<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 SEPTEMBER 30, 1997

                                       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 September 30, 1997
            -----                          ---------------------------------
<S>                                         <C>
Common Stock, $0.005 par value                           26,463,869

</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 September 30, 1997 and December 31, 1996                1

         Consolidated Statements of Operations for the three months ended
         September 30, 1997 and 1996, the nine months ended September 30, 1997 and 1996            2

         Consolidated Statements of Cash Flows for the nine months ended
         September 30, 1997 and 1996                                                               3

         Notes to Consolidated Financial Statements                                                4

         ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                    15

         ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                 MARKET RISK                                                                      18

PART II. OTHER INFORMATION

         ITEM 1:  Legal Proceedings                                                               19

         ITEM 2:  Changes in Securities                                                           19

         ITEM 3:  Defaults Upon Senior Securities                                                 20

         ITEM 4:  Submission of Matters to a Vote of Security Holders                             20

         ITEM 5:  Other Information                                                               20

         ITEM 6:  Exhibits and Reports on Form 8-K                                                21

SIGNATURES                                                                                        22

INDEX TO EXHIBITS                                                                                 23
</TABLE>


<PAGE>   3
                 TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                 SEPTEMBER 30,       DECEMBER 31,
                        ASSETS                                                       1997                1996
                                                                                 ------------        ------------
                                                                                 (Unaudited)

<S>                                                                              <C>                  <C>      
Current assets:
       Cash and cash equivalents                                                 $    816,615         2,127,999
       Short term investments                                                      13,491,927        11,262,292
       Other current receivables                                                    1,262,455           590,575
       Short term note receivable                                                     122,500           122,500
       Prepaids                                                                       291,664           546,752
       Other current assets                                                           355,568            12,400
                                                                                 ------------         ---------
             Total current assets                                                  16,340,729        14,662,518

Equipment and leasehold improvements, at cost less
       accumulated depreciation and amortization (note 5)                           3,265,919         3,458,012

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

            Total assets                                                         $ 19,666,239        18,180,121
                                                                                 ============        ==========

             LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
       Accounts payable                                                          $  1,090,296         1,661,339
       Accrued expenses                                                             1,690,468         2,266,376
       Deferred revenue (note 8)                                                       62,500           625,000
                                                                                 ------------         ---------
            Total current liabilities                                               2,843,264         4,552,715

Commitments and contingencies (notes 6, 8, 9, 10 and 11)

Stockholders' equity (notes 2, 3 and 6):
       Preferred stock, par value $.005 per share. At September 30, 1997
            5,000,000 shares authorized; 3,580 shares of 5% cumulative
            convertible issued and outstanding. At December 31, 1996,
            5,000,000 shares authorized, none outstanding.                                 18                --
       Common stock, par value $.005 per share.  At September 30, 1997,
            75,000,000 shares authorized; 26,463,869 shares issued and
            outstanding.  At December 31, 1996, 75,000,000 shares
            authorized; 25,490,269 shares issued and outstanding                      132,319           127,451
       Additional paid-in capital                                                  86,809,978        77,808,331
       Accumulated deficit                                                        (70,119,340)      (64,308,376)
                                                                                 ------------         ---------
            Total stockholders' equity                                             16,822,975        13,627,406
                                                                                 ------------         ---------

            Total liabilities and stockholders' equity                           $ 19,666,239        18,180,121
                                                                                 ============        ==========
</TABLE>

          See accompanying notes to consolidated financial statements


FORM 10-Q                                                                 Page 1
<PAGE>   4

                 TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

                     Consolidated Statements of Operations

                                  (unaudited)

<TABLE>
<CAPTION>
                                                   Three months ended               Nine months ended
                                                      September 30,                   September 30,
                                                    1997          1996            1997             1996
                                                 -----------  ------------   ---------------  -------------

<S>                                              <C>          <C>            <C>              <C>          
Revenues:
     Research agreements (note 8)                $ 1,187,500  $  1,100,000   $     2,672,502  $   4,295,110
     License fee income                            8,500,000            --         8,500,000             --
     Other income                                      2,502         2,500             7,500          8,166
                                                 -----------  ------------   ---------------  -------------
         Total revenues                            9,690,002     1,102,500        11,180,002      4,303,276
                                                 -----------  ------------   ---------------  -------------

Expenses:
     Research and development                      4,287,056     5,980,096        13,117,421     17,484,641
     General and administrative                    1,177,642       952,299         4,248,950      3,076,936
     Restructuring & Impairment charges                   --            --                --        421,165
                                                 -----------  ------------   ---------------  -------------
         Total expenses                            5,464,698     6,932,395        17,366,371     20,982,742
                                                 -----------  ------------   ---------------  -------------

         Operating income (loss)                   4,225,304    (5,829,895)       (6,186,369)   (16,679,466)
                                                 -----------  ------------   ---------------  -------------

Other income (expense):
     Interest income                                 183,494       199,811           506,970        697,089
     Other                                             8,093            --             2,253             --
                                                 -----------  ------------   ---------------  -------------
         Total other income (expense)                191,587       199,811           509,223        697,089

         Net income (loss)                       $ 4,416,891  $ (5,630,084)  $    (5,677,146) $ (15,982,377)
         Preferred dividend requirement              297,229            --         1,144,623             --

         Net loss applicable to common shares    $ 4,119,662  $ (5,630,084)  $    (6,821,769) $ (15,982,377)

Net income (loss) per share:
     Primary                                     $      0.15  $      (0.23)            (0.26) $       (0.69)
     Fully diluted                               $      0.15  $         --   $            --  $          --
Weighted average common shares used to
     compute net income (loss) per share:
     Primary                                      27,305,955    24,188,708        25,853,961     23,053,607
     Fully diluted                                28,762,873            --                --             --
</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

                For the periods ended September 30, 1997 and 1996
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                        NINE MONTHS ENDED
                                                                                           SEPTEMBER 30,
                                                                                      1997              1996
                                                                                  ------------      ------------ 
<S>                                                                               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                       $ (5,677,146)      (15,982,377)
   Adjustments to reconcile net loss to net cash
    used in operating activities:
          Depreciation and amortization                                                561,095           547,651
          Expenses paid with stock (note 3)                                              9,967                --
          Compensation expense related to stock options (note 3)                     1,303,094            46,177
          Preferred dividends payable not included in net loss                         (98,965)               --
   Change in operating assets and liabilities, net of effect of acquisition:
    (Increase) decrease in prepaids                                                    255,088           276,136
    (Increase) decrease in receivables                                                (671,880)            7,291
    (Increase) decrease in other current assets                                       (343,168)          154,833
    Increase (decrease) in current liabilities                                      (1,146,951)          417,280
    (Decrease) in deferred revenue                                                    (562,500)         (400,110)
                                                                                  ------------      ------------ 
          Net cash used in operating activities                                     (6,371,366)      (14,933,119)
                                                                                  ------------      ------------ 

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of equipment and leasehold improvements                                  (369,003)          (82,123)
   Purchase of short term investments                                              (18,987,527)      (24,007,757)
   Maturity of short term investments                                               16,757,893        20,464,414
                                                                                  ------------      ------------ 
         Net cash provided by (used in) investing activities                        (2,598,637)       (3,625,466)
                                                                                  ------------      ------------ 

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of common stock and options and
    warrant exercises, net                                                           1,733,350        13,642,447
   Proceeds from sale of preferred stock, net                                        5,925,269                --
                                                                                  ------------      ------------ 
          Net cash provided by financing activities                                  7,658,619        13,642,447
                                                                                  ------------      ------------ 
    Net increase (decrease) in cash and cash equivalents                            (1,311,384)       (4,916,138)

Cash and cash equivalents at beginning of period                                     2,127,999         5,724,264
                                                                                  ------------      ------------ 
Cash and cash equivalents at end of period                                        $    816,615           808,126
                                                                                  ============      ============

Supplemental schedule of noncash financing activities                             $     34,853                --
                                                                                  ============      ============
</TABLE>

          See accompanying notes to consolidated financial statements


FORM 10-Q                                                                 Page 3

<PAGE>   6
                 TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996


(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
         cardiovascular disease 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 a 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
         September 30, 1997, approximately $817,000 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 September 30, 1997, the Company's short term
         investments consisted of approximately $961,000 in Government Agency
         Discount Notes and $12,531,000 in Corporate Commercial Paper. Cash
         equivalents and short term investments are stated at cost, which
         approximates market value. Interest income is accrued as earned.

     (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 months ended September
         30, 1997 and 1996, totaled approximately $1,445,000 and $1,469,000,
         respectively, of which approximately $1,136,000 and $1,179,000,
         respectively, was charged to research and development. For the nine
         months ended September 30, 1997 and 1996, salaries and benefits totaled
         approximately $4,257,000 and $4,936,000, respectively, of which
         approximately $3,335,000 and $3,872,000, respectively, was charged to
         research and development. Payments related to the acquisition of
         in-process research and development are expensed.

     (g) Net Income (Loss) Per Common Share

         Primary net income (loss) per common share is based upon the net income
         (loss) applicable to common shares after preferred dividend
         requirements and upon the weighted average of common and common
         equivalent shares outstanding during the period. Preferred dividend
         requirements for the three and nine months ended September 30, 1997
         included $52,157 and $133,817, respectively, of accrued dividends and,
         pursuant to a Securities and Exchange Commission Staff Position, deemed
         dividends attributable to the conversion discount factor at issuance of
         the Preferred Stock of $245,072 and $1,010,806, respectively. For the
         three months ended September 30, 1997 and 1996, the weighted average
         common shares used to compute primary net income (loss) per common
         share totaled 27,305,955 and 24,188,708, respectively. For the nine
         months ended September 30, 1997 and 1996, the weighted average common
         shares used to compute primary net loss per common share totaled
         25,853,961 and 23,053,607, respectively. The conversion of securities
         convertible into Common Stock and the exercise of stock options and
         warrants were not assumed in the calculation of primary net loss per
         common share for the three months ended September 30, 1996 and the nine
         months ended September 30, 1997 and 1996 because the effect would have
         been antidilutive. For the three months ended September 30, 1997,
         primary net income per common share includes the exercise of dilutive
         stock options and warrants. The 4,082,500 warrants which are traded
         publicly are not included in net income per share since they are
         anti-dilutive.

         Fully diluted net income per common share is based upon the net income
         applicable to common shares before the preferred dividend requirement.
         For the three months ended September 30, 1997, the weighted average
         shares used to compute fully diluted net income per share totaled
         28,762,873 and included the conversion of securities convertible into
         Common Stock and the exercise of dilutive stock options and warrants.
         Shares held in escrow through September 30, 1995, pending satisfaction
         of certain future conditions, and shares related to contingent stock
         issue rights related to the IPI acquisition have been excluded from the
         net loss per share calculation until such shares were released or
         issued.

     (h) Reclassifications

         Certain reclassifications have been made to prior period financial
         statements to conform with the September 30, 1997 presentation with no
         effect on net loss reported.

FORM 10-Q                                                                 Page 5
<PAGE>   8

     (i) Revenue Recognition

         Revenue from grants is recognized as earned under the terms of the
         related grant agreements. 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.
         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.

     (l) Accounting Pronouncements

         In February 1997, the Financial Accounting Standards Board issued
         Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
         per Share" ("Statement 128"), which the Company is required to adopt
         for both interim and annual periods ending after December 15, 1997.
         Statement 128 simplifies the EPS calculation by replacing primary EPS
         with basic EPS. Basic EPS is computed by dividing reported earnings
         available to common stockholders by the weighted average shares
         outstanding. Since the Company has incurred losses in both the nine
         month periods ended September 30, 1997 and 1996, and the three month
         period ended September 30, 1996, there is no effect on net loss per
         share as reported for those periods.

         In June 1997, the Financial Accounting Standards Board ("FASB") issued
         SFAS No. 130, "Reporting Comprehensive Income," effective for fiscal
         years beginning after December 15, 1997. This Statement requires that
         all items that are required to be recognized under accounting standards
         as components of comprehensive income be reported in a financial
         statement that is displayed with the same prominence as other financial
         statements. This Statement further requires that an entity classify
         items of other comprehensive income by their nature in a financial
         statement. For example, other comprehensive income may include foreign
         currency items, minimum pension liability adjustments, and unrealized
         gains and losses on certain investments in debt and equity securities.
         Reclassification of financial statements for earlier periods, provided
         for comparative purposes, is required. Based on current accounting
         standards, this Statement is not expected to have a material impact on
         the Company s consolidated financial statements. The Company will adopt
         this accounting standard on January 1, 1998, as required.

     (m) Interim Financial Information

         The Consolidated Balance Sheet as of September 30, 1997, and the
         related Consolidated Statements of Operations for the three and nine
         month periods ended September 30, 1997 and 1996 and Consolidated
         Statements of Cash Flows for the nine month periods ended September 30,
         1997 and 1996 are unaudited. In the opinion of management, all
         adjustments necessary for a fair presentation of such financial
         statements have been included. Such adjustments consisted of normal
         recurring items, except as stated in note 2 below. Interim results are
         not necessarily indicative of results for a full year. The consolidated
         financial statements and notes are presented as permitted by Form 10-Q
         rules and do not contain certain information included in the Company's
         Annual Consolidated Financial Statements and Notes which should be read
         in conjunction with these consolidated financial statements and notes.


FORM 10-Q                                                                 Page 6
<PAGE>   9

     (n) 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 has begun reporting as an operating Company.

(2)  CAPITAL STOCK

     On March 14, 1997, the Company completed a $6.0 million private placement
     of 5% Cumulative Convertible Preferred Stock ("the 5% Preferred") which
     provided net proceeds to the Company of approximately $5.8 million. The 5%
     Preferred is convertible into Common Stock at discounts ranging from 6% to
     17% from the average of the daily low trading price of the Common Stock for
     the ten consecutive trading days immediately preceding the conversion date.
     A total of 6,000 shares of 5% Preferred were sold at a price of $1,000 per
     share to two institutional investors. In accordance with the terms of the
     private placement, the Company filed, pursuant to Rule 415 of the
     Securities Act, a Shelf Registration Statement as to the resale of the
     shares of the underlying Common Stock which became effective on May 23,
     1997. The 5% Preferred holds preferential rights compared to all other
     classes of stock regarding dividend payments and liquidation. Dividends
     have been accrued at the rate of five percent (5%) per annum on the amount
     of 5% Preferred outstanding during the quarter and are payable quarterly
     commencing September 30, 1997 when and as declared by the Board of
     Directors. In accordance with the Certificate of Designation of 5%
     Cumulative Convertible Preferred, dividends not declared and paid are
     considered additions to the 5% Preferred amount at the time of conversion
     and can be paid in Common Stock of the Company at time of conversion.
     Dividends and the discount related to the conversion of the 5% Preferred
     has been shown as an increase of net loss applicable to common
     shareholders. The liquidation preference (which included accrued dividends)
     amount of 5% Preferred at September 30, 1997 is $3,678,965. As of September
     30, 1997, 2,420 shares of the 5% Preferred and accrued dividends of $34,853
     on such shares have been converted into 596,546 shares of Common Stock.
     During October 1997, 3,000 shares of Preferred Stock and accrued dividends
     converted into 684,539 shares of Common Stock. Following this conversion,
     580 shares of Preferred Stock remain outstanding.

     During October 1997, the Company sold 5,750,000 shares of Common Stock for
     $5.00 per share pursuant to an underwritten public offering. The net
     proceeds to the Company for the 5,750,000 shares sold were approximately
     $26.6 million after deducting selling commissions and expenses of
     approximately $2.2 million related to the offering.

     Additionally, during October 1997, the Company issued 214,286 shares of
     Common Stock and a seven year warrant to purchase 142,858 shares of Common
     Stock exercisable at $14.00 per share, pursuant to a license agreement.
     (See notes 9 and 13)

(3)  STOCK OPTIONS

     The Company has in effect the following stock option plans:

     The Amended and Restated 1990 Incentive Stock Option Plan ("1990 Plan")
     allows for the issuance of incentive and non-qualified options to
     employees, directors, officers, non-employee independent contractors and
     non-employee directors, pursuant to which 229,756 shares of Common Stock
     are reserved for issuance out of authorized but unissued shares of the
     Company.

     The Amended and Restated 1992 Incentive Stock Option Plan ("1992 Plan")
     allows for the issuance of incentive and non-qualified options to
     employees, directors, officers, non-employee independent contractors and
     non-employee directors, pursuant to which 1,549,339 shares of Common stock
     are reserved for issuance out of authorized but unissued shares of the
     Company.


FORM 10-Q                                                                 Page 7
<PAGE>   10
     The Stock Option Plan for Non-Employee Directors ("Director Plan") allows
     for the issuance of non-qualified options to non-employee directors,
     pursuant to which 37,020 shares of Common Stock are reserved for issuance
     out of authorized but unissued shares of the Company to be issued to
     non-employee members of the Board of Directors of the Company based on a
     formula.

     The Amended and Restated 1995 Stock Option Plan ("1995 Plan") allows for
     the issuance of incentive and non-qualified options, shares of restricted
     stock and stock bonuses to employees, officers, and non-employee
     independent contractors, pursuant to which 2,000,000 shares of Common Stock
     are reserved for issuance out of authorized but unissued shares of the
     Company. The Board of Directors amended the 1995 Plan effective March 4,
     1997 to allow 2,000,000 shares to be reserved for issuance, which amendment
     was approved by stockholders at the annual meeting on May 6, 1997.

     The Amended and Restated 1995 Non-Employee Director Stock Option Plan
     ("1995 Director Plan") allows for the issuance of non-qualified options to
     non-employee directors, pursuant to which 296,363 shares of Common Stock
     are reserved for issuance out of authorized but unissued shares of the
     Company to be issued to non-employee members of the Board of Directors of
     the Company based on a formula. In June 1996, the 1995 Director Plan was
     amended with respect to the election date requirement for a director to
     request stock in lieu of cash payment of director fees. The Board of
     Directors amended the 1995 Director Plan effective March 4, 1997 to allow
     300,000 shares to be reserved for issuance and also to revise the formula
     for issuing options. Both amendments were approved by stockholders at the
     annual meeting on May 6, 1997.

     A summary of stock options as of September 30, 1997, 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 - $5.19         285,715       181,193      55,959       172,246      48,563

     1992  Plan             $1.41 - $5.36       1,700,000     1,326,677     150,661     1,035,129     222,662

     Director  Plan         $2.40 - $4.54          71,429        37,020      34,409        37,020         ---

     1995 Plan              $1.31 - $5.88       2,000,000     1,197,900         ---       226,510     802,100

     1995  Director  Plan   $1.38 - $5.19         300,000       130,705       3,637        67,885     165,658
                                               ----------    ----------  ----------  ------------ -----------
                     TOTALS                     4,357,144     2,873,495     244,666     1,538,790   1,238,983
                                               ==========    ==========  ==========  ============ ===========
</TABLE>

     As of March 4, 1997, the Board of Directors approved increases on the
     number of shares authorized of 1,000,000 shares in the 1995 Plan and
     100,000 shares in the 1995 Director Plan respectively, which were approved
     by stockholders at the annual meeting on May 6, 1997, and are include
     above.

     The Company applies APB Opinion 25 and related interpretations on
     accounting for its plans. The Company has recorded deferred compensation
     for the difference between the grant price and the deemed fair value for
     financial statement presentation purposes related to certain options
     granted in the period subsequent to May 27, 1993 and prior to the initial
     public offering. Such amount totaled $287,158, of which $92,765 was charged
     to expense in 1995. The unamortized deferred compensation expense of
     $46,177 at December 31, 1995 was expensed during 1996.

     During December, 1996, the Compensation and Personnel Committee of the
     Board of Directors authorized the extension of options originally granted
     for a five year period to ten years upon election by individual option
     holders. During 1997, option holders elected to extend 1,022,833 options,
     originally expiring during 1997, 1998, 1999 and 2000, for an additional
     five years. Accordingly, the Company recorded a non-cash charge of
     $1,303,094 for the nine months ended September 30, 1997 of which $1,149,829
     was recorded in the second quarter and the remainder in the first quarter.
     Of the total for the nine months, approximately $350,000 was charged to
     research and development and the remainder to general and administrative
     for the difference between the original option exercise price and fair
     market value as of the effective date of election.


FORM 10-Q                                                                 Page 8
<PAGE>   11
     As of September 30, 1997, 2,074 shares of stock were issued pursuant to the
     1995 Director Plan to two directors for board fees in lieu of cash and are
     included in the amount exercised for that plan.

(4)  INCOME TAXES

     The Company uses the asset and liability method of accounting for income
     taxes. Under the asset and liability method of Statement 109, 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.

     As of September 30, 1997, the net deferred tax asset totaled approximately
     $24,022,000 and was fully reserved. The Company did not incur any tax
     expense in any year due to operating losses.

(5)  EQUIPMENT AND LEASEHOLD IMPROVEMENTS

     Equipment and leasehold improvements consist of the following : 

<TABLE>
<CAPTION>
                                                 September 30,1997  December 31,1996
                                                 -----------------  ----------------

<S>                                                 <C>               <C>        
Laboratory and office equipment                     $ 4,448,731       $ 4,079,728
Leasehold improvements                                3,701,772         3,701,772
                                                    -----------       -----------
                                                      8,150,503         7,781,500
Less accumulated depreciation and amortization       (4,884,584)       (4,323,488)
                                                    -----------       -----------
                                                    $ 3,265,919       $ 3,458,012
                                                    ===========       ===========
</TABLE>

(6)  COMMON STOCK RESERVED

     The Company has reserved Common Stock for issuance as of September 30, 1997
     as follows:

<TABLE>
<S>                                                    <C>      
Stock option plans                                     4,112,478
Common stock issuable under licensing agreement          285,715  (See note 9, 13)
Warrants issuable under the licensing Agreement          142,858  (See note 9, 13)
Publicly traded warrants outstanding                   4,082,500
Other warrants outstanding                             1,232,092
Underwriters purchase options and related warrants       710,000
Public offering of Common Stock                        5,750,000  (See note 2, 13)
Conversion of Preferred Stock                          2,451,719  (See note 2)
                                                       ---------            
     Total shares reserved                            18,767,362
                                                      ==========
</TABLE>

     In addition to the above, LG Chemical, Ltd. ("LG Chem") has the option to
     purchase $5 million of Common Stock on December 31, 1997. LG Chem and TBC
     must agree on the purchase price or the option cannot be exercised.
     Additionally, on October 9, 1997 the Company issued 214,286 shares of
     Common Stock and a warrant to purchase an additional 142,858 shares of
     Common Stock at an exercise price of $14.00 per share. (See note 13)

(7)  CLINICAL RESEARCH AGREEMENTS

     On June 1, 1995, the Company entered into an agreement with Coromed, Inc.,
     to coordinate the clinical evaluation of NOVASTAN(R) as an adjunct to t-PA
     in acute myocardial infarction. Coromed is responsible for managing all
     aspects of the clinical trial and making all financial remuneration to
     testing sites. The term of the agreement is 16 months, subject to extension
     upon the mutual written agreement of both parties. The term of the contract
     expired on October 1, 1996, but was extended on April 11, 1997 for one year
     through September 30, 1997 or until all services detailed in the original
     contract are completed. The parties have 

FORM 10-Q                                                                 Page 9
<PAGE>   12

     agreed to a total budget of $961,659. Of this amount, $44,000 was paid upon
     execution of a letter of intent and $138,566 was paid upon execution of the
     agreement. Subsequent payments will be made monthly on a per patient basis,
     to a maximum total of approximately $734,000. Three additional payments of
     $15,000 each will be made upon completion of specified tasks by Coromed.

     During August 1997, the Company began Phase IIa clinical trials for TBC
     11251 (TBC's lead compound for vasospasm/hypertension) in congestive heart
     failure. On August 5, 1997, the Company entered into a letter of intent
     with Coromed, Inc. to pursue negotiations and possible execution of an
     agreement to conduct the clinical evaluation of TBC 11251 to determine
     acute hemodynamic efficacy and safety in congestive heart failure. The
     clinical trial work contemplated in the letter of intent will cost
     approximately $1,000,000. The term of the original letter of intent ended
     on September 30, 1997, but was extended until October 31, 1997.

(8)  RESEARCH AGREEMENTS

     On October 11, 1994, the Company signed a collaborative agreement with
     Synthelabo, S.A. ("Synthelabo"), a French pharmaceutical group, to develop
     and market compounds for vascular proliferative disease derived from the
     Company's research programs. Upon consummation of the transaction,
     Synthelabo purchased 1,428,571 shares of Common Stock for $3.50 per share
     for a total of $5 million becoming the Company's largest shareholder at
     that time and paid the Company a non-refundable licensing fee of $3
     million. In addition, Synthelabo committed to pay $3 million annually in
     research payments (payable in quarterly installments of $750,000).
     Beginning October 31, 1996, the parties to the agreement agreed to revise
     the terms of the payment for the third year to be $750,000, which amount
     has already been paid. No such payments will be made in 1997. Synthelabo
     has agreed, upon the achievement of certain milestones, to make further
     payments of up to $3 million per year for up to $18 million in total.
     Synthelabo has the right to terminate the agreement any time on or after
     October 15, 1997 for any reason and either party has the right to terminate
     the contract for breach of any material obligation. If Synthelabo exercises
     this termination right, the license granted to Synthelabo will terminate
     and TBC will pay Synthelabo a royalty on net sales of any products sold in
     a certain territory (Europe, Middle East, Africa and countries of the
     former Soviet Union) for a period of time. In addition, Synthelabo may, at
     its option, require that the technology be transferred to and the
     development program be conducted by a joint venture owned by TBC and
     Synthelabo should "net worth", of TBC as defined in the agreement, be less
     than $5 million as of the end of any calendar quarter during the term of
     the agreement. For the years ended December 31, 1995 and December 31, 1996,
     TBC received $3 million related to the Synthelabo agreement. In exchange
     for the above consideration, Synthelabo has received an exclusive license
     to manufacture, use, and sell any products generated from the research, in
     Europe, the Middle East, Africa and the countries of the former Soviet
     Union. The first quarterly research payment of $750,000 was received on
     October 31, 1994, of which $500,000 was recognized in 1994. During the year
     ended December 31, 1996, research payments of $3,000,000 were received of
     which $2,625,000 was recognized as income during the year. As of September
     30, 1997, $562,500 has been recognized as revenue and $62,500 is included
     in current deferred revenue. Synthelabo will pay royalties to TBC, based on
     net sales, in those geographic areas covered by the agreement.

     During 1995 and 1997, the Company and Synthelabo mutually agreed to
     exchange certain clinical data with regard to NOVASTAN(R). Additionally,
     during 1996, the Company signed two agreements with Synthelabo with respect
     to the supply of information related to certain clinical studies of
     NOVASTAN(R). Over the term of the agreements as certain milestones are met,
     Synthelabo has committed to pay TBC up to $2,920,000. These payments are
     dependent on rate of enrollment in certain clinical studies, the completion
     of certain clinical studies and date of completion of certain clinical
     studies. As of September 30, 1997, TBC has recognized approximately
     $2,880,000 of revenue related to these agreements, $610,000 of which is in
     other current receivables. Synthelabo is the licensee for NOVASTAN(R)in
     certain territories other than those which were sublicensed to TBC.

     On October 10, 1996, the Company signed a strategic alliance agreement with
     LG Chem to develop and market compounds derived from the Company's
     endothelin receptor and selectin antagonist programs for certain disease
     indications. Upon consummation of the transaction, LG Chem purchased
     1,250,000 shares of Common Stock for $4.00 per share for a total of $5
     million. LG Chem has committed to pay $10.7 million in 


FORM 10-Q                                                                Page 10
<PAGE>   13

     research payments. Of this amount, $1.1 million has been paid and $1.0
     million will be paid on December 31, 1997 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. As of September 30, 1997, $500,000 is in other
     current receivables. LG Chem has the right to terminate future research
     payments if TBC fails to meet certain agreement milestones, which
     milestones will be established by the parties in accordance with the
     agreement. LG Chem will pay royalties to TBC, based on net sales, in those
     geographic areas covered by the agreement, which include Korea, China,
     India and certain other Asian countries, excluding Japan. The Company will
     pay its agents in the contract negotiations with LG Chem, a commission on
     all consideration received including a royalty on net sales.

(9)  LICENSE AGREEMENT

     TBC has entered into an agreement with Mitsubishi Chemical Corporation
     ("Mitsubishi") to license Mitsubishi's rights and technology relating to
     NOVASTAN(R) and to license Mitsubishi's own proprietary technology
     developed with respect to NOVASTAN(R) (the "Mitsubishi Agreement"). Under
     the Mitsubishi Agreement, the Company has an exclusive license to use and
     sell NOVASTAN(R) in the U.S. and Canada for all specified indications. The
     Company is required to pay Mitsubishi specified royalties on net sale of
     NOVASTAN(R) 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. 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.

     Mitsubishi further agreed to supply the Company with its requirements of
     bulk NOVASTAN(R)throughout the term of the Mitsubishi Agreement for TBC's
     clinical testing and commercial sales of NOVASTAN(R)in the U.S. and Canada.
     In the event Mitsubishi should discontinue the manufacture of NOVASTAN(R),
     Mitsubishi and TBC have agreed to discuss in good faith the means by which,
     and the party to whom, NOVASTAN(R)production technology will be
     transferred. The transferee may be a person or entity other than TBC. At
     present, Mitsubishi is the only manufacturer of NOVASTAN(R). Should
     Mitsubishi terminate or default in its supply commitment, there can be no
     assurance that alternate sources of bulk NOVASTAN(R)will be available to
     the Company at reasonable cost, if at all. If such alternate sources of
     supply (see note 10) are unavailable or uneconomic, the Company's results
     of operations would be materially adversely affected.

     In exchange for the license to Genentech's (the "Former Licensor")
     NOVASTAN(R) technology, TBC issued the Former Licensor 285,714 shares of
     Common Stock during 1993 and issued an additional 214,286 shares of Common
     Stock on October 9, 1997, after acceptance of the filing of the first New
     Drug Application ("NDA") with the FDA for NOVASTAN(R). An additional 71,429
     shares of Common Stock will be issued to the Former Licensor within ten
     days after the FDA's first approval of an NDA for NOVASTAN(R).
     Additionally, on October 9, 1997, upon acceptance of the filing of the
     first NDA for NOVASTAN(R) 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. If the Company is unable to issue any of the
     additional shares of Common Stock or the warrant to the Former Licensor due
     to circumstances beyond the Company's control, the Company has agreed to
     pay the Former Licensor, in lieu thereof, an amount equal to the value of
     the securities plus interest from May 27, 1993 at the prime rate plus one
     percent, compounded annually. The value of the Common Stock is deemed to be
     $7.00 per share, which represents the cash consideration the Company will
     be obligated to pay to the Former Licensor as liquidated damages, and the
     value of the warrants is to be determined by appraisal, based on the
     warrants' market value. The Company will not be required to make any cash
     payment if the approval of the NDA does not occur. TBC has also granted the
     Former Licensor demand and piggyback registration rights with regard to
     shares of Common Stock issued to the Former Licensor.


FORM 10-Q                                                                Page 11
<PAGE>   14

     During the third quarter of 1997, the Company sublicensed certain rights to
     NOVASTAN(R) to SmithKline Beecham, plc ("SmithKline"). (see note 10) In
     conjunction with this agreement, the Company agreed to make certain
     payments to Mitsubishi, which are included in research and development
     expense, to pay an additional royalty to Mitsubishi beginning January 1,
     2001 and to provide access to certain NOVASTAN(R) clinical data to
     Mitsubishi in certain circumstances.

(10) COMMERCIALIZATION AGREEMENT

     In connection with TBC's development and commercialization of NOVASTAN(R),
     in August 1997, TBC entered into a Product Development, License and
     CoPromotion Agreement with SmithKline Beecham plc (the "SmithKline
     Agreement") 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. SmithKline paid $8.5 million in upfront
     license fees during August 1997, a $5 million milestone payment in October
     1997, and will pay up to $15 million in additional milestone payments based
     on the clinical development and FDA approval of NOVASTAN(R) for the
     heparin-induced thrombocytopenia ("HIT") and HIT with thrombosis syndrome
     ("HITTS") and acute myocardial infarction ("AMI") indications. SmithKline
     has also agreed to provide 60% of the funding for clinical trials for the
     HIT/HITTS and AMI indications. The parties have also formed a joint
     development committee to analyze the development of additional NOVASTAN(R)
     indications to be funded 60% by SmithKline except for certain Phase IV
     trials which shall be funded entirely by SmithKline. Pursuant to the
     Mitsubishi Agreement, TBC and SmithKline must make a determination as to
     their desire to pursue the stroke indication by December 1998. SmithKline
     has the exclusive right to commercialize all products arising out of the
     collaboration, subject to the obligation to pay royalties on net sales to
     TBC and to the rights of TBC to copromote these products through its own
     sales force in certain circumstances. TBC will retain the rights to any
     indications which SmithKline determines it does not wish to pursue, subject
     to the requirement that TBC must use its own sales force to commercialize
     any such indications. Any indications which TBC elects not to pursue will
     be returned to Mitsubishi. In conjunction with the SmithKline Agreement, a
     consulting firm involved in negotiations related to the agreement will
     receive a percentage of all consideration received by TBC as a result of
     the agreement.

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

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

     In connection with the execution of the SmithKline Agreement, SmithKline
     Beecham plc purchased 176,992 shares of TBC's Common Stock for $1.0 million
     and an additional 400,000 shares of Common Stock for $2.0 million in
     connection with the public offering which closed on October 1, 1997. (see
     note 2). TBC granted limited piggyback registration rights regarding the
     176,992 shares which expire when the shares may be sold pursuant to Rule
     144(k) under the Securities Act.

FORM 10-Q                                                                Page 12
<PAGE>   15

(11) COMMITMENTS AND CONTINGENCIES

         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. 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.
         Given the early stage of that case, which is the only remaining
         litigation against the Company, 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.

(12) REGULATORY FILING

     During August 1997, the Company filed an NDA with the FDA for it's lead
     product candidate, NOVASTAN(R)(argatroban) for use as an anticoagulant in
     patients with HIT. During September 1997, the FDA granted 

FORM 10-Q                                                                Page 13
<PAGE>   16

     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 Company
     anticipates a decision on the approval of the filed NDA by the end of the
     second quarter of 1998.

(13) SUBSEQUENT EVENTS

         Common Stock Reserved

         During October 1997, upon acceptance of the filing of the NDA for
         NOVASTAN(R) by the FDA, the Company issued 214,286 shares of Common
         Stock and a warrant to purchase an additional 142,858 shares of Common
         Stock at an exercise price of $14.00 per share, subject to adjustment,
         to the Former Licensor of NOVASTAN(R). The Company will record a
         non-cash accounting change of $1,075,000 to in process research and
         development during the fourth quarter of 1997.

         Public Offering

         During October 1997, the Company sold 5,750,000 shares of Common Stock
         for $5.00 per share pursuant to an underwritten public offering. The
         net proceeds to the Company for the 5,750,000 shares sold were
         approximately $26.6 million after deducting selling commissions and
         expenses of approximately $2.2 million related to the offering.

FORM 10-Q                                                                Page 14
<PAGE>   17

ITEM 2.

                 TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
              SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996

                                    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. On an annual
     basis, 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 $70.1
     million from inception to September 30, 1997. The Company has primarily
     financed its operations to date through certain private placements of
     Common Stock and debt, 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 $26.6 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 on October 11,
     1994. 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 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 $2.9 million, of which $2.3 million
     has been received as of September 30, 1997. 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, $1.1 million has
     been paid and $1.0 million will be paid on December 31, 1997 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 the SmithKline Agreement 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. 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 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.


FORM 10-Q                                                                Page 15
<PAGE>   18

     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 SEPTEMBER 30, 1997 AND 1996

     Revenues increased from $1,102,500 in the three month period ended
     September 30, 1996 to $9,690,002 in the same period of 1997, an increase of
     779%. Revenues were primarily composed of earned revenues under
     commercialization agreements and research collaborations. Such revenue
     increased primarily because of the $8.5 million license fee paid by
     SmithKline in August, 1997.

     Total operating expenses decreased 21% from $6,932,395 in the three month
     period ended September 30, 1996 to $5,464,698 in the same period of 1997
     due primarily to the decrease in research and development expenses.
     Research and development expenses decreased 28% from $5,980,096 in the
     three month period ended September 30, 1996 to $4,287,056 in the same
     period of 1997. 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). General
     and administrative expenses increased 24% from $952,299 in the three month
     period ended September 30, 1996 to $1,177,642 in the same period of 1997
     primarily because of payments made in connection with the SmithKline
     Agreement.

     Other income and expense is composed of investment income on invested funds
     and foreign currency exchange gains and losses. The decrease is caused by
     an 8% decrease in investment income from $199,811 in the three month period
     ended September 30, 1996 to $183,494 in the same period of 1997 and an
     increase in foreign currency exchange gains. Investment income decreased
     due to lower balances of cash available for investment.

              NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996

     Revenues increased from $4,303,276 in the nine month period ended September
     30, 1996 to $11,180,002 in the same period of 1997, an increase of 160%.
     Revenues were primarily composed of earned revenues under commercialization
     agreements and research collaborations. Such revenue increased primarily
     because of the $8.5 million license fee paid by SmithKline in August, 1997.

     Total operating expenses decreased 17% from $20,982,742 in the nine month
     period ended September 30, 1996 to $17,366,371 in the same period of 1997
     primarily because of the decrease in research and development expenses.
     Research and development expenses decreased 25% from $17,484,641 in the
     nine month period ended September 30, 1996 to $13,117,421 in the same
     period of 1997. 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). General
     and administrative expenses increased 38% from $3,076,936 in the nine month
     period ended September 30, 1996 to $4,248,950 in the same period of 1997
     primarily because of a $952,919 noncash charge related to the extension of
     the exercise period for certain stock options and payments made in
     connection with the SmithKline Agreement. Restructuring and impairment
     charges during 1996 related to the consolidation of the IPI operations into
     TBC did not reoccur in 1997.

     Other income and expense is composed of investment income on invested funds
     and foreign currency exchange gains and losses. The decrease is caused by a
     27% decrease in investment income from $697,089 in the nine month period
     ended September 30, 1996 to $506,970 in the same period of 1997, attributed
     primarily to lower balances of cash available for investment.

FORM 10-Q                                                                Page 16
<PAGE>   19

                         LIQUIDITY AND CAPITAL RESOURCES

     The Company has financed its research and development activities to date
     principally through (i) private placements of Common Stock and 5% Preferred
     Stock and the Initial Public Offering of a unit security, (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 nine months of 1997, the Company utilized net
     cash of $6,371,366 in operating activities. The use of cash in operations
     was caused primarily by the Company's net loss of $5,677,146. Investing
     activities primarily reflect the utilization of $5,925,269 in net proceeds
     from the 1997 private placement of the 5% Preferred, net of redemptions of
     short term investments during the first quarter. At September 30, 1997, the
     Company had cash, cash equivalents and short-term investments of
     $14,308,542. During October 1997, the Company received net proceeds of
     approximately $26.6 million from a completed public offering of Common
     Stock and $5 million for attainment of a milestone related to the
     SmithKline Agreement.

     The Company expects to incur substantial research and development
     expenditures as it designs and develops biopharmaceutical products for the
     prevention and treatment of cardiovascular diseases. The Company
     anticipates that operating expenses may continue to increase during 1997
     and subsequent years. The Company began to incur costs to develop
     NOVASTAN(R) during the third quarter of 1993. These costs will continue
     during 1997 because of ongoing NOVASTAN(R) trials and will continue to be
     significant through the FDA approval process and as clinical trial work for
     additional clinical indications is performed. The Company 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 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). 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, are not obtained, the Company's
     drug discovery or development programs may be delayed, scaled back or
     eliminated; or it may be required 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 September 30, 1997, 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


FORM 10-Q                                                                Page 17
<PAGE>   20

     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, regulations, 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.

                     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.

                 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) "Organization and Significant Accounting Policies --
     Organization" regarding TBC's expectations for future drug discovery and
     development and related expenditures, (b) "License Agreements" regarding
     TBC's expectations for future supply of NOVASTAN(R), (c) Commercialization
     Agreement regarding TBC's expectations for future development and
     commercialization of NOVASTAN(R), (d) Capital Stock regarding TBC's
     expectations for future financing and (e) "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, 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.

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


FORM 10-Q                                                                Page 18
<PAGE>   21

PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
     On November 21, 1994, a class action shareholders' suit was filed in the
     U.S. District Court for the Southern District of Texas, Houston Division
     seeking damages in the amount of $16.0 million. Plaintiffs are two
     individuals who purchased shares of the Company on December 16, 1993
     following the Company's initial public offering. 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. Plaintiffs have also named David Blech, D. Blech & Co.,
     Incorporated ("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 U.S. 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 Exchange Act
     and Rule 10b-5 promulgated thereunder by 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 U.S. District Court for the Southern
     District of Texas, Houston Division be transferred to the U.S. 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. Given the early stage of that case, which is
     the only remaining litigation against the Company, 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.

ITEM 2.  CHANGES IN SECURITIES

     Preferred Stock Conversions

     On May 19, 1997, May 22, 1997, May 28, 1997, June 11, 1997, July 25, 1997,
     September 5, 1997 and September 9, 1997, the Company issued an aggregate of
     596,546 shares of Common Stock to certain institutions pursuant to the
     conversion of its 5% Preferred Stock. The issuance of the Common Stock was

FORM 10-Q                                                                Page 19
<PAGE>   22

     exempt from registration under Section 4 (2) of the Securities Act of 1933,
     as amended, and Regulation D promulgated thereunder.

     Common Stock Transactions

     On March 5, 1997, March 13, 1997, March 20, 1997, March 21, 1997, April 8,
     1997, June 3, 1997, June 13, 1997, June 18, 1997, July 23, 1997, August 1,
     1997, August 7, 1997 and August 12, 1997, the Company issued an aggregate
     of 175,292 shares of its Common Stock to a certain institution and
     individuals, pursuant to the exercise of outstanding warrants for an
     aggregate purchase price of $702,437. 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.

     On August 5, 1997, in conjunction with the SmithKline Agreement, the
     Company issued 176,992 shares of Common Stock to an affiliate of SmithKline
     for a total purchase price of $1 million. The Company has granted limited
     piggyback registration rights with respect to such shares. The Common Stock
     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
     During August 1997, the Company filed a new drug application with the
     United States Food and Drug Administration for its lead product candidate,
     NOVASTAN(R)(argatroban) for use as an anticoagulant in patients with HIT.
     Also in August, the Company began Phase II clinical trials for the
     injectable form of TBC 11251 (TBC's lead compound for
     vasospasm/hypertension) in congestive heart failure. The Company has also
     initiated Phase I clinical trial work with the oral form of TBC 11251.
     During October 1997, the Company initiated Phase IIa clinical trials for
     TBC 1269, a novel non-steroid anti-inflammatory medication for the
     treatment and prevention of asthma.

     During October 1997, the Company was notified by the FDA that the NDA filed
     for NOVASTAN(R)was accepted. The Company anticipates a decision on the
     approval of the filed NDA by the end of the second quarter of 1998. 

     Synthelabo, the European licensee for NOVASTAN(R), and the Company have
     been jointly evaluating NOVASTAN(R) in conjunction with thrombolytic
     therapy for treating acute myocardial infarction ("AMI") in a Phase II
     clinical trial program which encompassed a total of 2,400 patients with
     each party responsible for 1,200 patients. In the Company's ARG-230 trial,
     a trend toward improvement in clinical outcomes (death, recurrent
     myocardial infarction, new onset congestive heart failure/shock, need for
     urgent PTCA or bypass surgery) was observed at the 3.0 mcg/kg/minute dose
     of NOVASTAN(R) for patients treated within the first three hours. Due to
     the small sample size of the trial, the positive trends did not achieve
     statistical significance. The Company has been notified by Synthelabo that
     the results of the Synthelabo 1,200 patient ARGAMI-2 trial demonstrated the
     safety of NOVASTAN(R) in the therapy of acute myocardial infarction with
     effectiveness comparable to heparin. The Company and SmithKline Beecham plc
     are conducting an evaluation of AMI and additional indications for
     NOVASTAN(R), beyond the first indication of heparin-induced
     thrombocytopenia, in order to maximize the commercial value of the
     compound.

FORM 10-Q                                                                Page 20
<PAGE>   23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     EXHIBIT NO.             DESCRIPTION

        4.8   (1)            Certificate of Designations of 5% Cumulative
                             Convertible Preferred Stock for Texas Biotechnology
                             Corporation

       10.60  (1)            Preferred Stock Investment Agreement dated March
                             13, 1997 between Texas Biotechnology Corporation
                             and certain investors

       10.61  (1)            Registration Rights Agreement dated March 13, 1997
                             between Texas Biotechnology Corporation and certain
                             investors

       10.62  (2)            Amendment to the 1995 Stock Option Plan of Texas
                             Biotechnology Corporation dated March 4, 1997

       10.63  (2)            Amendment to the 1995 Non-Employee Director Stock
                             Option Plan of Texas Biotechnology Corporation
                             dated March 4, 1997

       11                    Computation of net income (loss) per share

       99.1   (3)            Agreement between Mitsubishi Chemical Corporation,
                             Texas Biotechnology Corporation and SmithKline
                             Beecham plc dated August 5, 1997

       99.2   (3)            Product Development License and Co-Promotion
                             Agreement between Texas Biotechnology Corporation
                             and SmithKline Beecham plc dated August 5, 1997

       99.3   (3)            Common Stock Purchase Agreement between Texas
                             Biotechnology Corporation and SmithKline Beecham
                             plc dated August 5, 1997

       27.1                  Financial Data Schedule

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

(1)  Filed as an exhibit to the Company's Form 8-K (File No. 1-12574) with the
     Securities and Exchange Commission (the "Commission") on April 2, 1997 and
     incorporated herein by reference.

(2)  Filed as an exhibit to the Company's Form 10-Q (File No. 1-12574) with the
     Commission on August 14, 1997 and incorporated herein by reference.

(3)  Filed as an exhibit to the Company's Form 8-K (File No. 1-12574) with the
     Commission on August 25, 1997 and incorporated herein by reference.

     REPORTS ON FORM 8-K

     One report on Form 8-K was filed during the quarter ended September 30,
     1997. The report was dated August 5, 1997 and filed August 25, 1997, and
     reported that the Company had entered into certain agreements with
     Mitsubishi Chemical Corporation and SmithKline Beecham plc.


FORM 10-Q                                                                Page 21
<PAGE>   24
                         TEXAS BIOTECHNOLOGY CORPORATION

                               SEPTEMBER 30, 1997

                                   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 7th day of November, 1997.


                                     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 of Administration
                                        Secretary and Treasurer
                                        (Principal Financial and 
                                        Accounting Officer)



FORM 10-Q                                                                Page 22
<PAGE>   25

                                INDEX TO EXHIBITS

     EXHIBIT NO.             DESCRIPTION OF EXHIBIT

        4.8   (1)            Certificate of Designations of 5% Cumulative
                             Convertible Preferred Stock for Texas Biotechnology
                             Corporation

       10.60  (1)            Preferred Stock Investment Agreement dated March
                             13, 1997 between Texas Biotechnology Corporation
                             and certain investors

       10.61  (1)            Registration Rights Agreement dated March 13, 1997
                             between Texas Biotechnology Corporation and certain
                             investors

       10.62  (2)            Amendment to the 1995 Stock Option Plan of Texas
                             Biotechnology Corporation dated March 4, 1997

       10.63  (2)            Amendment to the 1995 Non-Employee Director Stock
                             Option Plan of Texas Biotechnology Corporation
                             dated March 4, 1997

       11                    Computation of net income (loss) per share

       99.1   (3)            Agreement between Mitsubishi Chemical Corporation,
                             Texas Biotechnology Corporation and SmithKline
                             Beecham plc dated August 5, 1997

       99.2   (3)            Product Development License and Co-Promotion
                             Agreement between Texas Biotechnology Corporation
                             and SmithKline Beecham plc dated August 5, 1997

       99.3   (3)            Common Stock Purchase Agreement between Texas
                             Biotechnology Corporation and SmithKline Beecham
                             plc dated August 5, 1997

       27.1                  Financial Data Schedule

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

(1)  Filed as an exhibit to the Company's Form 8-K (File No. 1-12574) with the
     Securities and Exchange Commission (the "Commission") on April 2, 1997 and
     incorporated herein by reference.

(2)  Filed as an exhibit to the Company's Form 10-Q (File No. 1-12574) with the
     Commission on August 14, 1997 and incorporated herein by reference.

(3)  Filed as an exhibit to the Company's Form 8-K (File No. 1-12574) with the
     Commission on August 25, 1997 and incorporated herein by reference.

     REPORTS ON FORM 8-K

     One report on Form 8-K was filed during the quarter ended September 30,
     1997. The report was dated August 5, 1997 and filed August 25, 1997, and
     reported that the Company had entered into certain agreements with
     Mitsubishi Chemical Corporation and SmithKline Beecham plc.


FORM 10-Q                                                                Page 23