<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, 1999

                                       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 October 31, 1999
               -----                          -------------------------------
<S>                                           <C>
     Common Stock, $0.005 par value                      34,239,618
</TABLE>


<PAGE>   2
                         TEXAS BIOTECHNOLOGY CORPORATION

                                TABLE OF CONTENTS


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

         ITEM 1: FINANCIAL STATEMENTS

         Consolidated Balance Sheets as of  September 30, 1999 and December 31, 1998             1

         Consolidated Statements of Operations for the three months ended
         September 30, 1999 and 1998 and the nine months ended September 30, 1999 and 1998       2

         Consolidated Statements of Cash Flows the nine months ended
         September 30, 1999 and 1998                                                             3

         Notes to Consolidated Financial Statements                                              4

         ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                   8

         ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES
                 ABOUT MARKET RISK                                                              12

PART II. OTHER INFORMATION

         ITEM 1: Legal Proceedings                                                              13

         ITEM 2: Changes in Securities                                                          13

         ITEM 3: Defaults Upon Senior Securities                                                13

         ITEM 4: Submission of Matters to a Vote of Security Holders                            13

         ITEM 5: Other Information                                                              13

         ITEM 6: Exhibits and Reports on Form 8-K                                               13

SIGNATURES                                                                                      14

INDEX TO EXHIBITS                                                                               15
</TABLE>



<PAGE>   3
                 TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                    SEPTEMBER 30,       DECEMBER 31,
                                                                        1999                1998
                                                                    -------------       -------------
                                                                     (Unaudited)          (Audited)
<S>                                                                 <C>                 <C>
Current assets:
        Cash and cash equivalents                                   $   6,088,358       $   4,176,911
        Short-term investments                                          6,854,019          20,407,146
        Other current receivables                                         796,262           1,426,959
        Prepaids                                                        1,720,296             963,590
        Other current assets                                               12,795              10,400
                                                                    -------------       -------------
             Total current assets                                      15,471,730          26,985,006

Long-term investments                                                   6,076,117           5,791,945

Equipment and leasehold improvements, at cost less
        accumulated depreciation and amortization                       3,200,006           3,269,438

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

             Total assets                                           $  24,807,444       $  36,105,980
                                                                    =============       =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
        Accounts payable                                            $     612,313       $     912,396
        Accrued expenses                                                2,062,036           1,957,364
                                                                    -------------       -------------
             Total current liabilities                                  2,674,349           2,869,760

Commitments and contingencies                                                  --                  --

Stockholders' equity:
        Preferred stock, par value $.005 per share. At
             September 30, 1999, 5,000,000 shares authorized;
             none outstanding. At December 31,1998, 5,000,000
             shares authorized; none outstanding                               --                  --
        Common stock, par value $.005 per share. At
             September 30, 1999, 75,000,000 shares authorized;
             34,237,986 shares issued and outstanding. At
             December 31, 1998, 75,000,000 shares authorized;
             34,128,017 shares issued and outstanding                     171,190             170,640
        Additional paid-in capital                                    117,896,503         117,667,479
        Accumulated deficit                                           (95,934,598)        (84,601,899)
                                                                    -------------       -------------
             Total stockholders' equity                                22,133,095          33,236,220
                                                                    -------------       -------------

             Total liabilities and stockholders' equity             $  24,807,444       $  36,105,980
                                                                    =============       =============
</TABLE>


          See accompanying notes to consolidated financial statements


FORM 10-Q                                                                 Page 1
<PAGE>   4
                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

                  CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED          NINE MONTHS ENDED
                                                       SEPTEMBER 30,               SEPTEMBER 30,
                                                    1999          1998          1999          1998
                                                -----------   -----------   -----------   -----------
                                                (unaudited)   (unaudited)   (unaudited)   (unaudited)
<S>                                             <C>           <C>           <C>           <C>
Revenues:
   Research and development agreements          $   516,262       616,402     1,546,317     1,859,790
                                                -----------   -----------   -----------   -----------
      Total revenues                                516,262       616,402     1,546,317     1,859,790
                                                -----------   -----------   -----------   -----------

Expenses:
   Research and development                       3,259,081     3,482,683     9,473,841    10,691,830
   General and administrative                     1,438,100       953,506     4,374,632     3,282,252
                                                -----------   -----------   -----------   -----------
      Total expenses                              4,697,181     4,436,189    13,848,473    13,974,082
                                                -----------   -----------   -----------   -----------

      Operating loss                              4,180,919     3,819,787    12,302,156    12,114,292

   Investment income                                282,683       519,132       969,457     1,634,849
                                                -----------   -----------   -----------   -----------

      Net loss                                    3,898,236     3,300,655    11,332,699    10,479,443
      Preferred dividend requirement                     --            --            --         1,690

      Net loss applicable to common shares      $ 3,898,236     3,300,655    11,332,699    10,481,133

Net loss per common share, basic and diluted:   $      0.11          0.10          0.33          0.31
                                                ===========   ===========   ===========   ===========

Weighted average common shares used to
   compute net loss per common share, basic
   and diluted:                                  34,237,568    34,086,498    34,207,956    33,872,875
                                                ===========   ===========   ===========   ===========
</TABLE>


          See accompanying notes to consolidated financial statements


FORM 10-Q                                                                 Page 2
<PAGE>   5


                    TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

                       CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                          NINE MONTHS ENDED
                                                                                             SEPTEMBER 30,
                                                                                          1999            1998
                                                                                      ------------    ------------
                                                                                       (Unaudited)     (Unaudited)
<S>                                                                                   <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                           $(11,332,699)    (10,479,443)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
      Depreciation and amortization                                                        639,389         599,718
      Expenses paid with stock                                                              17,377          16,297
      Loss on disposition of fixed assets                                                      227           7,895
      Decrease in preferred dividend payable not included in net loss                           --          11,912
   Change in operating assets and liabilities
     Increase in prepaids                                                                 (756,706)       (205,967)
     Decrease in receivables                                                               630,697         140,213
     Increase in other current assets                                                       (2,395)           (700)
     (Decrease) increase in current liabilities                                           (195,411)        225,860
                                                                                      ------------    ------------
            Net cash used in operating activities                                      (10,999,521)     (9,684,215)
                                                                                      ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of equipment and leasehold improvements                                      (570,915)       (459,367)
   Proceeds from disposition of fixed assets                                                   731           3,000
   Purchase of long-term investments                                                    (5,000,000)     (1,011,385)
   Maturity of long-term investments                                                     4,700,000              --
   Purchase of short-term investments                                                  (11,203,533)    (43,707,919)
   Maturity of short-term investments                                                   24,450,567      44,400,161
   Decrease in interest receivable included in short-term and long-term investments        321,921          31,061
                                                                                      ------------    ------------
           Net cash provided by (used in) investing activities                          12,698,771        (744,449)
                                                                                      ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of common stock and exercises of
      options and warrants, net                                                            212,197       1,415,639
                                                                                      ------------    ------------

      Net increase (decrease) in cash and cash equivalents                               1,911,447      (9,013,025)

Cash and cash equivalents at beginning of period                                         4,176,911      14,323,573
                                                                                      ------------    ------------

Cash and cash equivalents at end of period                                            $  6,088,358       5,310,548
                                                                                      ============    ============

Supplemental disclosure of noncash financing activities:
     Expenses paid with stock                                                         $     17,377          16,297
                                                                                      ============    ============
</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, 1999 (UNAUDITED) AND DECEMBER 31, 1998


(1)  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

     (a)  Organization

          Texas Biotechnology Corporation (the "Company" or "TBC"), a
          biopharmaceutical company, applies innovative drug discovery
          techniques and its specialized knowledge of the role of vascular cell
          biology in vascular diseases to the design and development of novel
          pharmaceutical compounds. Since its formation in 1989, the Company has
          been engaged principally in research and drug discovery programs and
          clinical development of certain drug compounds. On July 25, 1994, the
          Company acquired all of the outstanding Common Stock of
          ImmunoPharmaceutics, Inc. ("IPI") (now discontinued), a San Diego,
          California based company, in exchange for Common Stock of the Company.
          TBC consolidated the IPI operation into TBC in the first half of 1996.

          The Company is presently working on a number of long-term development
          projects which involve experimental and unproven technology, which may
          require many years and substantial expenditures to complete, and which
          may be unsuccessful. To date, other than small amounts of monoclonal
          antibody compounds and services produced and sold by IPI, 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.

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

          Cash equivalents are considered to be those securities or instruments
          with original maturities, when purchased, of three months or less. At
          September 30, 1999, approximately $6,088,000 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, 1999, the Company's
          short-term investments consisted of approximately $6,854,000 in
          Corporate Commercial Paper. Long-term investments consisted of
          approximately $6,076,000 in United States government agency bonds with
          an original maturity of one year or more. Cash equivalents, short-term
          investments and long-term investments are stated at cost plus accrued
          interest, which approximates market value. Interest income is accrued
          as earned. The Company classifies all short-term and long-term
          investments as held to maturity.

     (d)  Equipment and Leasehold Improvements

          Equipment and leasehold improvements are stated at cost less
          accumulated depreciation and amortization. Depreciation of furniture
          and equipment is provided on the straight-line method over the
          estimated useful lives of the respective assets (three to ten 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)  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, 1999 and 1998, totaled approximately $1,696,000
          and $1,541,000, respectively, of which approximately $1,305,000 and
          $1,167,000, respectively, was charged to research and development. For
          the nine months ended September 30, 1999 and 1998, salaries and
          benefits totaled approximately $5,024,000 and $4,715,000,
          respectively, of which approximately $3,877,000 and $3,526,000,
          respectively, was charged to research and development. Payments
          related to the acquisition of in-process research and development are
          expensed.

     (f)  Net Loss Per Common Share

          Basic net loss per common share is calculated by dividing the net loss
          applicable to common shares after preferred dividend requirements by
          the weighted average number of common shares outstanding during the
          period. For the three and nine months ended September 30, 1999 and
          1998, there were no common dilutive shares used in the calculation of
          weighed average common shares outstanding. For the three months ended
          September 30, 1999 and 1998, the weighted average common shares used
          to compute basic net loss per common share totaled 34,237,568 and
          34,086,498, respectively. For the nine months ended September 30, 1999
          and 1998, the weighted average common shares used to compute basic net
          loss per common share totaled 34,207,956 and 33,872,875, respectively.
          The conversion of securities convertible into Common Stock and the
          exercise of stock options and warrants were not assumed in the
          calculation of diluted net loss per common share because the effect
          would have been antidilutive.

     (g)  Reclassifications

          Certain reclassifications have been made to prior period financial
          statements to conform with the September 30, 1999 presentation with no
          effect on net loss reported.

     (h)  Revenue Recognition

          Revenue from service contracts is recognized as the services are
          performed. Milestone payments related to contractual agreements are
          recognized as the milestones are achieved. Revenue from licensing fees
          is recognized when the license is granted. Revenue from grants is
          recognized as earned under the terms of the related grant agreements.

     (i)  Patent Application Costs

          Costs incurred in filing for patents are expensed as incurred.

     (j)  Use of Estimates

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

     (k)  Interim Financial Information

          The Consolidated Balance Sheet as of September 30, 1999 and the
          related Consolidated Statements of Operations for the three and nine
          months ended September 30, 1999 and 1998 and Consolidated Statements
          of Cash Flows for the nine months ended September 30, 1999 and 1998
          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 terms.
          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 and


FORM 10-Q                                                                 Page 5
<PAGE>   8

          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.

(2)  STOCK OPTIONS AND WARRANTS

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

     A summary of stock options as of September 30, 1999, follows:

<TABLE>
<CAPTION>
                          Exercise Price                              Exercised/                 Available
     Stock Option Plans      Per Share     Authorized   Outstanding     Other      Exercisable   for Grant
     ------------------   --------------   ----------   -----------   ----------   -----------   ---------
<S>                       <C>              <C>          <C>           <C>          <C>           <C>
     1990 Plan            $1.38 - $5.59       285,715       160,689       74,319       156,607      50,707

     1992 Plan            $1.41 - $5.36     1,700,000     1,179,012      366,421       995,462     154,567

     1995 Plan            $1.31 - $8.13     2,000,000     1,810,200       21,851     1,023,168     167,949

     1999 Plan                       --     1,000,000            --           --            --   1,000,000

     Director Plan        $3.50 - $4.54        71,429        34,242       37,187        34,242          --

     1995 Director Plan   $1.38 - $5.69       300,000       217,505       10,909       137,255      71,586
                                           ----------   -----------   ----------   -----------   ---------

            TOTAL                           5,357,144     3,401,648      510,687     2,346,734   1,444,809
                                            =========     =========      =======     =========   =========
</TABLE>

(3)  INCOME TAXES

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

     At September 30, 1999 the net deferred tax asset, representing primarily
     net operating loss carryforwards, totaled approximately $33,579,000. The
     Company has established a valuation allowance for the full amount of these
     deferred tax assets, as management believes that it is not more likely than
     not that the Company will recover these assets. The Company did not incur
     any tax expense in any year due to operating losses.

     At September 30, 1999 the Company had net operating loss carryforwards of
     approximately $61,545,000 for federal income tax return purposes.
     Utilization of the Company's net operating loss carryforwards is subject to
     certain limitations due to specific stock ownership changes which have
     occurred or may occur. To the extent not utilized, the carryforwards will
     expire during the years beginning 2002 through 2019.


FORM 10-Q                                                                 Page 6
<PAGE>   9
(4)  EQUIPMENT AND LEASEHOLD IMPROVEMENTS

     Equipment and leasehold improvements consist of the following:

<TABLE>
<CAPTION>
                                                   September 30,1999    December 31, 1998
                                                   -----------------    -----------------
<S>                                                <C>                  <C>
     Laboratory and office equipment                  $ 5,794,337          $ 5,418,849
     Leasehold improvements                             3,890,861            3,701,772
                                                      -----------          -----------
                                                        9,685,198            9,120,621
     Less accumulated depreciation and amortization    (6,485,192)          (5,851,183)
                                                      -----------          -----------
                                                      $ 3,200,006          $ 3,269,438
                                                      ===========          ===========
</TABLE>

(5)  COMMON STOCK RESERVED

     The Company has reserved Common Stock for issuance as of September 30, 1999
     as follows:

<TABLE>
<S>                                                              <C>
          Stock option plans                                     4,846,457
          Common Stock issuable under licensing agreement           71,429
          Publicly traded warrants outstanding                   3,995,394
          Other warrants outstanding                               660,578
                                                                 ---------
               Total shares reserved                             9,573,858
                                                                 =========
</TABLE>

(6)  REGULATORY FILING

     During August, 1997, the Company filed a new drug application ("NDA") with
     the United States Food and Drug Administration (the "FDA") for its lead
     product candidate, NOVASTAN(R), for use as an anticoagulant in patients
     with heparin induced thrombocytopenia ("HIT") and heparin induced
     thrombocytopenia with thrombosis syndrome ("HITTS"). On May 11, 1998, the
     Company announced that it had received a non-approvable letter from the FDA
     for NOVASTAN(R). Based on consultation with representatives from the FDA,
     TBC collected and analyzed a new, more comparable historical control group
     as the basis for demonstrating the safety and efficacy NOVASTAN(R). The
     Company amended its NDA with the FDA for NOVASTAN(R) as an anticoagulant
     for use in patients with HIT syndrome and expects a response from the FDA
     to the amendment on or before February 16, 2000. While the Company believes
     the amendment includes consistent, positive results and supports the use of
     NOVASTAN(R) in its proposed indication, there can be no assurances as to
     the timing or outcome of the FDA decision.

(7)  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 ("IPO"). In their
     complaint, plaintiffs have sued the Company, certain members of the board
     of directors and certain officers alleging violations of Sections 11, 12
     and 15 of the Securities Act of 1933, as amended. A subsequently filed
     class action arising out of the IPO was dismissed in June 1996, leaving the
     first class action as the only pending litigation arising out of the IPO.

     In May, 1999, the Company reached an agreement in principle to settle the
     pending class action. The agreement in principle achieved with plaintiff's
     counsel provides for dismissal of all claims against the Company and the
     officers and directors named as defendants. The settlement amount is
     $800,000, of which approximately $200,000 will be paid by the Company and
     approximately $600,000 will be paid by the Company's insurer.

     The agreement to settle is subject to negotiation and execution of a
     detailed stipulation of settlement between the parties, submission of the
     stipulation of settlement to the court, provision of notice to class
     members of the settlement terms, a fairness hearing, and final approval of
     the settlement by the court. Discussions are ongoing with plaintiffs as to
     the schedule for completing these steps. The Company cannot predict exactly
     when final dismissal can be obtained.


FORM 10-Q                                                                 Page 7
<PAGE>   10
     ITEM 2.

                 TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY

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

                    SEPTEMBER 30, 1999 AND DECEMBER 31, 1998


                                    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 drug discovery research and development. The Company has been unprofitable
to date and expects to incur substantial losses for the next several years as
the Company invests in product research and development, preclinical and
clinical testing and regulatory compliance. The Company has sustained net losses
of approximately $96.0 million from inception to September 30, 1999. The Company
has primarily financed its operations to date through certain private placements
of Common Stock and shareholder loans which have raised an aggregate of $21.3
million in net proceeds, the Initial Public Offering which raised an aggregate
of $24.2 million in net proceeds including the over-allotment sold in January
1994, a private placement of Common Stock on February 13, 1996, which raised
$13.0 million in net proceeds, a private placement of the 5% Preferred on March
14, 1997, which raised approximately $6.0 million in net proceeds, and a
secondary public offering in October 1997 which raised approximately $26.7
million in net proceeds.

On July 25, 1994, the Company acquired all of the outstanding stock of IPI in
exchange for 1,599,958 shares of Common Stock, and later issued 1,399,917 shares
of Common Stock upon satisfaction of certain research milestones. IPI's
financial results have been included in the Company's financial statements
beginning August 1, 1994. In March 1996, IPI's remaining operations in
California were consolidated with the Company's Houston operations.

The Company signed a collaborative agreement with Synthelabo S.A.,
("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 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 regarding NOVASTAN(R). Synthelabo has paid a
total of $2.88 million pursuant to these agreements. Based on the current status
of the programs covered by the agreement, the Company does not expect any
further payments from Synthelabo under any of these agreements.

During October 1996, the Company executed a research and Common Stock purchase
agreement with LG Chemical, Ltd. ("LG Chemical"). LG Chemical 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, $5.1 million has been paid and $1.0 million will be
paid on each of December 31, 1999 and June 30 and December 31, of 2000, and $1.3
million will be paid on June 30 and December 31, 2001.

In August 1997, the Company entered into a Product Development, License and
CoPromotion Agreement (the "SmithKline Agreement") whereby SmithKline Beecham,
PLC ("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 a total of $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 acute myocardial infarction
("AMI"). Future milestone payments for the AMI indication are subject to
SmithKline's agreement to market NOVASTAN(R) for such indication. 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. At this time, SmithKline has no plans to conduct


FORM 10-Q                                                                 Page 8
<PAGE>   11

development work for the AMI and stroke indications. TBC is evaluating the
feasibility of development of NOVASTAN(R) for stroke and possibly AMI.

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 MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

Revenues decreased from $616,402 in the three month period ended September 30,
1998 to $516,262 in the same period of 1999, a decrease of 16%. Revenues were
composed of earned revenues under research and development agreements. Revenue
from research and development agreements decreased primarily due to a decrease
in reimbursable expenses related to the SmithKline Agreement.

Total operating expenses increased 6% from $4,436,189 in the three months ended
September 30, 1998 to $4,697,181 in the same period of 1999 due primarily to the
increase in general and administrative expenses. Research and development
expenses decreased 6% from $3,482,683 in the three months ended September 30,
1998 to $3,259,081 in the same period of 1999. This decrease was attributable to
completion of certain Phase II clinical trials related to sitaxsentan sodium
(TBC11251) and the selectin antagonist programs and expenses incurred during
1998 for the NDA submission for NOVASTAN(R). General and administrative expenses
increased 51% from $953,506 in the three months ended September 30, 1998 to
$1,438,100 in the same period of 1999 due primarily to increases in patent legal
fees and consulting fees related to NOVASTAN(R). The Company had 86 employees at
September 30, 1999 and 81 employees at September 30, 1998.

Investment income is composed of investment income on invested funds. The
decrease of 46% from $519,132 in the three months ended September 30, 1998 to
$282,683 in the same period of 1999 is attributable primarily to lower
investment balances.

                  NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

Revenues decreased from $1,859,790 in the nine months ended September 30, 1998
to $1,546,317 in the same period of 1999, a decrease of 17%. Revenues were
primarily composed of earned revenues under research and development agreements.
Revenue from research agreements decreased primarily due to a decrease in
reimbursable expenses related to the SmithKline Agreement.

Total operating expenses decreased 1% from $13,974,082 in the nine months ended
September 30, 1998 to $13,848,473 in the same period of 1999 due primarily to
the decrease in research and development expenses offset partially by increases
in general and administrative expenses. Research and development expenses
decreased 11% from $10,691,830 in the nine months ended September 30, 1998 to
$9,473,841 in the same period of 1999. This decrease was attributable to
expenses incurred during 1998 to amend the NDA submission for NOVASTAN(R) which
were lower during 1999. General and administrative expenses increased 33% from
$3,282,252 in the nine months ended September 30, 1998 to $4,374,632 in the same
period of 1999 due primarily to approximately $200,000 accrued for settlement of
the lawsuit, increased patent legal fees and increased consulting fees related
to NOVASTAN(R) incurred during 1999.

Investment income is composed of investment income on invested funds. The
decrease of 41% from $1,634,849 in the nine months ended September 30, 1998 to
$969,457 in the same period of 1999 is attributable primarily to lower
investment balances.

                         LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its research and development activities to date
principally through (i) public offerings and private placements of its equity
securities, (ii) issuances of Common Stock in conjunction with acquisitions and
research and collaboration agreements and exercises of stock options and
warrants, (iii) milestone and research payments received in conjunction with
research and collaborative agreements, and (iv) investment income, net of
interest expense. During the first nine months of 1999, the Company utilized net
cash in operating activities of $10,999,521. The use of cash in


FORM 10-Q                                                                 Page 9
<PAGE>   12

operations was caused primarily by the Company's net loss of $11,332,699.
Investing activities primarily reflect the net effect of purchases and
maturities of short-term investments during the first nine months of 1999. At
September 30, 1999, the Company had cash, cash equivalents and short-term
investments of $12,942,377. Additionally, at September 30, 1999, the Company had
long term investments of $6,076,117.

The Company expects to incur substantial research and development expenditures
as it designs and develops small molecule drugs for vascular diseases. The
Company anticipates that operating expenses may increase during the remainder of
1999 and subsequent years. The Company began to incur costs to develop
NOVASTAN(R) during the third quarter of 1993. These costs will continue during
the remainder of 1999 due to expenses associated with the amendment of the new
drug application with the FDA for NOVASTAN(R) and costs associated with
additional clinical and regulatory work being completed for NOVASTAN(R). The
Company also began incurring clinical trial costs in 1997 for the compounds
sitaxsentan sodium and TBC1269 and is continuing its clinical trials for these
compounds. In the future, 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, research payments
from LG Chemical and its other revenue sources should be sufficient to fund its
presently anticipated research and development and other activities through the
fourth quarter of the year 2000. This date is contingent upon various factors,
including the rates of patient enrollment and spending associated with the
development and commercialization of NOVASTAN(R), the level of research,
development and clinical trial expenditures for sitaxsentan sodium, TBC1269 and
other compounds, results of clinical trials, the costs and timing of regulatory
approvals (including NOVASTAN(R)), the success of sales and marketing efforts
for NOVASTAN(R), if approved by the FDA, the exercise of the Company's publicly
traded warrants, if any, which expire on December 31, 2000 and are presently not
"in the money", and the timing and terms of future corporate collaborations, if
any, entered into by the Company. If the Company does not receive timely FDA
approval for NOVASTAN(R), or such approval is significantly delayed or if
NOVASTAN(R) cannot be successfully marketed after FDA approval, the Company will
need to re-examine the use of its existing capital resources. No assurances can
be given that the Company will be able to continue its research and development
programs at currently anticipated levels. The Company anticipates that it may
need to raise substantial funds for additional research and development
activities in the year 2000 and for future operations through collaborative
arrangements, public or private issuance of debt and equity, or other
arrangements. These financings could result in the issuance of equity securities
which dilute the existing holders of the Company's Common Stock. The Company
expects that as additional product candidates enter clinical trials, the Company
may incur increased 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 or establish corporate collaborations on acceptable terms or in time
to fund its research and development programs. It is likely that the Company's
ability to raise additional funds will be adversely affected by unfavorable
results of its clinical trials and the failure to obtain regulatory approvals
for its product candidates, including NOVASTAN(R). In the event such financing
is not obtained, the Company's drug discovery or development programs may be
delayed, scaled back or eliminated. The Company may also be required in this
event to obtain funds through arrangements with collaborative partners or others
that may require the Company to relinquish rights to certain of its
technologies, product candidates or products that it would not otherwise
relinquish.

                  HAZARDOUS MATERIALS AND ENVIRONMENTAL MATTERS

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


FORM 10-Q                                                                Page 10
<PAGE>   13

                     IMPACT OF INFLATION AND CHANGING PRICES

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

                                 YEAR 2000 ISSUE

The Year 2000 ("Y2K") issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
equipment, software and other devices with imbedded technology that are
time-sensitive, such as computer systems, related software, research equipment,
alarm systems and telephone systems may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, temporary inability to process data, and may materially impact the
Company's financial condition.

The Company has undertaken various initiatives intended to ensure that it is
prepared for the Y2K issue. The Company has assessed its state of readiness and
believes all major systems and equipment are Y2K compliant. Presently, the
Company has reviewed its scientific equipment, computer systems and related
software to identify systems which may exhibit Y2K issues. This review was
performed by internal teams from various disciplines within the Company. These
teams evaluated the Company's equipment, computer systems and software for Y2K
issues and performed testing to insure proper operation after January 1, 2000.
If necessary, specific remediation plans were developed for non-compliant items
after testing was completed. As a part of this review the Company determined the
known risks related to the consequences of a failure to correct any Y2K
deficiencies. The Company has initiated formal communications with material
third parties to determine the extent to which the Company may be vulnerable to
those third parties' failure to remediate their Y2K problems. The Company has
received correspondence from a majority of these third parties which outlines
their state of readiness. The Company and its licensee, SmithKline are dependent
upon Mitsubishi Chemical Corporation for supply of bulk NOVASTAN(R) for clinical
trial material and for its inventory needs should the FDA approve the compound
for marketing. The Company has received communication from Mitsubishi Chemical
Corporation which states that it has undertaken to become Y2K compliant. Any Y2K
issues which would result in significant interruptions of delivery schedules
could have a material effect on the Company's operations. However, the Company
is presently not aware of any Y2K issues that have been encountered by any third
party which could materially affect the Company's operations.

The Company has developed a contingency plan to address potential Y2K issues.
This contingency plan addresses problems that the Company may encounter after
January 1, 2000 and will be updated to include issues identified during the
course of its remediation efforts and reasonably foreseeable problems that may
arise as a result of Y2K, including, but not limited to, computer hardware and
software and research equipment. The contingency plan will be continually
refined as additional information becomes available. However, it is unlikely
that any contingency plan can fully address all events that may arise.

The Company estimates that the costs associated with the Y2K issue will not be
material, and as such will not have a significant impact on the Company's
financial position or operating results. The Company has spent approximately
$15,000 on Y2K remediation expenses and estimates that approximately $35,000
should cover other costs which may arise in the future. This estimate may be
revised should other remediation needs be discovered in the review of Y2K
issues. However, the failure to discover or correct a material Y2K problem could
result in an interruption in the Company's normal business activities or
operations. Such failure could materially and adversely affect the Company's
results of operation, liquidity and financial condition.

                 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 (the "Securities Act") 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 "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources" regarding TBC's
estimate of sufficiency of existing capital resources and its ability to raise
additional capital to fund cash requirements for future operations. Although TBC
believes that the


Form 10-Q                                                                Page 11
<PAGE>   14

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

To date, interest rate risk has not had a significant impact on the operations
of the Company.


FORM 10-Q                                                                Page 12
<PAGE>   15
PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On November 21, 1994, a class action shareholders' suit was filed in the United
States District Court for the Southern District of Texas, Houston Division
seeking damages in the amount of $16 million. Plaintiffs are two individuals who
purchased shares of the Company on December 16, 1993 following the Company's
initial public offering ("IPO"). In their complaint, plaintiffs have sued the
Company, certain members of the board of directors and certain officers alleging
violations of Sections 11, 12 and 15 of the Securities Act of 1933, as amended.
A subsequently filed class action arising out of the IPO was dismissed in June
1996, leaving the first class action as the only pending litigation arising out
of the IPO.

In May, 1999, the Company reached an agreement in principle to settle the
pending class action. The agreement in principle achieved with plaintiff's
counsel provides for dismissal of all claims against the Company and the
officers and directors named as defendants. The settlement amount is $800,000,
of which approximately $200,000 will be paid by the Company and approximately
$600,000 will be paid by the Company's insurer.

The agreement to settle is subject to negotiation and execution of a detailed
stipulation of settlement between the parties, submission of the stipulation of
settlement to the court, provision of notice to class members of the settlement
terms, a fairness hearing, and final approval of the settlement by the court.
Discussions are ongoing with plaintiffs as to the schedule for completing these
steps. The Company cannot predict exactly when final dismissal can be obtained.

ITEM 2. CHANGES IN SECURITIES

       None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

       None

ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

       None

ITEM 5. OTHER INFORMATION

Dr. John McMurdo resigned his position as Vice President, Clinical Development
and Regulatory Affairs to pursue other interests effective October 11, 1999. The
Company signed a severance agreement with Dr. McMurdo containing, among other
things, payment of six months salary, continued participation in certain
incentive programs through December 31, 1999, accelerated vesting of all stock
options, and an extension of the expiration date of these options to September
30, 2001. The Company has undertaken a search to replace Dr. McMurdo.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Two reports on Form 8-K were filed during the quarter ended September 30, 1999.
The first filed August 26, 1999, regarded the amendment of the NDA for
NOVASTAN(R). The second, filed September 14, 1999, regarded the extension of the
expiration date of the Company's redeemable Common Stock purchase warrants
(CUSIP No. 8822IT120) from September 30, 1999 to December 31, 2000.

     EXHIBIT NO.     DESCRIPTION

        4.9          Second Amendment to Warrant Agreement by and between Texas
                     Biotechnology Corporation and The Bank of New York dated
                     September 10, 1999. (Filed as an exhibit to the Company's
                     Form 8-K (File No. 0-20117) filed with the Commission on
                     August 26, 1999 and incorporated herein by reference.)

       10.71         Amendment to Lease Agreement between Texas Biotechnology
                     Corporation and the University of Texas Health Science
                     Center at Houston, dated April 1, 1999.

       10.72         Severance Agreement between Dr. John McMurdo and Texas
                     Biotechnology Corporation dated October 11, 1999.

       27.1          Financial Data Schedule

----------


FORM 10-Q                                                                Page 13
<PAGE>   16
                         TEXAS BIOTECHNOLOGY CORPORATION

                               SEPTEMBER 30, 1999

                                   SIGNATURES


Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 15th day of November, 1999.


                                       TEXAS BIOTECHNOLOGY CORPORATION


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



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


FORM 10-Q                                                                Page 14
<PAGE>   17
                                INDEX TO EXHIBITS


<TABLE>
<CAPTION>
   Exhibit No.               Description of Exhibit
   -----------               ----------------------
<S>                  <C>
      4.9            Second Amendment to Warrant Agreement by and between Texas
                     Biotechnology Corporation and The Bank of New York dated
                     September 10, 1999. (Filed as an exhibit to the Company's
                     Form 8-K (File No. 0-20117) filed with the Commission on
                     August 26, 1999 and incorporated herein by reference.)

     10.71           Amendment to Lease Agreement between Texas Biotechnology
                     Corporation and the University of Texas Health Science
                     Center at Houston, dated April 1, 1999.

     10.72           Severance Agreement between Dr. John McMurdo and Texas
                     Biotechnology Corporation dated October 11, 1999.

     27.1            Financial Data Schedule
</TABLE>

----------


FORM 10-Q                                                                Page 15