<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 June 30, 1998
                                  
                                         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 (619) 457-2553


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

     The number of shares of the Registrant's Callable Common Stock and Special
Common Stock outstanding as of July 31, 1998 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 ENTERPRISE) 
                                 BALANCE SHEETS
                       In thousands, except share amounts
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                     DECEMBER 31,   JUNE 30,
                                                         1997         1998
                                                     ------------  -----------
                                                                   (unaudited)
<S>                                                  <C>           <C>
ASSETS    
CURRENT ASSETS:
  Cash and cash equivalents                           $ 139,035     $  52,186 
  Short-term investments                                 31,471        94,357 
  Prepaid and other current assets                                        157 
                                                      ---------     ---------

           Total current assets                         170,506       146,700 
                                                      ---------     ---------

TOTAL                                                 $ 170,506     $ 146,700 
                                                      ---------     ---------
                                                      ---------     ---------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Payable to Dura Pharmaceuticals, Inc.               $   8,399     $   5,110 
  Accrued liabilities                                        26           152 
                                                      ---------     ---------

           Total current liabilities                      8,425         5,262
                                                      ---------     ---------

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                            168,977       168,960
  Accumulated other comprehensive income (loss)              21           (71)
  Accumulated deficit                                    (6,924)      (27,458)
                                                      ---------     ---------

           Total stockholders' equity                   162,081       141,438 
                                                      ---------     ---------

TOTAL                                                 $ 170,506     $ 146,700 
                                                      ---------     ---------
                                                      ---------     ---------
</TABLE>

See accompanying notes to financial statements.


                                       2
<PAGE>

                       SPIROS DEVELOPMENT CORPORATION II, INC.
                           (A DEVELOPMENT STAGE ENTERPRISE)
                               STATEMENTS OF OPERATIONS
                        In thousands, except per share amounts
                                     (unaudited)

<TABLE>
<CAPTION>
                                                                SEPTEMBER 23, 1997
                                           THREE       SIX          (DATE OF
                                           MONTHS     MONTHS      INCORPORATION)
                                           ENDED      ENDED          THROUGH 
                                          JUNE 30,   JUNE 30,        JUNE 30,
                                            1998       1998            1998
                                          --------   --------   ------------------
<S>                                       <C>        <C>             <C>
REVENUES:                                                       
  Interest income                         $  2,106   $  4,439        $  4,661 
                                          --------   --------        --------
EXPENSES:                                                       
  Research and development                  13,360     24,345          31,385 
  General and administrative                   278        542             648 
                                          --------   --------        --------

           Total expenses                   13,638     24,887          32,033 
                                          --------   --------        --------

OPERATING LOSS BEFORE INCOME TAXES         (11,532)   (20,448)        (27,372)
PROVISION FOR INCOME TAXES                      60         86              86 
                                          --------   --------        --------

NET LOSS                                  $(11,592)  $(20,534)       $(27,458)
                                          --------   --------        --------
                                          --------   --------        --------
NET LOSS PER SHARE:                                             
  Basic and diluted                       $  (1.83)  $  (3.25)       $  (4.34)
                                          --------   --------        --------
                                          --------   --------        --------
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 ENTERPRISE)
                               STATEMENTS OF CASH FLOWS
                                     In thousands
                                     (unaudited)

<TABLE>
<CAPTION>
                                                                  SEPTEMBER 23, 1997
                                                                      (DATE OF 
                                                       SIX MONTHS    INCORPORATION)
                                                          ENDED        THROUGH
                                                         JUNE 30,      JUNE 30,
                                                           1998          1998
                                                       ---------- ------------------
<S>                                                    <C>           <C>
NET CASH USED IN OPERATING ACTIVITIES                   $ (22,582)   $ (22,354)
                                                        ---------    ---------
INVESTING ACTIVITIES:
  Purchases of short-term investments                     (88,103)    (119,553)
  Sales and maturities of short-term investments           25,125       25,125
                                                        ---------    ---------

     Net cash used in investing activities                (62,978)     (94,428)
                                                        ---------    ---------

FINANCING ACTIVITIES:
  Net proceeds from issuance of special common and 
    callable common stock                                               93,968
  Contribution from Dura Pharmaceuticals, Inc. for 
    purchase option                                                     75,000
  Decrease in payable to Dura Pharmaceuticals, Inc. for 
    issuance costs                                         (1,289)
                                                        ---------    ---------

     Net cash provided by (used in) financing activities   (1,289)     168,968 
                                                        ---------    ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS      (86,849)      52,186
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD          139,035             
                                                        ---------    ---------

CASH AND CASH EQUIVALENTS AT END OF PERIOD              $  52,186    $  52,186 
                                                        ---------    ---------
                                                        ---------    ---------
</TABLE>

See accompanying notes to financial statements.

 
                                       4
<PAGE>

                      SPIROS DEVELOPMENT CORPORATION II, INC.
                          (A DEVELOPMENT STAGE ENTERPRISE)
                           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 period 
September 23, 1997 (date of incorporation) through December 31, 1997 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 period is not 
necessarily indicative of results to be expected for any other interim period 
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-Registered 
Trademark-, a dry powder pulmonary drug delivery system, and conducting 
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, 
completing 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 Pharmaceuticals, Inc. 
("Dura") common stock.  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 certain drugs for use with Spiros 
pursuant to various agreements with Dura.


                                       5
<PAGE>

3.   NEW ACCOUNTING STANDARD

Effective January 1, 1998, the Company adopted Statement of Financial 
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). 
SFAS 130 requires reporting and displaying comprehensive income (loss) and 
its components which, for Spiros Corp. II, includes net loss and unrealized 
income (loss) on investments. In accordance with SFAS 130, the accumulated 
balance of other comprehensive income is disclosed as a separate component of 
stockholders' equity. 

For the three and six months ended June 30, 1998, and the period September 
23, 1997 (date of incorporation) through June 30, 1998, comprehensive loss 
consisted of (in thousands):

<TABLE>
<CAPTION>
                                                                       September 23, 
                                                                            1997      
                                                                         (date of     
                                        Three Months     Six Months    incorporation) 
                                            Ended           Ended         through      
                                        June 30, 1998   June 30, 1998   June 30, 1998  
                                        -------------   -------------   -------------
<S>                                       <C>             <C>            <C>
Net Loss                                  $(11,592)       $(20,534)      $(27,458)

Other Comprehensive Income (Loss):
  Unrealized Income (Loss)
    on Investments                             101             (92)           (71)
                                          --------        --------       --------

Comprehensive Loss                        $(11,491)       $(20,626)      $(27,529)
                                          --------        --------       --------
                                          --------        --------       --------

</TABLE>

                         
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 period 
September 23, 1997 (date of incorporation) through December 31, 1997 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 the Company's business. See "Risks and 
Uncertainties" for a discussion of factors known to the Company that could 
cause reported financial information not to be necessarily indicative of 
future results. 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.


                                       6
<PAGE>

GENERAL

Spiros Corp. II was incorporated on September 23, 1997 for the purpose of 
continuing the development of Spiros-Registered Trademark-, 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 ("Spiros 
Products").  The Company commenced operations on December 22, 1997.

On December 22, 1997, the Company and Dura completed an initial public 
offering of 6,325,000 Units (the "Units"), each Unit consisting of one share 
of Callable Common Stock ("Common Stock") of the Company and one warrant (the 
"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 the 
Company of approximately $94 million.  Concurrently, Dura contributed $75 
million to the Company. Substantially all funds from the Offering and the $75 
million contribution from Dura and interest earned thereon, are expected to 
be paid to Dura for the development and commercialization of certain drugs 
for use with Spiros pursuant to various agreements with Dura.  Through 
December 31, 1999, the Units will trade publicly.  Effective January 1, 2000, 
the Units will separate into the two underlying securities.

Dura has an irrevocable option (the "Purchase Option") to purchase all, but 
not less than all, of the issued and outstanding shares of the Company's 
Common Stock at predetermined prices.  Dura may exercise the Purchase Option 
at any time through the earlier of (a) December 31, 2002, (b) the 90th day 
after the date the Company provides Dura with quarterly financial statements 
of the Company 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 
(c) upon termination of the technology license, development, or the 
manufacturing agreements between the Company and Dura.  If the Purchase 
Option is exercised, the per share price will be $24.01 before January 1, 
2000, increasing 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.

RESULTS OF OPERATIONS

The Company incurred a net loss of $11,592,000, $20,534,000, and $27,458,000 
for the three months ended June 30, 1998, six months ended June 30, 1998, and 
for the period September 23, 1997 (date of incorporation) through June 30, 
1998, respectively. For the three months and six months ended June 30, 1998, 
research and development costs totaled $13,360,000 and $24,345,000, 
respectively, and general and administrative expenses totaled $278,000 and 
$542,000, respectively. The research and development expenses were for Spiros 
related activities performed by Dura pursuant to a development agreement. The 
Company's interest income for the three months and six months ended June 30, 
1998 totaled $2,106,000 and $4,439,000, respectively.


                                      7
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company's initial capitalization totaled $169 million, consisting of net 
proceeds from the Offering of approximately $94 million and a $75 million 
contribution from Dura. At June 30, 1998, the Company had cash, cash 
equivalents, and short-term investments totaling $146.5 million. The Company 
believes that its working capital and expected cash flows from its cash and 
short-term investments will be sufficient to fund its cash requirements 
through at least the next twelve months.

Spiros Corp. II relies on Dura for its operating and financial systems 
pursuant to the various agreements described above.  The Company has made 
inquiries of Dura and  Dura  has stated that it recognizes the need to ensure 
its operations will not be adversely impacted by the inability of Dura's 
systems to process data having dates on or after January 1, 2000 ("Year 
2000").  Processing errors due to software failure arising from calculations 
using the Year 2000 date are a recognized risk.  Dura has indicated that it 
is currently addressing the risk, with respect to the availability and 
integrity of its financial systems and the reliability of its operating 
systems, and is in the process of communicating with suppliers, customers, 
financial institutions and others with whom it conducts business to assess 
whether they are Year 2000 compliant.  While the Company believes that Dura's 
planning efforts are adequate to address the Year 2000 concerns, there can be 
no assurance that the systems of other companies on which Dura's systems and 
operations rely will be converted on a timely basis and will not have a 
material effect on the Company.  In addition, the potential impact of the 
Year 2000 on others with whom the Company, through agreements with Dura, does 
business cannot be reasonably estimated at this time.  The cost of Dura's 
Year 2000 initiatives will be paid entirely by Dura.

RISKS AND UNCERTAINTIES

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

DEVELOPMENT RISKS ASSOCIATED WITH SPIROS.  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 any Spiros Product to be safe or 
efficacious, or that any Spiros Product will receive regulatory approval in a 
timely manner, if at all.  In addition, regulatory approvals will have to be 
obtained for each drug to be delivered through the use of Spiros prior to 
commercialization.  Moreover, even if Spiros does receive regulatory 
approval, there can be no assurance that Spiros will be commercially 
successful, have all of the patent and other protections necessary to prevent 
competitors from producing similar products and not infringe on patent or 
other proprietary rights of third parties.  The failure of the Spiros 

                                       8
<PAGE>

Products being developed by the Company to receive timely regulatory approval 
and achieve commercial success would have a material adverse effect on the 
Company.

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

Dura, on the Company's behalf, has submitted an abbreviated NDA called a 
505(b)(2) application for the use of albuterol with the Spiros system 
("Albuterol Spiros-TM-"). Dura, on the Company's behalf, expects to submit an 
abbreviated NDA for the use of other drugs with the Spiros system. No 
assurances can be given that all of the drugs identified for development with 
Spiros will be suitable for, or approved under, abbreviated application 
procedures.  Certain abbreviated application procedures have been the subject 
of petitions filed by brand name manufacturers which seek changes in the 
FDA's approval process for such abbreviated applications. These requested 
changes include, among other things, disallowance of the use by an applicant 
of an abbreviated application with data considered proprietary by the 
original manufacturer that was submitted to the FDA as part of an original 
NDA. Neither the Company nor Dura is able to predict at this time whether the 
FDA will make any changes to its abbreviated application procedures as a 
result of such petitions or the effect that such changes or challenges may 
have on the Company. 

There can be no assurance that the Spiros Products currently in development 
by the Company will be approved by the FDA.  In addition, there can be no 
assurance that all necessary approvals will be granted for future products or 
that FDA review or actions will not involve delays caused by the FDA's 
request for additional information or testing that could adversely affect the 
time to market and sale of the products. 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. 

NO DEVELOPMENT, MANUFACTURING OR MARKETING CAPABILITY.  Spiros Corp. II has 
no development, manufacturing or marketing capabilities. Spiros Corp. II is 
obligated to only utilize Dura's development capability during the term of 
the Development Agreement between Dura and the Company and Dura's 
manufacturing facilities for manufacturing during the term of the 
Manufacturing and Marketing Agreement between Dura and the Company. Dura has 
the right under the Manufacturing and Marketing Agreement to use contract 
manufacturers and currently plans to rely on third parties to manufacture 
certain components of Spiros. There can be no assurance that Dura's 
facilities or those of its contract manufacturers will be satisfactory for 
the needs of Spiros Corp. II. In addition, Dura or its contract 
manufacturers, as the case may be, 


                                       9
<PAGE>

may require additional FDA approval prior to commencing manufacturing of 
Spiros Products. There can be no assurance that the Spiros Products can be 
manufactured, whether by Dura or a contract manufacturer, on a commercial 
scale at a commercially reasonable cost or on a timely basis. In addition, 
Spiros Corp. II has no experience in sales, marketing or distribution. Under 
the Manufacturing and Marketing Agreement, Dura has been granted exclusive 
worldwide marketing rights to the Spiros Products. There can be no assurance 
that Dura's sales and marketing force will be able to establish commercially 
successful sales and distribution capabilities for the Spiros Products. 

DEPENDENCE ON DURA.  Substantially all of the Company's available funds will 
be paid to Dura under the Development Agreement. Payments under the 
Development Agreement will be made for the full amount of all of Dura's 
research and development expenses, general and administrative expenses, 
capital equipment costs and all other costs and expenses incurred by Dura in 
performing the activities, on behalf of Spiros Corp. II, up to the maximum 
amount of  funds available to Spiros Corp. II, which include substantially 
all of the available funds.  In addition, Dura will be primarily responsible 
for the marketing and manufacturing of the Spiros Products, if any are 
commercialized prior to the expiration of the Purchase Option. Spiros Corp. 
II is not expected to have its own research, development, clinical, 
licensing, administration, manufacturing or marketing employees or facilities 
and thus will be entirely dependent on Dura in these areas. Subject to their 
respective obligations under the Development Agreement and consistent with 
commercially reasonable practices, Dura will have sole discretion to 
determine the allocation of its research, development, clinical, licensing, 
administration, manufacturing and marketing employees and facilities. 
Although Dura believes that its personnel and facilities currently are, or in 
the future will be, adequate for the performance of its duties under the 
Development Agreement and the Manufacturing and Marketing Agreement, Dura's 
proprietary and collaborative development, licensing, manufacturing and 
marketing projects may compete for time and resources with projects 
undertaken by Spiros Corp. II pursuant to the Development Agreement and the 
Manufacturing and Marketing Agreement, thereby delaying development, 
manufacture and marketing of the Spiros Products. Any material adverse change 
in the business or financial condition of Dura could have a material adverse 
effect upon Spiros Corp. II.

COMMON MANAGEMENT.  The Company's agreements with Dura, consisting of the 
Technology Agreement, the Development Agreement, the Manufacturing and 
Marketing Agreement and the Albuterol and Product Option Agreement 
(collectively, the "Major Agreements") were approved by Dura, as controlling 
shareholder of Spiros Corp. II at the time the Major Agreements were 
executed, which, in such capacity, may have influenced the Board of Directors 
of Spiros Corp. II to enter into such agreements.  Three of the current 
members of the Board of Directors of Spiros Corp. II are persons who are 
directors and/or officers of Dura and each of the three officers of the 
Company are officers of Dura.

ABSENCE OF OPERATING HISTORY; NO ASSURANCE OF PROFITABILITY; LACK OF 
DIVIDENDS. Spiros Corp. II was recently formed and has no operating history 
upon which investors may base an evaluation of its likely financial 
performance. Spiros Corp. II anticipates that substantially all of its 
available funds may be expended prior to the earliest receipt of any 
significant revenues by 


                                      10
<PAGE>

Spiros Corp. II, resulting in significant losses. Further, even if the Spiros 
Products are developed in accordance with the Development Agreement and 
marketed pursuant to the Manufacturing and Marketing Agreement, there can be 
no assurance that they can be marketed profitably. Even if such Spiros 
Products are commercialized profitably, the initial losses incurred by Spiros 
Corp. II may never be recovered. Spiros Corp. II is prevented from paying 
dividends on the Spiros Corp. II Common Stock without the approval of Dura, 
and accordingly, does not expect to pay any dividends. 

COMPETITION.  Many companies, including large pharmaceutical firms with 
financial and marketing resources and development capabilities substantially 
greater than those of Spiros Corp. II, are engaged in developing, marketing 
and selling products that compete with those planned to be offered.  The 
selling prices of such products typically decline as competition increases. 
Furthermore, other products now in use or under development by others may be 
more effective than the Company's 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.  The Company believes 
that competition among pulmonary drug delivery systems aimed at the asthma 
and COPD markets will be based on, among other things, product efficacy, 
safety, reliability, availability and price. 

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 DPIs currently in commercial use worldwide, individual dose and 
multiple dose. Individual dose DPIs currently marketed in the U.S. include 
the Rotohaler-TM-(developed and marketed by Glaxo) and the 
Spinhaler-Registered Trademark-(developed and marketed by Fisons Limited).  
The Turbuhaler-Registered Trademark- (developed and marketed by Astra), a 
multiple dose DPI, is the leading DPI in worldwide sales.  In June 1997, the 
FDA approved the first Turbuhaler product, the Pulmicort Turbuhaler, for 
marketing in the U.S., which Astra launched in early 1998.  Recently the FDA 
also approved two multiple dose DPIs developed by Glaxo, the 
Flovent-Registered Trademark- Rotadisk-Registered Trademark- and the 
Serevent-Registered Trademark- Diskus-Registered Trademark-, both launched by 
Glaxo in early 1998.

NO ASSURANCE OF EXERCISE OF DURA'S OPTIONS.  Dura has the option through 
specified dates to acquire Spiros Corp. II's exclusive rights for the use of 
Spiros with albuterol (the "Albuterol Option") and with a second product 
other than albuterol (the "Product Option") for cash. Dura is not obligated 
to exercise the Purchase Option, the Albuterol Option or the Product Option, 
and it will exercise such options only if, in the opinion of Dura's Board of 
Directors, it is in Dura's best interest to do so. Even if the Spiros 
Products are developed and approved, if Dura does not exercise the Purchase 
Option, Spiros Corp. II will be required to find alternative ways to 
commercially market or exploit the Spiros Products and there can be no 
assurance that Spiros Corp. II will be able to do so. If, in the event Dura 
fails to exercise the Purchase Option, and Spiros Corp. II determines to 
market the Spiros Products itself, Spiros Corp. II will require substantial 
additional funds. There can be no assurance that such funds will be available 
on attractive terms, if at all. Similarly, if Spiros Corp. II determines to 
license the Spiros Products 


                                       11
<PAGE>

to third parties, such arrangements, if available, may be on terms less 
favorable to Spiros Corp. II than the terms of Spiros Corp. II's arrangements 
with Dura. 

NO ASSURANCE OF SUFFICIENT FUNDS.  Although Spiros Corp. II believes that its 
current funding will be sufficient to enable it to advance three Spiros 
Products through the FDA approval stage, there can be no assurance that this 
will be the case. Until the expiration of the Purchase Option, Spiros Corp. 
II is significantly restricted from raising additional funds without Dura's 
consent and there can be no assurance that Spiros Corp. II will have 
sufficient funds to successfully develop any Spiros Products. While Dura may, 
at its sole option, provide funds for further development of the Spiros 
Products, it is not obligated to do so. If the Purchase Option is not 
exercised, Spiros Corp. II would have to raise substantial funding while 
hiring, or otherwise obtaining access to, research and management personnel. 

NO ASSURANCE THAT THE PURCHASE OPTION WILL BE REPRESENTATIVE OF THE VALUE OF 
SPIROS CORP. II.  The Purchase Option exercise price was determined and set 
forth in the Spiros Corp. II Amended and Restated Certificate of 
Incorporation as of the date of the closing of the Offering and therefore may 
not be representative of the value of the Spiros Corp. II callable common 
stock at the time of the exercise of the Purchase Option. 

POTENTIAL COMPETITION FROM DURA.  Dura is engaged in ongoing licensing and 
development of new products. While Dura has exclusively licensed the rights 
to develop, manufacture and commercialize the Spiros Products in connection 
with the Spiros technology to Spiros Corp. II, Dura is not prohibited from 
developing other products using Spiros, including those that may compete with 
the Spiros Products, or from in-licensing or acquiring products that may 
compete with the Spiros Products. Dura's activities may, in some 
circumstances, lead to the development, in-licensing or acquisition of 
products that compete with the Spiros Products being developed by Spiros Corp 
II. It is possible that Dura's rights with respect to such competitive 
products could reduce Dura's incentive to exercise the Albuterol Option, the 
Product Option or the Purchase Option. 

ABILITY OF SPECIAL STOCKHOLDER TO LIMIT CERTAIN SPIROS CORP. II ACTIVITIES. 
Pursuant to the Company's Amended and Restated Certificate of Incorporation, 
until the expiration of the Purchase Option, no resolution or act of the 
Company to authorize or permit any of the following will be effective without 
the prior written approval of Dura as the holder of all of the outstanding 
Special Common Stock (the "Special Shares"): (i) the allotment or issue of 
shares or other securities of the Company or the creation of any right to 
such an allotment or issue; (ii) the reduction of the Company's authorized 
capital stock; (iii) the alteration of or any change to the rights, powers, 
preferences and restrictions of the Special Shares; (iv) outstanding 
borrowings of an aggregate of more than $1 million at any one time; (v) the 
sale or other disposition of or the creation of any lien or liens on the 
whole or a material part of the Company's business or assets; (vi) the 
declaration or payment of dividends or the making of any other distributions 
to the Company's stockholders; (vii) the merger, consolidation or 
reorganization of the Company with or into any other corporation; (viii) the 
sale, liquidation or other disposition of all or substantially all of the 
assets of the Company; (ix) the alteration or amendment of Articles IV or VII 
of the Company's Amended and Restated Certificate of 


                                      12
<PAGE>

Incorporation; and (x) the adoption, amendment or repeal of the Bylaws of the 
Company.  Accordingly, Dura could preclude the holders of a majority of the 
outstanding Spiros Corp. II Common Stock and the Board of Directors of Spiros 
Corp. II from taking any of the foregoing actions during such period. Dura, 
as holder of all of the outstanding Special Shares, may transfer or sell all, 
but not less than all, of such shares.  As a result, an unrelated third party 
may acquire rights associated with the Special Shares, including the rights 
discussed in this section and the right to exercise the Albuterol Option, the 
Product Option and the Purchase Option.  There can be no assurance that any 
transferee of the Special Shares will have the same financial resources or 
development, manufacturing or marketing capabilities as Dura, which may have 
a material adverse effect on the likelihood of the exercise of the Albuterol 
Option, the Product Option or the Purchase Option. 

POTENTIAL LOSS OF TECHNOLOGY BY SPIROS CORP. II.  Under the Development 
Agreement, Spiros Corp. II is obligated to make payments to Dura equal in the 
aggregate to substantially all of its available funds.  If Spiros Corp. II 
does not use its available funds as provided in the Development Agreement or 
otherwise breaches any of its material obligations under the Major 
Agreements, Dura has the right to terminate the Technology Agreement, the 
Development Agreement and the Manufacturing and Marketing Agreement, and 
thereby reacquire rights to all technology licensed to Spiros Corp. II 
thereunder, including improvements made to such technology using funds 
provided by Spiros Corp. II. In the event of such a termination by Dura, it 
is unlikely that Dura would exercise the Albuterol Option, the Product Option 
or the Purchase Option.

ACCELERATION OF PURCHASE OPTION.  If Spiros Corp. II terminates all Major 
Agreements due to a material breach of any of the Major Agreements by Dura, 
the Purchase Option automatically accelerates. The Purchase Option also 
terminates in the event of certain voluntary or involuntary bankruptcy events 
affecting Dura or an uncured material breach by Dura under any of its 
material loan agreements. There can be no assurance that, at that time, the 
development of the Spiros Products will have progressed to a point where Dura 
will have sufficient information to determine whether to exercise the 
Purchase Option. As a result, Dura may determine not to exercise the Purchase 
Option. There can be no assurance that, upon termination of the Development 
Agreement by Spiros Corp. II as described above, alternative arrangements for 
the development of some or all of the Spiros Products could be made or that 
such development of the Spiros Products by Spiros Corp. II would be 
successful. 

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


                                      13
<PAGE>

to place their products on these formulary lists has created a trend of 
downward pricing pressure in the industry.  In addition, many managed care 
organizations are pursuing various ways to reduce pharmaceutical costs and 
are considering formulary contracts primarily with those pharmaceutical 
companies that can offer a full line of products for a given therapy sector 
or disease state.  There can be no assurance that the Company's products, if 
approved, 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. 

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

UNCERTAINTY REGARDING PATENTS AND PROPRIETARY TECHNOLOGY; UNPREDICTABILITY OF 
PATENT PROTECTION.  The Company's success will depend, in part, on its 
ability to obtain patents, protect trade secrets and other proprietary 
information and operate without infringing upon the proprietary rights of 
others both in the U.S. and abroad.  There can be no assurance that patent 
applications for a Spiros Product will be approved, that Spiros Corp. II will 
develop any Spiros Product to the point that it is patentable, that any 
issued patents for a Spiros Product will provide Spiros Corp. II with 
adequate protection or will not be challenged by others, or that the patents 
of others will not impair the ability of Spiros Corp. II to do business.  
Furthermore, there can be no assurance that others will not independently 
develop similar products, duplicate any unpatented Spiros Products or design 
around any patented Spiros Products in development or marketed by Spiros 
Corp. II. 

The Company will rely on secrecy to protect technology where patent 
protection is not believed to be appropriate or obtainable. There can be no 
assurance that any confidentiality agreement entered into by Dura with third 
parties will not be breached, that Spiros Corp. II will have adequate 
remedies for any breach, that others will not independently develop 
substantially 


                                      14
<PAGE>

equivalent proprietary information or that third parties will not otherwise 
gain access to proprietary information concerning the Spiros Products or 
program technology. 

The Company may be required to obtain licenses to patents or other 
proprietary rights of others.  No assurance can be given that any licenses 
required under any such patents or proprietary rights would be made available 
on terms acceptable to the Company, if at all. If the Company does not obtain 
such licenses, it could encounter delays in Spiros product market 
introductions or could find that the development, manufacture or sale of the 
Spiros Products requiring such licenses could be foreclosed.  Moreover, the 
Company could incur substantial costs and diversion of management time in 
defending itself in any suits brought against it claiming infringement of the 
patent rights of others or in asserting the Company's patent rights. 

The Company is aware of foreign patents granted to third parties in the 
United Kingdom that claim proprietary rights in areas that may overlap with 
certain Spiros technology.  In the event that the Company determines to 
market any Spiros Product in the United Kingdom and further determines that 
such activity would infringe upon such third party patents, the Company may 
need to either design around these patents, obtain licenses to such patents, 
or avoid marketing products in the United Kingdom and other areas in Europe 
in which these patents provide protection.  There can be no assurance that 
patents or patent applications do not exist or will not exist in the future 
that may materially affect the Company's ability to make, use or sell any 
current or future products. 

ATTRACTION AND RETENTION OF KEY PERSONNEL.  The Company will be highly 
dependent on the principal members of Dura's scientific and management staff, 
the loss of whose services might impede the achievement of development 
objectives. Recruiting and retaining management and operational personnel and 
qualified scientific personnel to perform research and development work for 
the Company will also be critical to the Company's success.  Although the 
Company believes Dura will be successful in attracting and retaining skilled 
and experienced management, operational and scientific personnel, there can 
be no assurance that Dura will be able to attract and retain such personnel 
on acceptable terms given the competition among numerous pharmaceutical 
companies, universities and research institutions for such personnel. 
 
VOLATILITY OF THE COMPANY'S STOCK PRICE.  The market prices for securities of 
emerging companies have historically been highly volatile.  Future 
announcements concerning the Company, Dura or their competitors may have a 
significant impact on the market price of the  Units.  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 
Spiros Corp. II's and Dura's products. 

YEAR 2000 COMPLIANCE CONSIDERATIONS.  Spiros Corp. II relies on Dura for its 
operating and financial systems pursuant to the various agreements described. 
The Company has made inquiries of Dura and  Dura  has stated that it 
recognizes the need to ensure its operations will not be adversely impacted 
by the inability of Dura's systems to process data having dates on or after 
January 1, 2000 ("Year 2000").  Processing errors due to software failure 
arising from 


                                      15
<PAGE>

calculations using the Year 2000 date are a recognized risk.  Dura has 
indicated that it is currently addressing the risk, with respect to the 
availability and integrity of its financial systems and the reliability of 
its operating systems, and is in the process of communicating with suppliers, 
customers, financial institutions and others with whom it conducts business 
to assess whether they are Year 2000 compliant.  While the Company believes 
that Dura's planning efforts are adequate to address the Year 2000 concerns, 
there can be no assurance that the systems of other companies on which Dura's 
systems and operations rely will be converted on a timely basis and will not 
have a material effect on the Company.  In addition, the potential impact of 
the Year 2000 on others with whom the Company, through agreements with Dura, 
does business cannot be reasonably estimated at this time.  The cost of 
Dura's Year 2000 initiatives will be paid entirely by Dura.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.


                            PART II - OTHER INFORMATION


ITEM 2.  CHANGE IN SECURITIES AND USE OF PROCEEDS

Use of Proceeds from Registered Securities

On December 22, 1997, the Company and Dura completed the offering of 
6,325,000 Units, each Unit consisting of one share of Common Stock of the 
Company 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.  Securities were first offered on December 17, 1997, and 
the offering closed on December 22, 1997.  Merrill Lynch & Co. and Donaldson, 
Lufkin & Jenrette Securities Corporation acted as managing underwriters of 
the offering.  The Units were sold to the public at an offering price of 
$16.00 per Unit, with aggregate proceeds of $101.2 million.  The Company 
received all proceeds from the offering, which totaled $94 million, net of 
offering expenses and underwriters' discounts of $7.2 million.  Offering 
expenses included $161,000 paid to Dura as reimbursement for direct costs 
incurred by Dura in connection with the offering. The net proceeds from the 
offering were invested in cash, cash equivalents and short-term investments. 
As of June 30, 1998, the Company has used $22.4 million of its cash, cash 
equivalents and short-term investments for its operating activities. 


                                      16
<PAGE>

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

On May 20, 1998, the Company's Annual Meeting of Stockholders was held at the
offices of the Company for the following purposes:

  (a)     The following five (5) directors were elected to serve one-year terms
          to expire at the 1999 Annual Meeting of Stockholders:
 
                                       For           Against           Withheld
                                       ---           -------           --------
          Sol Lizerbram             5,431,966           0               16,900
          Alain B. Schreiber        5,432,666           0               16,200
          Robert S. Whitehead       5,432,666           0               16,200
          Cam L. Garner                 1,000           0                   0
          David S. Kabakoff             1,000           0                   0

  (b)     The Stockholders ratified the appointment of Deloitte & Touche LLP as
          the Company's independent public accountants for the year ending
          December 31, 1998. The total number of votes cast for, against and
          withheld were 5,440,491, 6,975 and 1,400, respectively.


ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

     Exhibit No.    Description
     -----------    -----------

 (1)      3.1  Amended and Restated Certificate of Incorporation
          
 (1)      3.2  Amended and Restated Bylaws
          
 (2)      4.1  Purchase option held by Dura Pharmaceuticals, Inc. to purchase
               all of the outstanding Callable Common Stock of the Company
               (included in Exhibit 3.1)
          
 (2)      4.2  Specimen Unit Certificate
          
 (2)      4.3  Specimen Certificate of Callable Common Stock
          
          4.4  Stock Certificate of Special Common Stock
          
          27   Financial Data Schedule
          

                                      17
<PAGE>
          
     (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 Annual Report on Form 10-K
          for the year ended December 31, 1997.
          


Reports on Form 8-K

          None. 

                                      18
<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: August 13, 1998                  /s/ Erle T. Mast  
                                       ----------------
                                       (Erle T. Mast)
                                       Vice President, and Chief 
                                       Financial Officer
                                       (Principal Financial Officer)


                                      19
<PAGE>

                                   EXHIBIT INDEX 
                                         TO
                                     FORM 10-Q
                                          
                                          
                      SPIROS DEVELOPMENT CORPORATION II, INC.


     Exhibit No.    Description
     -----------    -----------
          
 (1)   3.1     Amended and Restated Certificate of Incorporation
          
 (1)   3.2     Amended and Restated Bylaws
          
 (2)   4.1     Purchase option held by Dura Pharmaceuticals, Inc. to purchase
               all of the outstanding Callable Common Stock of the Company
               (included in Exhibit 3.1)
          
 (2)   4.2     Specimen Unit Certificate
          
 (2)   4.3     Specimen Certificate of Callable Common Stock
          
       4.4     Stock Certificate of Special Common Stock
          
        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 Annual Report on Form 10-K
          for the year ended December 31, 1997.


                                      20