<PAGE>   1
                                  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 MARCH 31, 1998

                                       OR

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

Commission File Number:  1-12574

                         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, Suite 1920, 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, as of the latest practicable date.

<TABLE>
<CAPTION>
             Class                               Outstanding at March 31, 1998
             -----                               -----------------------------
<S>                                                       <C>       
Common Stock, $0.005 par value                            33,746,536
</TABLE>


<PAGE>   2



                         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 March 31, 1998 and December 31, 1997                    1

           Consolidated Statements of Operations for the three months ended
           March 31, 1998 and 1997                                                                   2

           Consolidated Statements of Cash Flows the three months ended
           March 31, 1998 and 1997                                                                   3

           Notes to Consolidated Financial Statements                                                4

           ITEM 2:   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                     FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                   9


PART II.   OTHER INFORMATION

           ITEM 1:  Legal Proceedings                                                               13

           ITEM 2:  Changes in Securities                                                           13

           ITEM 3:  Defaults Upon Senior Securities                                                 14

           ITEM 4:  Submission of Matters to a Vote of Security Holders                             14

           ITEM 5:  Other Information                                                               14

           ITEM 6:  Exhibits and Reports on Form 8-K                                                14


SIGNATURES                                                                                          15


INDEX TO EXHIBITS                                                                                   16
</TABLE>



<PAGE>   3

                 TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                         MARCH 31,          DECEMBER 31,
                                    ASSETS                                                 1998                 1997
                                    ------                                             -------------        -------------
                                                                                        (Unaudited)
<S>                                                                                    <C>                     <C>       
Current assets:
       Cash and cash equivalents                                                       $  14,540,196           14,323,573
       Short term investments                                                             25,944,393           29,383,791
       Other current receivables                                                             796,877            1,175,280
       Prepaids                                                                              856,634              553,585
       Other current assets                                                                   12,900               10,400
                                                                                       -------------        -------------
             Total current assets                                                         42,151,000           45,446,629

Equipment and leasehold improvements, at cost less
       accumulated depreciation and amortization (note 4)                                  3,449,600            3,292,062

Other assets                                                                                  59,591               59,591
                                                                                       -------------        -------------

            Total assets                                                               $  45,660,191           48,798,282
                                                                                       =============        =============

                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
       Accounts payable                                                                $   1,148,982            1,006,145
       Accrued expenses                                                                    1,462,958            1,625,071
                                                                                       -------------        -------------
            Total current liabilities                                                      2,611,940            2,631,216

Commitments and contingencies (notes 5, 6 and 8)                                                  --                   --

Stockholders' equity (notes 2 and 5):
       Preferred stock, par value $.005 per share. At March 31, 1998, 5,000,000
            shares authorized; none outstanding. At December 31, 1997, 5,000,000
            shares authorized, 300 shares issued and
            outstanding                                                                           --                    2
       Common stock, par value $.005 per share.  At March 31, 1998,
            75,000,000 shares authorized; 33,746,536 shares issued and
            outstanding.  At December 31, 1997, 75,000,000 shares
            authorized; 33,585,919 shares issued and outstanding                             168,735              167,929
       Additional paid-in capital                                                        116,389,787          116,085,172
       Accumulated deficit                                                               (73,510,271)         (70,086,037)
                                                                                       -------------        -------------
            Total stockholders' equity                                                    43,048,251           46,167,066
                                                                                       -------------        -------------

            Total liabilities and stockholders' equity                                 $  45,660,191           48,798,282
                                                                                       =============        =============
</TABLE>


          See accompanying notes to consolidated financial statements

FORM 10-Q
                                                                          Page 1
<PAGE>   4

                 TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS





<TABLE>
<CAPTION>
                                                    THREE MONTHS       THREE MONTHS
                                                       ENDED               ENDED
                                                      MARCH 31,           MARCH 31,
                                                        1998               1997
                                                     -----------       -----------
                                                     (unaudited)       (unaudited)
<S>                                                  <C>                   <C>    
Revenues:
    Research agreements                              $   621,600           797,501
    Other income                                              --             2,499
                                                     -----------       -----------
        Total revenues                                   621,600           800,000
                                                     -----------       -----------

Expenses:
    Research and development                           3,410,384         4,285,054
    General and administrative                         1,214,309         1,084,298
                                                     -----------       -----------
        Total expenses                                 4,624,693         5,369,352
                                                     -----------       -----------

        Operating loss                                 4,003,093         4,569,352
                                                     -----------       -----------

Other income:
    Interest income                                      580,549           157,388
    Other                                                     --             9,618
                                                     -----------       -----------
        Total other income                               580,549           167,006

        Net loss                                       3,422,544         4,402,346
        Preferred dividend requirement                     1,690           396,952

        Net loss applicable to common shares         $ 3,424,234         4,799,298

Net loss per common share, basic and diluted:        $      0.10              0.19
                                                     ===========       ===========

Weighted average common shares used to
    compute net loss per common share, basic
    and diluted:                                      33,653,337        25,516,729
                                                     ===========       ===========
</TABLE>


          See accompanying notes to consolidated financial statements

FORM 10-Q
                                                                          Page 2
<PAGE>   5

                 TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                          THREE MONTHS ENDED
                                                                                               MARCH 31,
                                                                                       1998              1997
                                                                                   ------------        ------------
<S>                                                                                <C>                   <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                        $ (3,422,544)         (4,402,346)
   Adjustments to reconcile net loss to net cash
    used in operating activities:
          Depreciation and amortization                                                 200,470             186,365
          Expenses paid with stock (note 2)                                               3,592                  --
          Compensation expense related to stock options (note 2)                             --             153,265
          Loss on disposition of fixed assets                                             7,895                  --
          Decrease in preferred dividend payable not included in net loss                11,913                  --
   Change in operating assets and liabilities, net of effect of acquisition:
    (Increase) decrease in prepaids                                                    (303,049)             76,034
    (Increase) decrease in receivables                                                  378,403                  --
    (Increase) in other current assets                                                   (2,500)           (207,940)
    (Increase) in inventories                                                                --            (167,560)
    (Decrease) in current liabilities                                                   (19,276)           (924,174)
    (Decrease) in deferred revenue                                                           --            (187,500)
                                                                                   ------------        ------------
          Net cash used in operating activities                                      (3,145,096)         (5,473,856)
                                                                                   ------------        ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of equipment and leasehold improvements                                   (368,903)           (214,921)
   Proceeds from disposition of fixed assets                                              3,000
   Purchase of short term investments                                               (15,840,434)         (5,483,103)
   Maturity of short term investments                                                19,272,605           6,094,650
   Decrease in interest receivable included in short term investments                     7,227                  --
                                                                                   ------------        ------------
         Net cash provided by investing activities                                    3,073,495             396,626
                                                                                   ------------        ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of common stock and exercises of
    options and warrants, net                                                           288,224             586,092
   Proceeds from sale of preferred stock, net                                                --           5,955,575
                                                                                   ------------        ------------
          Net cash provided by financing activities                                     288,224           6,541,667
                                                                                   ------------        ------------

    Net increase in cash and cash equivalents                                           216,623           1,464,437

Cash and cash equivalents at beginning of period                                     14,323,573           2,127,999
                                                                                   ------------        ------------

Cash and cash equivalents at end of period                                         $ 14,540,196           3,592,436
                                                                                   ============        ============
</TABLE>


                 See accompanying notes to financial statements

FORM 10-Q
                                                                          Page 3
<PAGE>   6


                 TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997



(1)    ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

       (a)    Organization

              Texas Biotechnology Corporation (the "Company" or "TBC"), a
              biopharmaceutical company, applies innovative drug discovery
              techniques and its specialized knowledge of the role of vascular
              cell biology in vascular diseases to the design and development of
              novel pharmaceutical compounds. 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") (now
              discontinued), a San Diego, California based company, in exchange
              for Common Stock of the Company. TBC consolidated the IPI
              operation into TBC in the first half of 1996.

              The Company is presently working on a number of long-term
              development projects which involve experimental and unproven
              technology, which may require many years and substantial
              expenditures to complete, and which may be unsuccessful. To date,
              other than small amounts of monoclonal antibody compounds and
              services produced and sold by IPI (now discontinued), the Company
              has not developed or sold any products, and no assurance can be
              given that the Company will be able to develop, manufacture or
              market any products in the future. In addition, no assurance
              exists that future revenues will be significant, that any sales
              will be profitable, or that the Company will have sufficient funds
              available to complete its research and development programs or
              market any products which it may develop.

       (b)    Basis of Consolidation

              The Company's consolidated financial statements include the
              accounts of the Company and its wholly owned subsidiary, IPI. All
              material intercompany transactions have been eliminated. The
              Company's consolidated financial statements include the activity
              related to IPI since August 1, 1994.

       (c)    Cash, Cash Equivalents and Short Term Investments

              Cash equivalents are considered to be those securities or
              instruments with original maturities, when purchased, of three
              months or less. At March 31, 1998, approximately $13,089,000 was
              invested in demand and money market accounts. Short term
              investments are those investments which have an original maturity
              of less than one year and greater than three months. At March 31,
              1998, the Company's short term investments consisted of
              approximately $2,461,000 in Government Agency Notes and
              $23,484,000 in Corporate Commercial Paper. Cash equivalents and
              short term investments are stated at cost plus accrued interest,
              which approximates market value. Interest income is accrued as
              earned. In connection with the adoption of Financial Accounting
              Standards Statement 115, the Company classified all short 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.


FORM 10-Q                                                                Page 4
<PAGE>   7




       (e)    Intangible Assets

              Intangible assets are amortized on a straight line basis over ten
              years.

       (f)    Research and Development Costs

              All research and development costs are expensed as incurred and
              include salaries of research and development employees, certain
              rent and related building services, research supplies and
              services, clinical trial expenses and other associated costs. With
              respect to research and development, salaries and benefits for the
              three month period ended March 31, 1998 and 1997, totaled
              approximately $1,673,000 and $1,587,000, respectively, of which
              approximately $1,237,000 and $1,137,000, respectively, was charged
              to research and development. Payments related to the acquisition
              of in-process research and development are expensed.

       (g)    Net Loss Per Common Share

              Basic net loss per common share is based upon the net loss
              applicable to common shares after preferred dividend requirements
              and upon the weighted average of common and common equivalent
              shares outstanding during the period. For the three months ended
              March 31, 1998 and 1997, the weighted average common shares used
              to compute basic net loss per common share totaled 33,653,337 and
              25,516,729, respectively. The conversion of securities convertible
              into Common Stock and the exercise of stock options and warrants
              were not assumed in the calculation of net loss per common share
              because the effect would have been antidilutive.

       (h)    Reclassifications

              Certain reclassifications have been made to prior period financial
              statements to conform with the March 31, 1998 presentation with no
              effect on net loss reported.

       (i)    Revenue Recognition

              Revenue from service contracts is recognized as the services are
              performed and/or as milestones are achieved. Milestone payments
              related to contractual agreements are recognized as the milestones
              are achieved. Revenue from products and services is recognized
              when the products are shipped or the services are performed.
              Revenue from licensing fees is recorded when the license is
              granted. Revenue from grants is recognized as earned under the
              terms of the related grant agreements. Amounts received in advance
              of services to be performed under contracts are recorded as
              deferred revenue.

       (j)    Patent Application Costs

              Costs incurred in filing for patents are expensed as incurred.

       (k)    Use of Estimates

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


FORM 10-Q                                                                Page 5
<PAGE>   8

       (l)    Development Stage Enterprise

              In prior periods, the Company reported as a development stage
              enterprise. With the signing of a commercialization agreement for
              NOVASTAN(R), the Company began reporting as an operating company
              during the third quarter of 1997.

 (2)   STOCK OPTIONS AND WARRANTS

       The Company has in effect three stock option plans allowing for the
       issuance of incentive and non-qualified options to employees, directors,
       officers, non-employee independent contractors and non-employee
       directors, and two stock option plans allowing for the issuance of
       non-qualified options to non-employee members of the Board of Directors
       of the Company based on a formula of which one is effective. This plan
       allows for directors to request stock in lieu of cash payment of director
       fees.

       A summary of stock options as of March 31, 1998, 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 - $5.59        285,715          184,834          66,318       165,020        34,563

       1992 Plan             $1.41 - $5.36      1,700,000        1,248,344         224,827     1,199,525       226,829

       Director Plan         $2.40 - $4.54         71,429           34,242          37,187        34,242           ---

       1995 Plan             $1.31 - $7.19      2,000,000        1,787,175           5,001       577,997       207,824

       1995 Director Plan    $1.38 - $5.69        300,000          136,505          10,909        86,685       152,586
                                                ---------        ---------         -------     ---------       --------
                    TOTALS                      4,357,144        3,391,100         344,242     2,063,469       621,802
                                                =========        =========         =======     =========       ========
</TABLE>


 (3)   INCOME TAXES

       The Company uses the asset and liability method of accounting for income
       taxes. Under the asset and liability method, deferred tax assets and
       liabilities are recognized for the future tax consequences attributable
       to differences between the financial statement carrying amounts of
       existing assets and liabilities and their respective tax bases and
       operating loss and tax credit carry forwards. Deferred tax assets and
       liabilities are measured using enacted tax rates expected to apply to
       taxable income in the years in which those temporary differences are
       expected to be recovered or settled. The effect on deferred tax assets
       and liabilities of a change in tax rates is recognized in income in the
       period that includes the enactment date.

       At March 31, 1998, the net deferred tax asset totaled approximately
       $25,194,000, and was fully reserved. The Company did not incur any tax
       expense in any year due to operating losses.


FORM 10-Q                                                                Page 6
<PAGE>   9




(4)    EQUIPMENT AND LEASEHOLD IMPROVEMENTS

       Equipment and leasehold improvements consist of the following:


<TABLE>
<CAPTION>
                                                   March 31,1998        March 31, 1997
                                                   -------------        --------------
<S>                                                 <C>                   <C>        
Laboratory and office equipment                     $ 5,014,851           $ 4,665,174
Leasehold improvements                                3,701,772             3,701,772
                                                    -----------           -----------
                                                      8,716,623             8,366,946
Less accumulated depreciation and amortization       (5,267,023)           (5,074,884)
                                                    -----------           -----------
                                                    $ 3,449,600           $ 3,292,062
                                                    ===========           ===========
</TABLE>


(5)    COMMON STOCK RESERVED

       The Company has reserved Common Stock for issuance as of March 31, 1998
as follows:


<TABLE>
<S>                                                             <C>      
Stock option plans                                               4,012,902
Common Stock issuable under licensing agreement                     71,429
Publicly Traded Warrants Outstanding                             4,082,500
Other Warrants Outstanding                                         970,018
Underwriters purchase options and related warrants                 710,000
                                                                ----------
     Total shares reserved                                       9,846,849
                                                                ==========
</TABLE>


(6)    CLINICAL RESEARCH AGREEMENTS

        In November, 1997, the Company entered into an agreement with Coromed,
        Inc. to coordinate the clinical evaluation of TBC 11251 (TBC's lead
        compound for vasospasm/hypertension) to determine acute hemodynamic
        efficacy and safety in congestive heart failure. The term of the
        agreement ends May 30, 1998, subject to extension upon mutual written
        agreement of both parties. The parties have agreed to a total budget of
        $993,415.

 (7)   REGULATORY FILING

       During August 1997, the Company filed a new drug application ("NDA")
       with the United States Food and Drug Administration (the "FDA") for its'
       lead product candidate, NOVASTAN(R) (argatroban) for use as an
       anticoagulant in patients with Heparin-induced thrombocytopenia ("HIT").
       During September 1997, the FDA granted priority review status to the new
       drug application for NOVASTAN(R) (argatroban). During October, 1997, the
       Company was notified by the FDA that the filed NDA for NOVASTAN(R) was
       accepted. The FDA extended the priority review period by 90 days during
       January 1998. On May 11, 1998, the Company announced that it had received
       a non-approvable letter from the FDA for Novastan(R). The Company will
       request a meeting with the FDA to confirm the exact requirements for
       further consideration of the drug by the FDA.

 (8)   COMMITMENTS AND CONTINGENCIES

       a)     Legal Proceedings

              On November 21, 1994, a class action shareholders' suit was filed
              in the United States District Court for the Southern District of
              Texas, Houston Division seeking damages in the amount of $16
              million. Plaintiffs are two individuals who purchased shares of
              the Company on December 16, 1993 following the Company's initial
              public offering ("IPO"). In their complaint, plaintiffs have sued
              the Company, certain members of the board of directors and certain
              officers alleging violations of Sections 11, 12 and 15 of the
              Securities Act of 1933, as amended (the "Act"). Plaintiffs have
              also named David Blech, D. Blech & Co. and Isaac Blech as
              defendants. On January 23, 1995, the Company and the members of
              the board of directors filed a motion to dismiss the plaintiffs'
              complaint pursuant to Rule 9(b) and Rule 12b(6) of the Federal
              Rules of Civil Procedure. In addition, defendant John Pietruski,
              Chairman of the Board of Directors, filed a motion to dismiss the
              plaintiffs' complaint pursuant to Rule 12(b)(2) of the Federal
              Rules of Civil Procedure. On


FORM 10-Q                                                                Page 7
<PAGE>   10
              February 7, 1995, the plaintiffs filed a motion for class
              certification. The Court denied the motion by the Company and by
              John Pietruski.

              On March 28, 1995, a second class action shareholders' suit was
              filed in the United States District Court for the Southern
              District of New York seeking unspecified damages. Plaintiffs are
              eight individuals who purchased shares in various companies for
              which D. Blech & Co. acted as an underwriter (or co-underwriter)
              or marketmaker. In their complaint, the plaintiffs have sued the
              Company alleging violations of Section 10(b) of the Securities
              Exchange Act of 1934, as Amended (the "Exchange Act") and Rule
              10b-5 promulgated thereunder by the Securities and Exchange
              Commission (the "Commission"). Plaintiffs have named a number of
              defendants, including David Blech and D. Blech & Co., four
              individuals, two brokerage firms, one investment management
              company and ten other companies for which D. Blech & Co. acted as
              underwriter or marketmaker.

              On August 14, 1995, the Judicial Panel on The Multi-District
              Litigation ordered that the action filed in the United States
              District Court for the Southern District of Texas, Houston
              Division be transferred to the United States District Court for
              the Southern District of New York for coordinated or consolidated
              pretrial proceedings with the action pending there. In light of
              the transfer and consolidation of the Texas case with similar
              cases against other companies for which D. Blech & Co. acted as
              underwriter, the Company requested that the Court in New York
              reconsider the Texas Court's denial of its motion to dismiss as a
              part of the Court's consideration of similar motions to dismiss
              filed by those companies. All of these motions were presented to
              the Court on February 6, 1996. On June 6, 1996, the New York
              District Court entered two memorandum opinions in the consolidated
              cases. In one of its opinions, the Court dismissed all of the
              Exchange Act and common law fraud claims filed against the Company
              and its officers and directors, but afforded those plaintiffs the
              right to attempt to preserve those claims by repleading them. The
              Court ordered that those claims be repleaded no later than July
              26, 1996. Plaintiffs did not replead those claims by the deadline,
              resulting in the dismissal of all claims against the Company in
              that litigation. In its opinion in the second case, i.e., the case
              filed on November 21, 1994, the Court granted the Company's and
              its officers' and directors' motion for reconsideration, but
              together with all other similar pending motions, denied the
              requested relief. Pursuant to the court's order, the Company
              therefore filed an answer in that case. The Company also filed a
              Motion seeking leave of court to prosecute an immediate appeal of
              the Court's denial of the Company's Motion to Dismiss. The Court
              heard argument on that Motion on October 10, 1996. The motion was
              denied on January 16, 1997. Limited discovery has taken place in
              the case, however, given its early stage, the Company is unable to
              evaluate its potential outcome at this time. The Company disputes
              these claims and intends to contest them vigorously. There can be
              no assurance, however that the final disposition of this case will
              be favorable to the Company. This is the only remaining litigation
              against the Company.


FORM 10-Q                                                                Page 8
<PAGE>   11



       ITEM 2.

                 TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

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

                MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997



                                    OVERVIEW

       The following Management's Discussion and Analysis of Financial Condition
       and Results of Operations contains forward-looking statements that
       involve risks and uncertainties.

       Since its inception in 1989, the Company has primarily devoted its
       resources to fund research, drug discovery and development. The Company
       has been unprofitable to date and expects to incur substantial losses for
       the next several years as the Company invests in product research and
       development, preclinical and clinical testing and regulatory compliance.
       The Company has sustained net losses of approximately $73.5 million from
       inception to March 31, 1998. The Company has primarily financed its
       operations to date through certain private placements of Common Stock and
       shareholder loans, which have raised an aggregate of $21.3 million in net
       proceeds, the Initial Public Offering which raised an aggregate of $24.2
       million in net proceeds including the over-allotment sold in January
       1994, a private placement of Common Stock on February 13, 1996, which
       raised $13.0 million in net proceeds, a private placement of the 5%
       Preferred on March 14, 1997, which raised approximately $6.0 million in
       net proceeds, and a secondary public offering which closed during October
       1997 and raised approximately $26.7 million in net proceeds.

       On July 25, 1994, the Company acquired all of the outstanding stock of
       ImmunoPharmaceutics, Inc. ("IPI") in exchange for 1,599,958 shares of
       Common Stock, 999,956 shares of escrowed Common Stock which were released
       upon satisfaction of certain research milestones, and contingent stock
       issue rights to acquire 1,400,000 shares of which 399,961 shares were
       issued upon satisfaction of certain research milestones. IPI's financial
       results have been included in the Company's financial statements
       beginning August 1, 1994. In March 1996, IPI's remaining operations in
       California were consolidated with the Company's Houston operations.

       The Company signed a collaborative agreement with Synthelabo S.A., the
       pharmaceutical division of L'Oreal S.A. ("Synthelabo") on October 11,
       1994 (the "Synthelabo Agreement"). Upon consummation of the transaction,
       Synthelabo purchased 1,428,571 shares of Common Stock for a total of $5.0
       million and paid a licensing fee of $3.0 million. In addition, Synthelabo
       has paid $3.0 million annually in research payments (payable in quarterly
       installments) for two years and paid $750,000 for the third year. During
       1996, TBC signed agreements with Synthelabo to provide copies of certain
       clinical data. Over the life of the agreements TBC may receive as much as
       $2.92 million, of which $2.88 million has been received as of March 31,
       1998. During October 1996, the Company executed a research and Common
       Stock purchase agreement with LG Chem. LG Chem purchased 1,250,000 shares
       of Common Stock for $5.0 million and committed to pay up to $10.7 million
       over a five year period to develop two compounds in clinical development.
       Of this amount, $2.1 million has been paid and $1.0 million will be paid
       and on each of June 30 and December 31, of 1998, 1999 and 2000, and $1.3
       million will be paid on June 30 and December 31, 2001.

       In August 1997, the Company entered into an agreement with SmithKline
       Beecham plc., ("SmithKline") whereby SmithKline was granted exclusive
       rights to work with TBC in the development and commercialization of
       NOVASTAN(R) in the U.S. and Canada for specified indications (the
       "SmithKline Agreement"). Upon execution of the agreement, SmithKline paid
       an $8.5 million license fee and during October 1997, paid a $5 million
       milestone payment to TBC and has committed to pay up to $15.0 million in
       additional milestone payments based on the clinical development and FDA
       approval of NOVASTAN(R) for the indications of HIT, HITTS and AMI. In


FORM 10-Q                                                                Page 9
<PAGE>   12



       connection with the SmithKline Agreement, SmithKline purchased 176,922
       shares of Common Stock for $1.0 million and an additional 400,000 shares
       of Common Stock for $2.0 million in conjunction with the Company's public
       offering which closed during October 1997.

       The Company's operating results have fluctuated significantly during each
       quarter, and the Company anticipates that such fluctuations, largely
       attributable to varying research and development commitments and
       expenditures, will continue for the next several years.

                              RESULTS OF OPERATIONS

                THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997


       Revenues decreased from $800,000 in the three month period ended March
       31, 1997 to $621,600 in the same period of 1998, a decrease of 22%.
       Revenues were composed of earned revenues under research and development
       agreements and sales of products and services. Revenue from research
       agreements decreased primarily due to the completion of the payment
       schedule included in the Synthelabo Agreement.

       Total operating expenses decreased 14% from $5,369,352 in the three month
       period ended March 31, 1997 to $4,624,694 in the same period of 1998 due
       primarily to the decrease in research and development expenses. Research
       and development expenses decreased 20% from $4,285,054 in the three month
       period ended March 31, 1997 to $3,410,385 in the same period of 1998.
       This decrease was primarily attributable to continued decreases in
       research and development activity related to the completion of enrollment
       in certain clinical trials for the compound NOVASTAN(R) (argatroban).
       General and administrative expenses increased 12% from $1,084,298 in the
       three month period ended March 31, 1997 to $1,214,309 in the same period
       of 1998 due primarily to increased compensation and personnel recruiting
       costs and market research expenses. The Company had 81 employees at March
       31, 1998 and 74 employees at March 31, 1997.

       Other income and expense is composed of investment income on invested
       funds, interest expense and foreign currency exchange gains. The increase
       is due to a 269% increase in investment income from $157,388 in the three
       month period ended March 31, 1997 to $580,549 in the same period of 1998,
       attributed primarily to higher investment balances resulting from funds
       received in conjunction with the SmithKline Agreement and a public
       offering of Common Stock completed in 1997.

                         LIQUIDITY AND CAPITAL RESOURCES

       The Company has financed its research and development activities to date
       principally through (i) public offerings and private placements of its
       equity securities, (ii) issuances of Common Stock in conjunction with
       acquisitions and research and collaboration agreements and exercises of
       stock options and warrants, (iii) milestone and research payments
       received in conjunction with research and collaborative agreements, and
       (iv) investment income, net of interest expense. During the first quarter
       of 1998, the Company utilized net cash of $3,145,096 in operating
       activities. The use of cash in operations was caused primarily by the
       Company's net loss before preferred dividend requirements of $3,422,544.
       Investing and financing activities primarily reflect the net effect of
       purchases and redemptions of short term investments during the first
       quarter of 1998. At March 31, 1998, the Company had cash, cash
       equivalents and short-term investments of $40,484,589.

       The Company expects to incur substantial research and development
       expenditures as it designs and develops small molecule drugs for vascular
       diseases. The Company anticipates that operating expenses may continue to
       increase during 1998 and subsequent years. The Company began to incur
       costs to develop NOVASTAN(R) during the third quarter of 1993. These
       costs will continue during 1998 because of ongoing NOVASTAN(R) trials and
       will continue to be significant through the FDA approval process and for
       clinical trial work should additional clinical indications be pursued.
       The Company has received a non-approvable letter from the FDA regarding
       its NDA for NOVASTAN(R) as a treatment for HIT/HITTS. The Company will
       request a meeting with the FDA to confirm the exact requirements for
       further consideration of the drug by the FDA. In order to resubmit the
       NDA the Company may 


FORM 10-Q                                                                Page 10
<PAGE>   13
       incur significant, unanticipated costs, which are presently not known. In
       addition, at this time the Company cannot predict when a resubmission of
       the NDA might be filed as the timing of the FDA's review and decision
       regarding the use and marketing of NOVASTAN(R). Based on its meetings
       with the FDA and with SmithKline, the Company's partner in the
       commercialization of NOVASTAN(R), the Company expects to be able to
       develop an estimated budget and time line regarding the NDA resubmission.
       The failure to receive NDA approval from the FDA will have a material
       adverse effect on the commercialization of NOVASTAN(R) for HIT/HITTS, as
       well as potentially adversely impacting commercialization of other
       indications. The Company also began incurring clinical trial costs in
       1997 for the compounds TBC 11251 and TBC 1269. In 1998, the Company
       expects to begin to incur costs for clinical trials related to additional
       compounds. These costs include, among other things, hiring personnel to
       direct and carry out all operations related to the 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. In addition, the Company anticipates
       that the administrative costs associated with this effort will be
       significant. The amounts and timing of expenditures will depend on the
       progress of the Company's ongoing research, clinical development and
       commercialization efforts.

       The Company anticipates that its existing capital resources and its other
       revenue sources should be sufficient to fund its cash requirements
       through the end of 1999. This date is contingent upon various factors,
       including the rates of patient enrollment and spending associated with
       the clinical trials of NOVASTAN(R), the costs necessary to meet
       requirements for further consideration of NOVASTAN(R) by the FDA and the
       compounds TBC 11251 and TBC 1269, and the level of research and
       development expenditures for other compounds. The Company's existing
       capital resources may not be sufficient to fund the Company's operations
       through commercialization of its first product, NOVASTAN(R). Moreover,
       TBC's agreement with Synthelabo requires the Company to maintain a "net
       worth", as defined in the agreement, of at least $5.0 million during the
       term of the agreement. If the Company fails to maintain at least $5.0
       million of "net worth", Synthelabo may require that the technology be
       transferred to, and the development program be conducted by, a joint
       venture owned by TBC and Synthelabo. The outcome of certain lawsuits that
       have been filed against the Company could also have an impact on
       liquidity. See Part II, Item 1. Legal Proceedings.

       The Company anticipates that it may need to raise substantial funds for
       future operations, which may be raised through collaborative
       arrangements, public or private issuance of debt and equity, or other
       arrangements. The Company expects that additional expenditures will be
       required if additional product candidates enter clinical trials which may
       require additional expenditures for laboratory space, scientific and
       administrative personnel, and services of contract research
       organizations. There can be no assurance that the Company will be able to
       obtain such additional financings on acceptable terms or in time to fund
       any necessary or desirable expenditures. In the event such financing is
       not obtained, the Company's drug discovery or development programs may be
       delayed, scaled back or eliminated. The Company may also be required in
       this event to obtain funds through arrangements with collaborative
       partners or others that may require the Company to relinquish rights to
       certain of its technologies, product candidates or products that it would
       not otherwise relinquish.

                               PENDING LITIGATION

       As of March 31, 1998, one class action shareholder lawsuit remains
       pending against the Company and includes certain directors and officers
       as defendants. The Company disputes all claims set forth in this lawsuit
       and intends to contest it vigorously. However, the Company is unable to
       evaluate the potential outcome at this time.

                  HAZARDOUS MATERIALS AND ENVIRONMENTAL MATTERS

       The Company's research and development activities involve the controlled
       use of hazardous and radioactive materials. The Company is subject to
       federal, state, and local laws and regulations governing the use,
       manufacture, storage, handling and disposal of such materials and certain
       waste products. Management believes that the Company is in compliance
       with such laws, regulations and standards currently in effect and that
       the cost of compliance with such laws, regulation, and standards will not
       have a material adverse effect on the Company. The Company does not
       expect to incur any material capital expenditures for environmental
       control in the foreseeable future.

 

FORM 10-Q                                                                Page 11
<PAGE>   14

                    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 the operations of the Company.

                                YEAR 2000 ISSUE

       The Company is in the process of conducting a review of its scientific
       equipment, computer systems and related software to identify systems that
       could be affected by the "Year 2000" issue. In this respect, teams from
       various disciplines within the Company have been formed to evaluate the
       appropriate courses of corrective action should such issues arise. The
       total cost is not expected to have a material effect on the Company's
       financial position or results of operations.

                 DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

       This Report includes "forward looking statements" within the meaning of
       Section 27A of the Securities Act of 1933, as amended, and Section 21E of
       the Securities Exchange Act of 1934, as amended. All statements other
       than statements of historical fact included in this Report are forward
       looking statements. Such forward looking statements include, without
       limitation, statements under (a) Statements in "Business" regarding Texas
       Biotechnology Corporation's expectations for future drug discovery and
       development and related expenditures and (b) "Management's Discussion and
       Analysis of Financial Condition and Results of Operations - Liquidity and
       Capital Resources" - regarding TBC's estimate of sufficiency of existing
       capital resources and its ability to raise additional capital to fund
       cash requirements for future operations. Although TBC believes that the
       expectations reflected in such forward looking statements are reasonable,
       it can give no assurance that such expectations reflected in such forward
       looking statements will prove to have been correct. The ability to
       achieve TBC's expectations is contingent upon a number of factors which
       include (i) ongoing cost of research and development activities, (ii)
       cost of clinical development of product candidates, (iii) attainment of
       research and clinical goals of product candidates, (iv) timely approval
       of TBC's product candidates by appropriate governmental and regulatory
       agencies, (v) effect of any current or future competitive products, (vi)
       ability to manufacture and market products commercially, (vii) retention
       of key personnel and (viii) capital market conditions. This Form 10-Q may
       contain trademarks and service marks of other companies.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
       Not Applicable


FORM 10-Q                                                                Page 12
<PAGE>   15



PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
       On November 21, 1994, a class action shareholders' suit was filed in the
       United States District Court for the Southern District of Texas, Houston
       Division seeking damages in the amount of $16 million. Plaintiffs are two
       individuals who purchased shares of the Company on December 16, 1993
       following the Company's initial public offering("IPO"). In their
       complaint, plaintiffs have sued the Company, certain members of the board
       of directors and certain officers alleging violations of Sections 11, 12
       and 15 of the Securities Act of 1933, as amended (the "Act"). Plaintiffs
       have also named David Blech, D. Blech & Co. and Isaac Blech as
       defendants. On January 23, 1995, the Company and the members of the board
       of directors filed a motion to dismiss the plaintiffs' complaint pursuant
       to Rule 9(b) and Rule 12b(6) of the Federal Rules of Civil Procedure. In
       addition, defendant John Pietruski, Chairman of the Board of Directors,
       filed a motion to dismiss the plaintiffs' complaint pursuant to Rule
       12(b)(2) of the Federal Rules of Civil Procedure. On February 7, 1995,
       the plaintiffs filed a motion for class certification. The Court denied
       the motion by the Company and by John Pietruski.

       On March 28, 1995, a second class action shareholders' suit was filed in
       the United States District Court for the Southern District of New York
       seeking unspecified damages. Plaintiffs are eight individuals who
       purchased shares in various companies for which D. Blech & Co. acted as
       an underwriter (or co-underwriter) or marketmaker. In their complaint,
       the plaintiffs have sued the Company alleging violations of Section 10(b)
       of the Securities Exchange Act of 1934, as Amended (the "Exchange Act")
       and Rule 10b-5 promulgated thereunder by the Securities and Exchange
       Commission (the "Commission"). Plaintiffs have named a number of
       defendants, including David Blech and D. Blech & Co., four individuals,
       two brokerage firms, one investment management company and ten other
       companies for which D. Blech & Co. acted as underwriter or marketmaker.

       On August 14, 1995, the Judicial Panel on The Multi-District Litigation
       ordered that the action filed in the United States District Court for the
       Southern District of Texas, Houston Division be transferred to the United
       States District Court for the Southern District of New York for
       coordinated or consolidated pretrial proceedings with the action pending
       there. In light of the transfer and consolidation of the Texas case with
       similar cases against other companies for which D. Blech & Co. acted as
       underwriter, the Company requested that the Court in New York reconsider
       the Texas Court's denial of its motion to dismiss as a part of the
       Court's consideration of similar motions to dismiss filed by those
       companies. All of these motions were presented to the Court on February
       6, 1996. On June 6, 1996, the New York District Court entered two
       memorandum opinions in the consolidated cases. In one of its opinions,
       the Court dismissed all of the Exchange Act and common law fraud claims
       filed against the Company and its officers and directors, but afforded
       those plaintiffs the right to attempt to preserve those claims by
       repleading them. The Court ordered that those claims be repleaded no
       later than July 26, 1996. Plaintiffs did not replead those claims by the
       deadline, resulting in the dismissal of all claims against the Company in
       that litigation. In its opinion in the second case, i.e., the case filed
       on November 21, 1994, the Court granted the Company's and its officers'
       and directors' motion for reconsideration, but together with all other
       similar pending motions, denied the requested relief. Pursuant to the
       court's order, the Company therefore filed an answer in that case. The
       Company also filed a Motion seeking leave of court to prosecute an
       immediate appeal of the Court's denial of the Company's Motion to
       Dismiss. The Court heard argument on that Motion on October 10, 1996. The
       motion was denied on January 16, 1997. Limited discovery has taken place
       in the case, however, given its early stage, the Company is unable to
       evaluate its potential outcome at this time. The Company disputes these
       claims and intends to contest them vigorously. There can be no assurance,
       however that the final disposition of this case will be favorable to the
       Company. This is the only remaining litigation against the Company.

ITEM 2.  CHANGES IN SECURITIES
       Preferred Stock Conversions
       On February 11, 1998, the Company issued an aggregate of 64,795 shares of
       Common Stock to certain institutions pursuant to the conversion of the
       remainder of its 5% Cumulative Convertible Preferred Stock. The issuance 
       of the Common Stock was exempt from registration under Section 4 (2) of 
       the Securities Act of 1933, as amended, and Regulation D promulgated 
       thereunder.


FORM 10-Q                                                                Page 13
<PAGE>   16

       Common Stock Transactions
       On February 20, 1998, March 12, 1998 and March 23, 1998, the Company
       issued an aggregate of 31,786 shares of its Common Stock to certain
       institutions and individuals, pursuant to the exercise of outstanding
       warrants for an aggregate purchase price of $111,251. The issuance of the
       Common Stock was exempt from registration under Section 4 (2) of the
       Securities Act of 1933, as amended. The warrants and the Common Stock
       underlying the warrants may not be sold in the United States absent
       registration or an applicable exemption from registration requirements.

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

<TABLE>
<CAPTION>
     EXHIBIT NO.             DESCRIPTION
     -----------             -----------
<S>                          <C>                   
       27.1                  Financial Data Schedule
</TABLE>

----------------


FORM 10-Q                                                                Page 14
<PAGE>   17

                         TEXAS BIOTECHNOLOGY CORPORATION

                                 MARCH 31, 1998

                                   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 13th day of May, 1998.




                              TEXAS BIOTECHNOLOGY CORPORATION


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






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


FORM 10-Q                                                                Page 15
<PAGE>   18

                                INDEX TO EXHIBITS


<TABLE>
<CAPTION>
   Exhibit No.               Description of Exhibit
   -----------               ----------------------
<S>                          <C>
       27.1                  Financial Data Schedule
</TABLE>


----------------


FORM 10-Q                                                                Page 16