<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

     [X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
             EXCHANGE ACT OF 1934 FOR QUARTER ENDED SEPTEMBER 30, 2001

                                       OR

     [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
             EXCHANGE ACT OF 1934

                         Commission File Number: 0-20117

                         TEXAS BIOTECHNOLOGY CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


          Delaware                                       13-3532643
--------------------------------------------------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)


      7000 Fannin, 20th Floor, Houston, Texas              77030
--------------------------------------------------------------------------------
      (Address of principal executive office)           (Zip code)


                                 (713) 796-8822
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


                                 Not Applicable
--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)


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
    -----     -----

Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, exclusive of treasury shares, as of the latest practicable date.

           Class                                 Outstanding at November 9, 2001
           -----                                 -------------------------------

common stock, $0.005 par value                               43,570,638


<PAGE>


                         TEXAS BIOTECHNOLOGY CORPORATION

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                PAGE NO.
                                                                                                --------
<S>                                                                                               <C>
PART I.    FINANCIAL INFORMATION

           ITEM 1:   FINANCIAL STATEMENTS

           Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000                1

           Consolidated Statements of Operations and Comprehensive Income for the
           three and nine months ended September 30, 2001 and 2000                                   2

           Consolidated Statements of Cash Flows for the nine months ended
           September 30, 2001 and 2000                                                               3

           Notes to Consolidated Financial Statements                                                4

           ITEM 2:   Management's Discussion and Analysis of
                     Financial Condition and Results of Operations                                  13

           ITEM 3:   QUANTITATIVE AND QUALITATIVE DISCLOSURES
                     ABOUT MARKET RISK                                                              18


PART II.   OTHER INFORMATION

           ITEM 1:  Legal Proceedings                                                               19

           ITEM 2:  Changes in Securities                                                           19

           ITEM 3:  Defaults Upon Senior Securities                                                 19

           ITEM 4:  Submission of Matters to a Vote of Security Holders                             19

           ITEM 5:  Other Information                                                               19

           ITEM 6:  Exhibits and Reports on Form 8-K                                                19

SIGNATURES                                                                                          20
</TABLE>


<PAGE>
                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                          SEPTEMBER 30,    DECEMBER 31,
ASSETS                                                                         2001            2000
                                                                          -------------   -------------
                                                                                   (Unaudited)
<S>                                                                       <C>             <C>
Current assets:
      Cash and cash equivalents                                           $  31,374,421   $  48,469,646
      Short-term investments                                                 29,811,747      39,067,999
      Accounts receivable                                                       326,146         237,411
      Other current receivables                                               2,528,687         626,109
      Receivable from affiliate under collaborative arrangement               1,052,346         882,157
      Prepaids                                                                  899,796       1,349,264
                                                                          -------------   -------------
          Total current assets                                               65,993,143      90,632,586

Long-term investments                                                        37,923,792       4,995,000

Equipment and leasehold improvements,  less
      accumulated depreciation and amortization                               3,474,857       2,367,965
Other assets                                                                    893,831         972,869
                                                                          -------------   -------------
          Total assets                                                    $ 108,285,623   $  98,968,420
                                                                          =============   =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
      Accounts payable                                                    $   1,206,561   $     942,013
      Accrued expenses                                                        1,345,581       3,620,517
      Deferred revenue                                                        1,944,989       1,029,176
                                                                          -------------   -------------
          Total current liabilities                                           4,497,131       5,591,706

Liability to affiliate                                                        2,155,447       1,376,303

Deferred revenue from affiliate                                               2,013,178       1,209,302
Deferred revenue from unrelated parties                                       3,389,865       2,181,816
Deferred credit                                                               2,620,010       2,620,010
Minority interest in Revotar                                                  1,511,508       1,962,273

Commitments and contingencies

Stockholders' equity:
      Preferred stock, par value $.005 per share.  At September 30, 2001
          and December 31, 2000, 5,000,000 shares authorized;
          none outstanding                                                           --              --
      Common stock, par value $.005 per share.  At September 30, 2001,
          75,000,000 shares authorized; 43,782,308 shares issued
          At December 31, 2000, 75,000,000 shares authorized;
          41,203,197 shares issued and outstanding                              218,912         206,016
      Additional paid-in capital                                            210,608,878     189,390,790
      Treasury stock, at cost, 213,000 shares at September 30, 2001          (1,602,484)             --
      Other comprehensive loss                                                 (234,987)        (15,341)
      Accumulated deficit                                                  (116,891,835)   (105,554,455)
                                                                          -------------   -------------
          Total stockholders' equity                                         92,098,484      84,027,010
                                                                          -------------   -------------
          Total liabilities and stockholders' equity                      $ 108,285,623   $  98,968,420
                                                                          =============   =============
</TABLE>



          See accompanying notes to consolidated financial statements.


                                       1


<PAGE>
                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED SEPTEMBER 30,            NINE MONTHS ENDED SEPTEMBER 30,
                                                 --------------------------------            -------------------------------
                                                      2001                2000                    2001                2000
<S>                                               <C>                 <C>                    <C>                  <C>
Revenues:
     Research agreements                          $   498,624         $   908,002            $  3,295,664         $ 1,961,839
     Collaborative research and
        development from affiliate                    385,821             548,023               1,166,189             701,425
     Royalty income, net                              333,000                 ---                 901,886                 ---
     License fee and milestone income                 486,247             275,899               1,072,262          10,188,644
                                                  -----------         -----------            ------------         -----------
        Total revenues                              1,703,692           1,731,924               6,436,001          12,851,908
                                                  -----------         -----------            ------------         -----------

Expenses:
     Research and development                       3,646,586           2,417,645              11,518,869           9,608,044
     Equity in loss of affiliate (ICOS-TBC)         2,155,444           1,388,708               5,926,268           1,955,366
     General and administrative                     1,608,764           1,393,672               5,028,939           4,762,411
                                                  -----------         -----------            ------------         -----------
        Total expenses                              7,410,794           5,200,025              22,474,076          16,325,821
                                                  -----------         -----------            ------------         -----------

        Operating loss                             (5,707,102)         (3,468,101)            (16,038,075)         (3,473,913)

Investment income, net                              1,152,254           1,486,408               4,249,930           2,817,090
                                                  -----------         -----------            ------------         -----------
        Net loss before minority interest          (4,554,848)         (1,981,693)            (11,788,145)           (656,823)

Minority interest in loss of Revotar                  265,665             128,968                 450,765             128,968
                                                  -----------         -----------            ------------         -----------

     Net loss before cumulative effect of
        change in accounting principle             (4,289,183)         (1,852,725)            (11,337,380)           (527,855)

     Cumulative effect of change
        in accounting principle                           ---                 ---                     ---          (2,366,234)
                                                  -----------         -----------            ------------         -----------

        Net loss                                  $(4,289,183)        $(1,852,725)           $(11,337,380)        $(2,894,089)

Other Comprehensive Income (Loss):
     Unrealized gain (loss) on foreign
        currency translation                          224,144                 ---                (219,646)                ---
                                                  -----------         -----------            ------------         -----------
        Comprehensive loss                        $(4,065,039)        $(1,852,725)           $(11,557,026)        $(2,894,089)
                                                  ===========         ===========            ============         ===========

Net loss per share basic and diluted
        basic and diluted                         $     (0.10)        $     (0.05)           $      (0.26)        $     (0.08)
                                                  ===========         ===========            ============         ===========

Weighted average common shares used
     to compute net loss per share:
     basic and diluted                             43,607,948          40,880,185              43,658,764          38,517,172
                                                  ===========         ===========            ============         ===========
</TABLE>

          See accompanying notes to consolidated financial statements


                                       2


<PAGE>

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                               NINE MONTHS ENDED SEPTEMBER 30,
                                                                          ----------------------------------------
                                                                               2001                       2000
                                                                          -------------               ------------
<S>                                                                       <C>                          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                $(11,337,380)               $(2,894,089)
   Adjustments to reconcile net loss to net cash
    (used in) provided by operating activities:
          Depreciation and amortization                                         594,597                    662,993
          Equity in loss of affiliate                                         5,926,268                  1,955,366
          Minority interest in loss of Revotar                                 (450,765)                  (128,968)
          Expenses paid with stock                                                    -                     23,196
          Compensation expense related to stock options                         108,233                          -
          Loss on disposition of fixed assets                                     6,407                      6,568
   Change in operating assets and liabilities, net of
      effect of acquisition:
    Increase in accounts receivable                                             (88,735)                         -
    Decrease in prepaids                                                        449,468                    297,164
    (Increase) decrease in other current receivables                         (1,902,578)                   495,412
    Increase in receivable from affiliate under
          collaborative arrangement                                            (170,189)                (2,769,617)
    Decrease in other assets                                                          -                     55,504
    (Decrease) increase in current liabilities                               (2,010,388)                 1,371,104
    Decrease in liability to affiliate                                       (5,147,124)                         -
    Increase in deferred revenue from unrelated parties                       1,457,192                  2,863,637
    Increase in deferred revenue from affiliate                               1,470,546                  1,809,945
                                                                          -------------               ------------
          Net cash (used in) provided by operating activities               (11,094,448)                 3,748,215
                                                                          -------------               ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of equipment and leasehold improvements                         (1,628,858)                  (241,543)
   Purchase of investments                                                 (111,980,145)               (77,740,272)
   Maturity of investments                                                   88,077,199                 33,621,722
   Decrease (increase) in interest receivable included in short-term
      and long-term investments                                                 230,406                   (806,568)
                                                                          -------------               ------------
         Net cash used in investing activities                              (25,301,398)               (45,166,661)
                                                                          -------------               ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Acquisition of treasury stock                                             (1,602,484)                         -
   Contribution from minority interest in consolidated subsidiary                     -                  4,415,950
   Proceeds from sale of common stock and option and
    warrant exercises, net                                                   21,122,751                 68,833,775
                                                                          -------------               ------------
          Net cash provided by financing activities                          19,520,267                 73,249,725
                                                                          -------------               ------------

Effect of exchange rate changes on cash                                        (219,646)                         -
    Net (decrease) increase in cash and cash equivalents                    (17,095,225)                31,831,279

Cash and cash equivalents at beginning of period                             48,469,646                  2,804,270
                                                                          -------------               ------------
Cash and cash equivalents at end of period                                $  31,374,421               $ 34,635,549
                                                                          =============               ============

Supplemental schedule of noncash activities:
   Issuance of Common Stock in payment for intangible asset                           -                    965,970
   Issuance of Common Stock for research and development and services                 -                     23,196
                                                                          -------------               ------------
                                                                          $           -               $    989,166
                                                                          =============               ============
</TABLE>

          See accompanying notes to consolidated financial statements


                                       3
<PAGE>

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              SEPTEMBER 30, 2001 (UNAUDITED) AND DECEMBER 31, 2000

(1)    BASIS OF PRESENTATION

       The accompanying unaudited consolidated financial statements of Texas
Biotechnology Corporation and its subsidiaries (collectively referred to as the
"Company" or "TBC") have been prepared in accordance with accounting principles
generally accepted in the United States of America ("USA") for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. They do not include all information and notes required by accounting
principles generally accepted in the USA for complete financial statements. It
is recommended that these interim condensed consolidated financial statements be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2000. Except as disclosed herein, there has been no material change in the
information disclosed in the notes to the consolidated financial statements
included in the Company's Annual Report on Form 10-K. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month and nine month periods ended September 30, 2001 are
not necessarily indicative of the results that may be expected for any other
interim period, or for the year ended December 31, 2001. Certain prior period
amounts have been reclassified for comparative purposes. Reported revenues and
net loss for the three month and nine month periods ended September 30, 2000
have been restated to reflect the Company's adoption, effective January 1, 2000,
of Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements ("SAB101"), promulgated by the United States Securities and Exchange
Commission ("SEC") in December 1999.

(2)    ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

       (a) Organization

           Texas Biotechnology Corporation, a Delaware corporation, is a
       biopharmaceutical company focused on the discovery, development and
       commercialization of novel synthetic small molecule compounds for the
       treatment of a variety of cardiovascular, vascular and related
       inflammatory diseases. Since its formation in 1989, the Company has been
       engaged principally in research and drug discovery programs and clinical
       development of certain drug compounds. On July 25, 1994, the Company
       acquired all of the outstanding common stock of ImmunoPharmaceutics, Inc.
       ("IPI") in exchange for common stock, par value $.005 per share (the
       "Common Stock"), of the Company. In June, 2000, TBC, through its wholly
       owned subsidiary, TBC-ET, Inc., a Delaware Corporation, and ICOS
       Corporation, a Delaware Corporation, ("ICOS") entered into an agreement
       and formed ICOS-Texas Biotechnology L.P., a Delaware limited partnership
       ("ICOS-TBC"), to develop and globally commercialize endothelin-A receptor
       antagonists. TBC and ICOS are both 50% owners in ICOS-TBC. During the
       third quarter of 2000, TBC formed Revotar Biopharmaceuticals AG
       ("Revotar"), a German Corporation, to conduct research and development
       for novel small molecule compounds and to develop and commercialize TBC's
       selectin antagonists. The Company retained a majority interest in
       Revotar. The Company is presently working on a number of long-term
       development projects that involve experimental and unproven technology,
       which may require many years and substantial expenditures to complete,
       and which may be unsuccessful. Sales of the Company's first product, for
       which it receives royalty income, Argatroban, began during November 2000.

       (b) Basis of Consolidation

           The Company's consolidated financial statements include the accounts
       of the Company, its wholly owned subsidiaries, IPI and TBC-ET, Inc., and
       its majority controlled subsidiary, Revotar. All material intercompany
       balances and transactions have been eliminated.


                                       4
<PAGE>


       (c) Cash, Cash Equivalents, Short-Term Investments and Long-Term
           Investments

           Cash equivalents are considered to be those securities or instruments
       with original maturities, when purchased, of three months or less. At
       September 30, 2001, approximately $872,000 was invested in demand and
       money market accounts. Short-term investments are those investments which
       have an original maturity of less than one year and greater than three
       months at the purchase date. At September 30, 2001, the Company's
       short-term investments consisted of approximately $3,099,000 in time
       deposits, $817,000 in government agency discount bonds and $25,719,000 in
       corporate commercial paper and loan participations. Long-term investments
       consist of approximately $30,003,000 in government agency discount bonds
       and $7,476,000 in loan participations, all with a remaining maturity of
       one year or more. Cash equivalents, short-term and long-term investments
       are stated at cost plus accrued interest, which approximates market
       value. Interest income is accrued as earned. The Company classifies all
       short-term and long-term investments as held to maturity.

       (d) Equipment and Leasehold Improvements

           Equipment and leasehold improvements are stated at cost less
       accumulated depreciation and amortization. Depreciation of furniture and
       equipment is provided on the straight-line method over the estimated
       useful lives of the respective assets (3 to 10 years). Amortization of
       leasehold improvements is provided on the straight-line method over the
       remaining minimum lease term.

       (e) Investment in ICOS - TBC

           The Company's investment in ICOS-TBC is accounted for using the
       equity method, and is included in deferred revenue from related parties
       on the consolidated balance sheets. Accordingly, the investment is
       recorded at cost, adjusted for the Company's share of income or loss of
       the entity and amortization of revenues for upfront and milestone
       payments. See Note 9 below.

       (f) Research and Development Costs

           All research and development costs are expensed as incurred and
       include salaries of research and development employees, certain rent and
       related building services, research supplies and services, clinical trial
       expenses and other associated costs. With respect to research and
       development, salaries and benefits charged to research and development in
       the three-month periods ended September 30, 2001 and 2000 were
       approximately $1,737,000 and $1,324,000, respectively. Salaries and
       benefits charged to research and development in the nine-month periods
       ended September 30, 2001 and 2000 were approximately $4,856,000 and
       $3,930,000, respectively. Payments related to the acquisition of
       in-process research and development are expensed as incurred until the
       development phase of the purchased compound is completed.

       (g) Net Loss Per Common Share

           Basic net loss per common share is calculated by dividing the net
       loss applicable to common shares by the weighted average number of common
       and common equivalent shares outstanding during the period. For the three
       month and nine month periods ended September 30, 2001, the weighted
       average common shares used to compute basic and diluted net loss per
       common share totaled 43,607,948 and 43,658,764 shares, respectively;
       securities convertible into common stock, comprised of stock options and
       warrants totaling 4,326,812 shares at September 30, 2001, were not used
       in the calculation of diluted net loss per common share because the
       effect would have been antidilutive. For the three and nine month periods
       ended September 30, 2000, the weighted average common shares used to
       compute basic and diluted net income per common share totaled 40,880,185
       and 38,517,172 shares, respectively. Stock options and warrants totaling
       7,597,493 shares at September 30, 2000 were not used in the calculation
       of diluted net loss per common share because the effect would have been
       antidilutive.

                                       5
<PAGE>

       (h) Reclassifications

           Certain reclassifications have been made to prior period financial
       statements to conform to the September 30, 2001 presentation with no
       effect on net loss previously reported.

       (i) Revenue Recognition

           Revenue from service contracts is recognized as services are
       performed. Royalty revenue is recognized as products are sold by a
       licensee. As a result of the Company's adoption at October 1, 2000,
       effective January 1, 2000, of SAB101, the Company defers the recognition
       of milestone payments it receives related to contractual agreements,
       which are still in the developmental stage. Such deferred revenues are
       amortized into income over the estimated remaining developmental period.
       Milestone payments received under contractual agreements which have
       completed the developmental stage are evaluated, and either recognized
       into income when earned, or amortized over a future period, depending
       upon whether or not the Company continues to have obligations under the
       terms of the arrangement. License fees received under the terms of
       licensing agreements for the Company's intellectual property are
       similarly deferred, and amortized into income over the estimated
       developmental period of the licensed item or items. Revenue from grants
       is recognized as earned under the terms of the related grant agreements.
       Amounts received in advance of services being performed under contracts
       are recorded as deferred revenue, and recognized as services are
       performed.

       (j) Patent Application Costs

           Costs incurred in filing for patents are expensed as incurred.

       (k) Use of Estimates

           Management of the Company has made a number of estimates and
       assumptions relating to the reporting of assets and liabilities and the
       disclosure of contingent assets and liabilities to prepare these
       consolidated financial statements in conformity with accounting
       principles generally accepted in the United States of America. Actual
       results could differ from these estimates.

       (l) Intangible Assets

           Intangible assets consist of purchased technologies, are capitalized
       because there is an alternative future use, and are amortized on a
       straight-line basis over their estimated useful lives. The Company
       periodically reviews the useful lives of its intangible and long-lived
       assets, which may result in future adjustments to the amortization
       periods. Related amortization expense for the three month and nine month
       periods ended September 30, 2001 was $26,346 and $79,038, respectively.
       Amortization of purchased technologies is included in amortization
       expense in the consolidated statements of operations and comprehensive
       loss. As circumstances dictate, the Company evaluates the recoverability
       of its intangible and long-lived assets by comparing the projected
       undiscounted net cash flows associated with such assets against their
       respective carrying values. Impairment, if any, is based on the excess of
       the carrying value over the fair value.

       (m) Treasury Stock

           Treasury stock is recorded at cost. On May 3, 2001, the Company
       announced that its Board of Directors has authorized a stock repurchase
       program to buy up to 3 million shares, or approximately 7 percent, of the
       Company's outstanding common stock over an 18 month period. Pursuant to
       the stock repurchase program, the Company has repurchased 53,000 shares
       and 213,000 shares for net proceeds of approximately $334,000 and
       $1,602,000 during the three and nine months ended September 30, 2001,
       respectively.

                                       6
<PAGE>

       (n) New Accounting Pronouncements

           In July 2001, the Financial Accounting Standards Board (FASB) issued
       Statement of Financial Accounting Standards No. 141 (SFAS141), "Business
       Combinations." SFAS141 eliminates the pooling of interests method of
       accounting and requires that all business combinations initiated after
       September 30, 2001 be accounted for under the purchase method. The
       Company does not expect the adoption of SFAS141 to have a material impact
       on its business because it currently has no planned or pending
       acquisitions.

           In July 2001, the FASB also issued Statement of Accounting Standards
       No. 142, "Goodwill and Other Intangible Assets," (SFAS142) which will be
       effective for the Company as of January 1, 2002. SFAS142 requires
       goodwill and other intangible assets with indefinite lives no longer be
       amortized. SFAS142 further requires the fair value of goodwill and other
       intangible assets with indefinite lives be tested for impairment upon
       adoption of this statement, annually and upon the occurrence of certain
       events and be written down to fair value if considered impaired. The
       Company does not expect the adoption of SFAS142 to have a material impact
       on its business because it currently has no goodwill or other intangible
       assets with indefinite lives.

           In August 2001, the FASB issued Statement of Accounting Standards No.
       143, "Accounting for Asset Retirement Obligations," (SFAS143) which
       addresses financial accounting and reporting for obligations associated
       with the retirement of tangible long-lived assets and the associated
       asset retirement costs. This statement applies to all entities that have
       legal obligations associated with the retirement of long-lived assets
       that result from the acquisition, construction, development or normal use
       of the assets. SFAS143 is effective for all fiscal years beginning after
       June 15, 2002. We do not expect the adoption of SFAS143 to have a
       significant impact on our financial condition or results of operations.

           In October 2001, the FASB issued Statement of Accounting Standards
       No. 144, "Accounting for the Impairment or Disposal of Long-Lived
       Assets," (SFAS144) which addresses financial accounting and reporting for
       the impairment or disposal of long-lived assets. While SFAS144 supersedes
       SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
       Long-Lived Assets to be Disposed of," it retains many of the fundamental
       provisions of that statement. SFAS144 also supersedes the accounting and
       reporting provisions of APB Opinion No. 30, "Reporting the Results of
       Operations - Reporting the Effects of Disposal of a Segment of a
       Business, and Extraordinary, Unusual and Infrequently Occurring Events
       and Transactions," for the disposal of a segment of a business. SFAS144
       is effective for fiscal years beginning after December 15, 2001 and
       interim periods within those years. We do not expect the adoption of
       SFAS144 to have a significant impact on our financial condition or
       results of operations.

(3)    CAPITAL STOCK

       In December 1993, the Company completed an initial public offering
comprised of 4,082,500 units, each unit consisting of one share of Common Stock
(par value $.005 per share) and one warrant to purchase one share of Common
Stock. There were 2,386,645 warrants outstanding as of December 31, 2000, which
were exercised on January 2, 2001 for net proceeds of approximately $20.1
million.

(4)    STOCK OPTIONS

       The Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees and related interpretations in
accounting for its plans and applies FASB Statement No. 123, Accounting for
Stock-Based Compensation and related interpretations in reporting for its plans.


                                       7
<PAGE>

       A summary of stock options as of September 30, 2001, follows:

<Table>
<Caption>
                         EXERCISE PRICE                              EXERCISED/                   AVAILABLE
  STOCK OPTION PLANS       PER SHARE     AUTHORIZED    OUTSTANDING     OTHER       EXERCISABLE    FOR GRANT
  ------------------       ---------     ----------    -----------     -----       -----------    ---------
<C>                       <C>            <C>           <C>          <C>            <C>            <C>
1990 Plan............     $ 1.38-$21.59     285,715        185,495     100,220        153,831            ---
1992 Plan............     $ 1.41-$21.59   1,700,000        888,213     789,971        741,802         21,816
Director Plan........     $ 3.50-$ 4.54      71,429         34,242      37,187         34,242            ---
1995 Plan............     $ 1.31-$21.59   2,000,000      1,606,255     390,132      1,390,931          3,613
1995 Director Plan...     $ 1.38-$11.31     500,000        315,010      38,096        236,767        146,894
1999 Plan ...........     $ 5.51-$20.13   3,000,000      1,035,950      48,536        173,598      1,915,514
                                         ----------    -----------   ---------      ---------    -----------
       TOTALS........                     7,557,144      4,065,165   1,404,142      2,731,171      2,087,837
                                         ==========    ============  =========      =========    ===========
</Table>

(5)    INCOME TAXES

       The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carry forwards.

       Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

       At September 30, 2001 and December 31, 2000, the net deferred tax asset,
representing primarily net operating loss carryforwards and start-up costs
deferred for tax purposes, totaled approximately $44,975,000 and $39,234,000,
respectively. The Company has established a valuation allowance for the full
amount of these deferred tax assets, as management believes that it is more
likely than not that the Company will not recover these assets. The Company did
not incur any tax expense in any year due to operating losses and the related
increase in the valuation allowance.

       At September 30, 2001 and December 31, 2000, the Company had net
operating loss carryforwards of approximately $80,995,000 and $68,955,000,
respectively, for federal income tax return purposes. Utilization of the
Company's net operating loss carryforwards is subject to certain limitations due
to specific stock ownership changes which have occurred or may occur. To the
extent not utilized, the carryforwards will expire during the years beginning
2002 through 2021.

(6)    EQUIPMENT AND LEASEHOLD IMPROVEMENTS

       Equipment and leasehold improvements consist of the following:

       <Table>
       <Caption>
                                                               SEPTEMBER 30,            DECEMBER 31,
                                                                    2001                    2000
                                                                    ----                    ----
<S>                                                           <C>                       <C>
       Laboratory and office equipment.................       $   7,293,708             $   6,069,207
       Leasehold improvements..........................           4,296,569                 3,923,687
                                                              -------------             -------------
                                                                 11,590,277                 9,992,894
       Less accumulated depreciation and amortization..           8,115,420                 7,624,929
                                                              -------------             -------------
                                                              $   3,474,857             $   2,367,965
                                                              =============             =============
       </Table>


                                       8
<PAGE>

(7)    COMMON STOCK RESERVED

       The Company has reserved Common Stock for issuance as of September 30,
2001 as follows:

       <Table>

<S>                                                          <C>
       Stock option plans.................................      6,153,002
       Other warrants outstanding.........................        260,813
                                                               ----------
                 Total shares reserved....................      6,413,815
                                                               ==========
       </Table>
(8)    RESEARCH AGREEMENTS

       In 1996, the Company signed a strategic alliance agreement with LG
Chemical, a Korean corporation, to develop and market compounds derived from the
Company's endothelin receptor antagonist and selectin antagonist programs for
certain disease indications. LG Chemical committed to pay $10.7 million in
research payments, of which $8.1 million has been paid. In June, 2000, the
Company assigned one-half of the research payment to ICOS-TBC. In August 2001,
the Company and LG Chemical mutually agreed to terminate the above strategic
alliance agreement, accordingly, no further research payments are expected from
LG Chemical and LG Chemical's rights under such agreement have ended.

       Under the terms of the Company's agreement with ICOS-TBC, the Company
will provide, and be reimbursed for, research and development activities
conducted on behalf of ICOS-TBC. During the three-month and nine month periods
ended September 30, 2001, the Company incurred direct research and development
costs of approximately $820,000 and $3,945,000, respectively, and, pursuant to
its agreement with ICOS-TBC, billed such costs to ICOS-TBC. The Company's
revenues for the three month and nine month periods ended September 30, 2001
included approximately $386,000 and $1,166,000, respectively, of TBC personnel
time charged to ICOS-TBC. Approximately $1,052,000 of such costs were recorded
as a related party receivable as of September 30, 2001. Also see Note 9, License
Agreements, below.

       The Company also receives reimbursement for certain research costs
pursuant to its agreements with GlaxoSmithKline ("GSK") (Note 11),
Schering-Plough (Note 9) and Revotar (Note 10).

(9)    LICENSE AGREEMENTS

       Mitsubishi Pharma Agreement

           TBC has entered into an agreement with Mitsubishi Pharma Corporation,
       formerly Mitsubishi-Tokyo Pharmaceuticals, Inc. ("Mitsubishi") to license
       Mitsubishi's rights and technology relating to Argatroban and to license
       Mitsubishi's own proprietary technology developed with respect to
       Argatroban (the "Mitsubishi Agreement"). Under the Mitsubishi Agreement,
       the Company has an exclusive license to use and sell Argatroban in the
       U.S. and Canada for all specified indications. The Company is required to
       pay Mitsubishi specified royalties on net sales of Argatroban by the
       Company and its sublicensees after its commercial introduction in the
       U.S. and Canada. Either party may terminate the Mitsubishi Agreement on
       60 days notice if the other party defaults in its material obligations
       under the agreement, declares bankruptcy or is insolvent, or if a
       substantial portion of its property is subject to levy. Unless terminated
       sooner pursuant to the above described termination provisions, the
       Mitsubishi Agreement expires on the later of termination of patent rights
       in a particular country or 20 years after first commercial sale of
       products. Under the Mitsubishi Agreement, TBC has access to an improved
       formulation patent granted in 1993 which expires in 2010 and a use patent
       which expires in 2009. During 2000, we signed an additional agreement
       with Mitsubishi that provides TBC with royalties on sales of Argatroban
       in certain European countries, and up to a total of $5.0 million in
       milestones for the development of ischemic stroke and certain other
       provisions. In conjunction with the Mitsubishi Agreement, a consulting
       firm involved in negotiations related to the agreement will receive a
       percentage of net sales received as a result of the agreement. The
       Company enrolled its first patient in a clinical trial for ischemic
       stroke in April 2001, and received a $2.0 million milestone payment in
       May, which will be recognized in revenues


                                       9

<PAGE>

       over the expected development period, and accordingly, revenues in the
       three and nine month periods ended September 30, 2001 include
       approximately $107,200 and $179,000 respectively, related to such
       milestone payment.

           In exchange for the license from Genentech, Inc, (the "Former
       Licensor") of its Argatroban technology, TBC issued the Former Licensor
       285,714 shares of Common Stock during 1993 and issued an additional
       214,286 shares of Common Stock on October 9, 1997, after acceptance of
       the filing of the first New Drug Application ("NDA") with the United
       States Food and Drug Administration (the "FDA") for Argatroban. On June
       30, 2000, the Company issued an additional 71,429 shares of Common Stock
       to Genentech in conjunction with the approval of the NDA for Argatroban
       in patients with HIT. The value of $965,970 has been recorded as an
       intangible asset and is being amortized over the estimated useful life of
       the asset. Amortization expense recorded in the three month and nine
       month periods ended September 30, 2001 was approximately $26,300 and
       $79,000, respectively and will be approximately $106,000 annually in
       future periods. Additionally, on October 9, 1997, upon acceptance of the
       filing of the first NDA for Argatroban with the FDA, the Company granted
       the Former Licensor a warrant to purchase an additional 142,858 shares of
       Common Stock at an exercise price of $14.00 per share, subject to
       adjustment, which expires on October 9, 2004. TBC has also granted the
       Former Licensor demand and piggyback registration rights with regard to
       shares of Common Stock issued to the Former Licensor.

       ICOS Corporation Partnership

           On June 6, 2000, ICOS and the Company entered into the ICOS-TBC
       limited partnership agreement. The partnership seeks to develop and
       globally commercialize ET(A) receptor antagonists. As a result of our
       contribution of technology, ICOS-TBC paid a license fee to us in June
       2000, and has made a milestone payment that together with additional
       milestone payments could be as much as $55.5 million for the development
       and commercialization of products resulting from the collaboration. The
       license fee is being amortized over the estimated development period of
       the licensed technology, and the Company recognized approximately
       $121,000 and $363,000 of it as revenue during the three month and
       nine-month periods ended September 30, 2001, respectively. See Note 2(i),
       Revenue Recognition, above.

           Pursuant to the terms of the limited partnership agreement, ICOS-TBC
       has been initially capitalized by a cash contribution from ICOS and the
       Company's contribution of intellectual property associated with
       sitaxsentan sodium. The intellectual property contributed by the Company
       to ICOS-TBC had no basis for financial reporting purposes and,
       accordingly, the Company assigned no value to the transfer of technology.

           In July 2001, the Company earned a milestone, as a result of
       enrolling a patient in a phase II/b clinical study of sitaxsentan for the
       indication of pulmonary hypertension. The Company is recognizing the
       revenue associated with the milestone over the expected development
       period, and revenues included approximately $167,000 in the three and
       nine months ended September 30, 2001.

           During the three month and nine month periods ended September 30,
       2001, the Company recognized a loss of approximately $2,155,000 and
       $5,926,000, respectively, representing the Company's proportionate share
       of the losses of ICOS-TBC, including amounts billed by the Company to
       ICOS-TBC as discussed in Note 8, Research Agreements, above.

       Schering-Plough Research Collaboration and License Agreement

           On June 30, 2000, TBC and Schering-Plough entered into a worldwide
       research collaboration and license agreement to discover, develop and
       commercialize VLA-4 antagonists. VLA-4 antagonists represent a new class
       of compounds that has shown promise in multiple preclinical animal models
       of asthma. The primary focus of the collaboration will be to discover
       orally available VLA-4 antagonists as treatments for asthma.


                                       10
<PAGE>


           Under the terms of the agreement, Schering-Plough obtains the
       exclusive worldwide rights to develop, manufacture and market all
       compounds from TBC's library of VLA-4 antagonists, as well as the rights
       to a second integrin antagonist. TBC will be responsible for optimizing a
       lead compound and additional follow-on compounds. Schering-Plough is
       supporting research at TBC and will be responsible for all costs
       associated with the worldwide product development program and
       commercialization of the compound. In addition to reimbursing research
       costs, Schering-Plough paid an upfront license fee and will pay
       development milestones and royalties on product sales resulting from the
       agreement. This upfront license fee is being amortized into revenue over
       the expected development period. License fee and milestone income in the
       three and nine months ended September 30, 2001 included approximately
       $92,000 and $364,000, respectively, related to this upfront license fee.
       In the three and nine months ended September 30, 2000, license fee and
       milestone income included approximately $136,000 related to the
       Schering-Plough license fee. Total payments to TBC for both programs,
       excluding royalties, could reach $87.0 million.

(10)   FOREIGN SUBSIDIARY

       During the third quarter 2000, TBC formed Revotar to conduct research and
development of novel small molecule compounds and to develop and commercialize
selectin antagonists. Upon formation, Revotar received certain development and
commercialization rights to the Company's selectin antagonist compounds as well
as rights to certain other TBC research technology. Revotar also received
approximately $5 million in funding from three German venture capital funds. The
Company retained ownership of approximately 55% of the outstanding common stock
of Revotar and has consolidated the financial results of Revotar into TBC's
consolidated financial statements. Since the developmental and commercialization
rights contributed by the Company to Revotar had no basis for financial
reporting purposes, the Company assigned no value to its contribution of
intellectual property rights. The Company's equity in the originally contributed
assets by the minority shareholders is reported as a deferred credit of
$2,620,010 on its consolidated balance sheet at September 30, 2001 and December
31, 2000. The minority interest in Revotar at September 30, 2001 and December
31, 2000, was $1,511,508 and $1,962,273, respectively. The Company's
consolidated net loss for the three month and nine month periods ended September
30, 2001 was reduced by $265,665 and $450,765, respectively, for the Revotar
minority shareholders' approximately 45% interest in Revotar's loss.

(11)   COMMERCIALIZATION AGREEMENT

       In connection with TBC's development and commercialization of Argatroban,
in August 1997, TBC entered into a Product Development, License and CoPromotion
Agreement with GSK (the "SmithKline Agreement") whereby GSK was granted
exclusive rights to work with TBC in the development and commercialization of
Argatroban in the U.S. and Canada for specified indications. GSK paid $8.5
million in upfront license fees during August 1997, a $5 million milestone
payment in October 1997, and a $7.5 million milestone payment in June 2000. As a
result of the Company's implementation of SAB101, effective January 1, 2000,
revenues in the nine month period ended September 30, 2000 include approximately
$2,366,000 of the license fee and 1997 milestone payments. The effect on
revenues in the nine month period ended September 30, 2000 was offset by a loss
of approximately $2,366,000 from the cumulative effect, at January 1, 2000, of
the change in accounting principle resulting from the deferral of certain
license fees and milestone payments received in 1997.

(12)   401(k) PLAN

       The Company adopted a 401(k) plan, which became effective on September 1,
1993. Under the plan, all employees with three months of service are eligible to
participate in the plan and may contribute up to 15 percent of their
compensation, with a maximum of $10,500 per employee in 2000. Effective on
January 1, 2001, the Compensation and Personnel Committee of the Board of
Directors approved an employer matching contribution of $0.50 on the dollar of
employee contributions up to 6% of salaries and the 401(k) plan was amended
effective January 1, 2001, resulting in charges to operating expense during the
three month and nine month periods ended September 30, 2001 of approximately
$42,000 and $126,000, respectively.

                                       11
<PAGE>

(13)   COMMITMENTS AND CONTINGENCIES

       (a) Foreign Currency Exchange Risk

           The Company is exposed to market risk primarily from changes in
       foreign currency exchange rates.

           The Company has a majority-owned subsidiary in Germany and
       consolidates the results of operations into its consolidated financial
       results. Although not significant to date, the Company's reported
       expenses and cash flows from this subsidiary are exposed to changing
       exchange rates. Furthermore, the carrying value of the Company's
       investment in its German subsidiary will fluctuate as a result of such
       changing exchange rates. The Company, accordingly, included an unrealized
       gain of $224,144 and loss of $219,646, respectively, in its comprehensive
       gain/loss for the three month and nine-month periods ended September 30,
       2001. The Company had an intercompany receivable from our German
       subsidiary at September 30, 2001 and December 31, 2000; however, this
       amount is denominated in U.S. dollars and is not exposed to exchange
       risk. The Company contracts with entities in other areas outside the U.S.
       and these transactions are denominated in a foreign currency. To date,
       the currencies of these other countries have not fluctuated materially.
       At this time, management has not deemed it cost effective to engage in a
       program of hedging the effect of foreign currency fluctuations on the
       Company's operating results using derivative financial instruments.

       (b) Legal proceedings

           The Company is presently involved in several legal actions, none of
       which are expected to have a material adverse effect upon the results of
       operations or financial condition of the Company when considered either
       individually or in the aggregate.


                                       12
<PAGE>

     ITEM 2

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

                 THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001

                                    OVERVIEW

       The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the related notes to the financial statements included in our
Annual Report on Form 10-K for the year ended December 31, 2000, and our
condensed consolidated financial statements and the related notes to the
financial statements included in this Quarterly Report on Form 10-Q.

       Since our inception in 1989, we have primarily devoted our resources to
funding drug discovery research and development. We have been unprofitable to
date and expect to incur substantial operating losses for the next several years
as we invest in product research and development, preclinical and clinical
testing and regulatory compliance. We have sustained net losses of approximately
$116.9 million from the date of our inception to September 30, 2001.

       Our operating results have fluctuated significantly during each quarter,
and we anticipate that such fluctuations, which are largely attributable to
varying research and development commitments and expenditures, will continue for
the next several years. Operating results for the three months and nine months
ended September 30, 2001 are not necessarily indicative of the results, which
may be expected for any other interim period, or for the year ended December 31,
2001.

                              RESULTS OF OPERATIONS

         THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000

       Revenues were approximately $1,704,000 and $1,732,000 in the three month
periods ended September 30, 2001 and 2000, respectively. While total revenues in
the two comparable periods were comparable, research payments received from
collaborative partners declined approximately $409,000, primarily due to the
termination of the Company's agreement with LG Chemical, as discussed in Note 8
to the financial statements. Research reimbursement earned from ICOS-TBC in the
three months ended September 30, 2001, declined approximately $162,000, as
compared with the three months ended September 30, 2000; as discussed in Note 9
to the financial statements, sitaxsentan has progressed into the clinical phase
of development and less research work on sitaxsentan was conducted by the
Company's employees during the three months ended September 30, 2001. The
decrease in research payments was partially offset by approximately $333,000 in
royalties on the sales of Argatroban and increased milestone and license fee
income of approximately $210,000, primarily resulting from the Company having
earned an additional milestone from ICOS as a result of patient enrollment in a
phase II/b clinical study for sitaxsentan, as discussed in Note 9 to the
financial statements.

       Revenues in the nine months ended September 30, 2001 decreased
approximately $6,416,000 as compared with the nine months ended September 30,
2000. License fee and milestone income in the nine months ended September 30,
2000 included a milestone payment of $7,500,000 from GSK which was earned upon
the approval of Argatroban by the FDA in June 2000, and the recognition of the
approximately $2,366,000 in remaining unrecognized license fees and milestones
related to Argatroban. After taking the $9,866,000 in revenues related to the
approval of Argatroban into consideration, revenues from other license fees and
milestones increased approximately $750,000, as a result of license fees and
milestone payments received from Schering-Plough, Mitsubishi and ICOS subsequent
to June 30, 2000. See Note 9


                                       13
<PAGE>

to the financial statements included herein. Revenues from sources other than
license fees and milestones increased approximately $2,700,000. The increase
includes royalties earned from the sale of Argatroban in the current year of
approximately $902,000. Research payments in the current year period increased
approximately $1,334,000, which is comprised of payments received from
Schering-Plough, partially offset by the loss of revenues from LG Chemical
received in the nine months ended September 30, 2000. Research payments received
from the ICOS-TBC partnership increased approximately $465,000 in the nine
months ended September 30, 2001; the partnership was formed in June 2000 and the
prior year period only included three months of operation.

        The Company implemented on October 1, 2000, effective January 1, 2000,
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB101"), promulgated by the United States Securities and Exchange Commission
("SEC") in December 1999. Pursuant to the requirements of SAB101, receipts of
license fees and milestone payments, which in prior years had been recognized
upon receipt, are now recognized as revenues over the developmental period. As a
result of the adoption of SAB101, revenues in the three months ended September
30, 2000 were increased by approximately $82,000 and revenues in the nine months
ended September 30, 2000 decreased approximately $569,000. For further
discussion of SAB101 see Note 1 to the Condensed Consolidated Financial
Statements, included herein.

       Research and development expense increased approximately $1,229,000 in
the three months ended September 30, 2001, as compared with the three months
ended September 30, 2000. The increase is primarily due to higher levels of
research staff, and their related expenses, during the current year period, and
to the expenses of Revotar, which was formed in September 2000. Research and
development expense increased approximately $1,911,000 in the nine months ended
September 30, 2001, as compared with the nine months ended September 30, 2000.
Similarly, the increase is attributable to higher levels of research staff, and
to the expenses of Revotar, although the increase primarily occurred during the
quarters ended June 30 and September 30, 2001.

       The Company's equity in the losses of ICOS-TBC increased approximately
$767,000 and $3,971,000 in the three and nine-month periods ended September 30,
2001, as compared with the three and nine-month periods ended September 30,
2000. ICOS-TBC was formed in June 2000, prior to that time expenses associated
with the research and development of the Company's endothelin antagonist program
were included in research and development expenses.

       General and administrative expenses in the three months ended September
30, 2001 increased approximately $215,000 when compared with the three months
ended September 30, 2000. The increase is primarily attributable to the expenses
of Revotar, which was acquired in September 2000. General and administrative
expenses in the nine months ended September 30, 2001 increased approximately
$267,000, primarily due to the expenses of Revotar.

       Investment income in the three months ended September 2001 decreased
approximately $334,000 compared to the comparable prior year period. The
decrease is the result of the lower prevailing interest rates in the current
year periods, as compared with the prior year period. Investment income in the
nine months ended September 2001 increased $1,433,000, compared to the nine
month period in 2000. The increase is the result of the investment of proceeds
from the Company's common stock offering in April 2000 and proceeds of the
exercise of publicly traded warrants in January 2001, although the effect of
increased cash balances was partially offset by the lower interest rates which
have prevailed in the current year periods, as compared with the prior year
periods.

       We incurred a net loss of $4,289,183, or $0.10 per share in the three
months ended September 30, 2001, as compared with a net loss of $1,852,725 or
$0.05 per share basic and diluted in the three months ended September 30, 2000.
The increased loss of $2,436,458 in the current year period is primarily due to
increased operating expenses in the current year period.


                                       14
<PAGE>

       In the nine month period ended September 30, 2001, we incurred a net loss
of $11,337,380. In the comparable nine month period ended September 30, 2000, we
reported a loss of $527,855, before the $2,366,234 cumulative effect of change
in accounting principle, discussed below. The increased loss of approximately
$10,809,500 in the nine months ended September 30, 2001 is primarily due to
reduced revenues and higher operating expenses in the current year period, as
discussed above.

       The net loss of $2,894,089 in the nine months ended September 30, 2000
includes a loss of $2,366,234 for the cumulative effect, at January 1, 2000, of
the change in accounting principle resulting from the deferral of certain
license fees and milestone payments received in 1997.

                         LIQUIDITY AND CAPITAL RESOURCES

       We have funded operations to date principally through:

       o    our initial public offering and subsequent public offerings of our
            common stock;

       o    private placements of our common and preferred stock;

       o    issuances of common stock in conjunction with acquisitions, research
            and collaboration agreements and upon exercises of stock options and
            warrants, including our publicly traded warrants;

       o    milestone and research payments received in conjunction with
            research and collaborative agreements; and

       o    investment income, net of interest expense.

       At September 30, 2001 we had cash, cash equivalents and short-term and
long-term investments of $99.1 million, including the cash of Revotar. The
Company's total revenues for 2001 are expected to be in the range of $8.5
million to $9.0 million. Expenses in 2001 are expected to be approximately $34
million to $36 million including internal operations, the Company's share of
ICOS results as well as the operations of Revotar. We believe cash, cash
equivalents and short-term and long-term investments on hand at December 31,
2001 will approximate $92 million, which is the same amount we had available on
December 31, 2000.

       We expect to incur substantial research and development expenditures as
we design and develop biopharmaceutical products for the prevention and
treatment of cardiovascular and other diseases. We anticipate that our operating
expenses will increase during 2001 and subsequent years because:

       o    We will incur significant expenses in conjunction with the ICOS-TBC
            partnership for endothelin antagonists and clinical trial costs for
            sitaxsentan and TBC1269 compounds and expect to begin to incur costs
            for clinical trials related to additional compounds. These costs
            include:

            -    hiring personnel to direct and carry out all operations related
                 to clinical trials;

            -    hospital and procedural costs;

            -    services of a contract research organization; and

            -    purchasing and formulating large quantities of the compound to
                 be used in such trials.

       o    There will be additional costs in future periods related to
            Argatroban in complying with ongoing FDA requirements and clinical
            trial expenditures for additional therapeutic indications, such as
            our ongoing multi-center ischemic stroke trial.


                                       15
<PAGE>


       o    Our administrative costs and costs to commercialize our products
            will increase as our products are further developed and marketed.

       We have been unprofitable to date and expect to incur operating losses
for the next several years as we invest in product research and development,
preclinical and clinical testing and regulatory compliance. We will require
substantial additional funding to complete the research and development of our
product candidates, to establish commercial scale manufacturing facilities, if
necessary, and to market our products. We have accumulated approximately $116.9
million in net losses through September 30, 2001. Estimates of our future
capital requirements will depend on many factors, including:

       o    market acceptance and commercial success of Argatroban;

       o    expenses and risks associated with clinical trials to expand the
            indications for Argatroban;

       o    continued scientific progress in our drug discovery programs;

       o    the magnitude of these programs;

       o    progress with preclinical testing and clinical trials;

       o    progress and operating results of Revotar and ICOS-TBC.

       o    the time and costs involved in obtaining regulatory approvals;

       o    the costs involved in filing, prosecuting and enforcing patent
            claims;

       o    competing technological and market developments and changes in our
            existing research relationships;

       o    our ability to maintain and establish additional collaborative
            arrangements; and

       o    effective commercialization activities and arrangements.

       Subject to these factors, we anticipate that our existing capital
resources and other revenue sources, should be sufficient to fund our cash
requirements in the foreseeable future without considering the impact of
revenues from Argatroban. Notwithstanding revenues, which may be produced
through sales of potential future products if approved, we anticipate that we
will need to secure additional funds to continue the required levels of research
and development to reach our long-term goals. We intend to seek such additional
funding through collaborative arrangements and/or through public or private
financings.

       We cannot assure you that additional financing will be available, or, if
available, that it will be available on acceptable terms. If additional funds
are raised by issuing securities, further dilution of the equity ownership of
existing stockholders will result. If adequate funds are not available, we may
be required to delay, scale back or eliminate one or more of our drug discovery
or development programs or obtain funds through arrangements with collaborative
partners or others that may require us to relinquish rights to certain of our
technologies, product candidates or products that we would not otherwise
relinquish.

       Our ability to raise additional funding is contingent upon a number of
factors which include:

       o    the market acceptance and commercial success of Argatroban and
            expanded use of Argatroban for other indications;

       o    the ongoing cost of research and development activities;

       o    the attainment of research and clinical goals of product candidates;

                                       16
<PAGE>

       o    the timely approval of our product candidates by appropriate
            governmental and regulatory agencies;

       o    the presence and effect of competitive products;

       o    our ability to manufacture and market products commercially; and

       o    the retention of key personnel; and conditions in the capital
            markets.

                  HAZARDOUS MATERIALS AND ENVIRONMENTAL MATTERS

       Our research and development processes involve the controlled use of
hazardous materials, chemicals and radioactive materials and produce waste
products. We are subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of hazardous
materials and waste products. Although we believe that our safety procedures for
handling and disposing of hazardous materials comply with the standards
prescribed by laws and regulations, the risk of accidental contamination or
injury from these materials cannot be eliminated completely. In the event of an
accident, we could be held liable for any damages that result. This liability
could exceed our resources or not be covered by our insurance. Although we
believe that we are in compliance in all material respects with applicable
environmental laws and regulations, there can be no assurance that we will not
be required to incur significant costs to comply with environmental laws and
regulations in the future. There can also be no assurance that our operations,
business or assets will not be materially adversely affected by current or
future environmental laws or regulations.

                     IMPACT OF INFLATION AND CHANGING PRICES

       The pharmaceutical research industry is labor intensive, and wages and
related expenses increase in inflationary periods. The lease of space and
related building services for the Houston facility contains a clause that
escalates rent and related services each year based on the increase in building
operating costs and the increase in the Houston Consumer Price Index,
respectively. To date, inflation has not had a significant impact on our
operations.

              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

       This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical fact
included in and incorporated by reference into this Form 10-Q are
forward-looking statements. These forward-looking statements include, without
limitation, statements regarding our estimate of the sufficiency of our existing
capital resources and our ability to raise additional capital to fund cash
requirements for future operations, and regarding the uncertainties involved in
the drug development process and the timing of regulatory approvals required to
market these drugs. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, we cannot give any assurance that
such expectations reflected in these forward-looking statements will prove to
have been correct.

       When used in this Form 10-Q, the words "expect," "anticipate," "intend,"
"plan," "believe," "seek," "estimate" and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements
contain these identifying words. Because these forward-looking statements
involve risks and uncertainties, actual results could differ materially from
those expressed or implied by these forward-looking statements for a number of
important reasons, including those discussed under "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."

       You should read these statements carefully because they discuss our
expectations about our future performance, contain projections of our future
operating results or our future financial condition, or state other
"forward-looking" information. Before you invest in our common stock, you should
be aware

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<PAGE>

that the occurrence of any of the contingent factors described herein under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and described under "Additional
Risk Factors" in our Annual Report on Form 10-K for the year ended December 31,
2000 could substantially harm our business, results of operations and financial
condition. Upon the occurrence of any of these events, the trading price of our
common stock could decline, and you could lose all or part of your investment.

       We cannot guarantee any future results, levels of activity, performance
or achievements. Except as required by law, we undertake no obligation to update
any of the forward-looking statements in this Form 10-Q after the date of this
Form 10-Q.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY EXCHANGE RISK

       We are exposed to market risk primarily from changes in foreign currency
exchange rates. The following describes the nature of this risk that is not
believed to be material to us.

       We have a majority-owned subsidiary in Germany and consolidate the
results of operations into our consolidated financial results. Although not
significant to date, our reported expenses and cash flows from this subsidiary
are exposed to changing exchange rates. Furthermore, the carrying value of the
Company's investment in its German subsidiary will fluctuate as a result of such
changing exchange rates. The Company, accordingly, included an unrealized gain
of approximately $224,144 and loss of $219,646 in its comprehensive loss for the
three and nine months ended September 30, 2001, respectively. We had an
intercompany receivable from our German subsidiary at September 30, 2001 and
December 31, 2000; however, this amount is denominated in U.S. dollars and is
not exposed to exchange risk. We have contracts with entities in other areas
outside the U.S. and these transactions are denominated in a foreign currency.
To date, the currencies of these other countries have not fluctuated materially.
At this time, we have not deemed it cost effective to engage in a program of
hedging the effect of foreign currency fluctuations on our operating results
using derivative financial instruments.


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<PAGE>

PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         None

ITEM 2.  CHANGES IN SECURITIES
         None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
         None

ITEM 4.  SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
         None.

ITEM 5.  OTHER INFORMATION

         On October 31, 2001, the Company announced the election of William R.
Ringo, Jr. to its board of directors.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         One report on Form 8-K (Item 5) was filed during the quarter ended
September 30, 2001. The report was filed with the Securities and Exchange
Commission on August 9, 2001 regarding second quarter results for 2001 and
updates on key programs.

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<PAGE>

                         TEXAS BIOTECHNOLOGY CORPORATION

                               SEPTEMBER 30, 2001

                                   SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 14th day of November, 2001.


                                    TEXAS BIOTECHNOLOGY CORPORATION


                                    By:  /s/   DAVID B. MCWILLIAMS
                                       -----------------------------------------
                                    David B. McWilliams
                                    President and Chief Executive Officer



                                    By:  /s/   STEPHEN L. MUELLER
                                       -----------------------------------------
                                    Stephen L. Mueller
                                    Vice President, Finance and Administration
                                    Secretary and Treasurer
                                    (Principal Financial and Accounting Officer)



                                      20