<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, 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 April 30, 1998 were 6,325,000 and 1,000,
respectively.


<PAGE>
     
                    SPIROS DEVELOPMENT CORPORATION II, INC.
                                     INDEX
                                       
<TABLE>
<CAPTION>
                                                                      Page No.
                                                                      --------
PART I- FINANCIAL INFORMATION
       <S>                                                                <C>
Item 1. Financial Statements
       
        Balance Sheets -
         December 31, 1997 and March 31, 1998 ...........................    3
        Statements of Operations -
         Three months ended March 31, 1998 and the
         period September 23, 1997 (date of incorporation)
         through March 31, 1998 .........................................    4
        Consolidated Statements of Cash Flows -
         Three months ended March 31, 1998 and the
         period September 23, 1997 (date of incorporation)
         through March 31, 1998 .........................................    5
        Notes to Financial Statements                                        6

Item 2. Management's Discussion and Analysis of Financial
          Condition and Results of Operations ...........................    7
        Risks and Uncertainties .........................................    9
      
Item 3. Quantitative and Qualitative Disclosures about Market Risk ......   17

PART II-OTHER INFORMATION

Item 2. Change in Securities and Use of Proceeds ........................   17

Item 6. Exhibits and Reports on Form 8-K ................................   17

SIGNATURES ..............................................................   18
</TABLE>

<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,      MARCH 31,
                                                                        1997            1998
                                                                    ------------      ---------
                                                                                     (unaudited)
<S>                                                                 <C>               <C>
ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                           $  139,035      $  43,956
  Short-term investments                                                  31,471        113,256
  Prepaid and other current assets                                                          173
                                                                      ----------     ----------

           Total current assets                                          170,506        157,385
                                                                      ----------     ----------

TOTAL                                                                 $  170,506     $  157,385
                                                                      ----------     ----------
                                                                      ----------     ----------
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Payable to Dura Pharmaceuticals, Inc.                                 $  8,399       $  4,442
  Accrued Liabilities                                                         26             86
                                                                      ----------     ----------

           Total current liabilities                                       8,425          4,528
                                                                      ----------     ----------

SHAREHOLDERS' 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        168,888
  Accumulated other comprehensive income (loss)                               21           (172)
  Accumulated deficit                                                     (6,924)       (15,866)
                                                                      ----------     ----------

           Total shareholders' equity                                    162,081        152,857
                                                                      ----------     ----------

TOTAL                                                                 $  170,506     $  157,385
                                                                      ----------     ----------
                                                                      ----------     ----------
</TABLE>

See accompanying notes to financial statements.

                                       3
<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
                                                                            (DATE OF
                                                      THREE MONTHS       INCORPORATION)
                                                          ENDED             THROUGH
                                                        MARCH 31,          MARCH 31,
                                                          1998                1998
                                                      ------------     -----------------
<S>                                                   <C>              <C>
REVENUES:
  Interest income                                        $  2,333           $  2,555
                                                      ------------     -----------------
EXPENSES:
  Research and development                                 10,985             18,025
  General and administrative                                  264                370
                                                      ------------     -----------------
           Total expenses                                  11,249             18,395
                                                      ------------     -----------------
OPERATING LOSS BEFORE INCOME TAXES                         (8,916)           (15,840)
PROVISION FOR INCOME TAXES                                     26                 26
                                                      ------------     -----------------
NET LOSS                                                 $ (8,942)          $(15,866)
                                                      ------------     -----------------
                                                      ------------     -----------------
NET LOSS PER SHARE:
  Basic and diluted                                      $  (1.41)          $  (2.51)
                                                      ------------     -----------------
                                                      ------------     -----------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
  Basic and diluted                                         6,325              6,325
                                                      ------------     -----------------
                                                      ------------     -----------------
</TABLE>

See accompanying notes to financial statements.

                                       4

<PAGE>


                    SPIROS DEVELOPMENT CORPORATION II, INC.
                       (A DEVELOPMENT STAGE ENTERPRISE)
                           STATEMENTS OF CASH FLOWS
                                In thousands
                                 (unaudited)
<TABLE>
                                                                                        SEPTEMBER 23, 1997
                                                                          THREE             (DATE OF
                                                                          MONTHS          INCORPORATION)
                                                                          ENDED              THROUGH
                                                                         MARCH 31,            MARCH 31,
                                                                           1998                1998
                                                                        ----------      ------------------
<S>                                                                     <C>                <C>
NET CASH USED IN OPERATING ACTIVITIES                                   $  (11,812)       $        (11,583)
                                                                        ----------      ------------------
INVESTING ACTIVITIES:
  Purchases of short-term investments                                      (81,978)               (113,428)
                                                                        ----------      ------------------
FINANCING ACTIVITIES:
  Net proceeds from issuance of special common and callable
    common stock                                                                                    93,967
  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)                168,967
                                                                        ----------      ------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                       (95,079)                 43,956
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                           139,035
                                                                        ----------      ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                               $  43,956       $          43,956
                                                                        ----------      ------------------
                                                                        ----------      ------------------ 
</TABLE>
See accompanying notes to financial statements.

                                      5

<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, 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.

                                      6

<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 losses
on investments. In accordance with SFAS 130, the accumulated balance of other
comprehensive income is disclosed as a separate component of shareholders'
equity.

For the three months ended March 31, 1998 and the period September 23, 1997
(date of incorporation) through March 31, 1998, comprehensive loss consisted of
(in thousands):
<TABLE>
<CAPTION>
                                                                        September 23, 1997
                                                      Three Months    (date of incorporation)
                                                         Ended               through
                                                     March 31, 1998        March 31, 1998
                                                     --------------   -----------------------
<S>                                                      <C>                 <C>
Net Loss                                                 $(8,942)            $(15,866)

Other Comprehensive Loss:
  Unrealized Loss on Investments                            (193)                (172)
                                                     --------------   -----------------------
Comprehensive Loss                                       $(9,135)            $(16,038)
                                                     --------------   -----------------------
                                                     --------------   -----------------------
</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.

                                      7

<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.  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 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 Spiros and the use of Spiros with certain drugs pursuant
to various agreements as described below.  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 through December 31, 1999, 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 $8,942,000 and $15,866,000 for the three
months ended March 31, 1998 and for the period September 23, 1997 (date of
incorporation) through March 31, 1998, respectively. For the first quarter of
1998, research and development costs totaled $10,985,000 and general and
administrative expenses totaled $264,000. 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 first quarter of 1998 totaled
$2,333,000.

                                     8

<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 March 31, 1998, the Company had cash, cash
equivalents, and short-term investments totaling $157.2 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 Spiros to be safe or efficacious, or that
Spiros will receive regulatory approval.  In addition, regulatory approvals
will have to be obtained for each drug to be delivered through the use of
Spiros prior to commercialization.  Moreover, even if Spiros does receive
regulatory approval, there can be no assurance that Spiros will be commercially
successful, have all of the patent and other protections necessary to prevent
competitors from producing similar products and not infringe on patent or other
proprietary rights of third parties.  The failure of the Spiros drug
combinations being developed by the Company to receive timely regulatory
approval and achieve commercial success would have a material adverse effect on
the Company.

                                     9

<PAGE>

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
drug delivery system.

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. 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 Dura's
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. The Company or Dura is unable 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 durig 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, 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
for commercially reasonable cost or on a timely basis. In addition, Spiros
Corp. II has no experience in sales, marketing or distribution.

                                      10

<PAGE>

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.  Two 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 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

                                     11

<PAGE>

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.

NO ASSURANCE OF EXERCISE OF DURA'S OPTIONS.  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 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

                                      12

<PAGE>

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 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 SHAREHOLDER 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
shareholders; (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 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

                                     13


<PAGE>

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 may have 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 payers are increasingly challenging the pricing
of medical products and services.  There can be no assurance that reimbursement
will be available to enable the Company to achieve market acceptance of its
products, 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
payers.  For example, many managed health care organizations are now
controlling the pharmaceuticals that are on their formulary lists.  The
resulting competition among pharmaceutical companies to place their products on
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.

                                     14

<PAGE>

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 of 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 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

                                     15

<PAGE>

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 Spiros Corp. II 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
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,

                                     16

<PAGE>

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, 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 estimated offering expenses and
underwriters' discounts of $7.2 million.  Offering expenses include $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 March 31, 1998, the Company
has used $11.6 million of its cash, cash equivalents and short term investments
for its operating activities.


ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

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

          27        Financial Data Schedule



(b)  Reports on Form 8-K

          None.

                                     17

<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 6, 1998                     /s/ Erle T. Mast
                                        ----------------
                                         (Erle T. Mast)
                                        Vice President, and Chief
                                              Financial Officer
                                        (Principal Financial Officer)

                                      18

<PAGE>

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


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

      27       Financial Data Schedule