<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, 2002

                                       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.

<Table>
<Caption>
            Class                              Outstanding at October 31, 2002
            -----                              -------------------------------
<S>                                            <C>
common stock, $0.005 par value                           43,807,427
</Table>


<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, 2002 and December 31, 2001                  1

         Consolidated Statements of Operations and Comprehensive Loss for the
         three and nine months ended September 30, 2002 and 2001                                     2

         Consolidated Statements of Cash Flows for the nine months ended
         September 30, 2002 and 2001                                                                 3

         Notes to Consolidated Financial Statements                                                  4

         ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                 RESULTS OF OPERATIONS                                                              16

         ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                         25

         ITEM 4: CONTROLS AND PROCEDURES                                                            26

PART II. OTHER INFORMATION

         ITEM 1: Legal Proceedings                                                                  26

         ITEM 2: Changes in Securities and Use of Proceeds                                          26

         ITEM 3: Defaults Upon Senior Securities                                                    26

         ITEM 4: Submission of Matters to a Vote of Security Holders                                26

         ITEM 5: Other Information                                                                  26

         ITEM 6: Exhibits and Reports on Form 8-K                                                   26


SIGNATURES                                                                                          27

CERTIFICATIONS                                                                                      28
</Table>

<PAGE>
                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                     ($ IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
                                                                                    SEPTEMBER 30,      DECEMBER 31,
ASSETS                                                                                   2002              2001
------                                                                              -------------      ------------
                                                                                     (unaudited)
<S>                                                                                 <C>               <C>
Current assets:
       Cash and cash equivalents                                                     $     19,398      $     10,086
       Short-term investments                                                              27,888            46,465
       Accounts receivable                                                                    749               655
       Other current receivables                                                              507               618
       Receivable from related party under collaborative arrangement                          231             1,144
       Prepaids                                                                             1,346             1,350
                                                                                     ------------      ------------
           Total current assets                                                            50,119            60,318

Long-term investments                                                                      27,030            38,876
Equipment and leasehold improvements, net                                                   5,617             4,300
Other assets                                                                                  788               868
                                                                                     ------------      ------------
           Total assets                                                              $     83,554      $    104,362
                                                                                     ============      ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
       Accounts payable                                                              $        861      $      2,187
       Accrued expenses                                                                     4,106             3,902
       Obligation under capital leases                                                         10                --
       Deferred revenue from related party                                                  1,150             1,159
       Deferred revenue from unrelated parties                                                927               748
                                                                                     ------------      ------------
           Total current liabilities                                                        7,054             7,996

Liability to related party                                                                  2,742             3,533
Deferred revenue from related party                                                           863             1,722
Deferred revenue from unrelated parties                                                     3,251             3,041
Obligation under capital leases                                                                21                --
Deferred credit                                                                             2,620             2,620
Minority interest in Revotar                                                                  369             1,213

Commitments and contingencies

Stockholders' equity:
       Preferred stock, par value $.005 per share. At September 30, 2002,
           and December 31, 2001, 5,000,000 shares authorized;
           none outstanding                                                                    --                --
       Common stock, par value $.005 per share. At September 30, 2002
           75,000,000 shares authorized; 44,013,373 shares issued
           At December 31, 2001, 75,000,000 shares authorized;
           43,783,638 shares issued                                                           220               218
       Additional paid-in capital                                                         211,863           210,616
       Deferred compensation expense                                                         (249)               --
       Treasury stock, 213,000 shares at September 30, 2002, and
           December 31, 2001                                                               (1,602)           (1,602)
       Accumulated other comprehensive loss                                                   (91)             (299)
       Accumulated deficit                                                               (143,507)         (124,696)
                                                                                     ------------      ------------
           Total stockholders' equity                                                      66,634            84,237
                                                                                     ------------      ------------
           Total liabilities and stockholders' equity                                $     83,554      $    104,362
                                                                                     ============      ============
</Table>


           See accompanying notes to consolidated financial statements


                                       1
<PAGE>
                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                             AND COMPREHENSIVE LOSS
                     ($ IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<Table>
<Caption>
                                                        THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                 --------------------------------      --------------------------------
                                                 September 30,      September 30,      September 30,      September 30,
                                                     2002               2001               2002               2001
                                                 -------------      -------------      -------------      -------------
<S>                                              <C>                <C>                <C>                <C>

Revenues:
    Research agreements                          $         827      $         499      $       2,654      $       3,296
    Collaborative research and development
      from ICOS-TBC, L.P.                                  286                386                772              1,166
    Royalty income, net                                    676                333              2,481                902
    License fees, milestones and grants                    616                486              1,717              1,072
                                                 -------------      -------------      -------------      -------------
      Total revenues                                     2,405              1,704              7,624              6,436
                                                 -------------      -------------      -------------      -------------

Expenses:
    Research and development                             5,286              3,776             16,107             11,835
    Equity in loss of ICOS-TBC, L.P.                     1,838              2,156              6,305              5,926
    General and administrative                           2,041              1,479              6,803              4,713
                                                 -------------      -------------      -------------      -------------
      Total expenses                                     9,165              7,411             29,215             22,474
                                                 -------------      -------------      -------------      -------------

      Operating loss                                    (6,760)            (5,707)           (21,591)           (16,038)

Investment income, net                                     556              1,152              1,936              4,250
                                                 -------------      -------------      -------------      -------------
      Loss before minority interest                     (6,204)            (4,555)           (19,655)           (11,788)

Minority interest in loss of Revotar                       364                266                844                451
                                                 -------------      -------------      -------------      -------------

      Net loss                                          (5,840)            (4,289)           (18,811)           (11,337)

Other comprehensive loss:
    Unrealized gain (loss) on
      foreign currency translation                          64                224                208               (220)
                                                 -------------      -------------      -------------      -------------

      Comprehensive loss                         $      (5,776)     $      (4,065)     $     (18,603)     $     (11,557)
                                                 =============      =============      =============      =============

Net loss per common share-
    basic and diluted                            $       (0.13)     $       (0.10)     $       (0.43)     $       (0.26)
                                                 =============      =============      =============      =============

Weighted average common shares
    used to compute basic and diluted
    net loss per share                              43,798,840         43,607,948         43,719,884         43,658,764
                                                 =============      =============      =============      =============
</Table>

           See accompanying notes to consolidated financial statements


                                       2
<PAGE>
                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                ($ IN THOUSANDS)
                                   (UNAUDITED)

<Table>
<Caption>
                                                                           NINE MONTHS ENDED SEPTEMBER 30,
                                                                           -------------------------------
                                                                               2002              2001
                                                                           ------------      -------------
<S>                                                                        <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                $    (18,811)     $    (11,337)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
       Depreciation and amortization                                                831               595
       Equity in loss of ICOS-TBC, L.P.                                           6,305             5,926
       Minority interest in loss of Revotar                                        (844)             (451)
       Expenses paid with stock                                                     257               523
       Compensation expense related to stock options                                260                63
       Loss on disposition of fixed assets                                           --                 6
   Change in operating assets and liabilities:
       Decrease in interest receivable included in short-term
         and long-term investments                                                  284               230
       Increase in accounts receivable                                              (94)              (89)
       Decrease in prepaids                                                           4               449
       Decrease (increase) in other current receivables                             111            (1,903)
       Decrease (increase) in receivable from related party under
         collaborative arrangement                                                  913              (170)
       Decrease in accounts payable and accrued expenses                         (1,122)           (2,010)
       Decrease in liability to related party                                    (7,096)           (5,147)
       Increase in deferred revenue from unrelated parties                          389             1,457
       (Decrease) increase in deferred revenue from related party                  (868)            1,471
                                                                           ------------      ------------
         Net cash used in operating activities                                  (19,481)          (10,387)
                                                                           ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of equipment and leasehold improvements                             (2,034)           (1,629)
   Purchase of investments                                                      (73,398)         (111,980)
   Maturity of investments                                                      103,537            88,077
                                                                           ------------      ------------
         Net cash provided by (used in) investing activities                     28,105           (25,532)
                                                                           ------------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Acquisition of treasury stock                                                     --            (1,602)
   Repayment of capital lease obligations                                            (3)               --
   Proceeds from sale of common stock and option and
    warrant exercises, net                                                          483            20,645
                                                                           ------------      ------------
         Net cash provided by financing activities                                  480            19,043
                                                                           ------------      ------------

Effect of exchange rate changes on cash                                             208              (220)
                                                                           ------------      ------------
   Net increase (decrease) in cash and cash equivalents                           9,312           (17,096)

Cash and cash equivalents at beginning of period                                 10,086            48,470
                                                                           ------------      ------------

Cash and cash equivalents at end of period                                 $     19,398      $     31,374
                                                                           ============      ============

Supplemental schedule of noncash financing activities:
   Deferred compensation expense                                           $        249      $         --
   Issuance of common stock for expenses                                            257               523
   Acquisition of equipment under capital leases                                     34                --
                                                                           ============      ============
</Table>

        See accompanying notes to consolidated financial statements


                                       3
<PAGE>
                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001

(1)      BASIS OF PRESENTATION

         The accompanying unaudited consolidated financial statements of Texas
Biotechnology Corporation, a Delaware 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, 2001. 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 and nine month periods ended
September 30, 2002 are not necessarily indicative of the results that may be
expected for any other interim period, or for the year ending December 31, 2002.

(2)      ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

         (a) Organization

                  The Company 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.
         On June 6, 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 an approximately 55% 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.

         (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, 2002, approximately $313,000 was invested in
         demand and money market accounts, and approximately $19,085,000 was
         invested in



                                       4

<PAGE>
         corporate commercial paper and loan participations with a maturity of
         less than three months. 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, 2002, the Company's
         short-term investments consisted of approximately $25,664,000 in
         corporate commercial paper and loan participations, $2,000,000 in
         government securities, and accrued interest of $224,000. Long-term
         investments consist of approximately $16,714,000 in government agency
         bonds, $10,101,000 in corporate bonds and loan participations and
         $215,000 in accrued interest thereon, 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 accounts for the investment in ICOS-TBC using the
         equity method. Because the Company had no basis in the technology
         transferred to ICOS-TBC as the Company's original investment, the
         Company did not record an amount for its original investment. The
         Company records its share of the ICOS-TBC loss as a liability to
         related party until the Company funds its portion of the loss.

                  ICOS-TBC paid a license fee and a milestone payment to the
         Company in 2000 and 2001, respectively. Because the Company has
         continuing obligations to ICOS-TBC, the Company deferred these amounts
         and is amortizing them into revenue over the estimated developmental
         period of the underlying technology.

         (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. Salaries and
         benefits charged to research and development in the three-month periods
         ended September 30, 2002 and 2001 were approximately $2,421,000 and
         $1,815,000, respectively, and in the nine-month periods ended September
         30, 2002 and 2001 were approximately $6,979,000 and $5,177,000,
         respectively. Payments related to the acquisition of in-process
         research and development, if any, are expensed as incurred.

         (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 periods ended September 30, 2002 and 2001, the weighted
         average common shares used to compute basic and diluted net loss per
         common share totaled 43,798,840 and 43,607,948 shares, respectively.
         Securities convertible into common stock, comprised of stock options
         and warrants totaling 5,367,964 and 4,326,812 shares at September 30,
         2002 and 2001, respectively, were not used in the calculation of
         diluted net loss per common share because the effect would have been
         antidilutive.



                                       5

<PAGE>
         (h) Revenue Recognition

                  Revenue from service contracts is recognized as services are
         performed. Royalty revenue is recognized as products are sold by a
         licensee and we have received sufficient information to record a
         receivable. The Company defers the recognition of milestone payments
         related to contractual agreements which are still in the developmental
         stage. Such deferred revenues are amortized into income over the
         estimated remaining development period. Milestone payments received
         under contractual agreements which have completed the development 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 development
         period of the licensed item or items. The Company periodically
         evaluates its estimates of remaining development periods, and adjusts
         the recognition of remaining deferred revenues over the adjusted
         development period remaining. Revenue from grants is recognized as
         earned under the terms of the related grant agreements, typically as
         expenses are incurred. Amounts received in advance of services being
         performed under contracts are recorded as deferred revenue, and
         recognized as services are performed.

         (i) Patent Application Costs

                  Costs incurred in filing for, defending and maintaining
         patents are expensed as incurred.

         (j) Use of Estimates

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

         (k) Intangible Assets

                  Intangible assets, consisting of amounts paid for products
         approved by the United States Food and Drug Administration ("FDA"), 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 each of the
         three-month periods ended September 30, 2002 and 2001 was $27,000, and
         in the nine-month periods ended September 30, 2002 and 2001 was
         $80,000. Amortization of intangible assets is included in general and
         administrative expense in the consolidated statements of operations and
         comprehensive loss.

         (l) Treasury Stock

                  Treasury stock is recorded at cost. On May 3, 2001, the
         Company announced 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 had repurchased 213,000 shares for $1,602,000
         during the year ended December 31, 2001. No shares were repurchased in
         the three or nine-month periods ended September 30, 2002. During the
         three and nine-month periods ended September 30, 2001, the Company
         repurchased 53,000 and 213,000 shares, respectively, at a cost of
         approximately $334,000 and $1,602,000, respectively.

         (m) 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



                                       6
<PAGE>
         existing assets and liabilities and their respective tax bases and
         operating loss and tax credit carryforwards.

                  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.

         (n) Impairment of Long-lived Assets

                  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.

         (o) New Accounting Pronouncements

                  In August 2001, the Financial Accounting Standards Board
         ("FASB") issued Statement of Financial 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. The Company does not expect the adoption
         of SFAS143 to have a significant impact on its financial condition or
         results of operations.

                  In April 2002, the FASB issued Statement of Financial
         Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44
         and 64, Amendment of FASB Statements No. 13 and Technical Corrections,"
         (SFAS145). SFAS145 provides guidance for income statement
         classification of gains and losses on extinguishments of debt and
         accounting for certain lease modifications that have economic effects
         that are similar to sale-leaseback transactions. SFAS145 is effective
         for the Company in January 2003. The Company does not expect the
         adoption of SFAS145 to have a significant impact on its financial
         condition or results of operations.

                  In July 2002, the FASB issued Statement of Financial
         Accounting Standards No. 146, "Accounting for Costs Associated With
         Exit or Disposal Activities," (SFAS146) which addresses significant
         issues regarding the recognition, measurement and reporting of costs
         that are associated with exit and disposal activities, including
         restructuring activities that are currently accounted for pursuant to
         the guidance set forth in EITF Issue No. 94-3, "Liability Recognition
         of Certain Employee Termination Benefits and Other Costs to Exit an
         Activity." SFAS146 is effective for the Company in January 2003. The
         Company does not expect the adoption of SFAS146 to have a significant
         impact on its financial condition or results of operations.

         (p) Reclassifications

                  Certain reclassifications have been made to prior period
         financial statements to conform to the September 30, 2002 presentation
         with no effect on net loss previously reported.

(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. Proceeds to the Company were approximately $24.2 million, net of selling
expenses of approximately $3.3 million. The securities included in the unit
subsequently separated into its Common Stock and warrant components. The
warrants were exercisable at $8.44 per share. On December



                                       7

<PAGE>
13, 1998, the expiration date of the warrants was extended from December 14,
1998 to September 30, 1999 for those warrant holders electing such extension. On
September 13, 1999, the expiration date of the warrants was further extended to
December 31, 2000. There were 2,386,645 warrants outstanding as of December 31,
2000 which were exercised on January 3, 2001 for proceeds of approximately $20.1
million.

         The Company has reserved Common Stock for issuance as of September 30,
2002 as follows:

<Table>
<S>                                                         <C>
         Stock option plans .........................       5,780,451
         Warrants outstanding .......................         246,586
                                                            ---------
               Total shares reserved ................       6,027,037
                                                            =========
</Table>

         Our only warrants outstanding at September 30, 2002 include 142,858
warrants issued to Genentech in 1997, and 103,728 warrants granted in 1999 in
connection with consulting services.

         Shareholders' Rights Plan

                  In January 2002, the Company adopted a shareholder rights plan
         under which the Board of Directors declared a dividend of one preferred
         stock purchase right ("Right") for each outstanding share of the
         Company's common stock held of record as of the close of business on
         January 22, 2002. Each Right initially entitles a stockholder to
         purchase a one one-thousandth fraction of a share of Preferred Stock -
         Junior Participating Series A (the "Preferred Stock") for $55.00. Each
         such fraction of a share of Preferred Stock has terms designed to make
         it essentially equivalent to one share of Common Stock. The Rights will
         become exercisable only in the event a person or group acquires 15% or
         more of the Company's Common Stock or commences a tender or exchange
         offer which, if consummated, would result in that person or group
         owning 15% of the Common Stock. Prior to such an event, the Rights will
         be evidenced by and traded in tandem with the Common Stock.

                  If a person or group acquires a 15% or larger position in the
         Company, each Right (except those held by the acquiring party) will
         then entitle its holder to purchase fractional shares of Preferred
         Stock having twice the value of the $55 exercise price, with each
         fractional Preferred Share valued at the market price of the Common
         Stock. Also, if following an acquisition of 15% or more of the
         Company's Common Stock, the Company is acquired by that person or group
         in a merger or other business combination transaction, each Right would
         then entitle its holder to purchase Common Stock of the acquiring
         company having a value of twice the $55.00 exercise price. The effect
         will be to entitle the Company's shareholders to buy stock in the
         acquiring company at 50% of its market price.

                  The Company may redeem the Rights at $.001 per Right at any
         time on or prior to the tenth business day following the acquisition of
         15% or more of its Common Stock by a person or group or commencement of
         a tender offer for such 15% ownership. The Rights expire on January 2,
         2012.

(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.



                                       8
<PAGE>
         A summary of stock options as of September 30, 2002, follows:

<Table>
<Caption>
                             EXERCISE PRICE                                        EXERCISED/                        AVAILABLE
  STOCK OPTION PLANS           PER SHARE         AUTHORIZED      OUTSTANDING         OTHER         EXERCISABLE       FOR GRANT
  ------------------         --------------     ------------     ------------     ------------     ------------     ------------
<S>                          <C>                <C>              <C>              <C>              <C>              <C>
1990 Plan ..............     $ 1.38-$21.59           285,715          108,350          177,365           92,520               --
1992 Plan ..............     $ 1.41-$21.59         1,700,000          728,973          971,027          676,400               --
Director Plan ..........     $ 3.50-$ 4.54            71,429           28,527           42,902           28,527               --
1995 Plan ..............     $ 1.31-$21.59         2,000,000        1,581,839          395,133        1,500,438           23,028
1995 Director Plan .....     $ 1.38-$11.31           500,000          386,596           50,578          284,096           62,826
1999 Plan ..............     $ 2.29-$20.13         3,000,000        2,287,093          139,688          493,251          573,219
                                                ------------     ------------     ------------     ------------     ------------
      Totals ...........                           7,557,144        5,121,378        1,776,693        3,075,232          659,073
                                                ============     ============     ============     ============     ============
</Table>

         Pursuant to provisions contained within his employment agreement, in
March 2002 the Company's new chief executive officer purchased 5,000 shares at
market price and was awarded 50,000 shares of the Company's common stock out of
the 1999 Plan. The awarded shares will vest after completion of three years'
service to the Company. The Company recorded deferred compensation expense of
$309,000, which will be recognized over the vesting period. General and
administrative expenses during the three and nine months ended September 30,
2002 included compensation expense related to such grant of approximately
$25,000 and $60,000, respectively.

         In conjunction with the retirement of the Company's former chief
executive officer, the Company modified provisions regarding vesting and time to
exercise of certain stock options of the officer and recorded compensation
expense of approximately $173,000, which was included in general and
administrative expenses, during the nine months ended September 30, 2002.

(5)      INCOME TAXES

         The Company did not incur tax expense during the three and nine-month
periods ended September 30, 2002 and 2001, due to operating losses and the
related increase in the valuation allowance.

         The reconciliation of income taxes at the statutory rate of 35% applied
to income before taxes for the three months ended September 30, 2002 and 2001 is
as follows:

<Table>
<Caption>
                                                              2002              2001
                                                          ------------      ------------
<S>                                                       <C>               <C>
         Computed "expected" tax expense                  $ (2,044,000)     $ (1,501,000)
         Effect of:
              Permanent differences                            314,000          (409,000)
              Increase in valuation allowance                1,730,000         1,910,000
                                                          ------------      ------------
         Tax expense                                      $         --      $         --
                                                          ============      ============
</Table>

         The reconciliation of income taxes at the statutory rate of 35% applied
to income before taxes for the nine months ended September 30, 2002 and 2001 is
as follows:

<Table>
<Caption>
                                                              2002              2001
                                                          ------------      ------------
<S>                                                       <C>               <C>
         Computed "expected" tax expense                  $ (6,583,000)     $ (3,969,000)
         Effect of:
              Permanent differences                            593,000          (760,000)
              Increase in valuation allowance                5,990,000         4,729,000
                                                          ------------      ------------
         Tax expense                                      $         --      $         --
                                                          ============      ============
</Table>



                                       9
<PAGE>
         The tax effects of the temporary differences that give rise to
significant portions of the deferred tax assets as of September 30, 2002 and
December 31, 2001 are as follows:

<Table>
<Caption>
                                                      SEPTEMBER 30, 2002   DECEMBER 31, 2001
                                                      ------------------   -----------------
<S>                                                  <C>                   <C>
         Loss carryforwards                               $ 39,368,000        $ 30,472,000
         Start-up costs                                      8,688,000          10,775,000
         Property, plant and equipment                         333,000             993,000
         Deferred revenue                                    2,229,000           2,333,000
         Other                                                 836,000             891,000
                                                          ------------        ------------
              Gross deferred tax assets                     51,454,000          45,464,000
              Valuation allowance                          (51,454,000)        (45,464,000)
                                                          ------------        ------------
              Net deferred tax assets                     $         --        $         --
                                                          ============        ============
</Table>

         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. 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 2005
through 2022.

(6)      EQUIPMENT AND LEASEHOLD IMPROVEMENTS

         Equipment and leasehold improvements consist of the following:

<Table>
<Caption>
                                                          SEPTEMBER 30,     DECEMBER 31,
                                                              2002              2001
                                                          -------------     ------------
<S>                                                       <C>               <C>
         Laboratory and office equipment                  $ 10,463,000      $  8,407,000
         Leasehold improvements                              4,310,000         4,302,000
                                                          ------------      ------------
                                                            14,773,000        12,709,000
         Less accumulated depreciation and amortization      9,156,000         8,409,000
                                                          ------------      ------------
                                                          $  5,617,000      $  4,300,000
                                                          ============      ============
</Table>

(7)      ENTITY-WIDE GEOGRAPHIC DATA

         The Company operates in a single business segment that includes
research and development of pharmaceutical products. The following table
summarizes the Company's long-lived assets in different geographic locations:

<Table>
<Caption>
                                                      SEPTEMBER 30, 2002  DECEMBER 31, 2001
                                                      ------------------  -----------------
<S>                                                   <C>                 <C>
         Long-lived assets:
            United States                                 $  4,997,000      $  4,446,000
            Germany                                          1,408,000           722,000
                                                          ------------      ------------
         Total                                            $  6,405,000      $  5,168,000
                                                          ============      ============
</Table>

(8)      RESEARCH AGREEMENTS

         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. See Note 9, License Agreements, below.

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



                                       10
<PAGE>
(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, a patent on
         the manufacturing process to produce Argatroban that expires in 2019,
         and a patent for the use of Argatroban as a fibrinolysis-enhancing
         agent which expires in 2009. The Mitsubishi composition of matter
         patent on Argatroban has expired. 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 2001, which is being recognized in revenues
         over the expected development period, and accordingly, revenues in the
         three and nine-month periods ended September 30, 2002 include
         approximately $95,000 and $286,000, respectively, related to such
         milestone payment. Revenues in the three and nine-month periods ended
         September 30, 2001 include approximately $107,000 and $178,000,
         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 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 heparin-induced
         thrombocytopenia ("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 and a
         nine-month period ended September 30, 2002 was approximately $27,000
         and $80,000, respectively. 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 the Company's contribution of technology, ICOS-TBC paid a
         license fee to the Company in June 2000, and has made a milestone
         payment that together with additional milestone payments could be as
         much as $53.5 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



                                       11

<PAGE>
         $121,000 and $363,000 of it as revenue during the three and nine month
         periods ended September 30, 2002, and the three and nine month periods
         ended September 30, 2001, respectively. See Note 2(h), 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
         the achievement of an objective defined in the partnership agreement.
         The Company is recognizing the revenue associated with the milestone
         over the expected development period, and revenues included
         approximately $167,000 and $500,000 in the three and nine-month periods
         ended September 30, 2002, respectively, and approximately $167,000 in
         the three and nine-month periods ended September 30, 2001,
         respectively.

                  During the three month periods ended September 30, 2002 and
         2001, the Company recognized a loss of approximately $1,838,000 and
         $2,156,000, 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.
         During the nine-month periods ended September 30, 2002 and September
         30, 2001, such losses recognized by the Company totaled $6,305,000 and
         $5,926,000, respectively.

         Schering-Plough Research Collaboration and License Agreement

                  On June 30, 2000, TBC and Schering-Plough ("Schering") 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.

                  Under the terms of the agreement, Schering 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
         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 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 fees, milestones and grants in the
         three and nine-month periods ended September 30, 2002 included
         approximately $91,000 and $274,000, respectively, related to this
         upfront license fee. During the three and nine month periods ended
         September 30, 2001, the Company recognized revenues of approximately
         $92,000 and $364,000 related to this license fee, respectively.

                  In June 2002, the Company achieved a milestone under the
         agreement with Schering as a result of the nomination of an initial
         candidate for Schering's further development. This milestone payment
         will be recognized into revenue over the expected development period.
         License fees, milestones and grants for the three and nine-month
         periods ended September 30, 2002 included approximately $45,000 and
         $60,000 related to this milestone payment, respectively. Total payments
         to TBC under the terms of the agreement, excluding royalties, could
         reach $87.0 million. Additionally, in June 2002, Schering and the
         Company agreed to extend Schering's support of the research
         collaboration to a third year, through June 30, 2003.



                                       12

<PAGE>
(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 development
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 $2,620,000 on its consolidated balance sheet at September 30,
2002 and December 31, 2001. The minority interest in Revotar at September 30,
2002 and December 31, 2001, was $369,000 and $1,213,000, respectively. The
Company's consolidated net loss for the three month periods ended September 30,
2002 and 2001 was reduced by $364,000 and $266,000, respectively, for the
Revotar minority shareholders' interest in Revotar's losses. The Company's
consolidated net loss for the nine-month periods ended September 30, 2002 and
2001 was reduced by $844,000 and $451,000, respectively.

         Revotar has been awarded research grants from the German government,
and earned approximately $97,000 and $234,000 during the three and nine months
ended September 30, 2002, respectively, which is included in license fees,
milestones and grants.

         The Company and the other stockholders of Revotar have executed an
agreement to provide approximately $4.5 million in unsecured loans, of which the
Company's commitment will be approximately $3.4 million. The terms of the loans
require quarterly interest payments and repayment of all principal on or before
April 1, 2007. The interest rate for the first two years will be seven percent,
after which the interest rate could then be reset to the U.S. prime rate plus
2.5 percent if such rate is higher than seven percent. Pursuant to such
agreement, the Company advanced approximately $700,000 to Revotar in June 2002,
and approximately $500,000 in October 2002.

         As part of the agreement to form Revotar, the Company and the other
initial investors agreed to issue rights to purchase common stock of Revotar
held by them to Aqua Partners LLC ("Aqua"), which assisted in the formation of
Revotar. The shareholders have signed an agreement that provides Aqua with the
option to acquire up to 3.26% of the shares owned by each shareholder for a
total amount of approximately $540,000, payable to the shareholders.

(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 "GSK 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.
Additional milestone payments may be earned upon the clinical development and
FDA approval for the acute myocardial infarction indication. Future milestone
payments for the acute myocardial infarction indication are subject to GSK's
agreement to market Argatroban for such indication. The parties have also formed
a joint development committee to analyze the development of additional
Argatroban indications to be funded 60% by GSK except for certain Phase IV
trials which shall be funded entirely by GSK. At this time, GSK has no plans to
conduct development work for the acute myocardial infarction and stroke
indications. TBC began a Phase II clinical trial in March 2001 to evaluate the
use of Argatroban for ischemic stroke, and announced preliminary results in
October 2002. GSK has the exclusive right to commercialize all products arising
out of the collaboration, subject to the obligation to pay royalties on net
sales to TBC and to the rights of TBC to co-promote these products through its
own sales force in certain circumstances. TBC will retain the rights to any
indications which GSK determines it does not wish to pursue (such as ischemic
stroke), subject to the requirement that TBC must use its own sales force to
commercialize any such indications. Any indications which TBC elects not to
pursue will be



                                       13

<PAGE>
returned to Mitsubishi. In conjunction with the GSK Agreement, a consulting firm
involved in negotiations related to the agreement will receive a percentage of
all consideration received by TBC as a result of the agreement.

         We currently market Argatroban and enjoy market exclusivity pursuant to
the Waxman/Hatch Act that provides protection from competition until June 30,
2005. We can obtain an extension under Waxman/Hatch until December 31, 2005
under certain circumstances pertaining to submission of pediatric data.
Argatroban is currently marketed in a formulation that is covered under a
formulation patent that expires in 2010. We will also be submitting a process
patent, that expires in 2019, to the FDA for inclusion in the FDA Orange Book of
Approved Drug Products. Following expiration of Waxman/Hatch protection, it is
possible that generic manufacturers may be able to produce Argatroban without
violating the formulation or process patents. The composition of matter patent
on Argatroban has expired. We have access to other patents held by Mitsubishi,
however, these are not being utilized currently.

         At present, Mitsubishi is the only manufacturer of Argatroban, and has
entered into the Mitsubishi Supply Agreement with GSK to supply Argatroban in
bulk in order to meet GSK and TBC's needs under the GSK Agreement. Should
Mitsubishi fail during any consecutive nine-month period to supply GSK at least
80% of its requirements, and such requirements cannot be satisfied by existing
inventories, the Mitsubishi Supply Agreement provides for the nonexclusive
transfer of the production technology to GSK. If GSK cannot commence
manufacturing of Argatroban or alternate sources of supply are unavailable or
uneconomic, the Company's results of operations would be materially and
adversely affected.

         The GSK Agreement generally terminates on a country by country basis
upon the earlier of the termination of TBC's rights under the Mitsubishi
Agreement, the expiration of applicable patent rights or, in the case of royalty
payments, the commencement of substantial third-party competition. GSK also has
the right to terminate the agreement on a country by country basis by giving TBC
at least three months written notice at any time before GSK first markets
products in that country based on a reasonable determination by GSK that the
commercial profile of the product in question would not justify continued
development in that country. GSK has similar rights to terminate the GSK
Agreement on a country by country basis after marketing has commenced. In
addition, either party may terminate the GSK Agreement on 60 days notice if the
other party defaults in its obligations under the agreement, declares bankruptcy
or is insolvent.

(12)     401(k) PLAN

         The Company has a 401(k) plan under which all employees with three
months of service are eligible to participate and may contribute up to 60
percent of their compensation, with a maximum contribution of $11,000 per
employee in 2002. Under the terms of the Economic Growth and Tax Relief
Reconciliation Act, employees aged 50 or older may contribute an additional
$1,000 to the 401(k) Plan in 2002, such additional contribution would be
eligible for employer matching. 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. Charges to operating expense for
employer match during the three-month periods ended September 30, 2002 and 2001
were approximately $52,000 and $42,000, respectively. During the nine-month
periods ended September 30, 2002 and 2001, charges to operating expense for
employer match were $155,000 and $126,000, respectively.

(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



                                       14

<PAGE>

         reported assets, liabilities, expenses and cash flows from this
         subsidiary are exposed to changing exchange rates. The Company,
         accordingly, included unrealized gains of $64,000 and $224,000,
         respectively, in its comprehensive loss for the three-month periods
         ended September 30, 2002 and 2001. In the nine-month periods ended
         September 30, 2002 and 2001, the Company's comprehensive loss included
         an unrealized gain of $208,000 and an unrealized loss of $220,000,
         respectively. The Company had an intercompany receivable from its
         German subsidiary at September 30, 2002; 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) Obligation under Capital Leases

                  In June 2002 the Company entered into a lease of certain
         equipment under an agreement that is classified as a capital lease. The
         cost of equipment under capital leases is included in the balance
         sheets as equipment and leasehold improvements, and was $34,000 at
         September 30, 2002. Accumulated amortization of the leased equipment at
         September 30, 2002 was approximately $3,000. Amortization of assets
         under capital leases is included in depreciation and amortization
         expense.

                  The future minimum lease payments required under the capital
         lease and the present value of the net minimum lease payments as of
         September 30, 2002, are as follows:

<Table>
<Caption>
                                                           YEAR ENDING
                                                           DECEMBER 31             AMOUNT
                                                           -----------          -----------
<S>                                                                             <C>
                                                                  2002          $     4,000
                                                                  2003               14,000
                                                                  2004               14,000
                                                                  2005                4,000
                                                                                -----------
         Total minimum lease payments                                                36,000

         Less: Amount representing interest                                          (5,000)
                                                                                -----------
         Present value of minimum lease payments                                     31,000
         Less: Current maturities of capital lease obligations                      (10,000)
                                                                                -----------
         Long-term capital lease obligations                                    $    21,000
                                                                                ===========
</Table>

         (c) 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.



                                       15
<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, 2002 AND 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, 2001, 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 are 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. Our research and
development programs are focused on inhibitors (also referred to as antagonists
or blockers) that can interrupt certain disease processes. Our programs seek to
address unmet medical needs in cardiovascular diseases, thrombocytopenia,
pulmonary arterial hypertension, heart failure and inflammatory diseases such as
asthma.

         Our strategy is to identify and develop novel product candidates for
underserved indications, and to commercialize those candidates through
collaborations with other pharmaceutical and biotechnology companies. On
occasion in the future, we may choose to commercialize products on our own. An
important part of our strategy is the selection of corporate partners to enhance
our drug discovery and development efforts. Our partners and we currently have
four products in clinical development.

              MAJOR COMPOUNDS IN RESEARCH AND DEVELOPMENT PROGRAMS

ARGATROBAN

         Argatroban was approved by the FDA in 2000, is indicated for
prophylaxis or treatment of thrombosis in patients with HIT and began shipping
in November 2000. A key element of our continuing development strategy is to
expand the uses of Argatroban. GSK is our development, manufacturing and
marketing partner for Argatroban. In April 2002, we received approval from the
FDA on our supplemental new drug application for Argatroban for use in HIT
patients undergoing percutaneous coronary intervention (PCI.) We are evaluating,
in conjunction with GSK, the use of Argatroban in hemodialysis patients. We have
recently completed patient enrollment in a Phase II clinical trial, conducted in
conjunction with GSK, for the use of Argatroban in patients undergoing PCI.

         Argatroban will be evaluated in combination with t-PA as a new approach
to the treatment of acute ischemic stroke by the University of Texas Medical
School in Houston. The trial will be funded by the National Institute of
Neurological Disorders and Stroke at the National Institutes of Health (NIH).

         Initial top line results for ARGIS-1, a Phase II multi-center trial
designed to assess the safety and efficacy of two doses of Argatroban, compared
to placebo, within 12 hours of the onset of a stroke, showed that Argatroban met
the primary endpoint, with no statistical difference in symptomatic intracranial
hemorrhage rates between Argatroban and placebo. Positive results were also
observed for the secondary safety endpoint, asymptomatic intracranial
hemorrhage. While the ARGIS-1 trial was powered only to determine the safety of
Argatroban, traditional neurologic assessments were also evaluated at intervals
up



                                       16
<PAGE>

to 90 days. Based on the preliminary analysis at 90 days, there were no
statistically significant effects or major trends observed in the measures used
to determine efficacy. A full analysis of the trial is underway to determine
whether there were any meaningful efficacy trends in specific patient sub
groups, stroke types and/or treatment windows. In light of a lack of an overall
efficacy trend, and the high risk and high costs associated with stroke trials,
it is unlikely that we will proceed independently with a full Phase III program.
If the sub group analyses demonstrate potential efficacy in a defined patient
population, we plan to pursue alternative means to fund further clinical
development.

SITAXSENTAN

         In June 2000, we established ICOS-TBC, a 50/50-owned limited
partnership with ICOS, to develop and commercialize endothelin receptor
antagonists, including sitaxsentan and TBC3711. During 2001, we initiated
STRIDE, a pivotal phase IIb/III clinical trial for pulmonary arterial
hypertension ("PAH"), which completed enrollment in July 2002. The primary
endpoint of the STRIDE trial was change in percent of predicted peak VO2 from
baseline to week 12. The results showed a statistically significant improvement
for the 300 mg dose group compared with placebo treatment (7% relative
improvement). The primary endpoint was not statistically significant for the 100
mg dose group. A secondary endpoint was change in six-minute walk distance from
baseline to week 12. The results showed a significant improvement for both the
sitaxsentan 100 mg and 300 mg groups, compared with placebo treatment (9%
relative improvement). The six-minute walk test is the most widely used efficacy
test for drugs treating PAH. NYHA class improvement, another important measure
that reflects limitations in physical activity, was also statistically
significant for the sitaxsentan 100 mg and 300 mg dose groups compared with
placebo treatment. The most frequent adverse events that occurred in patients
receiving sitaxsentan, and were more common than in placebo-treated patients,
were headache, peripheral edema, nausea, nasal congestion and prolonged clotting
time.

         Patients completing the above trial had been eligible to enroll in an
extension trial for the purpose of obtaining long-term safety data, for a
maximum of 55 weeks exposure to sitaxsentan in both studies combined. Liver
abnormalities have previously been recognized as complications related to the
endothelin antagonist class of drugs. Liver abnormalities in the STRIDE trial
were defined as elevated serum aminotransferase values that were more than three
times normal. Incidences of liver abnormalities, which reversed in all cases,
were approximately 2% for the placebo group, 0% for the sitaxsentan 100 mg group
and 10% for the sitaxsentan 300 mg group. When data from the STRIDE trial are
combined with data from the extension trial, the incidences of liver
abnormalities, which were all reversible, were 5% for the sitaxsentan 100 mg
dose group and 21% for the sitaxsentan 300 mg dose group. Although all liver
injury in the current trials has been reversible, the partnership decided, as a
precaution, to conclude the extension trial.

         We expect to meet with the FDA over the next two to three months to
discuss the next steps for sitaxsentan.

TBC3711

         TBC3711 is our second oral endothelin A receptor selective antagonist
to enter clinical development. Endothelin receptor antagonists are believed to
be potentially effective in the treatment of a variety of diseases where the
regulation of vascular constriction and tone is important. Two Phase I clinical
studies of TBC3711 were completed in year 2001 to determine the safety and
tolerability of TBC3711. At this time, there are no plans to take TBC3711 into
Phase II clinical trials.

BIMOSIAMOSE (TBC1269)

         We are developing a selectin antagonist, TBC1269, for the treatment of
asthma and psoriasis. The intravenous form of the drug has been tested in Phase
II clinical trials. During 2000, we formed Revotar, a majority owned German
subsidiary located in Berlin, to further the development of this product. During
2001, Revotar completed Phase I clinical trials for asthma utilizing an inhaled
form of TBC1269 and a



                                       17
<PAGE>

Phase IIa clinical trial in psoriasis has been conducted with an injectable form
of TBC1269 as a proof-of-concept. Revotar is conducting a Phase IIa trial for
bimosiamose as an inhaled therapy for asthma.

         Revotar also announced, in August 2002, results of Phase I studies,
using a single dose of the inhaled formulation of bimosiamose in 48 healthy
volunteers. There were no serious adverse effects and detectable plasma levels
were achieved at the higher dose levels. A maximum tolerated dose of 140 mg was
also achieved. In a double-blind, multiple dose, Phase I safety study,
bimosiamose was administered by inhalation twice a day for seven days using
several dose levels ranging from eight to 70 mg. As in the previous study, there
were no serious adverse events, and the upper dose, which resulted in systemic
exposure, was also well tolerated and well characterized.

VLA-4 ANTAGONIST PROGRAM

         We are developing, in collaboration with Schering, a VLA-4 antagonist
for the treatment of asthma. In June 2002, we achieved a milestone under the
Schering agreement as a result of the nomination of an initial candidate for
Schering's further development.

                              RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

Revenue Recognition

         o        We recognize revenue from service contracts as services are
                  performed.

         o        Royalty revenue is recognized as products are sold by a
                  licensee and we have received sufficient information to record
                  a receivable. Our royalty revenue is based on net sales of
                  product, that is, sales net of discounts, returns and
                  allowances. We have estimated a percentage of gross sales,
                  based on recent experience, as an allowance for future
                  returns, however there can be no assurance that our estimate
                  will be accurate.

         o        Revenue from collaborative research and development activities
                  is recognized as services are performed.

         o        We defer the recognition of milestone payments 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.

         o        License fees received under the terms of licensing agreements
                  for our intellectual property are similarly deferred, and
                  amortized into income over the estimated developmental period
                  of the licensed item or items.

         o        Revenue from grants is recognized as earned under the terms of
                  the related grant agreements, typically as expenses are
                  incurred.

         Amounts received in advance of services being performed under contracts
are recorded as deferred revenue, and recognized as services are performed. We
periodically evaluate our estimates of remaining development periods, and adjust
the recognition of remaining deferred revenues over the adjusted development
period remaining.

Partnership Accounting

         We recognize our share of the operating results of ICOS-TBC in
proportion to our ownership interest and record it as equity in loss of
ICOS-TBC. Operating results of ICOS-TBC include expenses related to our internal
research staff that we recognize as revenue and record as collaborative research
and development revenue from ICOS-TBC. Due to the nature of the ICOS-TBC
collaborative agreement, our collaborative research and development revenue from
ICOS-TBC largely depends on the continued



                                       18
<PAGE>

progression of clinical trial and development activities, and can be expected to
vary from quarter to quarter and year to year.

Stock Options

         We apply Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations ("APB 25") in accounting
for our stock option plans and apply FASB Statement No. 123, "Accounting for
Stock-Based Compensation", and related interpretations ("SFAS 123") in reporting
for our stock option plans. APB 25 utilizes the "intrinsic value" of stock
options, defined as the difference between the exercise price of an option and
the market price of the underlying share of common stock, on the "measurement
date" which is generally the date of grant. Since the exercise price of employee
stock options issued under our plans is set to match the market price of our
common stock, there is generally no compensation expense recognized upon grant
of employee stock options. Options granted to non-employees, if any, are valued
at the "fair value" of the option as defined by SFAS 123, utilizing the
Black-Scholes option pricing model. We recorded compensation expense for the
"fair value" of options granted to non-employees.

Use of Estimates

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires us to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period.

Commitments and Contingencies

         We are currently involved in certain legal proceedings as discussed in
"Commitments and Contingencies" in the Notes to Consolidated Financial
Statements. We do not believe these legal proceedings will have a material
adverse effect on our consolidated financial position, results of operations or
cash flows. If an unfavorable ruling were to occur in any quarterly period,
however, there exists the possibility of a material impact on that period.

GENERAL

         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.

         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 may
initiate certain commercial activities in the future, which could contribute to
future operating losses. We have sustained net losses of approximately $143.5
million from the date of our inception to September 30, 2002. We have primarily
financed our operations to date through a series of private placement and public
offerings of our common stock and several collaborative agreements with third
parties to jointly pursue product research and development. See discussion of
"Liquidity and Capital Resources" below. See also "Additional Risk Factors" in
Item 1 "Business" of our Annual Report on Form 10-K for the year ended December
31, 2001.

         THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

         Revenues in the quarter ended September 30, 2002 increased
approximately $701,000, compared with the quarter ended September 30, 2001. In
the nine months ended September 30, 2002, revenues increased approximately
$1,188,000, compared with the nine months ended September 30, 2001. The increase
is attributable to increased royalty income earned on sales of Argatroban and
increased license



                                       19
<PAGE>

fees, milestones and grants, partially offset by reduced research and
development revenues, discussed below.

         Royalties earned on sales of Argatroban were $676,000 in the third
quarter of 2002, an increase of $343,000 over the third quarter of 2001. In the
nine months ended September 30, 2002, royalties were $2,481,000, an increase of
$1,579,000 over the nine months ended September 30, 2001. We earn royalties
based upon sales by GSK to drug wholesalers. Sales to wholesalers should, over
time, reflect consumption of Argatroban in hospital procedures, however
fluctuation from quarter to quarter may occur, reflecting increases or decreases
in wholesaler inventory levels. In October 2002, GSK initiated a broad-based HIT
disease education media campaign designed to increase awareness of HIT, the
life-threatening reaction to heparin for which Argatroban is approved. As
medical education is key to growing Argatroban sales in HIT, we believe this
initiative, along with increased direct selling efforts, are likely to have a
positive impact on Argatroban sales.

         Collaborative research and development revenues received from the
ICOS-TBC partnership declined approximately $100,000 in the third quarter of
2002, compared with the third quarter of 2001, and approximately $394,000 in the
nine months ended September 30, 2002 compared with the nine months ended
September 30, 2001. The involvement of the Company's research and development
staff will vary from quarter to quarter, depending upon the activities being
performed.

         Research agreement revenues, resulting from the Company's collaborative
efforts with unrelated parties, increased $328,000 in the third quarter of 2002,
compared with the third quarter of 2001, and declined approximately $642,000 in
the comparable nine month periods. Research agreement revenues in the third
quarter of 2001 were negatively affected by the termination of the Company's
agreement with LG Chemical. The Company's research and development activity
conducted under the Schering agreement during the three and nine months ended
September 30, 2002, has declined, compared with the three and nine months ended
September 30, 2001. Most of the Company's efforts toward development of an
initial candidate for clinical development had been completed late in year 2001.
As discussed above, we achieved a milestone under the Schering agreement as a
result of the nomination of an initial candidate for Schering's further
development in the second quarter of 2002.

         License fees, milestones and grants increased $130,000 and $645,000 in
the three and nine month periods ended September 30, 2002, respectively. Revotar
has been awarded research grants from the German government, and earned
approximately $97,000 and $234,000 during the three and nine months ended
September 30, 2002, respectively. In addition to the grant revenues received by
Revotar, the increase in license fees, milestones and grants in the nine-months
ended September 30, 2002 was primarily comprised of revenues related to the
milestone payment received from Mitsubishi in May 2001, the milestone payment
received from ICOS in July 2001, and the milestone payment received from
Schering in June 2002. See Note 9 to the Consolidated Financial Statements.

         Total research and development expenses (including the Company's share
of expenses incurred by the ICOS-TBC partnership) were $7,124,000 in the third
quarter of 2002, an increase of $1,192,000 over the comparable amount in the
third quarter of 2001. In the nine months ended September 30, 2002, total
research and development expenses were $22,412,000, an increase of $4,651,000
compared with the nine months ended September 30, 2001. The increase is
primarily due to costs of clinical trials which began to incur significant
expenses early in year 2002 and were ongoing throughout the periods ended
September 30, 2002. Trials ongoing during the first nine months of 2002 include
a Phase II study of Argatroban in ischemic stroke, a Phase II study of
Argatroban in patients undergoing PCI, and a Phase IIb/III trial of sitaxsentan
for pulmonary hypertension, conducted by the ICOS-TBC partnership. All of these
trials are now complete and the results are being analyzed.

         General and administrative expenses in the third quarter of 2002 were
$2,041,000, an increase of $562,000 over the third quarter of 2001. In the
comparable nine-month periods, general and administrative expenses increased
$2,090,000. The increase during the 2002 periods is primarily comprised of
additional selling and marketing support of Argatroban and increased costs at
Revotar. Revotar began operation late in year 2000, however only minimal
activity was conducted at Revotar until the second half of year 2001.



                                       20
<PAGE>

The nine-months ended September 30, 2002 also included the effect of costs
associated with the retirement, recruiting and hiring of key personnel,
including a non-cash charge in the first quarter of 2002 of approximately
$182,000 in compensation expense primarily related to modifications to stock
options of our retired CEO.

         Investment income declined to $556,000 in the third quarter of 2002,
and to $1,936,000 in the nine months ended September 30, 2002, compared with
$1,152,000 in the third quarter of 2001 and $4,250,000 in the nine months ended
September 30, 2001. The decline is primarily due to a combination of lower
prevailing interest rates during 2002 compared with 2001 and to reduced funds
available for investment during the periods ended September 30, 2002.

         In the quarter ended September 30, 2002, we reported a net loss of
$5,840,000, or $0.13 per share, basic and diluted. The comparable net loss in
the quarter ended September 30, 2001 was $4,289,000, or $0.10 per share. The
increased loss in the current quarter, compared to the quarter ended September
30, 2001, is primarily due to higher research and development costs, increased
general and administrative expenses, and lower investment income, as discussed
above.

         In the nine months ended September 30, 2002, we reported a net loss of
$18,811,000, or $0.43 per share, as compared with a net loss of $11,337,000 or
$0.26 per share in the nine months ended September 30, 2001. The increased loss
during the current year period is due to higher research and development costs,
increased general and administrative expenses, and lower investment income, as
discussed above.

                         LIQUIDITY AND CAPITAL RESOURCES

         We have financed our research and development activities and other
operations primarily through public and private offerings of our common stock
and from funds received through our collaborations, research agreements and
partnerships. We also have received royalty revenue from sales of Argatroban. We
have not conducted any offerings in 2002, and have relied on our cash balances
from prior offerings and our revenues to fund operations, with the result that
our cash balance has decreased in 2002.

         Cash, cash equivalents and investments in marketable securities,
including accrued interest thereon, was $74,316,000 at September 30, 2002,
compared with $95,427,000 at December 31, 2001. We used $19,481,000 in cash in
operating activities during the nine months ended September 30, 2002, compared
to cash used in operating activities of $10,387,000 during the nine months ended
September 30, 2001. The increased use of cash in the current year period is due
to higher operating expenses and reduced investment income, compared with the
nine months ended September 30, 2001, as discussed above.

         Investing activities generated $28,105,000 during the nine months ended
September 30, 2002, compared to a use of cash of $25,532,000 in the nine months
ended September 30, 2001. In the nine months ended September 30, 2002, a decline
in investments in marketable securities occurred as cash from matured
investments was consumed in or set aside for our operating activities. In the
nine months ended September 30, 2001, invested funds increased, primarily
because of the investment of the proceeds received upon the exercise of public
warrants in January 2001, discussed below.

         Financing activities generated $480,000 during the nine months ended
September 30, 2002, from the exercise of stock options and the sale of stock at
market price to the Company's new CEO, pursuant to his employment agreement. In
the nine months ended September 30, 2001, we received proceeds of approximately
$20,593,000 upon the exercise of public and non-public common stock purchase
warrants, and approximately $52,000 from the exercise of stock options.

Material Commitments

         Our only material contractual commitments are comprised of a loan
commitment to Revotar and office and laboratory facility leases. We and the
minority shareholders of Revotar have committed to lend



                                       21
<PAGE>
Revotar, on an unsecured basis, approximately $4.5 million, of which our
commitment will be approximately $3.4 million. The terms of the loans require
quarterly interest payments and repayment of all principal on or before April 1,
2007. Our portion of the loan is denominated in U.S. dollars at an interest rate
of seven percent fixed for the first two years and resets to the greater of
seven percent or U.S. prime plus two and one-half percent on April 1, 2004. In
June 2002, approximately $700,000 was advanced to Revotar pursuant to the loan
agreement, and an additional $500,000 was advanced in October 2002. Revotar will
need to seek additional funding through collaborative arrangements and/or
through public or private financings in the future. If they are not successful
in obtaining such funding, Revotar will be unable to repay our loans. A likely
result of additional financings would be to reduce our ownership percentage
in Revotar.

         The Company had long-term obligations under our office and laboratory
leases as follows (in thousands):

<Table>
<Caption>
                                                     Less than          1-3             4-5           After 5
       Contractual Obligations         Total          1 year           years           years           years
       -----------------------      -----------     -----------     -----------     -----------     -----------
<S>                                 <C>             <C>             <C>             <C>             <C>
       Operating Leases             $     7,826     $     1,617     $     3,573     $     2,636              --
       Capital Leases                        31              10              21              --              --
</Table>

Outlook for 2002

         We expect revenues in year 2002 to be in the range of $8.5 million to
$11 million, including royalties on Argatroban sales, reimbursements from
collaborative partners of research and development expenses, research
reimbursements from ICOS-TBC for the development of endothelin antagonist
products, and amortization of earned license fees and milestones. We expect net
sales of Argatroban by GSK to be in the range of $22 million to $26 million. We
believe investment income will be in the range of $1.8 million to $2.5 million,
depending upon prevailing interest rates and invested balances.

         Expenses in year 2002 are expected to be between $41 million and $44
million. The expected increase over year 2001 expenses is primarily in the area
of clinical development and reflects the Company's efforts to expand the use of
Argatroban in ischemic stroke and PCI, demonstrate the safety and efficacy of
sitaxsentan as a treatment of PAH, advance the development of TBC3711 and
continue development work of TBC1269 as a treatment for asthma and other
indications.

         For a number of reasons discussed elsewhere in this Form 10-Q, we
cannot estimate, with a reasonable degree of certainty, total completion costs
or dates of completion of our ongoing research and development projects. See
"Additional Risk Factors" in Item 1, "Business" of our annual report on Form
10-K for the year ended December 31, 2001, and "Longer-Term Outlook", below.

         Below is a summary of our ongoing research and development projects,
and an estimation of the distribution of our year 2002 research and development
expenditures for each of them.

<Table>
<Caption>
     Research and Development Programs               2002 R&D Expenditures
     ---------------------------------               ---------------------
<S>                                                  <C>
     Argatroban                                               19%
     Endothelin Antagonist                                    32%
        (sitaxsentan and TBC3711)
     Selectin Antagonist (TBC1269)                             9%
     VCAM/VLA-4                                               12%
     Early Stage Research                                     28%
                                                     -----------
               Total                                         100%
</Table>



                                       22
<PAGE>

Longer-Term Outlook

         We expect to continue to incur substantial expenditures related to the
discovery, development and commercialization of small molecule drugs to treat
significant unmet medical needs. For example:

         o        We expect to incur significant expenses in conjunction with
                  the ICOS-TBC partnership for endothelin antagonists associated
                  with clinical trial costs for sitaxsentan and research and
                  clinical trial costs for development of 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
                  possible clinical trial expenditures for additional
                  therapeutic indications.

         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. 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 use of Argatroban;

         o        possible emergence of generic competition;

         o        continued scientific progress in our drug discovery programs;

         o        the magnitude of these programs;

         o        progress with preclinical testing and clinical trials;

         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 through 2004. We anticipate that we may need to secure additional
funds to continue the required levels of research and development to reach our
current long-term goals. We intend to seek such additional funding through
collaborative arrangements and/or through public or private financings, if
required. There can be no assurances that such funding will be available on
acceptable terms. As we review our research and development programs, we may
also consider various measures to reduce our costs in order to effectively
utilize our capital resources.



                                       23
<PAGE>

Off-Balance Sheet Arrangements

         We do not engage in off-balance sheet financing arrangements; however
we are obligated to fund our proportionate share (50%) of any contractual
obligations of ICOS-TBC.

                  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, as amended (the "Exchange Act"). 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. The ability to
achieve our expectations is contingent upon a number of factors, which include,
without limitation:

         o        market acceptance and commercial success of Argatroban;

         o        expenses and risks associated with clinical trials to expand
                  the use of Argatroban;

         o        effect of any current or future competitive products;

         o        the possible emergence of generic competition;

         o        continued scientific progress in our drug discovery programs;

         o        the magnitude of these programs;



                                       24
<PAGE>

         o        progress with preclinical testing and clinical trials;

         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;

         o        retention of key personnel;

         o        capital market conditions; and

         o        effective commercialization activities and arrangements.

         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 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,
2001 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 assets, liabilities, expenses and cash flows
from this subsidiary are exposed to changing exchange rates. Accordingly, we
included an unrealized gain of $64,000 and $208,000 in its comprehensive loss
for the three and nine months ended September 30, 2002, respectively, and an
unrealized gain of approximately $224,000 and an unrealized loss of
approximately $220,000 for the three and nine-months ended September 30, 2001,
respectively. We had an intercompany receivable from our German subsidiary at
September 30, 2002; 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



                                       25
<PAGE>
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.

ITEM 4. CONTROLS AND PROCEDURES

         Within 90 days prior to the filing date of this report, we carried out
an evaluation, under the supervision and with the participation of management,
including our President and Chief Executive Officer, and our Vice President of
Finance and Administration, of the effectiveness of the design and operation of
our disclosure controls and procedures. Based upon that evaluation, our
President and Chief Executive Officer and our Vice President of Finance and
Administration concluded that our disclosure controls and procedures are
effective, providing management with material information relating to the
Company that is required to be included in our reports filed or submitted under
the Exchange Act on a timely basis. There have been no significant changes in
our internal controls or in other factors that could significantly affect
internal controls subsequent to the date we carried out our evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

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

         None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Two reports on Form 8-K were filed during the quarter ended September 30, 2002.
A Report on Form 8-K dated July 22, 2002 was filed providing an update on the
sitaxsentan Phase IIb/III Pulmonary Arterial Hypertension Trial. A Report on
Form 8-K dated August 9, 2002 was filed regarding the Company's results of
operations during the three and six months ended June 30, 2002, and raised
guidance on Argatroban sales.

EXHIBIT NO.      DESCRIPTION

  99.1           Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
                 Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.

  99.2           Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
                 Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.



                                       26
<PAGE>

                         TEXAS BIOTECHNOLOGY CORPORATION

                               SEPTEMBER 30, 2002

                                   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 8th day of November, 2002.



                                    TEXAS BIOTECHNOLOGY CORPORATION


                                    By: /s/  Bruce D. Given, M.D.
                                        ----------------------------------------
                                    Bruce D. Given, M.D.
                                    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)




                                       27
<PAGE>

                                 CERTIFICATIONS

I, Bruce D. Given, M.D., certify that:

         1. I have reviewed this quarterly report on Form 10-Q of Texas
Biotechnology Corporation;

         2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

              a)  designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this quarterly report is being prepared;

              b)  evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this quarterly report ("Evaluation Date");
                  and

              c)  presented in this quarterly report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors [or persons performing the
equivalent function]:

              a)  all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

              b)  any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

         6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: November 8, 2002                       By /s/ Bruce D. Given, M.D.
                                                --------------------------------
                                                Bruce D. Given, M.D.
                                                President and Chief Executive
                                                Officer





                                       28
<PAGE>

                                 CERTIFICATIONS

I, Stephen L. Mueller, certify that:

         1. I have reviewed this quarterly report on Form 10-Q of Texas
Biotechnology Corporation;

         2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

              a)  designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this quarterly report is being prepared;

              b)  evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this quarterly report ("Evaluation Date");
                  and

              c)  presented in this quarterly report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors [or persons performing the
equivalent function]:

              a)  all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

              b)  any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

         6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: November 8, 2002                       By /s/ Stephen L. Mueller
                                                --------------------------------
                                                Stephen L. Mueller
                                                Vice President, Finance and
                                                Administration Secretary and
                                                Treasurer




                                       29
<PAGE>
                                INDEX TO EXHIBITS


<Table>
<Caption>
  EXHIBIT NO.      DESCRIPTION
  -----------      -----------
<S>                <C>

    99.1           Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
                   Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.

    99.2           Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
                   Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.
</Table>