's ability
to achieve and maintain profitability is based on management's ability to
manage its changing business effectively.

UNCERTAINTY OF PROFITABILITY; NEED FOR ADDITIONAL FUNDS - The Company has
experienced significant operating losses in the past and at December 31,
1996, the Company's accumulated deficit was $79.0 million.  Although the
Company has achieved profitability on a annual basis in fiscal 1994, 1995
(prior to the charge of approximately $43.8 million in the fourth quarter of
1995 in connection with the exercise of its option to purchase all of the
outstanding stock of DDSI and its cash contributions to Spiros Corp.) and
1996, there can be no assurance that revenue growth or profitability will
continue on a quarterly or annual basis in the future.  The acquisition and
in-licensing of products, the expansion of the Company's sales force in
response to acquisition and in-licensing of products, the maintenance of the
Company's existing sales force, the upgrade and expansion of its facilities,
continued pricing pressure and the potential exercise of the Spiros Purchase
Option or the Albuterol Purchase Option (as defined below), as well as funds
that Dura, at its option, may provide for Spiros development, both internally
and through Spiros Corp., will require the commitment of substantial capital
resources and may also result in significant losses.  Depending upon, among
other things, the acquisition and in-licensing opportunities available, the
Company may need to raise additional funds for these purposes.  The Company
may seek such additional funding through public and private financing,
including equity financing.  Adequate funds for these purposes, whether
through financial markets or from other sources, may not be available when
needed or on terms acceptable to the Company.  Insufficient funds may require
the Company to delay, scale back, or prevent some or all of its product
acquisition and in-licensing programs, the upgrade and expansion of its
facilities, the potential exercise of the Spiros Purchase Option and/or the
Albuterol Purchase Option and further development of Spiros.  The Company
anticipates that its existing capital resources, together with cash expected
to be generated from operations, available bank borrowings and the proceeds
of this offering, should be sufficient to finance its current operations and
working capital requirements through at least 1997.


                                                                           19

<PAGE>


POTENTIAL EXERCISE OF PURCHASE OPTIONS FOR SPIROS CORP. CALLABLE COMMON STOCK
AND ALBUTEROL PRODUCT; DILUTION - Dura has a purchase option with respect to
all of the currently outstanding shares of callable common stock of Spiros
Corp.("Spiros Purchase Option").   If Dura exercises the Spiros Purchase
Option, it will be required to make a substantial cash payment or to issue
shares of the common stock, or both.  A payment in cash would reduce Dura's
capital resources. A payment in shares of common stock would result in a
decrease in the percentage ownership of Dura's shareholders at that time.
The exercise of the Spiros Purchase Option will likely require Dura to record
a significant charge to earnings and may adversely impact future operating
results.  If Dura does not exercise the Spiros Purchase Option prior to its
expiration, the Company's rights in and to Spiros with respect to certain
compounds will terminate.  Dura also has the option to provide funding for
Spiros development in certain circumstances. Dura believes that the current
funds of Spiros Corp. will be sufficient to fund product development by
Spiros Corp. through 1997. Development of Spiros Corp. products will require
significant additional funds.

As part of the Company's contractual relationship with Spiros Corp., the
Company received an option to purchase certain rights to an albuterol product
in a cassette version of Spiros ("Albuterol Purchase Option") exercisable at
any time through the earlier of 60 days after FDA approval of such albuterol
product or December 31, 1999.  If the Company exercises the Albuterol
Purchase Option, it will be required to make a cash payment of at least $15.0
million which could have an adverse effect on its capital resources.  The
company may not have sufficient capital resources to exercise the Albuterol
Purchase Option which may result in the Company's loss of valuable rights.
In addition, continuation of development and commercialization of an
albuterol product in a cassette version of Spiros may require substantial
additional expenditures by Dura.  Dura has not made any determination as to
the likelihood of its exercise of the Spiros Purchase Option or the Albuterol
Purchase Option.

GOVERNMENT REGULATION; NO ASSURANCE OF FDA APPROVAL - Development, testing,
manufacturing and marketing of the Company's products are subject to
extensive regulation by numerous governmental authorities in the U.S. and
other countries. The process of obtaining FDA approval of pharmaceutical
products and drug delivery systems is costly and time-consuming.  Any new
pharmaceutical must undergo rigorous preclinical and clinical testing and an
extensive regulatory approval process mandated by the FDA.  Marketing of drug
delivery systems also requires FDA approval, which can be costly and time
consuming to obtain.  The Company will need to obtain regulatory approval for
each drug to be delivered through the use of Spiros.  There can be no
assurance that the pharmaceutical products currently in development, or those
products acquired or in-licensed by the Company, will be approved by the FDA.
 In addition, there can be no assurance that all necessary clearances will be
granted to the Company or its licensors for future products or that FDA
review or actions will not involve delays adversely affecting the marketing
and sale of the Company's products. For both currently marketed and future
products, failure to comply with applicable regulatory requirements can,
among other things, result in the suspension of regulatory approval, as well
as possible civil and criminal sanctions.  In addition, changes in
regulations could have a material adverse effect on the Company.

The FDA is continuing an evaluation of the effectiveness of all drug products
containing ingredients marketed prior to 1962 (the year of enactment of the
"Drug Amendments of 1962" to the Federal Food, Drug and Cosmetic Act) as part of
its Drug Efficacy Study Implementation ("DESI") program and will determine which
drugs are considered "new drugs" requiring approval through a New Drug
Application ("NDA") for marketing.  A policy guide issued by the FDA indicates
that the FDA will implement procedures to determine whether the new drug
provisions are applicable to existing products.  If a final determination is
made that a particular drug requires an approved NDA, such approval will be
required for marketing to continue.  If such a determination is made, the FDA
might impose various requirements; for example, it might require that the
current product be the subject of an approved NDA, that the product be
reformulated and an NDA approval be obtained, that the product must be sold on
an over-the-counter basis rather than as a prescription drug or that the product
must be removed from the market.  There can be no assurance as to which of these
courses the FDA will require, if any, with respect to most of the Company's
pharmaceutical products or whether the Company will be able to obtain any
approvals that the FDA may deem necessary.  If any of these actions are taken by
the FDA, such actions could have a material adverse

                                                                           20

<PAGE>

effect on the Company's business.  In addition, the Company's Tornalate
Metered Dose Inhaler uses chlorofluorocarbon ("CFC") propellants.  If CFCs
are banned for use in the Tornalate Metered Dose Inhaler, then the Company
will not be able to market that product for sale.  Health Script is subject
to regulation by state regulatory authorities, principally state boards of
pharmacy.  In addition, Health Script is subject to regulation by other state
and federal agencies with respect to reimbursement for prescription drug
benefits provided to individuals covered primarily by publicly-funded
programs.

PATENTS AND PROPRIETARY RIGHTS - The Company's success will depend in part on
its ability to obtain patents on current or future products or formulations,
defend its patents, maintain trade secrets and operate without infringing
upon the proprietary rights of others, both in the U.S. and abroad.  However,
only four of the pharmaceuticals currently marketed by the Company are
covered by patents.  The Company also has licenses or license rights to
certain other U.S. and foreign patent and patent applications. There can be
no assurance that patents, U.S. or foreign, will be obtained, or that, if
issued or licensed to the Company, they will be enforceable or will provide
substantial protection from competition or be of commercial benefit to the
Company or that the Company will possess the financial resources necessary to
enforce or defend any of its patent rights.  Federal court decisions
establishing legal standards for determining the validity and scope of
patents in the field are in transition. There can be no assurance that the
historical legal standards surrounding questions of validity and scope will
continue to be applied or that current defenses as to issued patents in the
field will offer protection in the future. The commercial success of the
Company will also depend upon avoiding the infringement of patents issued to
competitors and upon maintaining the technology licenses upon which certain
of the Company's current products are, or any future products under
development might be, based.  Litigation, which could result in substantial
cost to the Company, may be necessary to enforce the Company's patent and
license rights or to determine the scope and validity of proprietary rights
of third parties.  If any of the Company's products are found to infringe
upon patents or other rights owned by third parties, the Company could be
required to obtain a license to continue to manufacture or market such
products.  There can be no assurance that licenses to such patent rights
would be made available to the Company on commercially reasonable terms, if
at all. If the Company does not obtain such licenses, it could encounter
delays in marketing affected products while it attempts to design around such
patents or it could find that the development, manufacture or sale of
products requiring such licenses is not possible.  The Company currently has
certain licenses from third parties and in the future may require additional
licenses from other parties to develop, manufacture and market commercially
viable products effectively.  There can be no assurance that such licenses
will be obtainable on commercially reasonable terms, if at all, or that the
patents underlying such licenses will be valid and enforceable.

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

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

                                                                           21

<PAGE>

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

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

CHANGE IN CONTROL - Certain provisions of the Company's charter documents and
terms relating to the acceleration of the exercisability of certain warrants
and options relating to the purchase of such securities by the Company in the
event of a change in control may have the effect of delaying, deferring or
preventing a change in control of the Company, thereby possibly depriving
shareholders of receiving a premium for their shares of the common stock.

ITEM 2.   PROPERTIES

The Company owns and occupies two buildings that are situated on one parcel
of land and has acquired  land for the construction of a new corporate
facility. The two buildings and the land are located in San Diego,
California. One building, consisting of approximately 31,000 square feet, is
used primarily as office space for research, regulatory, sales and
administrative personnel. The second building, consisting of approximately
49,000 square feet, contains the Company's manufacturing facility that will
be used to formulate, mill, blend and fill drugs to be used with Spiros, lab
and research facilities and warehouse space.  The Company also occupies an
additional 34,000 square feet of office and laboratory space pursuant to a
short-term lease.  The Company is constructing a 70,000 square foot facility
expected to be completed in the second half of 1997, to which certain
corporate functions will be relocated.

The Company also leases approximately 16,660 square feet of space in Denver,
Colorado which houses the operations of Health Script's mail service
pharmacy. The lease term expires in January 2001 with one five-year renewal
option.

ITEM 3.   LEGAL PROCEEDINGS

There are currently no material legal proceedings pending against or involving
the Company.

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

None.


                                                                           22

<PAGE>



                                     PART II

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

The information required by Item 5 of Form 10-K is incorporated herein by
reference from the information contained in the sections captioned "Market
Information on Common Stock", "Shareholders", and "Dividends" in the
Registrant's 1996 Annual Report to Shareholders, extracts of which are
attached hereto as Exhibit 13.

ITEM 6.   SELECTED FINANCIAL DATA

The information required by Item 6 of Form 10-K is incorporated herein by
reference from the information contained in the section captioned "Selected
Financial Data" in the Registrant's 1996 Annual Report to Shareholders,
extracts of which are attached hereto as Exhibit 13.

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

The information required by Item 7 of Form 10-K is incorporated herein by
reference from the information contained in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1996 Annual Report to Shareholders, extracts
of which are attached hereto as Exhibit 13.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by Item 8 of Form 10-K is incorporated herein by
reference from the information contained in the section captioned "Financial
Statements and Supplementary Data" in the Registrant's 1996 Annual Report to
Shareholders, extracts of which are attached hereto as Exhibit 13.


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

None.

                                                                           23

<PAGE>

                                    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 on or about April
16, 1997, 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 on or about
April 16, 1997, 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 on or about April 16, 1997, is
incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

The information under the heading "Executive Compensation and Other Information"
appearing in the Proxy Statement to be filed on or about April 16, 1997, is
incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS   AND MANAGEMENT

The information under the headings "Principal Shareholders" and "Common Stock
Ownership of Management", appearing in the Proxy Statement to be filed on or
about April 16, 1997, 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 Transactions", appearing in the
Proxy Statement to be filed on or about April 16, 1997, is incorporated herein
by reference.


                                                                           24

<PAGE>


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES
          AND REPORTS ON FORM 8-K
(a) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


       Consolidated Balance Sheets
       Consolidated Statements of Operations
       Consolidated Statements of Shareholders' Equity
       Consolidated Statements of Cash Flows
       Notes to Consolidated Financial Statements
       Independent Auditors' Report

(a) 2. INDEX TO FINANCIAL STATEMENT SCHEDULES

Financial statement schedules are omitted because they are not required, are not
applicable or the information is included in the consolidated financial
statements or notes thereto.

(a) 3. EXHIBITS

      EXHIBIT
        NO.                          DESCRIPTION
      -------                        -----------
15)     3.1    Articles of Incorporation of the Company, as amended

2)      3.2    By-laws, as amended

1)      10.1   Assumption Agreement, dated December 2, 1991, between
               the Company and Silicon Valley Bank.

1)      10.6   Loan and Security Agreement, dated September 30, 1991,
               between the Company and Silicon Valley Bank.

1)      10.7   Security Agreement, dated September 30, 1991, between the
               Company and Silicon Valley Bank.

1)      10.8   Securities Purchase Agreement, dated August 20, 1991,
               between the Company and the Investors listed on Schedule A
               thereto, together with the related Form of Promissory Note,
               Form of Stock Purchase Warrant, Form of Security Agreement
               and Form of Registration Rights Agreement.

1)     10.19   License Agreement by and between the Company and Sterling
               Drug Inc. currently known as Sterling Winthrop, Inc.,
               dated June 26, 1991 (with certain confidential portions
               omitted).


                                                                           25

<PAGE>


1)      10.26  License Agreement by and between the Company and Mark B.
               Mecikalski, M.D., dated June 1, 1990 (with certain
               confidential portions omitted).

1)  +   10.52  Form of Employee Restricted Bonus Stock Agreement.

    +   10.54  Form of Indemnification Agreement between the Company
               and each of its directors.

     +  10.55  Form of Indemnification Agreement between the Company and
               each of its officers.

2)      10.58  Bitolterol Mesylate  0.2% Inhalation Solution and
               Tornalate-Registered Trademark- (Bitolterol Mesylate)
               Metered Dose Inhaler License Agreement by and between
               Sterling Winthrop, Inc. and Company, dated June 24, 1992
               (with certain confidential portions omitted).

2)      10.59  Silicon Valley Bank Amendment to Loan Agreement
               regarding Real Estate Loan.

15)  +  10.60  The Company's 1992 Stock Option Plan, as amended.

2)  +   10.61  Form of Employee Non-Statutory Stock Option Agreement.

2)  +   10.62  Form of Employee Incentive Stock Option Agreement.

2)  +   10.63  Form of Officer Incentive Stock Option Agreement.

2)  +   10.64  Form of Automatic Grant Non-Employee Director Agreements.

2)  +   10.65  Employment Agreement - Cam L. Garner dated May 7, 1990.

4)      10.72  Form of Series W Warrant.

5)      10.73  Assignment Agreement by and between the Company and Mark B.
               Mecikalski, M.D., dated March 12, 1993 (with certain
               confidential portions omitted).

6)      10.80  Registration Rights Agreement by and between the Company
               and Elan International Services Limited, as successor in
               interest, dated April 17, 1994.

        10.81  Letter Agreements between the Company and Elan International
               Services Limited, dated March 1, 1995 and September 3, 1996.

        10.82  Form of Common Stock Purchase Warrant between the Company and
               Elan International Services Ltd.

7)      10.83  Product Licensing Agreement among Elan Corporation, plc,
               Dura Delivery Systems, Inc. and the Company (with certain
               confidential portions omitted).


                                                                           26

<PAGE>


7)      10.84  Protein and Peptide Development Agreement between Elan
               Corporation, plc and the Company (with certain confidential
               portions omitted).

7)      10.85  Technology Access Agreement between Elan Corporation, plc
               and the Company (with certain confidential portions
               omitted).

8)      10.86  Silicon Valley Bank Amendment to Loan Agreement regarding
               Real Estate Loan dated November 10, 1994.

9)      10.87  Business Combination Agreement dated March 15, 1995 between
               Quintex, Ltd., Health Script Pharmacy Services, Inc. and
               the Company (including Schedules B, C, D and E).

10)     10.88  Purchase Agreement dated June 14, 1995 between the Company
               and Abbott Laboratories, Ross Products Division, including
               list of Schedules and Exhibits thereto (with certain
               confidential portions omitted).

11)     10.89  Restated Certificate of Incorporation of DDSI.

11)     10.90  Agreement and Plan of Merger dated December 29, 1995 among
               the Company, DDSI and Safari Acquisition Corporation.

11)     10.91  Purchase Agreement by and among the Company, Spiros Corp.
               and the entities listed on the Schedule of Purchasers.

11)     10.92  Investors' Rights Agreement by and among the Company and
               the investors listed on Schedule A thereto, dated December
               29, 1995.

11)     10.93  Stockholders' Agreement by and among Spiros Corp., the
               Company and the persons listed on Schedule A thereto, dated
               December 29, 1995.

11)     10.94  Form of Series S Warrant.

11)     10.95  Technology License Agreement by and among the Company,
               DDSI and Spiros Corp., dated December 29, 1995.

11)     10.96  Development and Management Agreement by and between the
               Company and Spiros Corp., dated December 29, 1995 (with
               certain confidential portions omitted).

11)     10.97  Interim Manufacturing and Marketing Agreement by and between
               the Company and Spiros Corp., dated December 29, 1995.

11)     10.98  Albuterol Purchase Option Agreement by and between the
               Company and Spiros Corp., dated December 29, 1995.

11)     10.99  Restated Certificate of Incorporation of Spiros Corp.

13)     10.100 Agreement for Purchase and Sale of Assets, dated June 17,
               1996 between the Company and Procter & Gamble
               Pharmaceuticals, Inc. (with certain confidential portions
               omitted).

14)     10.101 Licensing Agreement dated August 21, 1996 between the
               Company and Eli Lilly and Company (with certain confidential
               portions omitted).

     10.102    Manufacturing Agreement dated August 21, 1996 between the
               Company and Eli Lilly and Company (with certain confidential
               portions omitted).

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

     13        1996 Annual Report to Shareholders (Only items incorporated
               by reference)

     23        Independent Auditors' Consent.

     24        Power of Attorney.



                                                                              27

<PAGE>


     27        Financial Data Schedule.

 1)  Incorporated by reference to the Company's Registration Statement on Form
     S-1 (No. 33-44525), filed on December 13, 1991, as amended.

 2)  Incorporated by reference to the Company's Form 10-K, filed on March 31,
     1993, as amended.

 3)  Incorporated by reference to the Company's Form 8-K, filed on September 15,
     1993.

 4)  Incorporated by reference to the Company's Registration Statement on Form
     S-3 (No. 33-71798), filed on December 13, 1993.

 5)  Incorporated by reference to the Company's Form 10-K, filed on March 31,
     1994, as amended.

 6)  Incorporated by reference to the Company's Form 10-Q, filed on August 5,
     1994.

 7)  Incorporated by reference to the Company's Form 10-Q, filed on October 17,
     1994, as amended.

 8)  Incorporated by reference to the Company's Form 10-K, filed on March
     31, 1995.

 9)  Incorporated by reference to the Company's Form 8-K, filed on April
     6, 1995.

10) Incorporated by reference to the Company's Form 8-K, filed on June
    20, 1995, as amended.

11) Incorporated by reference to the Company's Form 8-K, filed on January 9,
    1996, as amended.

13) Incorporated by reference to the Company's Form 8-K, filed on July 17,
    1996.

14) Incorporated by reference to the Company's Form 8-K, filed on September 19,
    1996, as amended.

15) Incorporated by reference to the Company's Form 10-Q, filed on August 14,
    1996.

+   Management contract or compensation plan or arrangement.


  (b)    REPORTS ON FORM 8-K.
On December 20, 1996, the Company filed a Current Report on Form 8-K/A dated
September 5, 1996 (which amended the Current Report of the Company on Form
8-K filed on September 19, 1996) transmitting a revised Exhibit 2.1, with
certain confidential portions omitted.

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.

                                                                           28

<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 Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 28, 1997                        DURA PHARMACEUTICALS, INC.
      ---------------------------

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

                              POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Cam L. Garner and James W. Newman, or either
of them, as his true and lawful attorneys-in-fact and agents, with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form
10-K, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes may lawfully
do or cause to be done by virtue hereof.

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS ANNUAL REPORT ON FORM 10-K HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES
INDICATED.

SIGNATURE                        TITLE                             DATE

/s/ Cam L. Garner          Chairman, President and             March 28, 1997
---------------------      Chief Executive Officer
(Cam L. Garner)         (Principal Executive Officer)


/s/ David S. Kabakoff      Executive Vice President            March 28, 1997
---------------------            and Director
(David S. Kabakoff)

/s/ James W. Newman     Senior Vice President, Finance and     March 28, 1997
---------------------       Administration, and Chief
(James W. Newman)          Financial Officer (Principal
                         Financial and Accounting Officer)


/s/ Walter F. Spath           Senior Vice President,           March 28, 1997
---------------------    Sales and Marketing and Director
(Walter F. Spath)

/s/ James C. Blair                Director                     March 28, 1997
---------------------
(James C. Blair)

/s/ Herbert J. Conrad             Director                     March 28, 1997
---------------------
(Herbert J. Conrad)

/s/ Joseph C. Cook                Director                     March 28, 1997
---------------------
(Joseph C. Cook)

 /s/ David F. Hale                Director                     March 28, 1997
---------------------
(David F. Hale)

 /s/ Gordon V. Ramseier           Director                     March 28, 1997
---------------------
(Gordon V. Ramseier)

 /s/ Charles G. Smith             Director                     March 28, 1997
---------------------
(Charles G. Smith)


                                                                           29

<PAGE>

                                EXHIBIT INDEX
                                      TO
                                  FORM 10-K


                         DURA PHARMACEUTICALS, INC.



      EXHIBIT
        NO.                     DESCRIPTION
      -------                   -----------

15)     3.1    Articles of Incorporation of the Company, as amended

2)      3.2    By-laws, as amended

1)      10.1   Assumption Agreement, dated December 2, 1991, between
               the Company and Silicon Valley Bank.

1)      10.6   Loan and Security Agreement, dated September 30, 1991,
               between the Company and Silicon Valley Bank.

1)      10.7   Security Agreement, dated September 30, 1991, between the
               Company and Silicon Valley Bank.

1)      10.8   Securities Purchase Agreement, dated August 20, 1991,
               between the Company and the Investors listed on Schedule A
               thereto, together with the related Form of Promissory Note,
               Form of Stock Purchase Warrant, Form of Security Agreement
               and Form of Registration Rights Agreement.

1)     10.19   License Agreement by and between the Company and Sterling
               Drug Inc. currently known as Sterling Winthrop, Inc.,
               dated June 26, 1991 (with certain confidential portions
               omitted).



<PAGE>


1)      10.26  License Agreement by and between the Company and Mark B.
               Mecikalski, M.D., dated June 1, 1990 (with certain
               confidential portions omitted).

1)  +   10.52  Form of Employee Restricted Bonus Stock Agreement.

    +   10.54  Form of Indemnification Agreement between the Company
               and each of its directors.

     +  10.55  Form of Indemnification Agreement between the Company and
               each of its officers.

2)      10.58  Bitolterol Mesylate  0.2% Inhalation Solution and
               Tornalate-Registered Trademark- (Bitolterol Mesylate)
               Metered Dose Inhaler License Agreement by and between
               Sterling Winthrop, Inc. and Company, dated June 24, 1992
               (with certain confidential portions omitted).

2)      10.59  Silicon Valley Bank Amendment to Loan Agreement
               regarding Real Estate Loan.

15)  +  10.60  The Company's 1992 Stock Option Plan, as amended.

2)  +   10.61  Form of Employee Non-Statutory Stock Option Agreement.

2)  +   10.62  Form of Employee Incentive Stock Option Agreement.

2)  +   10.63  Form of Officer Incentive Stock Option Agreement.

2)  +   10.64  Form of Automatic Grant Non-Employee Director Agreements.

2)  +   10.65  Employment Agreement - Cam L. Garner dated May 7, 1990.

4)      10.72  Form of Series W Warrant.

5)      10.73  Assignment Agreement by and between the Company and Mark B.
               Mecikalski, M.D., dated March 12, 1993 (with certain
               confidential portions omitted).

6)      10.80  Registration Rights Agreement by and between the Company
               and Elan International Services Limited, as successor in
               interest, dated April 17, 1994.

        10.81  Letter Agreements between the Company and Elan International
               Services Limited, dated March 1, 1995 and September 3, 1996.

        10.82  Form of Common Stock Purchase Warrant between the Company and
               Elan International Services Ltd.

7)      10.83  Product Licensing Agreement among Elan Corporation, plc,
               Dura Delivery Systems, Inc. and the Company (with certain
               confidential portions omitted).



<PAGE>


7)      10.84  Protein and Peptide Development Agreement between Elan
               Corporation, plc and the Company (with certain confidential
               portions omitted).

7)      10.85  Technology Access Agreement between Elan Corporation, plc
               and the Company (with certain confidential portions
               omitted).

8)      10.86  Silicon Valley Bank Amendment to Loan Agreement regarding
               Real Estate Loan dated November 10, 1994.

9)      10.87  Business Combination Agreement dated March 15, 1995 between
               Quintex, Ltd., Health Script Pharmacy Services, Inc. and
               the Company (including Schedules B, C, D and E).

10)     10.88  Purchase Agreement dated June 14, 1995 between the Company
               and Abbott Laboratories, Ross Products Division, including
               list of Schedules and Exhibits thereto (with certain
               confidential portions omitted).

11)     10.89  Restated Certificate of Incorporation of DDSI.

11)     10.90  Agreement and Plan of Merger dated December 29, 1995 among
               the Company, DDSI and Safari Acquisition Corporation.

11)     10.91  Purchase Agreement by and among the Company, Spiros Corp.
               and the entities listed on the Schedule of Purchasers.

11)     10.92  Investors' Rights Agreement by and among the Company and
               the investors listed on Schedule A thereto, dated December
               29, 1995.

11)     10.93  Stockholders' Agreement by and among Spiros Corp., the
               Company and the persons listed on Schedule A thereto, dated
               December 29, 1995.

11)     10.94  Form of Series S Warrant.

11)     10.95  Technology License Agreement by and among the Company,
               DDSI and Spiros Corp., dated December 29, 1995.

11)     10.96  Development and Management Agreement by and between the
               Company and Spiros Corp., dated December 29, 1995 (with
               certain confidential portions omitted).

11)     10.97  Interim Manufacturing and Marketing Agreement by and between
               the Company and Spiros Corp., dated December 29, 1995.

11)     10.98  Albuterol Purchase Option Agreement by and between the
               Company and Spiros Corp., dated December 29, 1995.

11)     10.99  Restated Certificate of Incorporation of Spiros Corp.

13)     10.100 Agreement for Purchase and Sale of Assets, dated June 17,
               1996 between the Company and Procter & Gamble
               Pharmaceuticals, Inc. (with certain confidential portions
               omitted).

14)     10.101 Licensing Agreement dated August 21, 1996 between the
               Company and Eli Lilly and Company (with certain confidential
               portions omitted).

     10.102    Manufacturing Agreement dated August 21, 1996 between the
               Company and Eli Lilly and Company (with certain confidential
               portions omitted).

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

     13        1996 Annual Report to Shareholders (Only items incorporated
               by reference)

     23        Independent Auditors' Consent.

     24        Power of Attorney.




<PAGE>


     27        Financial Data Schedule.

 1)  Incorporated by reference to the Company's Registration Statement on Form
     S-1 (No. 33-44525), filed on December 13, 1991, as amended.

 2)  Incorporated by reference to the Company's Form 10-K, filed on March 31,
     1993, as amended.

 3)  Incorporated by reference to the Company's Form 8-K, filed on September 15,
     1993.

 4)  Incorporated by reference to the Company's Registration Statement on Form
     S-3 (No. 33-71798), filed on December 13, 1993.

 5)  Incorporated by reference to the Company's Form 10-K, filed on March 31,
     1994, as amended.

 6)  Incorporated by reference to the Company's Form 10-Q, filed on August 5,
     1994.

 7)  Incorporated by reference to the Company's Form 10-Q, filed on October 17,
     1994, as amended.

 8)  Incorporated by reference to the Company's Form 10-K, filed on March
     31, 1995.

 9)  Incorporated by reference to the Company's Form 8-K, filed on April
     6, 1995.

10) Incorporated by reference to the Company's Form 8-K, filed on June
    20, 1995, as amended.

11) Incorporated by reference to the Company's Form 8-K, filed on January 9,
    1996, as amended.

13) Incorporated by reference to the Company's Form 8-K, filed on July 17,
    1996.

14) Incorporated by reference to the Company's Form 8-K, filed on September 19,
    1996, as amended.

15) Incorporated by reference to the Company's Form 10-Q, filed on August 14,
    1996.