<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, 1999

                                       OR

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

              For the transition period from ________ to ________.

                        COMMISSION FILE NUMBER: 000-23501

                     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 23, 1999 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 AND PER SHARE AMOUNTS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                              DECEMBER 31,   MARCH 31,
ASSETS                                                            1998         1999
                                                              ------------   ---------
                                                                            (unaudited)
<S>                                                           <C>            <C>
CURRENT ASSETS:
  Cash and cash equivalents                                   $  20,535      $  27,214
  Short-term investments                                        103,069         84,903
  Other current assets                                              192            168
                                                              ---------      ---------
           Total current assets                                 123,796        112,285
                                                              ---------      ---------
TOTAL                                                         $ 123,796      $ 112,285
                                                              ---------      ---------
                                                              ---------      ---------
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Payable to Dura Pharmaceuticals, Inc.                       $   4,597      $   5,008
  Accrued Liabilities                                               281            185
                                                              ---------      ---------
           Total current liabilities                              4,878          5,193
                                                              ---------      ---------
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                                    169,404        169,647
  Accumulated other comprehensive income                            224            161
  Accumulated deficit                                           (50,717)       (62,723)
                                                              ---------      ---------
           Total shareholders' equity                           118,918        107,092
                                                              ---------      ---------
TOTAL                                                         $ 123,796      $ 112,285
                                                              ---------      ---------
                                                              ---------      ---------
</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         THREE        (DATE OF
                                        MONTHS        MONTHS     INCORPORATION)
                                         ENDED         ENDED        THROUGH
                                       MARCH 31,     MARCH 31,     MARCH 31,
                                         1998          1999          1999
                                      ----------    ----------    ----------
<S>                                    <C>          <C>           <C>
REVENUES:

  Interest income                      $  2,333      $  1,587      $ 10,048
                                       --------      --------      --------
EXPENSES:
  Research and development               10,985        13,316        71,155
  General and administrative                264           277         1,409
                                       --------      --------      --------
           Total expenses                11,249        13,593        72,564
                                       --------      --------      --------
OPERATING LOSS BEFORE INCOME TAXES       (8,916)      (12,006)      (62,516)
PROVISION FOR INCOME TAXES                   26                         207
                                       --------      --------      --------
NET LOSS                               $ (8,942)     $(12,006)     $(62,723)
                                       --------      --------      --------
                                       --------      --------      --------
NET LOSS PER SHARE:
  Basic and diluted                    $  (1.41)     $  (1.90)     $  (9.92)
                                       --------      --------      --------
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
                                                                       THREE MONTHS        THREE MONTHS,    (DATE OF INCORPORATION)
                                                                      ENDED MARCH 31,     ENDED MARCH 31,      THROUGH MARCH 31,
                                                                          1998                1999                   1999
                                                                      ---------------   -----------------   -----------------------
<S>                                                                   <C>               <C>                    <C>
NET CASH USED IN OPERATING ACTIVITIES                                    $ (11,812)         $ (11,424)              $ (56,941)
                                                                         ---------          ---------               ---------
INVESTING ACTIVITIES:                                                                                             
  Purchases of short-term investments                                      (81,978)           (11,264)               (185,622)
  Sales of short-term investments                                                              29,367                 100,880
                                                                         ---------          ---------               ---------
           Net cash provided by (used in) investing activities             (81,978)            18,103                 (84,742)
                                                                         ---------          ---------               ---------
FINANCING ACTIVITIES:                                                                                             
  Net proceeds from issuance of special common and callable                                                       
    common stock                                                                                                       93,897
  Contribution from Dura Pharmaceuticals, Inc. for                                                                
    purchase option                                                                                                    75,000
  Decrease in payable to Dura Pharmaceuticals, Inc. for                                                           
    issuance costs                                                          (1,289)                               
                                                                         ---------          ---------               ---------
           Net cash provided by (used in) financing activities              (1,289)                                   168,897
                                                                         ---------          ---------               ---------
NET INCREASE (DECREASE) IN CASH
 AND CASH EQUIVALENTS                                                      (95,079)             6,679                  27,214

CASH AND CASH EQUIVALENTS AT
 BEGINNING OF PERIOD                                                       139,035             20,535    
                                                                         ---------          ---------               ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                               $  43,956          $  27,214               $  27,214
                                                                         ---------          ---------               ---------
                                                                         ---------          ---------               ---------
</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, 1998 included 
in the Company's Annual Report on Form 10-K filed with the Securities and 
Exchange Commission. The results of operations for the interim periods are 
not necessarily indicative of results to be expected for any other interim 
periods or for the year as a whole.

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

2.   ORGANIZATION

Spiros Corp. II was incorporated in the state of Delaware in September 1997 
to continue the development of Spiros(R), a dry powder pulmonary drug 
delivery system, and to conduct formulation work, clinical trials and 
commercialization for certain specified leading drugs used to treat asthma 
and chronic obstructive pulmonary disease, also known as COPD, for use with 
Spiros. The Company commenced operations on December 22, 1997 when the 
Company and Dura Pharmaceuticals, Inc. ("Dura") completed a $101 million 
initial public offering of 6,325,000 units, each unit consisting of one share 
of the Company's callable common stock and one warrant to purchase one-fourth 
of one share of Dura's common stock. The offering resulted in net proceeds to 
the Company of approximately $94 million. Concurrent with the offering, Dura 
contributed $75 million to our operations. Substantially all funds from the 
offering, the $75 million contribution, and interest earned on these funds 
are expected to be paid to Dura for the development and commercialization of 
Spiros and the use of Spiros with specified compounds.

3.   REPORTING COMPREHENSIVE INCOME

Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive 
Income" ("SFAS 130") requires reporting and displaying comprehensive income 
(loss) and its components which, for Spiros Corp. II, includes net loss and 
unrealized gains and losses 

                                       5

<PAGE>

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 1999, and the period September 
23, 1997 (date of incorporation) through March 31, 1999, comprehensive income 
(loss) consisted of (in thousands):
<TABLE>
<CAPTION>
                                                                            September 23, 1997   
                                        Three Months     Three Months    (date of incorporation) 
                                            Ended            Ended              through          
                                       March 31, 1998   March 31, 1999       March 31, 1999      
                                       --------------   --------------       --------------      
<S>                                    <C>              <C>              <C>
Net Loss                                   $(8,942)       $(12,006)             $(62,723)

Other Comprehensive Income (Loss):
  Unrealized Income (Loss) on
    Investments                               (193)            (63)                  161
                                           -------        --------              --------
Comprehensive Loss                         $(9,135)       $(12,069)             $(62,562)
                                           -------        --------              --------
                                           -------        --------              --------
</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 year 
ended December 31, 1998 included in the Company's Annual Report on Form 10-K 
filed with the Securities and Exchange Commission. This report on Form 10-Q 
may contain certain forward-looking statements concerning our business. See 
"Risks and Uncertainties" for a discussion of factors known to us that could 
cause reported financial information not to be necessarily indicative of 
future results. We undertake no obligation to release publicly the results of 
any revisions to these forward-looking statements to reflect events and 
circumstances arising after the date hereof.

GENERAL

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

                                       6

<PAGE>

On December 22, 1997, we and Dura completed an initial public offering of 
6,325,000 units, each unit consisting of one share of callable common stock 
of our 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 us of approximately $94 million. Concurrently, Dura contributed 
$75 million to us. 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 under 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 and the 
callable common stock will trade separately.

Dura, as holder of 100% of the outstanding shares of our special common 
stock, has an irrevocable option to purchase all, but not less than all, of 
the issued and outstanding shares of callable 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 we provide Dura 
with our quarterly financial statements showing cash or cash equivalents of 
less than $5 million, although Dura may extend such period through December 
31, 2002 by providing additional funding for the continued development of 
Spiros, or (c) upon termination of the technology license, development, or 
the manufacturing agreements between the us and Dura. If this 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.

In November 1997, Dura submitted on our behalf, a new drug application to the 
FDA for albuterol in the Spiros cassette system which we call Albuterol 
Spiros(TM). On November 4, 1998, we announced the receipt of a complete 
response letter from the FDA indicating that the new drug application is not 
approvable until and unless certain deficiencies are addressed. The FDA 
requested that Dura, on our behalf, complete additional clinical trials on 
the Spiros system to ensure the system is reliable and to demonstrate that 
the system can achieve the same results as the original clinical trials. The 
FDA has also requested that several chemistry, manufacturing, and control 
issues, as well as certain electromechanical reliability issues be resolved. 
As a result of several meetings with the FDA, we and Dura have determined the 
requirements to address these issues and support a resubmission of the 
Albuterol Spiros new drug application. Dura, on our behalf, expects to 
initiate clinical trials for both Albuterol Spiros and Beclomethasone 
Spiros(TM) in the fourth quarter of 1999 and to commercialize these products 
in 2001, pending successful development and FDA approval. We cannot predict 
or assure the successful outcome of additional clinical trials to support the 
resubmission of the new drug application, or if the FDA will ever approve 
this new drug application.

RESULTS OF OPERATIONS

We incurred a net loss of $8.9 million, $12 million, and $62.7 million for 
the three months ended March 31, 1998, March 31, 1999, and for the period 
September 23, 1997 (date of 

                                       7

<PAGE>

incorporation) through March 31, 1999, respectively. For the first quarter of 
1998 and 1999, research and development costs totaled $11 million and $13.3 
million, respectively, and general and administrative expenses totaled 
$264,000 and $277,000, respectively. The research and development expenses 
were for Spiros-related activities performed by Dura under a development 
agreement. The Company's interest income for the first quarter of 1998 and 
1999 totaled $2.3 million and $1.6 million, respectively, with the decline 
resulting from lower balances of cash and short-term investments in the first 
quarter of 1999.

LIQUIDITY AND CAPITAL RESOURCES

Our initial capitalization totaled $169 million, consisting of net proceeds 
from our initial public offering of approximately $94 million and a $75 
million contribution from Dura. At March 31, 1999, we had cash, cash 
equivalents, and short-term investments totaling $112.1 million and working 
capital totaling $107.1 million. We believe that our working capital and 
expected cash flows from our cash and short-term investments will be 
sufficient to fund our cash requirements through at least the next twelve 
months. However, we may not have sufficient funds to complete the development 
of any Spiros product. Based on our current development plan and budget for 
the Spiros projects, we expect to expend all of our existing funds in the 
second half of 2000.

YEAR 2000 COMPLIANCE

We rely entirely on Dura for our operating and financial systems. We have 
made inquiries of Dura, and Dura has responded 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. 
Processing errors due to software failure arising from calculations using the 
year 2000 date are a recognized risk. Dura has advised us that during 1998 
they completed the identification of their systems with year 2000 exposure. 
They expect to complete their year 2000 evaluation, testing and contingency 
planning by September 30, 1999. Dura's identification of their most 
significant year 2000 exposure does not involve the research and development 
work Dura is performing on our behalf. While we believe that Dura's 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 us. In addition, the potential impact of the year 2000 on others with whom 
we, through agreements with Dura, do 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. We caution readers that the statements in this 
quarterly report that are not descriptions of historical facts may be 
forward-looking statements that are subject to risks and uncertainties. 
Actual results could differ from those currently anticipated due to a number 
of factors, including those identified below.

                                       8

<PAGE>

SPIROS REQUIRES SIGNIFICANT ADDITIONAL DEVELOPMENT WHICH IS COSTLY, 
TIME-CONSUMING AND MAY NEVER BE COMMERCIALLY SUCCESSFUL. Spiros, our 
proprietary dry powder pulmonary drug delivery system, will require 
significant additional development efforts as well as clinical testing. This 
work is very costly and time consuming. Even after spending significant 
amounts of money and time, the development and commercialization, if any, of 
any Spiros product may not be successful.

BEFORE ANY SPIROS PRODUCT CAN BE MARKETED, CERTAIN REQUIRED GOVERNMENTAL 
APPROVALS WILL HAVE TO BE OBTAINED, WHICH IS NOT ASSURED; FAILURE TO OBTAIN 
SUCH APPROVALS WOULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS. The development, 
testing, manufacturing and marketing of pharmaceutical products are subject 
to extensive regulation by governmental authorities, including the FDA. Each 
Spiros product will have to obtain approval from the FDA before that product 
can be manufactured or marketed. The review and approval process mandated by 
the FDA is very rigorous, requiring testing as well determining manufacturing 
capability and product performance. None of the products currently in 
development may ever be approved by the FDA. Failure to obtain approvals 
would have an adverse effect on our business and results of operations.

OUR REGULATORY APPLICATION SUBMITTED TO THE FDA FOR ALBUTEROL SPIROS-TM- WILL 
NOT BE APPROVED WITHOUT ADDITIONAL CLINICAL TRIALS, WHICH WILL DELAY THE 
COMMERCIALIZATION OF ALBUTEROL SPIROS. On November 4, 1998, we and Dura 
announced the receipt of a complete response letter from the FDA. The letter 
indicated that the new drug application submitted by Dura on our behalf for 
Albuterol Spiros will not be approved unless certain deficiencies are 
addressed. The FDA requested that we complete additional clinical trials on 
the Spiros inhaler to ensure the inhaler is reliable and to replicate 
clinical outcomes of the initial trials. The FDA also requested that several 
chemistry, manufacturing and control issues, as well as certain 
electromechanical reliability issues be resolved. As a result of a series of 
meetings with the FDA, we and Dura have determined the requirements to 
address these issues to support the resubmission of the new drug application 
for Albuterol Spiros. Dura, on our behalf, expects to initiate clinical 
trials for both Albuterol Spiros and Beclomethasone Spiros(TM) in the fourth 
quarter of 1999 and to commercialize these products in 2001, pending 
successful development and FDA approval. We cannot predict or assure the 
successful outcome of additional trials to support the resubmission of the 
new drug application, or if the FDA will ever approve this new drug 
application.

WE MAY NOT HAVE SUFFICIENT FUNDS TO COMPLETE THE DEVELOPMENT OF ANY SPIROS 
PRODUCT. Based on our current development plan and budget for the Spiros 
projects, we expect to expend all of our existing funds in the second half of 
2000. Further, we do not believe that our current available funds will be 
adequate to complete the development or regulatory review process for any of 
the Spiros products. Until the expiration of Dura's purchase option, we are 
significantly restricted from raising additional funds without Dura's 
consent. While Dura may, at its sole option, provide funds for further 
development of the Spiros products or infuse additional cash into Spiros 
Corp. II through the exercise of the albuterol or product options, it is not 
obligated to do so. If the purchase option is not exercised, we would have to 
raise substantial funding while hiring, or otherwise obtaining access to, 
research and management 

                                       9

<PAGE>

personnel. We may not be successful in doing any of these tasks. Failure to 
do so would have an adverse effect on our business and results of operations.

WE ARE DEPENDENT ON DURA FOR ALL ACTIVITIES IN THE DEVELOPMENT OF SPIROS 
PRODUCTS. We do not have manufacturing or marketing capabilities. Under our 
agreements with Dura, we are obligated to only utilize Dura's manufacturing 
facilities for manufacturing in the U.S. during the term of the manufacturing 
and marketing agreement. Dura has the right to use contract manufacturers and 
currently plans to rely on third parties to manufacture certain components of 
Spiros. There can be no assurance that Dura's facilities or those of its 
contract manufacturers will be satisfactory for our needs. In addition, Dura 
or its contract manufacturers 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. We have no experience in sales, marketing or distribution. 
Under the manufacturing and marketing agreement, Dura has exclusive worldwide 
marketing rights to the Spiros products. Dura's sales and marketing force may 
not be able to establish commercially successful sales and distribution 
capabilities for the Spiros products.

Dura will determine unilaterally certain activities to be undertaken under 
the development agreement. In all events Dura will have substantial influence 
over all activities and procedures (including the timing and priorities 
thereof) to be undertaken under our agreements with Dura. Dura has no 
obligation to complete any development or other activity after all of our 
funds have been spent. Dura's own projects and other third party projects may 
compete for time and resources with projects undertaken under our agreement 
with Dura. The resources that Dura uses under these agreements may therefore 
be limited.

WE HAVE NO ASSURANCE THAT DURA WILL EXERCISE ITS OPTIONS. Dura is not 
obligated to exercise its 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 any 
of its options, we will be required to find alternative ways to commercially 
market or exploit the Spiros products. We may not be able to do so. If we 
determine to market the Spiros products ourselves, we will require 
substantial additional funds. We may not be able to raise funds when needed. 
Similarly, if we determine to license the Spiros products to third parties, 
such arrangements, if available, may be on terms less favorable to us than 
the terms of our arrangements with Dura.

THERE IS NO ASSURANCE THAT THE PURCHASE OPTION WILL BE REPRESENTATIVE OF THE 
VALUE OF SPIROS CORP. II. Dura's purchase option exercise price was set as of 
the date of the closing of our 1997 units offering. Should Dura elect to 
exercise this option, the exercise price may not be representative of the 
value of our common stock at the time of the exercise of the purchase option.

DURA WILL NEED TO SIGNIFICANTLY EXPAND ITS MANUFACTURING CAPABILITY AND 
COMPLY WITH GOVERNMENT REGULATIONS BEFORE WE CAN MANUFACTURE OUR SPIROS 
PRODUCT. Dura will need to significantly expand its current manufacturing 
operations and comply with current good manufacturing practices and other 
regulations prescribed by various regulatory agencies in 

                                       10

<PAGE>

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

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

WE DO NOT HAVE A LONG OPERATING HISTORY AND THERE IS NO ASSURANCE OF 
PROFITABILITY OR DIVIDENDS. We were recently formed and have a limited 
operating history upon which investors may base an evaluation of our likely 
financial performance. We anticipate that substantially all of our available 
funds will be expended prior to the receipt of any significant revenues, 
resulting in significant losses. Further, even if the Spiros products are 
developed or marketed under the agreements with Dura, they may not be able to 
be marketed profitably. Even if such Spiros products are commercialized 
profitably, the initial losses incurred by us may never be recovered. We are 
prevented from paying dividends on our common stock without the approval of 
Dura, and accordingly, do not expect to pay any dividends.

POTENTIAL COMPETITION FROM DURA MAY HAVE AN ADVERSE EFFECT ON OUR BUSINESS. 
Dura is engaged in ongoing licensing and development of new products. While 
Dura has licensed the rights to develop, manufacture and commercialize the 
Spiros products, 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 lead to the development, in-licensing or acquisition of 
products that compete with the Spiros products being developed by us. 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.

                                       11

<PAGE>

DURA HAS THE ABILITY TO LIMIT CERTAIN OF OUR ACTIVITIES. Until the expiration 
of the purchase option, Dura must approve certain of our activities, 
including:
     - the issuance of our securities 
     - borrowing an aggregate of more than $1 million at any one time 
     - the sale or other disposition of a material part of our business or 
       assets 
     - the declaration or payment of dividends or the making of any other 
       distributions to our shareholders 
     - the merger or consolidation of us with or into any other corporation or
     - the adoption, amendment or repeal of our Bylaws.

Accordingly, Dura could preclude our shareholders and board of directors from 
taking any of these actions during such period. Dura, as holder of all of the 
outstanding special common stock, 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 common stock, 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 common stock will have the same financial resources or 
development, manufacturing or marketing capabilities as Dura, which may 
reduce the likelihood of the exercise of the albuterol option, the product 
option or the purchase option.

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

We are 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 we determine to market any Spiros 
product in the United Kingdom and further determine that such activity would 
infringe upon such third party patents, we 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.

                                       12

<PAGE>

OUR STOCK PRICE IS VOLATILE AND YOU MAY NOT GET A RETURN ON YOUR INVESTMENT. 
The market prices for securities of emerging companies, including ours, have 
historically been highly volatile. Future announcements concerning us or our 
competitors may have a significant impact on the market price of our Units. 
Such announcements might include:
     - financial results
     - the results of clinical testing of our or our competitors' products
     - regulatory developments
     - technological innovations
     - new commercial products
     - changes to government regulations
     - regulatory decisions on commercialization of products
     - developments concerning proprietary rights
     - litigation or public concern as to safety of our products or
     - our failure to achieve securities analysts' expectations concerning our 
       earnings per share.

WE MAY BE IMPACTED BY YEAR 2000 ISSUES WHICH COULD HAVE AN ADVERSE EFFECT ON 
OUR BUSINESS. We rely on Dura for our operating and financial systems. We 
have made inquiries of Dura, and Dura has responded 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. 
Processing errors due to software failure arising from calculations using the 
year 2000 date are a recognized risk. Dura has advised us that during 1998 
they completed the identifications of their system with year 2000 exposure. 
They expect to complete their year 2000 evaluation, testing and contingency 
planning by September 30, 1999. Dura's identification of their most 
significant year 2000 exposure does not involve the research and development 
work Dura is performing on our behalf. While we believe that Dura's 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 us. In addition, the potential impact of the year 2000 on others with whom 
we, through agreements with Dura, do 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

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

                                       13

<PAGE>

                           PART II - OTHER INFORMATION

ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS

Use of Proceeds from Registered Securities

On December 22, 1997, Spiros Development Corporation II, Inc. and Dura 
Pharmaceuticals, Inc. completed the offering of 6,325,000 units. Each unit 
consists of one share of our callable common stock of Spiros Corp. II and one 
warrant to purchase one-fourth of one share of Dura common stock. The 
offering was registered under a registration statement on Form S-1/S-3 (No. 
333-37673/37673-01). The registration statement was declared effective on 
December 16, 1997. The net proceeds from the offering were invested in cash, 
cash equivalents and short-term investments. As of March 31, 1999, we had 
used $56.9 million of our cash, cash equivalents and short-term investments 
for our operating activities and had $107.1 million of working capital.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits
<TABLE>
<CAPTION>
            Exhibit No.       Description
            -----------       -----------
<S>         <C>               <C>
(1)         3.1               Amended and Restated Certificate of Incorporation

(1)         3.2               Amended and Restated Bylaws

            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.
</TABLE>

(b)      Reports on Form 8-K

                  None.

                                       14

<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 14, 1999                          /s/ Erle T. Mast  
--------------------                         -------------------
                                             (Erle T. Mast)
                                             Vice President, and Chief
                                               Financial Officer
                                             (Principal Financial Officer)


                                       15

<PAGE>

                                  EXHIBIT INDEX
                                       TO
                                    FORM 10-Q

                     SPIROS DEVELOPMENT CORPORATION II, INC.
<TABLE>
<CAPTION>
            Exhibit No.       Description
            -----------       -----------
<S>         <C>               <C>
(1)         3.1               Amended and Restated Certificate of Incorporation

(1)         3.2               Amended and Restated Bylaws

            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.
</TABLE>