<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 JUNE 30, 2001

                                       OR

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

                         Commission File Number: 0-20117


                         TEXAS BIOTECHNOLOGY CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


          Delaware                                       13-3532643
--------------------------------------------------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)


         7000 Fannin, 20th Floor, Houston, Texas              77030
--------------------------------------------------------------------------------
         (Address of principal executive office)           (Zip code)


                                 (713) 796-8822
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


                                 Not Applicable
--------------------------------------------------------------------------------
         (Former name, former address and former fiscal year, if changed
                               since last report)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes   X    No
    -----     -----

Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, exclusive of treasury shares, as of the latest practicable date.

                  Class                           Outstanding at August 9, 2001
                  -----                           -----------------------------

     common stock, $0.005 par value                        43,619,641


<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 June 30, 2001 and December 31, 2000                     1

           Consolidated Statements of Operations and Comprehensive Income for the
           three and six months ended  June 30, 2001 and 2000                                        2

           Consolidated Statements of Cash Flows for the six months ended
           June 30, 2001 and 2000                                                                    3

           Notes to Consolidated Financial Statements                                                4

           ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                   12

           ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES                                        17
                    ABOUT MARKET RISK

PART II.   OTHER INFORMATION

           ITEM 1:  Legal Proceedings                                                               18

           ITEM 2:  Changes in Securities                                                           18

           ITEM 3:  Defaults Upon Senior Securities                                                 18

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

           ITEM 5:  Other Information                                                               19

           ITEM 6:  Exhibits and Reports on Form 8-K                                                19

SIGNATURES                                                                                          20

</Table>

<PAGE>   3
                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS



<Table>
<Caption>
                                                                                      JUNE 30,       DECEMBER 31,
                                                                                        2001             2000
                                                                                    -------------    -------------
                                                                                     (Unaudited)
<S>                                                                                          <C>              <C>
ASSETS

Current assets:
     Cash and cash equivalents                                                     $  30,957,291    $  48,469,646
     Short-term investments                                                           33,824,088       39,067,999
     Accounts receivable                                                                 474,396          237,411
     Other current receivables                                                         1,168,538          626,109
     Receivable from related party under collaborative arrangement                     3,912,893          882,157
     Prepaids                                                                          1,504,288        1,349,264
                                                                                   -------------    -------------
         Total current assets                                                         71,841,494       90,632,586

Long-term investments                                                                 39,497,908        4,995,000

Equipment and leasehold improvements,  less
     accumulated depreciation and amortization                                         2,795,580        2,367,965

Other assets                                                                             920,176          972,869
                                                                                   -------------    -------------
         Total assets                                                              $ 115,055,158    $  98,968,420
                                                                                   =============    =============
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                              $   1,364,250    $     942,013
     Accrued expenses                                                                  3,018,833        3,620,517
     Deferred revenue                                                                  1,457,744        1,029,176
                                                                                   -------------    -------------
         Total current liabilities                                                     5,840,827        5,591,706

Liability to related party                                                             3,972,392        1,376,303

Deferred revenue from related party                                                      963,435        1,209,302
Deferred revenue from unrelated parties                                                3,409,093        2,181,816
Deferred credit                                                                        2,620,010        2,620,010
Minority interest in Revotar                                                           1,777,172        1,962,273

Commitments and contingencies

Stockholders' equity:
     Preferred stock, par value $.005 per share. At June 30, 2001, 5,000,000
         shares authorized; none outstanding. At December 31, 2000, 5,000,000
         shares authorized;
         none outstanding                                                                     --               --
     Common stock, par value $.005 per share.  At June 30, 2001
         75,000,000 shares authorized; 43,777,189 shares issued
         At December 31, 2000, 75,000,000 shares authorized;
         41,203,197 shares issued and outstanding                                        218,886          206,016
     Additional paid-in capital                                                      210,583,594      189,390,790
     Treasury stock, at cost, 160,000 shares at June 30, 2001                         (1,268,469)              --
     Other comprehensive loss                                                           (459,131)         (15,341)
     Accumulated deficit                                                            (112,602,651)    (105,554,455)
                                                                                   -------------    -------------
         Total stockholders' equity                                                   96,472,229       84,027,010
                                                                                   -------------    -------------
         Total liabilities and stockholders' equity                                $ 115,055,158    $  98,968,420
                                                                                   =============    =============
</Table>

                 See accompanying notes to financial statements

                                       1



<PAGE>   4

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME
                                   (UNAUDITED)


<Table>
<Caption>
                                                                THREE MONTHS ENDED JUNE 30,     SIX MONTHS ENDED JUNE 30,
                                                                ----------------------------   ----------------------------
                                                                    2001            2000           2001            2000
                                                                ------------    ------------   ------------    ------------
<S>                                                             <C>             <C>            <C>             <C>
Revenues:
    Research agreements                                         $  1,363,750    $    531,229   $  2,797,040    $  1,053,837
    Collaborative research and development from
       related party                                                 379,011         153,402        780,368         153,402
    Royalty income                                                   391,469              --        568,886              --
    License fee and milestone income                                 328,722       8,729,629        586,015       9,912,746
                                                                ------------    ------------   ------------    ------------
       Total revenues                                              2,462,952       9,414,260      4,732,309      11,119,985
                                                                ------------    ------------   ------------    ------------
Expenses:
    Research and development                                       4,454,996       3,408,450      7,872,283       7,190,399
    Equity in loss of affiliate                                    2,242,033         566,658      3,770,824         566,658
    General and administrative                                     1,873,019       1,437,804      3,420,175       3,368,739
                                                                ------------    ------------   ------------    ------------
       Total expenses                                              8,570,048       5,412,912     15,063,282      11,125,796
                                                                ------------    ------------   ------------    ------------
       Operating (loss) income                                    (6,107,096)      4,001,348    (10,330,973)         (5,811)
                                                                ------------    ------------   ------------    ------------
Investment income, net                                             1,445,030       1,127,264      3,097,676       1,330,682
                                                                ------------    ------------   ------------    ------------
       Net (loss) income before minority interest                 (4,662,066)      5,128,612     (7,233,297)      1,324,871
                                                                ------------    ------------   ------------    ------------
Minority interest in loss of Revotar                                 123,433              --        185,101              --

    Net (loss) income before cumulative effect of
       change in accounting principle                             (4,538,633)      5,128,612     (7,048,196)      1,324,871

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

       Net loss                                                 $ (4,538,633)   $  5,128,612   $ (7,048,196)   $ (1,041,363)

Other Comprehensive Loss:
    Unrealized loss on foreign
       currency translation                                         (148,293)             --       (443,790)             --
                                                                ------------    ------------   ------------    ------------
       Comprehensive (loss) income                              $ (4,686,926)   $  5,128,612   $ (7,491,986)   $ (1,041,363)
                                                                ============    ============   ============    ============
Net loss (income) per share basic and diluted
       basic                                                    $      (0.10)   $       0.13   $      (0.16)   $      (0.03)
       diluted                                                  $      (0.10)   $       0.12   $      (0.16)   $      (0.03)
                                                                ============    ============   ============    ============

Weighted average common shares used to compute
    net loss (income) per share:
    basic                                                         44,259,523      40,033,069     43,748,646      37,322,681
    diluted                                                       44,259,523      43,261,069     43,748,646      37,322,681
                                                                ============    ============   ============    ============
</Table>

                 See accompanying notes to financial statements





                                        2
<PAGE>   5

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Unaudited)

<Table>
<Caption>
                                                                                      SIX MONTHS ENDED JUNE 30,
                                                                                    ----------------------------
                                                                                        2001            2000
                                                                                    ------------    ------------
<S>                                                                                 <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                         $ (7,048,196)     (1,041,363)
   Adjustments to reconcile net loss to net cash
    used in operating activities:
          Depreciation and amortization                                                  390,771         484,294
          Equity in loss of affiliate                                                  3,770,824         566,658
          Minority interest in loss of Revotar                                          (185,101)             --
          Expenses paid with stock                                                            --          14,888
          Compensation expense related to stock options                                   98,426              --
          Loss on disposition of fixed assets                                              6,407           6,500
   Change in operating assets and liabilities, net of effect of acquisition:
    Increase in accounts receivable                                                     (236,985)             --
    (Increase) decrease in prepaids                                                     (155,024)        214,175
    Increase in other current receivables                                               (542,429)    (10,532,710)
    Increase in receivable from related party under
          collaborative arrangement                                                   (3,030,736)     (1,086,681)
    (Decrease) Increase in current liabilities                                          (179,447)        535,488
    Decrease in liability to related party                                            (1,174,735)             --
    Increase in deferred revenue from unrelated parties                                1,655,845       3,000,000
    (Decrease) increase in deferred revenue from related party                          (245,867)         18,004
                                                                                    ------------    ------------
          Net cash used in operating activities                                       (6,876,247)     (7,820,747)
                                                                                    ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of equipment and leasehold improvements                                    (772,100)        (60,088)
   Purchase of investments                                                           (93,019,580)    (52,110,935)
   Maturity of investments                                                            63,270,014      11,245,034
   Equity investment in affiliate, net                                                                 1,931,476
   Decrease (increase) in interest receivable included in short-term
      and long-term investments                                                          490,569        (265,892)
                                                                                    ------------    ------------
         Net cash used in investing activities                                       (30,031,097)    (39,260,405)
                                                                                    ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Acquisition of treasury stock                                                      (1,268,469)             --
   Proceeds from sale of common stock and option and
    warrant exercises, net                                                            21,107,248      68,318,735
                                                                                    ------------    ------------
          Net cash provided by financing activities                                   19,838,779      68,318,735
                                                                                    ------------    ------------
Effect of exchange rate changes on cash                                                 (443,790)             --
    Net (decrease) increase in cash and cash equivalents                             (17,512,355)     21,237,583
Cash and cash equivalents at beginning of period                                      48,469,646       2,804,270
                                                                                    ------------    ------------
Cash and cash equivalents at end of period                                          $ 30,957,291      24,041,853
                                                                                    ============    ============
Supplemental schedule of noncash financing activities:
   issuance of Common Stock for research and development and
   services                                                                         $         --          43,615
                                                                                    ============    ============
</Table>


                 See accompanying notes to financial statements


                                       3
<PAGE>   6



                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 JUNE 30, 2001 (UNAUDITED) AND DECEMBER 31, 2000

(1) BASIS OF PRESENTATION

     The accompanying unaudited consolidated financial statements of Texas
Biotechnology Corporation and its subsidiaries (collectively referred to as the
"Company" or "TBC") have been prepared in accordance with accounting principles
generally accepted in the United States of America ("USA") for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. They do not include all information and notes required by accounting
principles generally accepted in the USA for complete financial statements. It
is recommended that these interim condensed consolidated financial statements be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2000. Except as disclosed herein, there has been no material change in the
information disclosed in the notes to the consolidated financial statements
included in the Company's Annual Report on Form 10-K. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month and six month periods ended June 30, 2001 are not
necessarily indicative of the results which may be expected for any other
interim period, or for the year ended December 31, 2001. Certain prior period
amounts have been reclassified for comparative purposes. Reported revenues and
net income or loss for the three month and six month periods ended June 30, 2000
have been restated to reflect the Company's adoption, effective January 1, 2000,
of Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements ("SAB101"), promulgated by the United States Securities and Exchange
Commission ("SEC") in December 1999.

(2) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

     (a)  Organization

          Texas Biotechnology Corporation, a Delaware corporation, is a
     biopharmaceutical company focused on the discovery, development and
     commercialization of novel synthetic small molecule compounds for the
     treatment of a variety of cardiovascular, vascular and related inflammatory
     diseases. Since its formation in 1989, the Company has been engaged
     principally in research and drug discovery programs and clinical
     development of certain drug compounds. On July 25, 1994, the Company
     acquired all of the outstanding common stock of ImmunoPharmaceutics, Inc.
     ("IPI") in exchange for common stock, par value $.005 per share (the
     "Common Stock"), of the Company. On June 6, 2000, TBC, through its wholly
     owned subsidiary, TBC-ET, Inc., a Delaware Corporation, and ICOS
     Corporation, a Delaware Corporation, ("ICOS") entered into an agreement and
     formed ICOS-Texas Biotechnology L.P., a Delaware limited partnership
     ("ICOS-TBC"), to develop and globally commercialize endothelin-A receptor
     antagonists. TBC and ICOS are both 50% owners in ICOS-TBC. During the third
     quarter of 2000, TBC formed Revotar Biopharmaceuticals AG ("Revotar"), a
     German Corporation, to conduct research and development for novel small
     molecule compounds and to develop and commercialize TBC's selectin
     antagonists. The Company retained a majority interest in Revotar. The
     Company is presently working on a number of long-term development projects
     that involve experimental and unproven technology, which may require many
     years and substantial expenditures to complete, and which may be
     unsuccessful. Sales of the Company's first product, for which it receives
     royalty income, Argatroban, began during November 2000.

     (b)  Basis of Consolidation

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


                                       4
<PAGE>   7



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

          Cash equivalents are considered to be those securities or instruments
     with original maturities, when purchased, of three months or less. At June
     30, 2001, approximately $2,937,000 was invested in demand and money market
     accounts. Short-term investments are those investments which have an
     original maturity of less than one year and greater than three months at
     the purchase date. At June 30, 2001, the Company's short-term investments
     consisted of approximately $2,870,000 in time deposits, $817,000 in
     government agency discount bonds and $29,911,000 in corporate commercial
     paper and loan participations. Long-term investments consist of
     approximately $31,503,000 in government agency discount bonds and
     $7,476,000 in loan participations, all with a remaining maturity of one
     year or more. Cash equivalents, short-term and long-term investments are
     stated at cost plus accrued interest, which approximates market value.
     Interest income is accrued as earned. The Company classifies all short-term
     and long-term investments as held to maturity.

     (d)  Equipment and Leasehold Improvements

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

     (e)  Investment in ICOS - TBC

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

     (f)  Research and Development Costs

          All research and development costs are expensed as incurred and
     include salaries of research and development employees, certain rent and
     related building services, research supplies and services, clinical trial
     expenses and other associated costs. With respect to research and
     development, salaries and benefits charged to research and development in
     the three month periods ended June 30, 2001 and 2000 were approximately
     $1,593,000 and $1,246,000, respectively. Salaries and benefits charged to
     research and development in the six month periods ended June 30, 2001 and
     2000 were approximately $3,119,000 and $2,606,000, respectively. Payments
     related to the acquisition of in-process research and development are
     expensed as incurred until the development phase of the purchased compound
     is completed.

     (g)  Net Loss Per Common Share

          Basic net loss per common share is calculated by dividing the net loss
     applicable to common shares after preferred dividend requirements by the
     weighted average number of common and common equivalent shares outstanding
     during the period. For the three month and six month periods ended June 30,
     2001, the weighted average common shares used to compute basic and diluted
     net loss per common share totaled 44,259,523 and 43,748,646 shares,
     respectively; securities convertible into common stock, comprised of stock
     options and warrants totaling 4,351,562 shares at June 30, 2001, were not
     used in the calculation of diluted net loss per common share because the
     effect would have been antidilutive. For the three month period ended June
     30, 2000, the weighted average common shares used to compute basic and
     diluted net income per common share totaled 40,033,069 and 43,261,069
     shares, respectively. For the six month period ended June 30, 2000, the
     weighted average common shares used to compute basic and diluted net loss
     per common share totaled



                                       5
<PAGE>   8

     37,322,681 shares; securities convertible into Common Stock comprised of
     stock options and warrants totaling 3,342,307 shares at June 30, 2000 were
     not used in the calculation of diluted net loss per common share because
     the effect would have been antidilutive.

     (h)  Reclassifications

          Certain reclassifications have been made to prior period financial
     statements to conform with the June 30, 2001 presentation with no effect on
     net income (loss) previously reported.

     (i)  Revenue Recognition

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

     (j)  Patent Application Costs

          Costs incurred in filing for patents are expensed as incurred.

     (k)  Use of Estimates

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

     (l)  Intangible Assets

          Intangible assets consist of purchased technologies, are capitalized
     because there is an alternative future use, and are amortized on a
     straight-line basis over their estimated useful lives. The Company
     periodically reviews the useful lives of its intangible and long-lived
     assets, which may result in future adjustments to the amortization periods.
     Related amortization expense for the three month and six month periods
     ended June 30, 2001 was $26,346 and $52,692, respectively. Amortization of
     purchased technologies is included in amortization expense in the
     consolidated statements of operations and comprehensive loss. As
     circumstances dictate, the Company evaluates the recoverability of its
     intangible and long-lived assets by comparing the projected undiscounted
     net cash flows associated with such assets against their respective
     carrying values. Impairment, if any, is based on the excess of the carrying
     value over the fair value.

     (m)  Treasury Stock

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


                                       6
<PAGE>   9

     stock repurchase program, the Company has repurchased 160,000 shares for
     net proceeds of approximately $1,268,000 during the three and six months
     ended June 30, 2001.

     (n)  New Accounting Pronouncements

     In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 (SFAS141), "Business
Combinations." SFAS141 eliminates the pooling of interests method of accounting
and requires that all business combinations initiated after June 30, 2001 be
accounted for under the purchase method. The Company does not expect the
adoption of SFAS141 to have a material impact on its business because it
currently has no planned or pending acquisitions.

     In July 2001, the FASB also issued Statement of Accounting Standards No.
142, "Goodwill and Other Intangible Assets," (SFAS142) which will be effective
for the Company as of January 1, 2002. SFAS142 requires goodwill and other
intangible assets with indefinite lives no longer be amortized. SFAS142 further
requires the fair value of goodwill and other intangible assets with indefinite
lives be tested for impairment upon adoption of this statement, annually and
upon the occurrence of certain events and be written down to fair value if
considered impaired. The Company does not expect the adoption of SFAS142 to have
a material impact on its business because it currently has no goodwill or other
intangible assets with indefinite lives.

(3) CAPITAL STOCK

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

(4) STOCK OPTIONS

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

     A summary of stock options as of June 30, 2001, follows:

<Table>
<Caption>
                           EXERCISE PRICE                               EXERCISED/                  AVAILABLE
  STOCK OPTION PLANS         PER SHARE      AUTHORIZED    OUTSTANDING      OTHER      EXERCISABLE   FOR GRANT
  ------------------       --------------   -----------   -----------   -----------   -----------   ---------
<S>                        <C>              <C>           <C>            <C>          <C>           <C>
1990 Plan ..............   $ 1.38-$21.59        285,715       186,329        99,386       154,665          --
1992 Plan ..............   $ 1.41-$21.59      1,700,000       905,214       789,971       738,634       4,815
Director Plan ..........   $ 3.50-$ 4.54         71,429        34,242        37,187        34,242          --
1995 Plan ..............   $ 1.31-$21.59      2,000,000     1,610,189       386,198     1,341,909       3,613
1995 Director Plan .....   $ 1.38-$11.31        500,000       313,825        38,096       235,582     148,079
1999 Plan ..............   $ 5.51-$20.13      3,000,000     1,040,950        48,536       173,598   1,910,514
                                            -----------   -----------   -----------   -----------   ---------
       TOTALS ..........                      7,557,144     4,090,749     1,399,374     2,678,630   2,067,021
                                            ===========   ===========   ===========   ===========   =========
</Table>

(5) INCOME TAXES

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


                                       7
<PAGE>   10

       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 June 30, 2001 and December 31, 2000, the net deferred tax asset,
representing primarily net operating loss carryforwards and start-up costs
deferred for tax purposes, totaled approximately $41,543,000 and $39,234,000,
respectively. The Company has established a valuation allowance for the full
amount of these deferred tax assets, as management believes that it is more
likely than not that the Company will not recover these assets. The Company did
not incur any tax expense in any year due to operating losses and the related
increase in the valuation allowance.

     At June 30, 2001 and December 31, 2000, the Company had net operating loss
carryforwards of approximately $72,246,000 and $68,955,000, respectively, for
federal income tax return purposes. Utilization of the Company's net operating
loss carryforwards is subject to certain limitations due to specific stock
ownership changes which have occurred or may occur. To the extent not utilized,
the carryforwards will expire during the years beginning 2002 through 2021.

(6) EQUIPMENT AND LEASEHOLD IMPROVEMENTS

     Equipment and leasehold improvements consist of the following:

<Table>
<Caption>
                                                           JUNE 30,    DECEMBER 31,
                                                             2001          2000
                                                         -----------   ------------
<S>                                                      <C>           <C>
Laboratory and office equipment ......................   $ 6,619,177   $  6,069,207
Leasehold improvements ...............................     4,114,341      3,923,687
                                                         -----------   ------------
                                                          10,733,518      9,992,894
Less accumulated depreciation and amortization .......     7,937,938      7,624,929
                                                         -----------   ------------
                                                         $ 2,795,580   $  2,367,965
                                                         ===========   ============
</Table>

(7) COMMON STOCK RESERVED

       The Company has reserved Common Stock for issuance as of June 30, 2001 as
follows:

<Table>
<S>                                                                           <C>
Stock option plans....................................................        6,157,770
Other warrants outstanding............................................          260,813
                                                                         --------------
         Total shares reserved........................................        6,418,583
                                                                         ==============
</Table>

(8) RESEARCH AGREEMENTS

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

     Under the terms of the Company's agreement with ICOS-TBC, the Company will
provide, and be reimbursed for, research and development activities conducted on
behalf of ICOS-TBC. During the three month and six month periods ended June 30,
2001, the Company incurred direct research and development costs of
approximately $1,987,000 and $3,124,600, respectively, and, pursuant to its
agreement with ICOS-TBC, billed such costs to ICOS-TBC. The Company's revenues
for the three month and six month periods



                                       8
<PAGE>   11

ended June 30, 2001 included approximately $379,000 and $780,400, respectively,
of TBC personnel time charged to ICOS-TBC. Approximately $3,912,300 of such
costs were recorded as a related party receivable, for which payment was
received in July 2001. Also see Note 9, License Agreements, below.

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

(9) LICENSE AGREEMENTS

     Mitsubishi-Tokyo Pharmaceuticals Agreement

          TBC has entered into an agreement with Mitsubishi-Tokyo
     Pharmaceuticals ("Mitsubishi") to license Mitsubishi's rights and
     technology relating to Argatroban and to license Mitsubishi's own
     proprietary technology developed with respect to Argatroban (the
     "Mitsubishi Agreement"). Under the Mitsubishi Agreement, the Company has an
     exclusive license to use and sell Argatroban in the U.S. and Canada for all
     specified indications. The Company is required to pay Mitsubishi specified
     royalties on net sales of Argatroban by the Company and its sublicensees
     after its commercial introduction in the U.S. and Canada. Either party may
     terminate the Mitsubishi Agreement on 60 days notice if the other party
     defaults in its material obligations under the agreement, declares
     bankruptcy or is insolvent, or if a substantial portion of its property is
     subject to levy. Unless terminated sooner pursuant to the above described
     termination provisions, the Mitsubishi Agreement expires on the later of
     termination of patent rights in a particular country or 20 years after
     first commercial sale of products. Under the Mitsubishi Agreement, TBC has
     access to an improved formulation patent granted in 1993 which expires in
     2010 and a use patent which expires in 2009. During 2000, we signed an
     additional agreement with Mitsubishi that provides TBC with royalties on
     sales of Argatroban in certain European countries, and up to a total of
     $5.0 million in milestones for the development of ischemic stroke and
     certain other provisions. In conjunction with the Mitsubishi Agreement, a
     consulting firm involved in negotiations related to the agreement will
     receive a percentage of net sales received as a result of the agreement.
     The Company enrolled its first patient in a clinical trial for ischemic
     stroke in April 2001, and received a $2.0 million milestone payment in May,
     which will be recognized in revenues over the expected development period,
     and accordingly, revenues in the three and six month periods ended June 30,
     2001 include approximately $71,400 related to such milestone payment.

          In exchange for the license to Genentech, Inc, (the "Former Licensor")
     of its Argatroban technology, TBC issued the Former Licensor 285,714 shares
     of Common Stock during 1993 and issued an additional 214,286 shares of
     Common Stock on October 9, 1997, after acceptance of the filing of the
     first New Drug Application ("NDA") with the United States Food and Drug
     Administration (the "FDA") for Argatroban. On June 30, 2000, the Company
     issued an additional 71,429 shares of Common Stock to Genentech in
     conjunction with the approval of the NDA for Argatroban in patients with
     HIT. The value of $965,970 has been recorded as an intangible asset and is
     being amortized over the estimated useful life of the asset. Amortization
     expense recorded in the three month and six month periods ended June 30,
     2001 was approximately $26,300 and $52,700, respectively and will be
     approximately $106,000 annually in future periods. Additionally, on October
     9, 1997, upon acceptance of the filing of the first NDA for Argatroban with
     the FDA, the Company granted the Former Licensor a warrant to purchase an
     additional 142,858 shares of Common Stock at an exercise price of $14.00
     per share, subject to adjustment, which expires on October 9, 2004. TBC has
     also granted the Former Licensor demand and piggyback registration rights
     with regard to shares of Common Stock issued to the Former Licensor.

     ICOS Corporation Partnership

          On June 6, 2000, ICOS and the Company entered into the ICOS-TBC
     limited partnership agreement. The partnership will seek to develop and
     globally commercialize ET(A) receptor antagonists. As a result of our
     contribution of technology, ICOS-TBC paid a license fee to us in June 2000,
     and will make additional milestone payments to us that together could be as
     much as



                                       9
<PAGE>   12

     $55.5 million for the development and commercialization of products
     resulting from the collaboration. The license fee is being amortized over
     the estimated development period of the licensed technology and the Company
     recognized approximately $120,900 and $241,900 of it as revenue during the
     three month and six month periods ended June 30, 2001, respectively.

          Pursuant to the terms of the limited partnership agreement, ICOS-TBC
     has been initially capitalized by a cash contribution from ICOS and the
     Company's contribution of intellectual property associated with sitaxsentan
     sodium. The intellectual property contributed by the Company to ICOS-TBC
     had no basis for financial reporting purposes and, accordingly, the Company
     assigned no value to the transfer of technology. Upon the transfer of its
     technology to ICOS-TBC, the Company received a license fee, which is being
     amortized into revenue over the expected developmental period of
     sitaxsentan sodium. See Note 1 (i), Revenue Recognition, above.

          During the three month and six month periods ended June 30, 2001, the
     Company recognized a loss of approximately $2,242,000 and $3,770,800,
     respectively, representing the Company's proportionate share of the losses
     of ICOS-TBC, including amounts billed by the Company to ICOS-TBC as
     discussed in Note 8, Research Agreements, above.

     Schering-Plough Research Collaboration and License Agreement

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

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

(10) FOREIGN SUBSIDIARY

     During the third quarter 2000, TBC formed Revotar to conduct research and
development of novel small molecule compounds and to develop and commercialize
selectin antagonists. Upon formation, Revotar received certain development and
commercialization rights to the Company's selectin antagonist compounds as well
as rights to certain other TBC research technology. Revotar also received
approximately $5 million in funding from three German venture capital funds. The
Company retained ownership of approximately 55% of the outstanding common stock
of Revotar and has consolidated the financial results of Revotar into TBC's
consolidated financial statements. Since the developmental and commercialization
rights contributed by the Company to Revotar had no basis for financial
reporting purposes, the Company assigned no value to its contribution of
intellectual property rights. The Company's equity in the originally contributed
assets by the minority shareholders is reported as a deferred credit of
$2,620,010 on its consolidated balance sheet at June 30, 2001 and December 31,
2000. The minority interest in Revotar at June 30, 2001 and December 31, 2000,
was $1,777,172 and $1,962,273, respectively. The Company's consolidated net loss
for the three month and six month periods ended June 30, 2001 was reduced by
approximately $123,000 and $185,000, respectively, for the Revotar minority
shareholders' approximately 45% interest in Revotar's loss.


                                       10
<PAGE>   13

(11) COMMERCIALIZATION AGREEMENT

     In connection with TBC's development and commercialization of Argatroban,
in August 1997, TBC entered into a Product Development, License and CoPromotion
Agreement with GSK (the "SmithKline Agreement") whereby GSK was granted
exclusive rights to work with TBC in the development and commercialization of
Argatroban in the U.S. and Canada for specified indications. GSK paid $8.5
million in upfront license fees during August 1997, a $5 million milestone
payment in October 1997, and a $7.5 million milestone payment in June 2000. As a
result of the Company's implementation of SAB101, effective January 1, 2000,
revenues in the three month and six month periods ended June 30, 2000 include
approximately $1,183,000 and $2,366,000, respectively, of the license fee and
1997 milestone payments. The effect on revenues in the six month period ended
June 30, 2000 was offset by a loss of approximately $2,366,000 from the
cumulative effect, at January 1, 2000, of the change in accounting principle
resulting from the deferral of certain license fees and milestone payments
received in 1997.

(12) 401(k) PLAN

     The Company adopted a 401(k) plan, which became effective on September 1,
1993. Under the plan, all employees with three months of service are eligible to
participate in the plan and may contribute up to 15 percent of their
compensation, with a maximum of $10,500 per employee in 2000. Effective on
January 1, 2001, the Compensation and Personnel Committee of the Board of
Directors approved an employer matching contribution of $0.50 on the dollar of
employee contributions up to 6% of salaries and the 401(k) plan was amended
effective January 1, 2001, resulting in charges to operating expense during the
three month and six month periods ended June 30, 2001 of approximately $44,000
and $84,000, respectively.

(13) COMMITMENTS AND CONTINGENCIES

     (a) Foreign Currency Exchange Risk

          The Company is exposed to market risk primarily from changes in
     foreign currency exchange rates.

          The Company has a majority-owned subsidiary in Germany and
     consolidates the results of operations into its consolidated financial
     results. Although not significant to date, the Company's reported expenses
     and cash flows from this subsidiary are exposed to changing exchange rates.
     Furthermore, the carrying value of the Company's investment in its German
     subsidiary will fluctuate as a result of such changing exchange rates. The
     Company, accordingly, included an unrealized loss of approximately $148,300
     and $443,800, respectively, in its comprehensive loss for the three month
     and six month periods ended June 30, 2001. The Company had an intercompany
     receivable from our German subsidiary at June 30, 2001 and December 31,
     2000; however, this amount is denominated in U.S. dollars and is not
     exposed to exchange risk. The Company contracts with entities in other
     areas outside the U.S. and these transactions are denominated in a foreign
     currency. To date, the currencies of these other countries have not
     fluctuated materially. At this time, management has not deemed it cost
     effective to engage in a program of hedging the effect of foreign currency
     fluctuations on the Company's operating results using derivative financial
     instruments.

     (b) Legal proceedings

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



                                       11
<PAGE>   14



     ITEM 2

                TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARIES

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

                    THREE AND SIX MONTHS ENDED JUNE 30, 2001


                                    OVERVIEW

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

     Since our inception in 1989, we have primarily devoted our resources to
funding drug discovery research and development. We have been unprofitable to
date and expect to incur substantial operating losses for the next several years
as we invest in product research and development, preclinical and clinical
testing and regulatory compliance. We have sustained net losses of approximately
$112.6 million from the date of our inception to June 30, 2001. We have
primarily financed our operations to date through:

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

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

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

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

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

     Our operating results have fluctuated significantly during each quarter,
and we anticipate that such fluctuations, which are largely attributable to
varying research and development commitments and expenditures, will continue for
the next several years. Operating results for the three months and six months
ended June 30, 2001 are not necessarily indicative of the results, which may be
expected for any other interim period, or for the year ended December 31, 2001.

                              RESULTS OF OPERATIONS

            THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000

     Revenues were approximately $2,463,000 and $9,414,000 in the three month
periods ended June 30, 2001 and 2000, respectively. Revenues in the three months
ended June 30, 2000 included a $7,500,000 milestone payment, received from GSK,
upon approval by the FDA for the use of Argatroban. After taking the $7,500,000
milestone payment into consideration, other sources of revenue increased
approximately $548,000 in the three months ended June 30, 2001, as compared with
the three months ended June 30, 2000. The increase of $548,000 in 2001 is
primarily attributable to increases of approximately $832,000 in



                                       12
<PAGE>   15

research payments received from collaborative partners and approximately
$617,000 in royalties on the sales of Argatroban and research reimbursements
earned from ICOS-TBC, partially offset by reduced revenues pursuant to milestone
and license fees of approximately $901,000.

    Revenues in the six months ended June 30, 2001 increased approximately
$1,112,000 over the six months ended June 30, 2000, after taking the $7,500,000
milestone payment, discussed above, into consideration. The increase of
$1,112,000 in 2001 is primarily attributable to increases of approximately
$1,743,000 in research payments from collaborative partners and approximately
$1,196,000 in royalties from the sale of Argatroban and research reimbursements
from ICOS-TBC, partially offset by reduced revenues pursuant to milestone and
license fees of approximately $1,827,000.

     The Company implemented on October 1, 2000, effective January 1, 2000,
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB101"), promulgated by the United States Securities and Exchange Commission
("SEC") in December 1999. Pursuant to the requirements of SAB101, receipts of
license fees and milestone payments, which in prior years had been recognized
upon receipt, are now recognized as revenues over the developmental period. As a
result of the adoption of SAB101, revenues in the three and six months ended
June 30, 2000 were decreased by approximately $1,835,000 and $652,000,
respectively. For further discussion of SAB101 see Note 1 to the Condensed
Consolidated Financial Statements, included herein.

     Research and development expense increased approximately $1,047,000 in the
three months ended June 30, 2001, as compared with the three months ended June
30, 2000. The increase is primarily due to higher levels of research staff, and
their related expenses, during the current year period, and to the expenses of
Revotar, which was formed in September 2000. Research and development expense
increased approximately $682,000 in the six months ended June 30, 2001, as
compared with the six months ended June 30, 2000. Similarly, the increase is
attributable to higher levels of research staff, and to the expenses of Revotar,
although the increase primarily occurred during the quarter ended June 30, 2001.

     The Company's equity in the losses of ICOS-TBC increased approximately
$1,675,000 and $3,204,000 in the three and six month periods ended June 30,
2001, as compared with the three and six month periods ended June 30, 2000.
ICOS-TBC was formed in June 2000, prior to that time expenses associated with
the research and development of the Company's endothelin antagonist program were
included in research and development expenses.

     General and administrative expenses in the three months ended June 30, 2001
increased approximately $435,000 when compared with the three months ended June
30, 2000. The increase is primarily attributable to the initiation of a
marketing department, initial expenses of listing the Company's common stock on
NASDAQ, and expenses of Revotar. General and administrative expenses in the six
months ended June 30, 2001 and the six months ended June 30, 2000 were
comparable.

     Investment income in the three and six months ended June, 2001 increased
approximately $318,000 and $1,767,000 compared to the comparable prior year
periods. The increase is the result of the investment of proceeds from the
Company's common stock offering in April 2000 and proceeds of the exercise of
publicly traded warrants in January 2001, although the effect of increased cash
balances was partially offset by the lower interest rates which have prevailed
in the current year periods, as compared with the prior year periods.

     We incurred a net loss of $4,538,633, or $0.10 per share in the three
months ended June 30, 2001, as compared with a net profit of $5,128,612 or $0.13
per share (basic) and $0.12 per share (diluted) in the three months ended June
30, 2000. The profit in the prior year results is attributable to the
recognition of a $7,500,000 milestone payment, discussed above, in June 2000.
After taking the $7,500,000 milestone into consideration, the increased loss of
approximately $2,371,000 in the current year period is primarily due to
increased operating expenses, partially offset by higher revenues and higher
investment income in the current year period.




                                       13
<PAGE>   16

     In the six month period ended June 30, 2001, we incurred a net loss of
$7,048,196. In the comparable six month period ended June 30, 2000, we reported
a profit of $1,324,871, before the $2,366,000 cumulative effect of change in
accounting principle, discussed below. As discussed above, the prior year profit
is attributable to the $7,500,000 milestone payment from GSK. After taking the
effect of the milestone payment into consideration, the increased loss of
approximately $870,000 in the six months ended June 30, 2001 is primarily due to
increased operating expenses, partially offset by higher revenues and higher
investment income in the current year period.

     The net loss of $1,041,363 in the six months ended June 30, 2000 includes a
loss of $2,366,234 for the cumulative effect, at January 1, 2000, of the change
in accounting principle resulting from the deferral of certain license fees and
milestone payments received in 1997.

                         LIQUIDITY AND CAPITAL RESOURCES

     We have funded operations to date principally through:

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

     o    private placements of our common and preferred stock;

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

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

     o    investment income, net of interest expense.

     At June 30, 2001 we had cash, cash equivalents and short-term and long-term
investments of $104.3 million, including the cash of Revotar. The Company
enrolled its first patient in a clinical trial for ischemic stroke in April
2001, and received, under the terms of a collaborative agreement with
Mitsubishi, a $2.0 million milestone payment in May. On May 3, 2001, the Company
announced that its Board of Directors has authorized a stock repurchase program
to buy up to 3 million shares, or approximately 7 percent, of the Company's
outstanding common stock over an 18 month period. Pursuant to the stock
repurchase program, the Company has repurchased 160,000 shares for a net cost of
approximately $1,268,000 during the three and six months ended June 30, 2001.

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

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

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

          -    hospital and procedural costs;

          -    services of a contract research organization; and

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

                                       14
<PAGE>   17


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

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

     We have been unprofitable to date and expect to incur operating losses for
the next several years as we invest in product research and development,
preclinical and clinical testing and regulatory compliance. We will require
substantial additional funding to complete the research and development of our
product candidates, to establish commercial scale manufacturing facilities, if
necessary, and to market our products. We have accumulated approximately $112.6
million in net losses through June 30, 2001. Estimates of our future capital
requirements will depend on many factors, including:

     o    market acceptance and commercial success of Argatroban;

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

     o    continued scientific progress in our drug discovery programs;

     o    the magnitude of these programs;

     o    progress with preclinical testing and clinical trials;

     o    the time and costs involved in obtaining regulatory approvals;

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

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

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

     o    effective commercialization activities and arrangements.

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

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

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

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

     o    the ongoing cost of research and development activities;



                                       15
<PAGE>   18

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

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

     o    the presence and effect of competitive products;

     o    our ability to manufacture and market products commercially; and

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

                  HAZARDOUS MATERIALS AND ENVIRONMENTAL MATTERS

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

                    IMPACT OF INFLATION AND CHANGING PRICES

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

              CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

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

     When used in this Form 10-Q, the words "expect," "anticipate," "intend,"
"plan," "believe," "seek," "estimate" and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements
contain these identifying words. Because these forward-looking statements
involve risks and uncertainties, actual results could differ materially from
those expressed or implied by these forward-looking statements for a number of
important reasons, including those discussed under "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."

                                       16
<PAGE>   19


     You should read these statements carefully because they discuss our
expectations about our future performance, contain projections of our future
operating results or our future financial condition, or state other
"forward-looking" information. Before you invest in our common stock, you should
be aware that the occurrence of any of the contingent factors described under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" could substantially harm our
business, results of operations and financial condition and that upon the
occurrence of any of these events, the trading price of our common stock could
decline, and you could lose all or part of your investment.

     We cannot guarantee any future results, levels of activity, performance or
achievements. Except as required by law, we undertake no obligation to update
any of the forward-looking statements in this Form 10-Q after the date of this
Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY EXCHANGE RISK

     We are exposed to market risk primarily from changes in foreign currency
exchange rates. The following describes the nature of this risk that is not
believed to be material to us.

     We have a majority-owned subsidiary in Germany and consolidate the results
of operations into our consolidated financial results. Although not significant
to date, our reported expenses and cash flows from this subsidiary are exposed
to changing exchange rates. Furthermore, the carrying value of the Company's
investment in its German subsidiary will fluctuate as a result of such changing
exchange rates. The Company, accordingly, included an unrealized loss of
approximately $148,300 and $443,800 in its comprehensive loss for the three and
six months ended June 30, 2001, respectively. We had an intercompany receivable
from our German subsidiary at June 30, 2001 and December 31, 2000; however, this
amount is denominated in U.S. dollars and is not exposed to exchange risk. We
have contracts with entities in other areas outside the U.S. and these
transactions are denominated in a foreign currency. To date, the currencies of
these other countries have not fluctuated materially. At this time, we have not
deemed it cost effective to engage in a program of hedging the effect of foreign
currency fluctuations on our operating results using derivative financial
instruments.


                                       17
<PAGE>   20


PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
         None

ITEM 2.  CHANGES IN SECURITIES
         None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
         None

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

         On May 30, 2001, an annual meeting of our stockholders was
     held. The holders of 40,234,879 shares of common stock were present in
     person or represented by proxy at the meeting. At the meeting, the
     stockholders took the following actions:

     (a) Election of Directors

         The stockholders elected the following persons to serve as directors
     of the Company until the next annual meeting of stockholders, or until
     their successors are duly elected and qualified:

<Table>
<Caption>
                                    NUMBER OF                 NUMBER OF
                 NAME               VOTES FOR             VOTES ABSTAINING
                 ----               ---------             ----------------
<S>                                 <C>                      <C>
       Ron J. Anderson              35,341,550               4,893,329

       Frank C. Carlucci            40,048,372                 186,507

       Robert J. Cruikshank         39,753,910                 480,969

       Richard A. F. Dixon          35,573,836               4,661,043

       David B. McWilliams          35,859,836               4,375,043

       Suzanne Oparil               40,052,758                 182,129

       John M. Pietruski            40,050,025                 184,854

       James A. Thomson             40,055,850                 179,029

       James T. Willerson           40,051,850                 183,029
</Table>

     (b) Adoption of the Amendment to the 1999 Stock Incentive Plan

         The stockholders approved the proposal to adopt the Amendment to the
     1999 Stock Incentive Plan. Votes were cast as follows:

<Table>
<Caption>
             NUMBER OF                  NUMBER OF                  NUMBER OF
             VOTES FOR                VOTES AGAINST            VOTES ABSTAINING
             ---------                -------------            ----------------
<S>                                  <C>                        <C>
             32,424,454                 7,668,098                  142,327
</Table>



                                       18
<PAGE>   21



ITEM 5.  OTHER INFORMATION

         On July 20, 2001, the Company announced in a press release that
    the U.S. Food and Drug Administration had issued an approvable letter
    for a supplemental New Drug Application (sNDA) for Argatroban that
    further expands the treatable patient population to include patients
    who have or who are at risk of developing thrombosis associated with
    heparin-induced thrombocytopenia (HIT) and are undergoing percutaneous
    coronary intervention (PCI). The sNDA defines dosing guidelines for
    the use of Argatroban during PCI in such patients.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         Two reports on Form 8-K (Item 5) were filed during the quarter
    ended June 30, 2001. The first report was filed with the Securities
    and Exchange Commission on May 3, 2001 regarding first quarter results
    for 2001, updates on key programs and the stock repurchase program.
    The second report was filed with the Securities and Exchange
    Commission on June 18, 2001 regarding the move to the Nasdaq Stock
    Market.


                                       19
<PAGE>   22





                         TEXAS BIOTECHNOLOGY CORPORATION

                                  JUNE 30, 2001

                                   SIGNATURES




Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 14th day of August, 2001.




                             TEXAS BIOTECHNOLOGY CORPORATION


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






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




                                       20