<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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


                  For the quarterly period ended March 31, 2000

                                       OR

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


               For the transition period from ________to ________.

                        COMMISSION FILE NUMBER: 000-23501

                     SPIROS DEVELOPMENT CORPORATION II, INC.
             (Exact name of Registrant as specified in its charter)

                 DELAWARE                                      33-0774288
       (State or other jurisdiction                         (I.R.S. Employer
     or incorporation or organization)                     Identification No.)

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


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


         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
                                              ---     ---

         The number of shares of the Registrant's Callable Common Stock and
Special Common Stock outstanding as of April 28, 2000 were 6,325,000 and 1,000,
respectively.


<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                     SPIROS DEVELOPMENT CORPORATION II, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                                 BALANCE SHEETS
                IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                             DECEMBER 31,         MARCH 31,
ASSETS                                                                          1999                2000
                                                                            --------------      -------------
                                                                                                 (unaudited)
<S>                                                                         <C>                 <C>
CURRENT ASSETS:
  Cash and cash equivalents                                                 $       13,325      $      25,713
  Short-term investments                                                            57,718             30,107
  Other current assets                                                                  96                113
                                                                            --------------      -------------

           Total current assets                                                     71,139             55,933
                                                                            --------------      -------------

TOTAL                                                                       $       71,139      $      55,933
                                                                            ==============      =============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Payable to Dura Pharmaceuticals, Inc.                                     $        6,720      $       5,694
  Accrued liabilities                                                                  173                133
                                                                            --------------      -------------

           Total current liabilities                                                 6,893              5,827
                                                                            --------------      -------------
STOCKHOLDERS' EQUITY:
  Special common stock, par value $1.00, 1,000 shares
    authorized, issued, and outstanding                                                  1                  1
  Callable common stock, par value $.001, 7,500,000 shares
    authorized; 6,325,000 shares issued and outstanding                                  6                  6
  Additional paid-in capital                                                       170,191            170,376
  Accumulated other comprehensive loss                                                (171)              (121)
  Accumulated deficit                                                             (105,781)          (120,156)
                                                                            --------------      -------------

           Total stockholders' equity                                               64,246             50,106
                                                                            --------------      -------------

TOTAL                                                                       $       71,139      $      55,933
                                                                            ==============      =============

</TABLE>

See accompanying notes to financial statements.


                                       2
<PAGE>


                     SPIROS DEVELOPMENT CORPORATION II, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                            STATEMENTS OF OPERATIONS
                     IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                 SEPTEMBER 23, 1997
                                                   THREE            THREE            (DATE OF
                                                   MONTHS           MONTHS        INCORPORATION)
                                                   ENDED            ENDED            THROUGH
                                                  MARCH 31,        MARCH 31,         MARCH 31,
                                                    1999              2000              2000
                                               --------------   --------------   -----------------
<S>                                            <C>              <C>              <C>
REVENUES:
  Interest income                              $        1,587   $          875   $          14,677
                                               --------------   --------------   -----------------

EXPENSES (with related party):
  Research and development                             13,316           14,767             131,817
  General and administrative                              277              483               2,809
                                               --------------   --------------   -----------------

           Total expenses                              13,593           15,250             134,626
                                               --------------   --------------   -----------------

OPERATING LOSS BEFORE INCOME TAXES                    (12,006)         (14,375)           (119,949)
PROVISION FOR INCOME TAXES                                                                     207
                                               --------------   --------------   -----------------

NET LOSS                                       $      (12,006)  $      (14,375)  $        (120,156)
                                               ==============   ==============   =================

NET LOSS PER SHARE:
  Basic and diluted                            $        (1.90)  $        (2.27)  $          (19.00)
                                               ==============   ==============   =================

WEIGHTED AVERAGE NUMBER OF
 COMMON SHARES:
  Basic and diluted                                     6,325            6,325               6,325
                                               ==============   ==============   =================

</TABLE>

See accompanying notes to financial statements.


                                       3
<PAGE>


                     SPIROS DEVELOPMENT CORPORATION II, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                            STATEMENTS OF CASH FLOWS
                                  IN THOUSANDS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                                             SEPTEMBER 23, 1997
                                                                         THREE              THREE                   (DATE OF
                                                                         MONTHS             MONTHS               INCORPORATION)
                                                                         ENDED               ENDED                 THROUGH
                                                                        MARCH 31,           MARCH 31,             MARCH 31,
                                                                          1999                2000                  2000
                                                                     --------------      --------------      ------------------
<S>                                                                  <C>                 <C>                 <C>
NET CASH USED IN OPERATING ACTIVITIES                                $      (11,424)     $      (15,273)     $         (112,956)
                                                                     --------------      --------------      ------------------

INVESTING ACTIVITIES:
  Purchases of short-term investments                                       (11,264)                                   (203,917)
  Sales and maturities of short-term investments                             29,367              27,661                 173,689
                                                                     --------------      --------------      ------------------

           Net cash provided by (used in) investing activities               18,103              27,661                 (30,228)
                                                                     --------------      --------------      ------------------

FINANCING ACTIVITIES:
  Net proceeds from issuance of special common and callable
    common stock                                                                                                         93,897
  Contribution from Dura Pharmaceuticals, Inc. for
    purchase option                                                                                                      75,000
                                                                     --------------      --------------      ------------------

           Net cash provided by financing activities                                                                    168,897
                                                                     --------------      --------------      ------------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                     6,679              12,388                  25,713

CASH AND CASH EQUIVALENTS AT
 BEGINNING OF PERIOD                                                         20,535              13,325
                                                                     --------------      --------------      ------------------

CASH AND CASH EQUIVALENTS AT
 END OF PERIOD                                                       $       27,214      $       25,713      $           25,713
                                                                     ==============      ==============      ==================

</TABLE>


See accompanying notes to financial statements.


                                       4
<PAGE>

                     SPIROS DEVELOPMENT CORPORATION II, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                                   (unaudited)

1.       BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared by Spiros
Development Corporation II, Inc. ("Spiros Corp. II" or the "Company") in
accordance with the instructions to Form 10-Q. The financial statements reflect
all adjustments, consisting of only normal recurring accruals, which are, in the
opinion of management, necessary for a fair statement of the results of the
periods presented. For more complete financial information, these financial
statements and notes thereto should be read in conjunction with the audited
financial statements and notes thereto for the periods ended December 31, 1999
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission. The results of operations for the interim periods are
not necessarily indicative of results to be expected for any other interim
periods or for the year as a whole.

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

2.       ORGANIZATION

Spiros Corp. II was incorporated in the state of Delaware on September 23, 1997
for the purpose of continuing the development of Spiros(R), a dry powder
pulmonary drug delivery system, and to conduct formulation work, clinical trials
and commercialization for certain specified leading asthma and chronic
obstructive pulmonary disease ("COPD") drugs for use with Spiros. The Company
commenced operations on December 22, 1997.

On December 22, 1997, the Company and Dura Pharmaceuticals, Inc. ("Dura")
completed an initial public offering (the "Offering") of 6,325,000 Units, each
Unit consisting of one share of callable common stock of the Company and one
warrant to purchase one-fourth of one share of Dura common stock at a price per
share of $54.84. The offering resulted in net proceeds to the Company of
approximately $94 million. Concurrently, Dura contributed $75 million to the
Company. Substantially all funds from the Offering, the $75 million contribution
and interest earned thereon are expected to be paid to Dura for the development
and commercialization of Spiros and the use of Spiros with certain drugs
pursuant to various agreements. Through December 31, 1999, each share of the
Company's callable common stock traded publicly as a unit with the warrant to
purchase one-fourth of one share of Dura's common stock. As of January 1, 2000,
the warrant began trading as a separate security.


                                       5
<PAGE>

3.       DEFINITIVE MERGER AGREEMENT WITH DURA PHARMACEUTICALS, INC.

In March 2000 we entered into a merger agreement with Dura. Under the agreement,
each holder of our callable common stock will receive $13.25 in cash and a
warrant to purchase a fractional share of Dura's common stock. The warrant will
be immediately exercisable at $17.94 per share, which represents a 25% premium
over the average closing price of Dura's common stock for the ten trading days
prior to the date of the merger agreement, and will expire five years from the
date the merger is completed. The exact fraction of a share of Dura's common
stock purchasable under the warrant will be determined based on the average
closing price of Dura's common stock for the ten trading days prior to the vote
of our stockholders on the merger and will result in a calculated value, using
the Black-Scholes option pricing model, for each warrant between $3.22 and
$1.81. Closing of the transaction is subject to our stockholder approval,
expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act, registration of the warrant and
the shares of Dura's common stock which will be issued if the warrants are
exercised, and approval for listing on Nasdaq of the warrants and Dura's
underlying common stock. We and Dura have received voting agreements in favor of
the merger from holders of approximately 22% of our outstanding callable common
stock. A special committee of independent members of our board, formed in
December 1999 to evaluate our strategic alternatives, has approved the merger
agreement and is recommending that our stockholders approve the merger. We
expect to deliver a proxy statement describing the terms of the merger agreement
in greater detail to our stockholders in the near term.

The Company's current development plan and budget for 2000 are expected to
result in the Company expending all cash during the second half of the year. The
development plan and budget for the second half of 2000 are subject to change in
the event the merger with Dura is not completed.

4.       REPORTING COMPREHENSIVE LOSS

Comprehensive loss includes net loss and unrealized gains and losses on
investments. The accumulated balance of other comprehensive loss is disclosed as
a separate component of stockholders' equity. For the three months ended March
31, 1999 and 2000, and the period September 23, 1997 (date of incorporation)
through March 31, 2000, comprehensive loss consisted of (in thousands):

<TABLE>
<CAPTION>
                                                                                            September 23, 1997
                                                Three Months          Three Months       (date of incorporation)
                                                   Ended                  Ended                  through
                                               March 31, 1999        March 31, 2000           March 31, 2000
                                               --------------        --------------           --------------
<S>                                            <C>                   <C>                      <C>
Net loss                                          $(12,006)             $(14,375)               $(120,156)

Other comprehensive income (loss):
  Unrealized gain (loss) on investments                (63)                   50                     (121)
                                                  ---------             ---------               ----------

Comprehensive loss                                $(12,069)             $(14,325)               $(120,277)
                                                  =========             =========               ==========

</TABLE>


                                       6
<PAGE>

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

This information should be read in conjunction with the financial statements and
the notes thereto included in Item 1 of this Quarterly Report and the audited
financial statements and notes thereto and Management's Discussion and Analysis
of Financial Condition and Results of Operations for the year ended December 31,
1999 included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission. This report on Form 10-Q may contain certain
forward-looking statements concerning our business. See "Risks and
Uncertainties" for a discussion of factors known to us that could cause reported
financial information not to be indicative of future results. We undertake 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.

GENERAL

Spiros Development Corporation II, Inc. was incorporated in the state of
Delaware on September 23, 1997 for the purpose of continuing the development of
Spiros(R), a dry powder pulmonary drug delivery system, and to conduct
formulation work, clinical trials and commercialization for certain specified
leading asthma and chronic obstructive pulmonary disease drugs for use with
Spiros(R). We commenced operations on December 22, 1997.

On December 22, 1997, we and Dura completed an initial public offering of
6,325,000 units, each unit consisting of one share of our callable common stock
and one warrant to purchase one-fourth of one share of Dura common stock at a
price of $54.84 per share. The offering resulted in net proceeds to us of
approximately $94 million. Concurrently, Dura contributed $75 million to us. We
expect to pay to Dura substantially all funds from the offering and the $75
million contribution from Dura and interest earned on these funds for the
development and commercialization of Spiros and the use of Spiros with specified
drugs under our various agreements with Dura.

In December 1997, we entered into a technology license agreement with Dura. Dura
granted us an exclusive, worldwide, perpetual royalty-bearing license to use
technology owned by Dura relating to the use of Spiros with the asthma and COPD
drugs albuterol, beclomethasone, ipratropium, budesonide, and a combination of
albuterol and ipratropium. We also executed a series of agreements with Dura,
which provide for the development, marketing, and manufacturing of Spiros with
specified compounds and for the provision of general and administrative services
by Dura. Since Dura conducts all of our current activities under these
agreements, we do not maintain any research staff or occupy any research
facilities.

In March 2000 we entered into a merger agreement with Dura. Under the agreement,
each holder of our callable common stock will receive $13.25 in cash and a
warrant to purchase a fractional share of Dura's common stock. The warrant will
be immediately exercisable at


                                       7
<PAGE>

$17.94 per share, which represents a 25% premium over the average closing price
of Dura's common stock for the ten trading days prior to the date of the merger
agreement, and will expire five years from the date the merger is completed. The
exact fraction of a share of Dura's common stock purchasable under the warrant
will be determined based on the average closing price of Dura's common stock for
the ten trading days prior to the vote of our stockholders on the merger and
will result in a calculated value, using the Black-Scholes option pricing model,
for each warrant between $3.22 and $1.81. Closing of the transaction is subject
to our stockholder approval, expiration or termination of the applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act, registration of
the warrant and the shares of Dura's common stock which will be issued if the
warrants are exercised, and approval for listing on Nasdaq of the warrants and
Dura's underlying common stock. We and Dura have received voting agreements in
favor of the merger from holders of approximately 22% of our outstanding
callable common stock. A special committee of independent members of our board,
formed in December 1999 to evaluate our strategic alternatives, has approved the
merger agreement and is recommending that our stockholders approve the merger.
We expect to deliver a proxy statement describing the terms of the merger
agreement in greater detail to our stockholders in the near term.

Based on our current development plan and budget for 2000, we expect to spend
all of our remaining cash during the second half of the year. The development
plan and budget for the second half of 2000 are subject to review and change in
the event the merger with Dura is not completed.

In the event the merger is not completed, Dura, as holder of 100% of the
outstanding shares of our special common stock, still has an irrevocable option
to purchase all, but not less than all, of the issued and outstanding shares of
our callable common stock at predetermined prices. Dura may exercise the
purchase option at any time through the earlier of:

         -   December 31, 2002;

         -   the 90th day after the date we provide Dura with our quarterly
             financial statements showing cash or cash equivalents of less than
             $5 million, although Dura may extend such period by providing
             additional funding for the continued development of Spiros, but in
             no event beyond December 31, 2002; or

         -   upon termination of the technology license, development, or the
             manufacturing agreements with Dura.

The purchase option exercise price per share is $26.57 through June 30, 2000,
and increases on a quarterly basis to $45.95 per share through December 31,
2002. The purchase price may be paid, at Dura's discretion, in cash, shares of
Dura common stock, or any combination thereof.


                                       8
<PAGE>

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1999 AND 2000

We incurred net losses of $12 million and $14.4 million for the three months
ended March 31, 1999 and 2000, respectively. Research and development costs
totaled $13.3 million and $14.8 million for the first quarter of 1999 and 2000,
respectively, and general and administrative expenses totaled $277,000 and
$483,000, respectively, for the same periods. The research and development
expenses were for Spiros-related activities performed by Dura under agreements
with us. Our interest income for the first quarter of 1999 and 2000 totaled $1.6
million and $875,000, respectively. The decline results from lower balances of
cash and short-term investments during the first quarter of 2000 versus the
first quarter of 1999. We expect our interest income to continue to decrease in
2000 as our funds are used to continue the development of the Spiros products.

LIQUIDITY AND CAPITAL RESOURCES

Our initial capitalization totaled $169 million, consisting of net proceeds from
our initial public offering of approximately $94 million and a $75 million
contribution from Dura. At March 31, 2000, we had cash, cash equivalents, and
short-term investments totaling $55.8 million and working capital totaling $50.1
million, a decrease of $15.2 million and $14.1 million, respectively, from
December 31, 1999. Based on our current development plan and budget for the
Spiros products, we expect to expend all of our existing cash during the second
half of 2000. Further, we do not believe that our existing cash will be
sufficient to complete the development of any Spiros product. In the event the
merger with Dura is not consummated, the use of our existing funds will require
Dura to consider whether to exercise its option to purchase our callable common
stock under the contractual terms, which it may not be prepared to do at that
time. Until the expiration of Dura's option, we are restricted from raising
additional funds without Dura's consent. While Dura may, at its sole option,
provide funds for further development of the Spiros products or infuse
additional capital into us through the exercise of Dura's product purchase
options, it is not obligated to do so. If Dura fails to provide additional
funding, we will explore the other strategic alternatives available to us,
including liquidation, sale to a third party, or licensing of the technology.
There can be no assurance that any of these alternatives will be successful.

As noted above, in March 2000, we entered into a definitive merger agreement
with Dura for the acquisition by Dura of all the outstanding shares of our
callable common stock. Under the merger agreement, Dura will purchase each share
of callable common stock for $13.25 in cash plus one five-year warrant to
purchase a fractional share of Dura common stock at $17.94 per share. Closing of
the acquisition is subject to approval by our stockholders.

RISKS AND UNCERTAINTIES

FORWARD-LOOKING STATEMENTS. We caution readers that the statements in this
quarterly report that are not descriptions of historical facts may be
forward-looking statements that are subject


                                       9
<PAGE>


to risks and uncertainties. Actual results could differ from those currently
anticipated due to a number of factors, including those identified below.

SPIROS TECHNOLOGY REQUIRES SIGNIFICANT ADDITIONAL DEVELOPMENT, WHICH IS COSTLY,
TIME-CONSUMING AND MAY NEVER BE COMMERCIALLY SUCCESSFUL.

Spiros, our proprietary dry powder pulmonary drug delivery system, will require
significant additional development efforts as well as clinical testing. This
work is very costly and time consuming. Even after spending significant amounts
of money and time, the development and commercialization, if any, of any Spiros
product may not be successful.

WE MAY NOT HAVE SUFFICIENT FUNDS TO COMPLETE THE DEVELOPMENT OF ANY SPIROS
PRODUCT.

Based on our current development plan and budget for the Spiros projects, we
expect to expend all of our existing funds in the second half of 2000. As a
result, we do not believe that our current available funds will be adequate to
complete the development or regulatory review process for any of the Spiros
products. Until the expiration of Dura's purchase option, we are significantly
restricted from raising additional funds without Dura's consent. While Dura may,
at its sole option, provide funds for further development of the Spiros products
or provide additional cash to us through the exercise of the albuterol or
product purchase options, it is not obligated to do so. Dura may not have
adequate information available to it when our funds are depleted to make a
decision on the exercise of the albuterol or product option. If the purchase
option or either the albuterol or product options is not exercised by Dura, and
the merger agreement is not completed, we would have to raise substantial
funding while hiring, or otherwise obtaining access to, research and management
personnel to perform the work now performed by Dura. We may not be successful in
doing any of these tasks.

DURA MAY NOT EXERCISE ITS OPTIONS.

In the event the merger with Dura is not completed, Dura is not obligated to
exercise its stock purchase option, the albuterol purchase option or the second
product purchase option, and it will exercise these options only if Dura's board
of directors determines that it is in Dura's best interest to do so. Even if the
Spiros products are developed and approved, if Dura does not exercise any of its
options, we will be required to find alternative ways to commercially market or
exploit the Spiros products. We may not be able to do so. If we attempt to
develop or market the Spiros products ourselves, we will require substantial
additional funds. We may not be able to raise funds when needed. Similarly, if
we elect to license the Spiros products to third parties, such arrangements, if
available, may be on terms less favorable to us than the terms of our
arrangements with Dura.


                                       10
<PAGE>


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

The development, testing, manufacturing and marketing of pharmaceutical products
are subject to extensive regulation by governmental authorities, including the
FDA. The FDA must approve each Spiros product before that product can be
manufactured or marketed for commercial sale. Failure to obtain such approvals
could result in Dura not exercising its purchase option for our callable common
stock. The review and approval process mandated by the FDA is very rigorous,
requiring extensive preclinical and clinical testing as well as determining
manufacturing capability and product performance. None of the products currently
in development may ever be approved by the FDA.

WE ARE DEPENDENT ON DURA FOR ALL ACTIVITIES IN THE DEVELOPMENT OF SPIROS
PRODUCTS.

We do not have manufacturing or marketing capabilities. We and Dura will
determine specified activities to be undertaken under the development agreement.
In all events Dura will have substantial influence over all activities and
procedures, including the timing and priorities of these activities and
procedures, to be undertaken under our agreements with Dura. Dura has no
obligation to complete any development or other activity after all of our funds
have been spent. Dura's own projects and other third party projects may compete
for time and resources with our projects. The resources that Dura uses for our
projects may therefore be limited.

Under our agreements with Dura, we are obligated to use only Dura's facilities
for manufacturing in the U.S. during the term of the manufacturing and marketing
agreement. Dura has the right to use contract manufacturers and currently plans
to rely on third parties to manufacture certain components of Spiros. Dura's
facilities or those of its contract manufacturers may not be adequate for our
needs. In addition, Dura or its contract manufacturers may require additional
FDA approvals prior to commencing manufacturing of Spiros products. The Spiros
products may not be manufacturable, whether by Dura or a contract manufacturer,
on a commercial scale, for commercially reasonable cost or on a timely basis. We
have no experience in sales, marketing or distribution. Under the manufacturing
and marketing agreement, Dura has exclusive worldwide marketing rights to the
Spiros products. Dura's sales and marketing force may not be able to establish
commercially successful sales and distribution capabilities for the Spiros
products.

DURA WILL NEED TO SIGNIFICANTLY EXPAND ITS MANUFACTURING CAPABILITY AND COMPLY
WITH GOVERNMENT REGULATIONS BEFORE IT CAN MANUFACTURE ANY SPIROS PRODUCTS ON OUR
BEHALF.

If Dura or other third parties are not successful in attaining acceptable
manufacturing quality levels or meeting regulatory requirements, our ability to
commercialize the Spiros products will be adversely affected. Dura will need to
significantly expand its current manufacturing operations and comply with
regulations prescribed by various regulatory agencies to achieve the quality and
required levels of production of our products to obtain marketing approval. In
addition, Dura's manufacturing facility must be registered with and licensed by
various regulatory authorities and must comply with current good manufacturing
practice


                                       11
<PAGE>

requirements prescribed by the FDA and the State of California. Any third
parties used in manufacturing Spiros will be required to significantly scale up
their activities and to produce components which meet applicable specifications
on a timely and consistent basis.

THE PHARMACEUTICAL INDUSTRY IS EXTREMELY COMPETITIVE.

Many companies, including large pharmaceutical firms with financial and
marketing resources and development capabilities substantially greater than
ours, are engaged in developing, marketing and selling products that compete
with those that we plan to offer. Our failure to effectively respond to the
competitive pressures of our industry would have an adverse effect on our
ability to effectively sell our products. The selling prices of such products
typically decline as competition increases. Further, other products now in use
or under development by others may be more effective than our current or future
products. The industry is characterized by rapid technological change, and
competitors may develop their products more rapidly than us. Competitors may
also be able to complete the regulatory process sooner, and therefore, may begin
to market their products in advance of our products.

WE DO NOT HAVE A LONG OPERATING HISTORY AND WE MAY NEVER ACHIEVE PROFITABILITY
OR PAY DIVIDENDS.

We have a limited operating history upon which investors may base an evaluation
of our likely financial performance. We anticipate that substantially all of our
available funds will be expended prior to the receipt of any significant
revenues, resulting in significant losses. Further, even if the Spiros products
are developed or marketed under the agreements with Dura, they may not be able
to be marketed profitably. Even if such Spiros products are commercialized
profitably, we may never recover our initial losses. We are prevented from
paying dividends on our common stock without the approval of Dura, and
accordingly, do not expect to pay any dividends.

POTENTIAL COMPETITION FROM DURA MAY HAVE AN ADVERSE EFFECT ON OUR BUSINESS.

Dura is engaged in ongoing licensing and development of new products. While Dura
has exclusively licensed to us the rights to develop, manufacture and
commercialize the specified Spiros products, Dura is not prohibited from
developing other products using Spiros, including those products that may
compete with our Spiros products, or from in-licensing or acquiring products
that may compete with the Spiros products. Dura's activities may lead to the
development, in-licensing or acquisition of products that compete with our
Spiros products. It is possible that Dura's rights with respect to such
competitive products could reduce Dura's incentive to exercise the albuterol
option, the other product option or the stock purchase option.

DURA HAS THE ABILITY TO LIMIT SPECIFIED ACTIVITIES.

Until the expiration of the purchase option, Dura must approve specified
activities, including:

         -   issuing our securities;


                                       12
<PAGE>

         -   borrowing an aggregate of more than $1 million at any one time;

         -   selling a material part of our business or assets;

         -   declaring or paying dividends or making any other distributions to
             our stockholders;

         -   merging or consolidating with any other corporation; and

         -   adopting, amending or repealing our bylaws.

Accordingly, Dura could preclude our stockholders and board of directors from
taking any of these actions prior to the expiration of the purchase option.
Dura, as holder of all of our outstanding special common stock, may transfer or
sell all, but not less than all, of its shares. As a result, an unrelated third
party may acquire rights associated with the special common stock, including the
rights discussed in this section and the right to exercise the albuterol option,
the product option and the purchase option. An acquiror of the special common
stock may not have the same financial resources or development, manufacturing or
marketing capabilities as Dura, which may reduce the likelihood of the exercise
of the albuterol option, the other product option or the stock purchase option.

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

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

OUR STOCK PRICE IS VOLATILE.

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

         -   financial results;

         -   the results of clinical testing or other developments with our
             competitors' products;


                                       13
<PAGE>

         -   regulatory developments;

         -   technological innovations;

         -   new commercial products;

         -   changes to government regulations;

         -   regulatory decisions on commercialization of products;

         -   developments concerning proprietary rights;

         -   litigation or public concern as to safety of our products; or

         -   our failure to achieve securities analysts' expectations concerning
             our earnings per share

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We invest our excess cash and short term investments in U.S. government and
corporate debt securities with high quality credit ratings and maturities of
less than two years. These investments are not held for trading or other
speculative purposes. Changes in interest rates affect the investment income we
earn on our investments and, therefore, impact our cash flows and results of
operations. We are not exposed to risks for changes in foreign currency exchange
rates, commodity prices, or any other market rates.


                           PART II - OTHER INFORMATION

ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS

Use of Proceeds from Registered Securities

On December 22, 1997, we and Dura completed an initial public offering of
6,325,000 units. Each unit consisted of one share of our callable common stock
and one warrant to purchase one-fourth of one share of Dura common stock,
pursuant to a registration statement on Form S-1/S-3 (No. 333-37673/37673-01).
The registration statement was declared effective on December 16, 1997. The net
proceeds from the offering were invested in cash, cash equivalents and
short-term investments. As of March 31, 2000, we have used $113 million of our
cash, cash equivalents and short-term investments, all of which has been paid to
Dura for our operating activities and we have $50.1 million of working capital.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

<TABLE>
<CAPTION>
            Exhibit No.       Description
            -----------       -----------
<S>         <C>               <C>

(2)         2.1               Agreement and Plan of Merger dated March 20, 2000 among Spiros Development
                              Corporation II, Inc., Dura Pharmaceuticals, Inc., and Starfish Acquisition Corp.,
                              Inc.


                                       14
<PAGE>

(1)         3.1               Amended and Restated Certificate of Incorporation

(1)         3.2               Amended and Restated Bylaws

(2)         10.1              Voting Agreement dated March 20, 2000 among Spiros Development Corporation II,
                              Inc., Dura Pharmaceuticals, Inc., Starfish Acquisition Corp., Inc., Farallon
                              Capital Partners L.P., Farallon Capital Institutional Partners, L.P., Farallon
                              Capital Institutional Partners II, L.P., Farallon Capital Institutional Partners
                              III, L.P., Tinicum Partners L.P., and Farallon Capital Management, L.L.C.

            27                Financial Data Schedule


            (1)               Incorporated   by  reference   to  the   Company's
                              Registration   Statement  on  Forms  S-1/S-3  (No.
                              333-37673/37673-01)  filed on October 10, 1997, as
                              amended.

            (2)               Incorporated by reference to the Company's Form 8-K filed on March 21, 2000.

</TABLE>

(b) Reports on Form 8-K

         On February 29, 2000, the Company filed a current report on Form 8-K
         dated February 23, 2000, reporting a change in the Company's certifying
         accountant.

         On March 21, 2000, the Company filed a current report on Form 8-K dated
         March 20, 2000, reporting the Company entered into an Agreement and
         Plan of Merger with Dura Pharmaceuticals, Inc. and Starfish Acquisition
         Corp., Inc.


                                       15
<PAGE>

                                   SIGNATURES


         PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.

                                    SPIROS DEVELOPMENT CORPORATION II, INC.


Date:   May 11, 2000                /s/ Erle T. Mast
--------------------                -------------------
                                    (Erle T. Mast)
                                    Vice President, and Chief Financial Officer
                                    (Principal Financial Officer)


                                       16
<PAGE>



                                  EXHIBIT INDEX
                                       TO
                                    FORM 10-Q


                     SPIROS DEVELOPMENT CORPORATION II, INC.
<TABLE>
<CAPTION>
            Exhibit No.       Description
            -----------       -----------
<S>         <C>               <C>
(2)         2.1               Agreement and Plan of Merger dated March 20, 2000 among Spiros Development
                              Corporation II, Inc., Dura Pharmaceuticals, Inc., and Starfish Acquisition Corp.,
                              Inc.

(1)         3.1               Amended and Restated Certificate of Incorporation

(1)         3.2               Amended and Restated Bylaws

(2)         10.1              Voting Agreement dated March 20, 2000 among Spiros Development Corporation II,
                              Inc., Dura Pharmaceuticals, Inc., Starfish Acquisition Corp., Inc., Farallon
                              Capital Partners L.P., Farallon Capital Institutional Partners, L.P., Farallon
                              Capital Institutional Partners II, L.P., Farallon Capital Institutional Partners
                              III, L.P., Tinicum Partners L.P., and Farallon Capital Management, L.L.C.

            27                Financial Data Schedule


            (1)               Incorporated by reference to the Company's
                              Registration Statement on Forms S-1/S-3 (No.
                              333-37673/37673-01) filed on October 10, 1997, as
                              amended.

            (2)               Incorporated by reference to the Company's Form 8-K filed on March 21, 2000.

</TABLE>