<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, 2001

                                       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, 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, as of the latest practicable date.

                  Class                        Outstanding at May 11, 2001
                  -----                        ---------------------------
     common stock, $0.005 par value                    43,772,855



<PAGE>   2

                         TEXAS BIOTECHNOLOGY CORPORATION

                                TABLE OF CONTENTS




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

           ITEM 1:   FINANCIAL STATEMENTS

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

           Consolidated Statements of Operations for the three months ended
           March 31, 2001 and 2000                                                                   2

           Consolidated Statements of Cash Flows for the three months ended
           March 31, 2001 and 2000                                                                   3

           Notes to Consolidated Financial Statements                                                4

           ITEM 2:  Management's Discussion and Analysis of
                    Financial Condition and Results of Operations                                   12

           ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES                                        17
                    ABOUT MARKET RISK


PART II.   OTHER INFORMATION

           ITEM 1:  Legal Proceedings                                                               18

           ITEM 2:  Changes in Securities                                                           18

           ITEM 3:  Defaults Upon Senior Securities                                                 18

           ITEM 4:  Submission of Matters to a Vote of Security Holders                             18

           ITEM 5:  Other Information                                                               18

           ITEM 6:  Exhibits and Reports on Form 8-K                                                18


SIGNATURES                                                                                          19
</TABLE>



<PAGE>   3

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS



<TABLE>
<CAPTION>
                                                                                   MARCH 31,        DECEMBER 31,
                                                                                     2001              2000
                                                                                 --------------    --------------
                                                                                   (Unaudited)
<S>                                                                              <C>               <C>
ASSETS
Current assets:
      Cash and cash equivalents                                                  $   42,147,073    $   48,469,646
      Short-term investments                                                         39,123,772        39,067,999
      Accounts receivable                                                               225,431           237,411
      Other current receivables                                                       1,488,029           626,109
      Receivable from related party under collaborative arrangement                   2,130,119           882,157
      Prepaids                                                                        1,497,992         1,349,264
                                                                                 --------------    --------------
          Total current assets                                                       86,612,416        90,632,586

Long-term investments                                                                27,509,217         4,995,000

Equipment and leasehold improvements,  less
      accumulated depreciation and amortization                                       2,413,521         2,367,965


Other assets                                                                            946,523           972,869
                                                                                 --------------    --------------

          Total assets                                                           $  117,481,677    $   98,968,420
                                                                                 ==============    ==============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
      Accounts payable                                                           $      894,030    $      942,013
      Accrued expenses                                                                2,606,426         3,620,517
      Deferred revenue                                                                1,029,176         1,029,176
                                                                                 --------------    --------------
          Total current liabilities                                                   4,529,632         5,591,706

Liability to related party                                                            2,909,100         1,376,303

Deferred revenue from related party                                                   1,084,365         1,209,302
Deferred revenue from unrelated parties                                               2,045,453         2,181,816
Deferred credit                                                                       2,620,010         2,620,010
Minority interest in Revotar                                                          1,900,605         1,962,273

Commitments and contingencies

Stockholders' equity:
      Preferred stock, par value $.005 per share. At March 31, 2001, 5,000,000
          shares authorized; none outstanding. At December 31, 2000, 5,000,000
          shares authorized;
          none outstanding                                                                   --                --
      Common stock, par value $.005 per share.  At March 31, 2001
          75,000,000 shares authorized; 43,768,959 shares issued and
          outstanding.  At December 31, 2000, 75,000,000 shares
          authorized; 41,203,197 shares issued and outstanding                          218,845           206,016
      Additional paid-in capital                                                    210,548,523       189,390,790
      Other comprehensive loss                                                         (310,838)          (15,341)
      Accumulated deficit                                                          (108,064,018)     (105,554,455)
                                                                                 --------------    --------------
          Total stockholders' equity                                                102,392,512        84,027,010
                                                                                 --------------    --------------

          Total liabilities and stockholders' equity                             $  117,481,677    $   98,968,420
                                                                                 ==============    ==============
</TABLE>

                 See accompanying notes to financial statements



                                       1
<PAGE>   4

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED MARCH 31,
                                                                ----------------------------
                                                                    2001           2000
                                                                ------------   ------------
<S>                                                             <C>            <C>
Revenues:
      Research agreements                                       $  1,433,290   $    522,608
      Collaborative research and development from
          related party                                              401,357             --
      Royalty income, net                                            177,417             --
      License fee and milestone income                               257,293      1,183,117
                                                                ------------   ------------
          Total revenues                                           2,269,357      1,705,725
                                                                ------------   ------------

Expenses:
      Research and development                                     3,417,287      3,781,949
      Equity in loss of affiliate                                  1,528,791             --
      General and administrative                                   1,547,156      1,930,935
                                                                ------------   ------------
          Total expenses                                           6,493,234      5,712,884
                                                                ------------   ------------

          Operating loss                                           4,223,877      4,007,159

Investment income, net                                             1,652,646        203,418
          Net loss before minority interest                        2,571,231      3,803,741

Minority interest in loss of Revotar                                  61,668             --
                                                                ------------   ------------

      Net loss before cumulative effect of
          change in accounting principle                           2,509,563      3,803,741

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

          Net loss                                                 2,509,563      6,169,975

Other comprehensive loss:
      Unrealized loss on foreign currency translation                295,497             --
                                                                ------------   ------------

          Comprehensive loss                                    $  2,805,060   $  6,169,975
                                                                ============   ============

Net loss per common share-
      basic and diluted before cumulative effect of change in
          accounting principle                                  $       0.06   $       0.11
                                                                ============   ============
      basic and diluted after cumulative effect of change in
          accounting principle                                  $       0.06   $       0.18
                                                                ============   ============

Weighted average common shares used to compute
      basic and diluted net loss per share                        43,665,512     34,612,293
                                                                ============   ============
</TABLE>

                 See accompanying notes to financial statements



                                       2

<PAGE>   5

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED MARCH 31,
                                                                     ----------------------------
                                                                         2001            2000
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                          $ (2,509,563)   $ (6,169,975)
   Adjustments to reconcile net loss to net cash
    used in operating activities:
          Depreciation and amortization                                   222,633         250,613
          Equity in loss of affiliate                                  (1,584,791)             --
          Minority interest in loss of Revotar                            (61,668)             --
          Expenses paid with stock                                             --          43,615
          Compensation expense related to stock options                    63,316              --
          Loss on disposition of fixed assets                               6,407              --
   Change in operating assets and liabilities, net of
      effect of acquisition:
    Decrease in accounts receivable                                        11,980         515,859
    Increase in prepaids                                                 (148,728)        (54,847)
    Increase in other current receivables                                (861,920)             --
    Increase in receivable from related party under
          collaborative arrangement                                    (1,247,962)             --
    (Decrease) increase in current liabilities                         (1,062,074)        856,650
    Increase in liability to related party                              3,117,588              --
    (Decrease) increase in deferred revenue from unrelated parties       (136,363)      1,183,117
    Decrease in deferred revenue from related party                      (124,937)             --
                                                                     ------------    ------------
          Net cash used in operating activities                        (4,316,082)     (3,374,968)
                                                                     ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of equipment and leasehold improvements                     (248,250)        (21,920)
   Purchase of investments                                            (54,403,339)     (3,154,148)
   Maturity of investments                                             31,690,183       9,090,886
   Decrease in interest receivable included in short-term
      and long-term investments                                           143,166         207,044
                                                                     ------------    ------------
         Net cash (used in) provided by investing activities          (22,818,240)      6,121,862
                                                                     ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of common stock and option and
    warrant exercises, net                                             21,107,246       2,634,777
                                                                     ------------    ------------
          Net cash provided by financing activities                    21,107,246       2,634,777
                                                                     ------------    ------------


Effect of exchange rate changes on cash                                  (295,497)             --
    Net (decrease) increase in cash and cash equivalents               (6,322,573)      5,381,671

Cash and cash equivalents at beginning of year                         48,469,646       2,804,270
                                                                     ------------    ------------

Cash and cash equivalents at end of year                             $ 42,147,073    $  8,185,941
                                                                     ============    ============

Supplemental schedule of noncash financing activities:
   issuance of Common Stock for research and development and
   services                                                          $         --    $     43,615
                                                                     ============    ============
</TABLE>

                 See accompanying notes to financial statements



                                       3
<PAGE>   6

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                MARCH 31, 2001 (UNAUDITED) AND DECEMBER 31, 2000

(1)      BASIS OF PRESENTATION

         The accompanying unaudited condensed consolidated financial statements
of Texas Biotechnology Corporation and its subsidiaries (collectively referred
to as the "Company" or "TBC") have been prepared in accordance with accounting
principles generally accepted in the United States of America ("USA") for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. They do not include all information and notes required
by accounting principles generally accepted in the USA for complete financial
statements. It is recommended that these interim condensed consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 2000. Except as disclosed herein, there has
been no material change in the information disclosed in the notes to the
consolidated financial statements included in the Company's Annual Report on
Form 10-K. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 2001 are
not necessarily indicative of the results, which may be expected for any other
interim period, or for the year ended December 31, 2001. Certain prior period
amounts have been reclassified for comparative purposes. Reported revenues and
net loss for the three months ended March 31, 2000 have been restated to reflect
the Company's adoption, effective January 1, 2000, of Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial Statements ("SAB101"), promulgated by
the United States Securities and Exchange Commission ("SEC") in December 1999.
See Note 2 (m).

(2)      ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

         (a)      Organization

                  Texas Biotechnology Corporation, a Delaware Corporation, is a
         biopharmaceutical company focused on the discovery, development and
         commercialization of novel synthetic small molecule compounds for the
         treatment of a variety of cardiovascular, vascular and related
         inflammatory diseases. Since its formation in 1989, the Company has
         been engaged principally in research and drug discovery programs and
         clinical development of certain drug compounds. On July 25, 1994, the
         Company acquired all of the outstanding common stock of
         ImmunoPharmaceutics, Inc. ("IPI") in exchange for common stock, par
         value $.005 per share (the "Common Stock"), of the Company. 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 a majority interest in Revotar. The Company is
         presently working on a number of long-term development projects that
         involve experimental and unproven technology, which may require many
         years and substantial expenditures to complete, and which may be
         unsuccessful. Sales of the Company's first product, for which it
         receives royalty income, Argatroban, began during November 2000.

         (b)      Basis of Consolidation

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



                                       4
<PAGE>   7

         (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 March 31, 2001, approximately $2,217,000 was invested in
         demand and money market accounts. Short-term investments are those
         investments which have an original maturity of less than one year and
         greater than three months at the purchase date. At March 31, 2001, the
         Company's short-term investments consisted of approximately $2,350,000
         in government agency discount bonds and $34,115,000 in corporate
         commercial paper and loan participations. Long-term investments consist
         of approximately $18,795,000 in government agency discount bonds and
         $8,406,000 in loan participations, all with a remaining maturity of one
         year or more. Cash equivalents, short-term and long-term investments
         are stated at cost plus accrued interest, which approximates market
         value. Interest income is accrued as earned. The Company classifies all
         short-term and long-term investments as held to maturity.

         (d)      Equipment and Leasehold Improvements

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

         (e)      Investment in ICOS - TBC

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

         (f)      Research and Development Costs

                  All research and development costs are expensed as incurred
         and include salaries of research and development employees, certain
         rent and related building services, research supplies and services,
         clinical trial expenses and other associated costs. With respect to
         research and development, salaries and benefits charged to research and
         development in the three months ended March 31, 2001 and 2000 were
         approximately $1,525,000 and $1,360,000, respectively. Payments related
         to the acquisition of in-process research and development are expensed
         as incurred until the development phase of the purchased compound is
         completed.

         (g)      Net Loss Per Common Share

                  Basic net loss per common share is calculated by dividing the
         net loss applicable to common shares after preferred dividend
         requirements by the weighted average number of common and common
         equivalent shares outstanding during the period. For the three months
         ended March 31, 2001 and 2000, the weighted average common shares used
         to compute basic net loss per common share totaled 43,665,512 and
         34,612,293, respectively. Securities convertible into Common Stock
         comprised of stock options and warrants totaling 4,313,914 and
         7,887,577 shares at March 31, 2001 and 2000, respectively, were not
         used in the calculation of diluted 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, 2001 presentation
         with no effect on net loss previously reported.



                                       5
<PAGE>   8

         (i)      Revenue Recognition

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

         (j)      Patent Application Costs

                  Costs incurred in filing for patents are expensed as incurred.

         (k)      Use of Estimates

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

         (l)      Intangible Assets

                  Intangible assets consist of purchased technologies, are
         capitalized because there is an alternative future use, and are
         amortized on a straight-line basis over their estimated useful lives.
         The Company periodically reviews the useful lives of its intangible and
         long-lived assets, which may result in future adjustments to the
         amortization periods. Related amortization expense for the three months
         ended March 31, 2001 was $26,346. Amortization of purchased
         technologies is included in amortization expense in the consolidated
         statements of operations and comprehensive loss. As circumstances
         dictate, the Company evaluates the recoverability of its intangible and
         long-lived assets by comparing the projected undiscounted net cash
         flows associated with such assets against their respective carrying
         values. Impairment, if any, is based on the excess of the carrying
         value over the fair value.

         (m)      New Accounting Pronouncements

                  In December 1999, the SEC issued SAB101 Revenue Recognition in
         Financial Statements. SAB101 summarizes certain of the SEC staff's
         views in applying generally accepted accounting principles to revenue
         recognition in financial statements. The Company implemented SAB101 in
         the fourth quarter of the year ended December 31, 2000, effective
         January 1, 2000. Prior to its implementation of SAB101, the Company
         recognized license fees and milestones as revenues when received. As a
         result of the implementation of SAB101, revenues for the three months
         ended March 31, 2000 include approximately $1,183,000 related to a
         license fee and milestone payment, received and previously reported as
         revenues in 1997. The effect on revenues in the three months ended
         March 31, 2000 was offset by a loss of approximately $2,366,000 from
         the cumulative effect, at



                                       6
<PAGE>   9

         January 1, 2000, of the change in accounting principle resulting from
         the deferral of certain license fees and milestone payments received in
         1997.

                  In June 1998, the FASB issued FASB Statement No. 133 ("SFAS
         133"), Accounting for Derivative Instruments and Hedging Activities, as
         amended by SFAS No. 137 and SFAS No. 138. SFAS 133 standardizes the
         accounting for derivative instruments, including certain derivative
         instruments embedded in other contracts. Under the standard, entities
         are required to carry all derivative instruments in the statement of
         financial position at fair value. We adopted SFAS 133 effective January
         1, 2001. The adoption of SFAS 133 did not have a material effect on our
         financial condition or results of operation because we, historically,
         have not entered into derivative or other financial instruments for
         trading or speculative purposes nor do we use or intend to use
         derivative financial instruments or derivative commodity instruments.

(3)      CAPITAL STOCK

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

(4)      STOCK OPTIONS

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

         A summary of stock options as of March 31, 2001, 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        189,495      96,220        156,165            --
1992 Plan............     $1.41-$21.59    1,700,000        908,546     789,971        734,634         1,483
Director Plan........     $3.50-$ 4.54       71,429         34,242      37,187         34,242            --
1995 Plan............     $1.31-$21.59    2,000,000      1,615,772     381,697      1,324,303         2,531
1995 Director Plan...     $1.38-$11.31      500,000        259,096      38,096        207,096       202,808
1999 Plan(1).........     $      20.13    3,000,000      1,045,950      48,536         60,331     1,905,514
                                         ----------    -----------    --------      ---------     ---------
       TOTALS........                     7,557,144      4,053,101   1,391,707      2,516,771     2,112,336
                                         ==========    ===========   =========      =========     =========
</TABLE>

     (1) Includes 2,000,000 authorized shares and 100,000 outstanding but not
         exercisable options which are subject to approval of stockholders at
         the 2001 Annual Meeting, to be held May 30, 2001.

(5)      INCOME TAXES

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



                                       7
<PAGE>   10

         At March 31, 2001 and December 31, 2000, the net deferred tax asset,
representing primarily net operating loss carryforwards and start-up costs
deferred for tax purposes, totaled approximately $40,069,000 and $39,234,000,
respectively. The Company has established a valuation allowance for the full
amount of these deferred tax assets, as management believes that it is not more
likely than not that the Company will recover these assets. The Company did not
incur any tax expense in any year due to operating losses and the related
increase in the valuation allowance.

         At March 31, 2001 and December 31, 2000, the Company had net operating
loss carryforwards of approximately $70,061,000 and $68,955,000, respectively,
for federal income tax return purposes. Utilization of the Company's net
operating loss carryforwards is subject to certain limitations due to specific
stock ownership changes which have occurred or may occur. To the extent not
utilized, the carryforwards will expire during the years beginning 2002 through
2020.

(6)      EQUIPMENT AND LEASEHOLD IMPROVEMENTS

         Equipment and leasehold improvements consist of the following:

<TABLE>
<CAPTION>
                                                       MARCH 31,    DECEMBER 31,
                                                         2001           2000
                                                     ------------   ------------
<S>                                                  <C>            <C>
Laboratory and office equipment ...................  $  6,248,021   $  6,069,207
Leasehold improvements ............................     3,961,647      3,923,687
                                                     ------------   ------------
                                                       10,209,668      9,992,894
Less accumulated depreciation and amortization ....     7,796,147      7,624,929
                                                     ------------   ------------
                                                     $  2,413,521   $  2,367,965
                                                     ============   ============
</TABLE>

(7)      COMMON STOCK RESERVED

         The Company has reserved Common Stock for issuance as of March 31, 2001
as follows:

<TABLE>
<S>                                   <C>
Stock option plans .................  6,165,437
Other warrants outstanding .........    260,813
                                     ----------
          Total shares reserved ....  6,426,250
                                     ==========
</TABLE>

(8)      RESEARCH AGREEMENTS

         On October 10, 1996, the Company signed a strategic alliance agreement
with LG Chemical, a Korean corporation, to develop and market compounds derived
from the Company's endothelin receptor antagonist and selectin antagonist
programs for certain disease indications. Upon consummation of the transaction,
LG Chemical purchased 1,250,000 shares of Common Stock for $4.00 per share for a
total of $5 million. In addition, LG Chemical has committed to pay $10.7 million
in research payments. Of this amount, $8.1 million has been paid and $1.3
million will be paid on June 30 and December 31, 2001. Effective June 6, 2000,
the Company assigned one-half of the research payment to ICOS-TBC which amounts
to $325,000, before commissions, during the three months ended March 31, 2001.

         Under the terms of the Company's agreement with ICOS-TBC, the Company
will provide, and be reimbursed for, research and development activities
conducted on behalf of ICOS-TBC. During the three months ended March 31, 2001,
the Company incurred direct research and development costs of approximately
$1,556,000 and, pursuant to its agreement with ICOS-TBC, billed such costs to
ICOS-TBC. The Company's revenues for the three months ended March 31, 2001
included approximately $401,000 of TBC personnel time charged to ICOS-TBC. The
remaining $1,155,000 of such costs was recorded as a receivable from a related
party under a collaborative arrangement, which remained outstanding at March 31,
2001. Also see Note 9, License Agreements, below.



                                       8
<PAGE>   11

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

(9)      LICENSE AGREEMENTS

         Mitsubishi-Tokyo Pharmaceuticals Agreement

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

                  In exchange for the license to Genentech, Inc, (the "Former
         Licensor") of its Argatroban technology, TBC issued the Former Licensor
         285,714 shares of Common Stock during 1993 and issued an additional
         214,286 shares of Common Stock on October 9, 1997, after acceptance of
         the filing of the first New Drug Application ("NDA") with the United
         States Food and Drug Administration (the "FDA") for Argatroban. On June
         30, 2000, the Company issued an additional 71,429 shares of Common
         Stock to Genentech in conjunction with the approval of the NDA for
         Argatroban in patients with HIT. The value of $965,970 has been
         recorded as an intangible asset and is being amortized over the
         estimated useful life of the asset. Amortization expense recorded in
         the three months ended March 31, 2001 was $26,346 and will be
         approximately $106,000 annually in future periods. Additionally, on
         October 9, 1997, upon acceptance of the filing of the first NDA for
         Argatroban with the FDA, the Company granted the Former Licensor a
         warrant to purchase an additional 142,858 shares of Common Stock at an
         exercise price of $14.00 per share, subject to adjustment, which
         expires on October 9, 2004. TBC has also granted the Former Licensor
         demand and piggyback registration rights with regard to shares of
         Common Stock issued to the Former Licensor.

         ICOS Corporation Partnership

                  On June 6, 2000, ICOS and the Company entered into the
         ICOS-TBC limited partnership agreement. The partnership will seek to
         develop and globally commercialize ET(A) receptor antagonists. As a
         result of our contribution of technology, ICOS-TBC paid a license fee
         to us in June 2000, and will make additional milestone payments to us
         that together could be as much as $55.5 million for the development and
         commercialization of products resulting from the collaboration. The
         license fee is being amortized over the estimated development period of
         the licensed technology and the Company recognized approximately
         $121,000 of it as revenue during the three months ended March 31, 2001.



                                       9
<PAGE>   12

                  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. Upon the transfer of its technology to ICOS-TBC, the
         Company received a license fee, which is being amortized into revenue
         over the expected developmental period of sitaxsentan sodium. See Note
         1 (i), Revenue Recognition, above.

                  During the three months ended March 31, 2001, the Company
         recognized a loss of approximately $1,529,000, representing the
         Company's proportionate share of the losses of ICOS-TBC, including
         amounts billed by the Company to ICOS-TBC of $1,556,000, as discussed
         in Note 8, Research Agreements, above. The loss of ICOS-TBC also
         includes, and is partially offset by, the assignment by the Company to
         ICOS-TBC of $325,000 in research reimbursement funds from LG Chemical.

         Schering-Plough Research Collaboration and License Agreement

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

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

(10)     FOREIGN SUBSIDIARY

         During the third quarter 2000, TBC formed Revotar to conduct research
and development of novel small molecule compounds and to develop and
commercialize selectin antagonists. Upon formation, Revotar received certain
development and commercialization rights to the Company's selectin antagonist
compounds as well as rights to certain other TBC research technology. Revotar
also received approximately $5 million in funding from three German venture
capital funds. The Company retained ownership of approximately 55% of the
outstanding common stock of Revotar and has consolidated the financial results
of Revotar into TBC's consolidated financial statements. Since the developmental
and commercialization rights contributed by the Company to Revotar had no basis
for financial reporting purposes, the Company assigned no value to its
contribution of intellectual property rights. The Company's equity in the
originally contributed assets by the minority shareholders is reported as a
deferred credit of $2,620,010 on the consolidated balance sheet at March 31,
2001 and December 31, 2000. The minority interest in Revotar at March 31, 2001
and December 31, 2000, was $1,900,605 and $1,962,273, respectively. The
Company's consolidated net loss for the three months ended March 31, 2001 was
reduced by $61,668 for the Revotar minority shareholders' approximately 45%
interest in Revotar's loss.

(11)     COMMERCIALIZATION AGREEMENT

         In connection with TBC's development and commercialization of
Argatroban, in August 1997, TBC entered into a Product Development, License and
CoPromotion Agreement with GSK (the "SmithKline Agreement") whereby GSK was
granted exclusive rights to work with TBC in the development and



                                       10
<PAGE>   13

commercialization of Argatroban in the U.S. and Canada for specified
indications. GSK paid $8.5 million in upfront license fees during August 1997, a
$5 million milestone payment in October 1997, and a $7.5 million milestone
payment in June 2000. As a result of the Company's implementation of SAB101,
effective January 1, 2000, revenues in the three months ended March 31, 2000
include approximately $1,183,000 of the license fee and 1997 milestone payments.
The effect on revenues in the three months ended March 31, 2000 was offset by a
loss of approximately $2,366,000 from the cumulative effect, at January 1, 2000,
of the change in accounting principle resulting from the deferral of certain
license fees and milestone payments received in 1997.

(12)     401(k) PLAN

         The Company adopted a 401(k) plan, which became effective on September
1, 1993. Under the plan, all employees with three months of service are eligible
to participate in the plan and may contribute up to 15 percent of their
compensation, with a maximum of $10,500 per employee in 2000. Effective on
January 1, 2001, the Compensation Committee of the Board of Directors approved
an employer matching contribution of $0.50 on the dollar of employee
contributions up to 6% of salaries and the 401(k) plan was amended effective
January 1, 2001, resulting in a charge to operating expense of approximately
$40,000 during the three months ended March 31, 2001.

(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 Berlin, Germany
         and consolidates the results of operations into its consolidated
         financial results. Although not significant to date, the Company's
         reported expenses and cash flows from this subsidiary are exposed to
         changing exchange rates. Furthermore, the carrying value of the
         Company's investment in its German subsidiary will fluctuate as a
         result of such changing exchange rates. The Company, accordingly,
         included an unrealized loss of approximately $295,000 in its
         comprehensive loss for the three months ended March 31, 2001. The
         Company had an intercompany receivable from our Berlin subsidiary at
         March 31, 2001 and December 31, 2000; however this amount is
         denominated in U.S. dollars and is not exposed to exchange risk. The
         Company contracts with entities in other areas outside the U.S. and
         these transactions are denominated in a foreign currency. To date, the
         currencies of these other countries have not fluctuated materially. At
         this time, management has not deemed it cost effective to engage in a
         program of hedging the effect of foreign currency fluctuations on the
         Company's operating results using derivative financial instruments.

         (b)      Legal proceedings

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

(14)     SUBSEQUENT EVENT

         On May 3, 2001, the Company announced that its Board of Directors has
authorized a stock repurchase program to buy up to 3 million shares, or
approximately 7 percent, of the Company's outstanding common stock over an 18
month period.



                                       11
<PAGE>   14

ITEM 2

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

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

                        THREE MONTHS ENDED MARCH 31, 2000


                                    OVERVIEW

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

         Since our inception in 1989, we have primarily devoted our resources to
funding drug discovery research and development. We have been unprofitable to
date and expect to incur substantial operating losses for the next several years
as we invest in product research and development, preclinical and clinical
testing and regulatory compliance. We have sustained net losses of approximately
$108.1 million from the date of our inception to March 31, 2001. We have
primarily financed our operations to date through:

         o        private placements of common stock, which raised an aggregate
                  of $34.3 million in net proceeds;

         o        our initial public offering, which raised an aggregate of
                  $24.2 million in net proceeds including the over-allotment
                  sold in January 1994;

         o        a private placement of 5% preferred stock on March 14, 1997,
                  which raised approximately $6.0 million in net proceeds, and;

         o        subsequent public offerings, one of which closed during
                  October 1997 and raised approximately $26.7 million and one of
                  which closed during April 2000 and raised approximately $65.2
                  million in net proceeds; and

         o        exercise of public warrants for an aggregate of approximately
                  $21.6 million in net proceeds through January 2, 2001.

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

                              RESULTS OF OPERATIONS

                THREE MONTH PERIODS ENDED MARCH 31, 2001 AND 2000

         Revenues were approximately $2,269,000 and $1,706,000 in the three
month periods ended March 31, 2001 and 2000, respectively. Revenues in the three
months ended March 31, 2001 and 2000 included approximately $1,433,000 and
$523,000 respectively from research agreements, commercialization agreements and
collaborations with various other companies. In mid-November, 2000, GSK began
the sale of Argatroban, for which the Company received royalties of
approximately $177,000 during the three



                                       12
<PAGE>   15

months ended March 31, 2001. Because the FDA first approved Argatroban in June
2000, there were no comparable sales or royalties in the prior years.

         The Company implemented on October 1, 2000, effective January 1, 2000,
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB101"), promulgated by the United States Securities and Exchange Commission
("SEC") in December 1999. Pursuant to the requirements of SAB101, receipts of
license fees and milestone payments, which in prior years had been recognized
upon receipt, are now recognized as revenues over the developmental period. As a
result of the adoption of SAB101, revenues in the three months ended March 31,
2000 were increased by approximately $1,183,000 to reflect the amortization of a
license fee and milestone payment received from GSK in 1997. For further
discussion of SAB101 see Note 1 to the Condensed Consolidated Financial
Statements, included herein.

         In addition to the research payments from LG Chemical, which are
included in the two periods presented, Research agreement revenue includes
research payments from Schering-Plough pursuant to the agreement discussed
above. Collaborative research and development from related party of
approximately $401,000 in the three months ended March 31, 2001 is comprised of
payments received from ICOS-TBC pursuant to the limited partnership agreement,
discussed above. License fee and milestone income in the three months ended
March 31, 2001 of approximately $257,000 is comprised of a portion of license
fees received from ICOS-TBC and Schering-Plough, pursuant to the agreements
discussed above. License fee and milestone income in the three months ended
March 31, 2000 is comprised of a portion of a license fee and milestone payment
received from GSK in 1997.

         Research and development expense declined approximately $365,000 or
9.6% in the three months ended March 31, 2001, as compared with the three months
ended March 31, 2000. In June 2000, the Company entered into a limited
partnership agreement with ICOS Corporation to form ICOS-Texas Biotechnology,
L.P. ("ICOS-TBC"). The partnership was formed to develop and globally
commercialize endothelin-A receptor antagonists from the TBC endothelin
antagonist program. As a result, expenses associated with the endothelin
antagonist program during the three months ended March 31, 2001 are included in
the Company's share of the losses of ICOS-TBC. When the equity in loss of
affiliate of approximately $1,529,000 is taken into consideration, total
research and development expenses increased approximately $1,164,000 or 30.8%.

         General and administrative expenses in the three months ended March 31,
2001 decreased approximately $384,000 or 19.9% when compared with the three
months ended March 31, 2000. General and administrative expenses in the three
months ended March 31, 2000 included premarketing and consulting costs related
to Argatroban, and patent legal fees related to the sitaxsentan program, which
did not recur in the three months ended March 31, 2001.

         Investment income in the three months ended March 31, 2001 increased
approximately $1,449,000 compared to the comparable prior year period. The
increase is the result of the investment of proceeds from the Company's common
stock offering in April 2000.

         The minority shareholders' share in the losses of our German
subsidiary, Revotar, was approximately $62,000 in the three months ended March
31, 2001. The expenses of Revotar are included in the Company's consolidated
expenses, reported above.

         We incurred net losses before cumulative effect of change in accounting
principle of $2,509,563 and $3,803,741 in the three months ended March 31, 2001
and 2000, respectively. The decline in net loss in the current period is
primarily due to the increase in investment income, discussed above.

         The net loss in the three months ended March 31, 2000 was increased by
a loss of approximately $2,366,000 from the cumulative effect, at January 1,
2000, of the change in accounting principle resulting from the deferral of
certain license fees and milestone payments received in 1997.



                                       13
<PAGE>   16

                         LIQUIDITY AND CAPITAL RESOURCES

         We have financed our research and development activities to date
principally through:

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

         o        private placements of our common and preferred stock;

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

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

         o        investment income, net of interest expense.

         At March 31, 2001 we had cash, cash equivalents and short-term and
long-term investments of $108.8 million, including the cash of Revotar. The
Company enrolled its first patient in a clinical trial for ischemic stroke in
April 2001, and expects to receive, under the terms of a collaborative agreement
with Mitsubishi, a $2.0 million milestone payment in May. On May 3, 2001, the
Company announced that its Board of Directors has authorized a stock repurchase
program to buy up to 3 million shares, or approximately 7 percent, of the
Company's outstanding common stock over an 18 month period.

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

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

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

                  -        hospital and procedural costs;

                  -        services of a contract research organization; and

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

         o        There will be additional costs in future periods related to
                  Argatroban in complying with ongoing FDA requirements and
                  possible clinical trial expenditures for additional
                  therapeutic indications.

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

         We have been unprofitable to date and expect to incur operating losses
for the next several years as we invest in product research and development,
preclinical and clinical testing and regulatory compliance. We will require
substantial additional funding to complete the research and development of our
product



                                       14
<PAGE>   17

candidates, to establish commercial scale manufacturing facilities, if
necessary, and to market our products. We have accumulated approximately $108.1
million in net losses through March 31, 2001. Estimates of our future capital
requirements will depend on many factors, including:

         o        market acceptance and commercial success of Argatroban;

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

         o        continued scientific progress in our drug discovery programs;

         o        the magnitude of these programs;

         o        progress with preclinical testing and clinical trials;

         o        the time and costs involved in obtaining regulatory approvals;

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

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

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

         o        effective commercialization activities and arrangements.

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

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

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

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

         o        the ongoing cost of research and development activities;

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

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

         o        the presence and effect of competitive products;



                                       15
<PAGE>   18

         o        our ability to manufacture and market products commercially;
                  and

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

                               RECENT DEVELOPMENTS

         On May 9, 2001, the Company and Henry Ford Health Systems announced the
presentation of positive preclinical stroke data for Texas Biotechnology's
Argatroban, at the Society for Academic Emergency Medicine ("SAEM") in Atlanta.
Results from this study demonstrated that Argatroban and tPA, when used in
combination at four hours after the onset of an embolic stroke, reduced ischemic
lesion size without increasing gross cerebral hemorrhage rates (bleeding into
the brain) in rats. This preclinical stroke model closely simulates the
pathophysiology of humans experiencing ischemic stroke.

         In this study, there was a statistically significant reduction in
lesion size without any increase in bleeding in the Argatroban plus tPA treated
rats versus the tPA treated group.


                  HAZARDOUS MATERIALS AND ENVIRONMENTAL MATTERS

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

                     IMPACT OF INFLATION AND CHANGING PRICES

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

              CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

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

         When used in this Form 10-Q, the words "expect," "anticipate,"
"intend," "plan," "believe," "seek," "estimate" and similar expressions are
intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words. Because these
forward-looking statements involve risks and uncertainties, actual results could
differ materially from those expressed or implied by



                                       16
<PAGE>   19

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 under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" could substantially harm our
business, results of operations and financial condition and that 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 Berlin, Germany and consolidate
the results of operations into our consolidated financial results. Although not
significant to date, our reported expenses and cash flows from this subsidiary
are exposed to changing exchange rates. Furthermore, the carrying value of the
Company's investment in its German subsidiary will fluctuate as a result of such
changing exchange rates. The Company, accordingly, included an unrealized loss
of approximately $295,000 in its comprehensive loss for the three months ended
March 31, 2001. We had an intercompany receivable from our Berlin subsidiary at
March 31, 2001 and December 31, 2000; however this amount is denominated in U.S.
dollars and is not exposed to exchange risk. We have contracts with entities in
other areas outside the U.S. and these transactions are denominated in a foreign
currency. To date, the currencies of these other countries have not fluctuated
materially. At this time, we have not deemed it cost effective to engage in a
program of hedging the effect of foreign currency fluctuations on our operating
results using derivative financial instruments.



                                       17
<PAGE>   20

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

         Three reports on Form 8-K (Item 5) were filed during the quarter ended
March 31, 2001. The first report was filed with the SEC on January 5, 2001, and
announced that we have received approximately $21.7 million from the exercise of
approximately 2,570,000 of our publicly traded Common Stock Warrants. The second
report was filed with the SEC on February 28, 2001, and announced our results
for the fourth quarter and year-end 2000. The third report was filed with the
SEC on March 14, 2001, and reported that we have begun enrollment of a Phase II
multi-center placebo-controlled trial to assess the safety and efficacy of
Argatroban in patients with acute ischemic stroke.



                                       18
<PAGE>   21

                         TEXAS BIOTECHNOLOGY CORPORATION

                                 MARCH 31, 2001

                                   SIGNATURES




Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 15th day of May, 2001.




                                    TEXAS BIOTECHNOLOGY CORPORATION


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




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



                                       19