<PAGE>   1


                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

                   Quarterly Report Under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934


(Mark One)

[X]   Quarterly Report Pursuant to Section 13 or 15(d) of The Securities 
      Exchange Act of 1934.

      For the quarterly period ended            March 31, 1996
                                     ---------------------------------

                                       OR

[ ]   Transition Report Pursuant to Section 13 or 15(d) of The Securities 
      Exchange Act of 1934.

      For the transition period from_________________to_______________



                            Commission File #0-14732

                            ADVANCED MAGNETICS, INC.
             (Exact name of registrant as specified in its charter)


            Delaware                                        04-2742593
 (State or other jurisdiction of                 (IRS Employer Incorporation or
          organization)                                Identification No.)


                               725 Concord Avenue
                               Cambridge, MA 02138
                    (Address of principal executive offices)


       Registrant's telephone number, including area code: (617) 354-3929


      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
   -----      -----


At March 6, 1996, 6,771,080 shares of registrant's common stock (par value,
$.01) were outstanding.


                                  Page 1 of 16

<PAGE>   2





                            ADVANCED MAGNETICS, INC.

                                    FORM 10-Q

                          QUARTER ENDED MARCH 31, 1996




                          PART I. FINANCIAL INFORMATION




                         Item 1 -- Financial Statements






                                  Page 2 of 16

<PAGE>   3


                            ADVANCED MAGNETICS, INC.

<TABLE>
                                       BALANCE SHEET
                           MARCH 31, 1996 AND SEPTEMBER 30, 1995
                                        (Unaudited)
                                         ---------
<CAPTION>


                    ASSETS                                   March 31,        September 30,
                    -----                                   -----------       -------------
                                                                1996               1995
                                                                ----               ----

<S>                                                         <C>                <C>        
Current assets:
Cash and cash equivalents ...........................       $13,628,343        $ 1,066,419

Marketable securities (Note B) ......................        24,347,483         36,561,263

Accounts receivable .................................           601,047          5,884,542
Recoverable income taxes ............................            90,117             90,117
Inventories .........................................           103,230             55,567
Prepaid expenses ....................................           225,241             99,342
                                                            -----------        -----------
  Total current assets ..............................        38,995,461         43,757,250
                                                            -----------        -----------

Property, plant and equipment:
Land ................................................           360,000            360,000
Building ............................................         4,320,766          4,320,766
Laboratory equipment ................................         7,177,027          6,886,813
Furniture and fixtures ..............................           548,434            516,418
                                                            -----------        -----------
                                                             12,406,227         12,083,997

Less--accumulated depreciation and amortization .....         5,656,796          5,143,097
                                                            -----------        -----------
Net property, plant and equipment ...................         6,749,431          6,904,900
                                                            -----------        -----------

Other assets ........................................           145,072            145,072
                                                            -----------        -----------
  Total assets ......................................       $45,889,964        $50,843,222
                                                            ===========        ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------

Current liabilities:
Accounts payable ....................................       $   341,940        $   407,998
Accrued expenses ....................................           503,477          1,214,152
Income taxes payable ................................           130,000            150,000
                                                            -----------        -----------
  Total current liabilities .........................           975,417          1,772,150
                                                            -----------        -----------

Stockholders' equity:
Preferred stock, par value $.01 per share, 
   authorized 2,000,000 shares; none issued .........                --                 --

Common stock, par value $.01 per share,
   authorized 15,000,000 shares; issued and
   outstanding 6,767,080 shares at March 31, 1996
   and 6,753,413 shares at September 30, 1995 .......            67,671             67,534

Additional paid-in capital ..........................        45,204,486         45,093,972
Retained earnings (deficit) .........................        (1,326,382)         3,036,517
Unrealized gains on marketable securities (Note B) ..           968,772            873,049
                                                            -----------        -----------
  Total stockholders' equity ........................        44,914,547         49,071,072
                                                            -----------        -----------

Total liabilities and stockholders' equity ..........       $45,889,964        $50,843,222
                                                            ===========        ===========
</TABLE>



The accompanying notes are an integral part of the financial statements.


                                  Page 3 of 16

<PAGE>   4


                            ADVANCED MAGNETICS, INC.

<TABLE>
                                            STATEMENT OF OPERATIONS
                                FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED
                                            MARCH 31, 1996 AND 1995
                                                  (Unaudited)
                                                   ---------
<CAPTION>

                                            Three-Month Period Ended March 31,   Six-Month Period Ended March 31,
                                            ----------------------------------   --------------------------------
                                                  1996              1995             1996               1995
                                                  ----              ----             ----               ----
                       
<S>                                          <C>                <C>               <C>                <C>       
Revenues:
   License fees ......................       $        --        $5,000,000        $        --        $5,000,000

   Royalties .........................            75,000                --            150,000                --
   Product sales .....................            12,762           789,026             12,762           844,285
   Interest, dividends and net gains
     and losses on sales of 
     securities ......................           388,307           438,669            840,166         1,120,655
                                             -----------        ----------        -----------        ----------
        Total revenues ...............           476,069         6,227,695          1,002,928         6,964,940
                                             -----------        ----------        -----------        ----------

Cost and expenses:
   Cost of product sales .............             2,550           157,804              2,550           168,854
   Research and development 
     expenses ........................          2,516,746         1,968,069          4,677,306         3,579,516
   Credit for purchase of in-process
     research and development ........                --                --                 --          (380,000)
   Selling, general and administrative
     expenses ........................           394,986           472,530            685,971           788,420
                                             -----------        ----------        -----------        ----------
        Total costs and expenses .....         2,914,282         2,598,403          5,365,827         4,156,790
                                             -----------        ----------        -----------        ----------

   Income (loss) before provision for
      income taxes ...................        (2,438,213)        3,629,292         (4,362,899)        2,808,150
   Provision for income taxes ........                --           375,000                 --           375,000
                                             -----------        ----------        -----------        ----------
   Income (loss) before cumulative
      effect of accounting change ....        (2,438,213)        3,254,292         (4,362,899)        2,433,150


   Cumulative effect of accounting
     change ..........................                --                --                 --           117,540
                                             -----------        ----------        -----------        ----------

Net income (loss) ....................       $(2,438,213)       $3,254,292        $(4,362,899)       $2,550,690
                                             ===========        ==========        ===========        ==========

Net income (loss) per share before
     cumulative effect of accounting
     change ..........................       $     (0.36)       $     0.48        $     (0.65)       $     0.36

Cumulative effect of accounting
     change ..........................                --                --                 --              0.01
                                             -----------        ----------        -----------        ----------
Income (loss) per share ..............       $     (0.36)       $     0.48        $     (0.65)       $     0.37
                                             -----------        ----------        -----------        ----------

Weighted average number of common
     and common equivalent shares ....         6,765,007         6,835,370          6,760,299         6,828,497
                                             -----------        ----------        -----------        ----------
</TABLE>



The accompanying notes are an integral part of the financial statements.




                                  Page 4 of 16

<PAGE>   5


                            ADVANCED MAGNETICS, INC.

<TABLE>
                                 STATEMENT OF CASH FLOWS
                             FOR THE SIX-MONTH PERIODS ENDED
                                 MARCH 31, 1996 AND 1995
                                       (Unaudited)
                                        ---------
<CAPTION>



                                                               Six-Month Periods Ended
                                                                      March 31,
                                                           -------------------------------
                                                               1996               1995
                                                               ----               ----
<S>                                                        <C>                <C>        
Cash flows from operating activities:
Cash received from customers .......................       $ 1,277,472        $ 5,112,799
Cash paid to suppliers and employees ...............        (5,347,094)        (4,080,707)
Dividends and interest received ....................         1,016,834          1,045,310
Income taxes paid ..................................           (20,000)                --
Net realized gains (losses) on sales of 
  securities .......................................           (41,973)            (2,428)
                                                           -----------        -----------

Net cash provided by (used in) operating 
  activities .......................................        (3,114,761)         2,074,974
                                                           -----------        -----------

Cash flows from investing activities:
Proceeds from sales of securities ..................         7,651,237            750,000
Purchase of securities .............................        (1,559,320)        (4,455,519)
Capital expenditures ...............................          (322,230)          (798,268)
Proceeds from notes and bonds maturing .............         9,796,348                 --
                                                           -----------        -----------

Net cash provided by (used in) investing 
  activities .......................................        15,566,035         (4,503,787)
                                                           -----------        -----------

Cash flow from financing activities:
Proceeds from issuances of common stock ............           110,650             82,113
                                                           -----------        -----------

Net cash provided by financing activities ..........           110,650             82,113
                                                           -----------        -----------

Net increase (decrease) in cash and cash 
  equivalents ......................................        12,561,924         (2,346,700)

Cash and cash equivalents at beginning of the 
  period ...........................................         1,066,419          6,462,193
                                                           -----------        -----------

Cash and cash equivalents at end of the period .....       $13,628,343        $ 4,115,493
                                                           ===========        ===========
</TABLE>



The accompanying notes are an integral part of the financial statements.


                                  Page 5 of 16

<PAGE>   6


                            ADVANCED MAGNETICS, INC.

<TABLE>
                                   RECONCILIATION OF NET INCOME
                           TO NET CASH PROVIDED BY OPERATING ACTIVITIES
                                 FOR THE SIX-MONTH PERIODS ENDED
                                     MARCH 31, 1996 AND 1995
                                           (Unaudited)
                                            ---------
<CAPTION>





                                                                         Six-Month Periods
                                                                          Ended March 31,
                                                                   -----------------------------
                                                                       1996              1995
                                                                       ----              ----

<S>                                                                <C>                <C>       
Net income .................................................       $(4,362,899)       $2,550,690
                                                                   -----------        ----------

Adjustments to reconcile net income to net cash provided by
    (used in) operating activities:

Cumulative effect of accounting change .....................                --          (117,540)
Credit for purchase of in-process research and 
    development ............................................                --          (380,000)
Depreciation and amortization ..............................           513,699           481,483
(Increase) decrease in accounts receivable .................         1,263,862          (784,336)
(Increase) in prepaid expenses .............................          (125,899)         (191,040)
(Decrease) increase in accounts payable and accrued 
    expenses ...............................................          (321,436)          165,641
Increase (decrease) in income taxes payable ................           (20,000)          375,000
(Increase) in inventories ..................................           (47,663)               --
Accretion of U. S. Treasury Notes discount .................           (14,425)          (24,924)
                                                                   -----------        ----------

Total adjustments ..........................................         1,248,138          (475,716)
                                                                   -----------        ----------

Net cash provided by (used in) operating activities ........       $(3,114,761)       $2,074,974
                                                                   ===========        ==========
</TABLE>



The accompanying notes are an integral part of the financial statements.


                                  Page 6 of 16

<PAGE>   7


                            ADVANCED MAGNETICS, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 1996


A.    SUMMARY OF ACCOUNTING POLICIES.

      BUSINESS
      --------

      Founded in November 1981, Advanced Magnetics, Inc., a Delaware Corporation
(the "Company"), is a biopharmaceutical company engaged in the development and
manufacture of compounds utilizing the Company's core proprietary colloidal
superparamagnetic particle technology and core polysaccharide technology for
magnetic resonance imaging ("MRI") and for polysaccharide directed,
receptor-mediated drug delivery systems. The initial products developed by the
Company are diagnostic imaging agents for use in conjunction with MRI to aid in
the diagnosis of cancer and other diseases. In therapeutics, the Company is
developing antiviral products for the treatment of hepatitis B.

      The balance sheet of the Company as of March 31, 1996 and the statement of
operations and cash flows for the quarter then ended are unaudited and in the
opinion of management, all adjustments necessary for a fair presentation of such
financial statements have been recorded. Such adjustments consisted only of
normal recurring items.

      Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The year-end balance sheet data was derived from audited financial
statements, but does not include disclosures required by generally accepted
accounting principles. It is suggested that these interim financial statements
be read in conjunction with the Company's most recent Form 10-K and Annual
Report as of September 30, 1995.


<TABLE>
B.    MARKETABLE SECURITIES.

      The cost and market value of the Company's marketable securities portfolio are as follows:
<CAPTION>

                                                    March 31, 1996                   September 30, 1995
                                            -----------------------------       -----------------------------
                                                Cost           Fair Value          Cost            Fair Value
                                            -----------       -----------       -----------       -----------

<S>                                         <C>               <C>               <C>               <C>        
U. S. government securities
     Due in one year or less                $        --       $        --       $ 9,501,365       $ 9,476,430
     Due after one through five years        14,885,196        14,800,800        14,869,406        14,737,500

Corporate debt
     Due after five through ten years         1,415,140         1,487,700         1,980,040         2,002,500

Preferred stock                               3,389,815         3,404,100         6,116,668         5,740,023

Common stock                                  3,688,560         4,654,883         3,220,735         4,604,810
                                            -----------       -----------       -----------       -----------
                                            $23,378,711       $24,347,483       $35,688,214       $36,561,263
                                            ===========       ===========       ===========       ===========
</TABLE>



                                  Page 7 of 16

<PAGE>   8


C.    INCOME TAX

      There was no income tax provision for the six-month period ended March 31,
1996 due to an operating loss for the period. The provision for income taxes for
the six-month period ended March 31, 1995 was at a rate of 13.4% of operating
income.

D.    LEGAL PROCEEDINGS

      The Company and certain of its officers were sued in an action in the
United States District Court for the District of Massachusetts on September 3,
1992. The plaintiff, a former consultant to the Company, claims that he was
incorrectly omitted as an inventor or joint inventor on certain of the Company's
patents and on pending applications, and seeks injunctive relief and unspecified
monetary damages. The plaintiff filed a related case in the Superior Court of
the Commonwealth of Massachusetts. The Superior Court has dismissed most of the
claims on summary judgment. While the final outcome of these actions cannot be
determined, the Company believes that the plaintiff's claims are without merit
and intends to defend the actions vigorously.


                                  Page 8 of 16

<PAGE>   9



I
TEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

OVERVIEW

      Since its inception in November 1981, the Company has focused its efforts
on developing its core superparamagnetic iron oxide particle technology. In
recent years, the Company's efforts have been focused primarily on the
development of MRI contrast agents and, to a lesser extent, on the development
of a drug delivery platform that targets therapeutics to the liver. The Company
has funded its operations with cash from license fees, royalties, sales of its
products, the proceeds of financings, income earned on invested cash and fees
from contract research performed for third parties. The Company's long-term
viability and growth will depend on the successful commercialization of products
resulting from its research activities. Among other things, successful
commercialization of the Company's products will require obtaining necessary
governmental approvals in a timely manner, attracting and retaining key
employees and responding to technological changes in the marketplace.

      The Company's operating results may continue to vary significantly from
quarter to quarter or from year to year depending on a number of factors,
including: (i) the timing of payments from corporate partners; (ii) the
introduction of new products; (iii) the timing and size of orders from
customers; and (iv) the general level of acceptance of the Company's products.
Profits may vary significantly from quarter to quarter or year to year based on
the timing of revenue and expense. Revenue or profits in any period will not
necessarily be indicative of results in subsequent periods and there can be no
assurance that the Company will achieve consistent profitability or that revenue
growth will occur in the future.

      A substantial portion of the Company's expenses consists of research and
development expenses. The Company expects its research and development expenses
to increase as it funds additional clinical trials and associated toxicology and
pharmacology studies and devotes resources to developing additional contrast
agents and hepatic drug product candidates.

      The discussion in this Item 2 contains some forward looking statements
which involve certain risks and uncertainties, including statements related to
expenditures on research and development, liquidity and capital resources and
capital expenditures. The Company's actual results may differ significantly from
those stated in any forward-looking statements. Factors that may cause such
differences include, but are not limited to, those relating to the timing and
results of U. S. Food and Drug Administration ("FDA") action, delays in
arrangements with clinical investigators, uncertainties relating to results of
clinical trials and product development and other risks identified from time to
time in the Company's other filings with the Securities and Exchange Commission.


RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1996 AS COMPARED TO THE
- -----------------------------------------------------------------------------
QUARTER ENDED MARCH 31, 1995.
- -----------------------------

REVENUES
- --------

      Total revenues for the second fiscal quarter ended March 31, 1996 were
$476,069 compared to $6,227,695 for the second fiscal quarter ended March 31,
1995. The Company's revenues historically consist primarily of license fees,
royalties on products sold by licensees, direct sales of products and investment
income. The decrease in revenues in 1996 compared to the second fiscal quarter
ended March 31, 1995 resulted primarily from the absence of license fees, as
well as reductions in product sales and interest and dividend income earned on
investments and was partially offset by an increase in revenue from royalties.


                                  Page 9 of 16

<PAGE>   10


      There was no license fee revenue for the second fiscal quarter ended March
31, 1996 compared to $5,000,000 for the second fiscal quarter ended March 31,
1995. The Company received a non-refundable $5,000,000 license fee on February
1, 1995 from Berlex Laboratories, Inc. ("Berlex") under an agreement granting
Berlex a product license and exclusive marketing rights to the Company's Feridex
I.V.[Trademark] MRI contrast agent in the United States and Canada.

      Royalties for the second fiscal quarter ended March 31, 1996 were $75,000
relating to Guerbet S.A.'s European product sales of the Company's Feridex I.V. 
and GastroMARK[Registered Trademark] MRI contrast agents. There were no         
royalties for the second fiscal quarter ended March 31, 1995.

      Product sales for the second fiscal quarter ended March 31, 1996 were
$12,762 compared to $789,026 for the second fiscal quarter ended March 31, 1995.
The initial product launch in Europe of the Company's liver contrast agent,
Feridex I.V. marketed in Europe under the name Endorem[Registered Trademark]
(ferumoxide), began in January 1995. All of the Company's product sales for the
second fiscal quarter ended March 31, 1995 related to Endorem[Registered
Trademark].


      Interest, dividends and gains and losses on sales of securities resulted
in revenues of $388,307 for the second fiscal quarter ended March 31, 1996
compared to $438,669 for the second fiscal quarter ended March 31, 1995.
Interest income for the second fiscal quarter ended March 31, 1996 was $47,461
less than the second fiscal quarter ended March 31, 1995 primarily due to lower
interest rates earned on investments. Dividend income for the second fiscal
quarter ended March 31, 1996 was $21,943 more than the second fiscal quarter
ended March 31, 1995. There was a net loss on sales of securities of $27,272 for
the second fiscal quarter ended March 31, 1996 compared to a net loss of $2,428
for the second quarter ended March 31, 1995.

COSTS AND EXPENSES

      Research and development expenses for the second fiscal quarter ended
March 31, 1996 increased 28% to $2,516,746 from $1,968,069 for the second fiscal
quarter ended March 31, 1995. The increase is primarily a result of costs
associated with Phase III human clinical trials for the Company's
Combidex[Trademark] contrast agent for use in imaging lymph nodes, liver, 
spleen and blood vessels and pre-clinical development of the Company's antiviral
therapeutics. Selling, general and administrative expenses decreased 16% to 
$394,986 for the second fiscal quarter ended March 31, 1996 from $472,530 for 
the second fiscal quarter ended March 31, 1995. The decrease is primarily due 
to a decrease in legal and consulting fees.

      The cost of product sales for the second fiscal quarter ended March 31,
1996 was $2,550 compared to $157,804 for the second fiscal quarter ended March
31, 1995. The cost of product sales for the second fiscal quarter ended March
31, 1996 related primarily to the sale to Guerbet S.A. of Feridex I.V. marketed
by Guerbet in Europe under the name of Endorem. The cost of product sales was
20% of product sales for both second fiscal quarters.


                                  Page 10 of 16

<PAGE>   11


INCOME TAXES

      There was no provision for income taxes for the second fiscal quarter
ended March 31, 1996 due to an operating loss. The provision for income taxes
for the second fiscal quarter ended March 31, 1995 was $375,000.

EARNINGS

      For the reasons stated above, there was a net loss of $2,438,213 or
$(0.36) per share for the second fiscal quarter ended March 31, 1996 compared to
a net profit of $3,254,292 or $0.48 per share for the second fiscal quarter
ended March 31, 1995.


RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 1996 AS COMPARED TO THE
- --------------------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 1995
- -------------------------------

REVENUES
- --------

      Total revenues for the six-month period ended March 31, 1996 were
$1,002,928 compared to $6,964,940 for the six-month period ended March 31, 1995.

      There were no license fee revenues for the six-month period ended March
31, 1996 compared to a $5,000,000 non-refundable license fee payment received
from Berlex for the six-month period ended March 31, 1995.

      Royalties for the six-month period ended March 31, 1996 were $150,000
relating to product sales in Europe by Guerbet S.A. of the Company's Feridex
I.V. and GastroMARK MRI contrast agents. There were no royalties for the
six-month period ended March 31, 1995.

      Product sales for the six-month period ended March 31, 1996 were $12,762
compared to $844,285 for the six-month period ended March 31, 1995 which were
primarily for the initial product launch in Europe of Endorem[Registered
Trademark] (ferumoxide), the Company's liver imaging agent. 

      Interest, dividends and gains and losses on sales of securities resulted
in revenues of $840,166 for the six-month period ended March 31, 1996 compared
to $1,120,655 for the six-month period ended March 31, 1995. Interest income for
the six-month period ended March 31, 1996 was $127,625 less than the six-month
period ended March 31, 1995 primarily due to the maturing of United States
Treasury Notes and lower interest rates earned on money market accounts in 1996.
Dividend income for the six-month period ended March 31, 1996 was $113,320 less
than the six-month period ended March 31, 1995 primarily due to a reduction in
funds invested in dividend paying preferred stocks. There was a net loss on
sales of securities of $41,972 for the second fiscal quarter ended March 31,
1996 compared to a net loss of $2,428 for the second quarter ended March 31,
1995.


                                  Page 11 of 16

<PAGE>   12


COSTS AND EXPENSES
- ------------------

      The cost of product sales for the six-month period ended March 31, 1996
was $2,550 compared to $168,854 for the six-month period ended March 31, 1995.
The cost of product sales for the six-month period ended March 31, 1995 related
primarily to the sale in Europe of Endorem, the Company's liver imaging agent.
The cost of product sales for both six-month periods was 20% of product sales.
Research and development expenses for the six-month period ended March 31, 1996
increased 31% to $4,677,306 from $3,579,516 for the six-month period ended March
31, 1995. The increase is primarily a result of costs associated with Phase III
human clinical trials for the Company's Combidex[Trademark] contrast agent for 
use in imaging lymph nodes, liver, spleen and blood vessels and pre-clinical
development of the Company's antiviral therapeutics. The six-month period ended
March 31, 1995 reflected a $380,000 credit for the reversal of the purchase of
in-process research and development expenses that were expensed in the fiscal
year ended September 30, 1994 as part of the Company's Combidex transaction with
Squibb Diagnostics, a Division of Bristol-Myers Squibb Co. The Company was
relieved of its obligaton to pay Briston-Myers, and Bristol-Myers was relieved
of its obligation to deliver Combidex to the Company for clinical trials.
Selling general and administrative expenses decreased 13% to $685,971 for the
six-month period ended March 31, 1996 from $788,420 for the six-month period
ended March 31, 1995. The decrease is primarily due to a decrease in legal and
consulting fees.

OTHER

      The Company adopted Statement of Financial Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities", in the six-month period
ended March 31, 1995. As a result, the Company recorded a cumulative effect for
the accounting change of $117,540. Income before the cumulative effect was
$2,433,150.

INCOME TAXES

      There was no income tax provision for the six-month period ended March 31,
1996 due to an operating loss. The income tax provision for the six-month period
ended March 31, 1995 was $375,000. The tax rate was lower than the 34% statutory
rate as a result of tax benefit of temporary differences and dividend income
exclusions.

EARNINGS

      For the reasons stated above, there was a net loss for the six-month
period ended March 31, 1996 of $4,362,899 or $(0.65) per share compared to net
income of $2,550,690 or $0.37 per share for the six-month period ended March 31,
1995.

LIQUIDITY AND CAPITAL RESOURCES

      At March 31, 1996, the Company's cash and cash equivalents totaled
$13,628,343, representing an increase of $12,561,924 from cash and cash
equivalents at September 30, 1995. In addition, the Company had marketable
securities of $24,347,483 at March 31, 1996. Net cash used in operating
activities was $3,114,761 in the six-month period ended March 31, 1996 compared
to net cash provided by operating activities of $2,074,974 in the six-month
period ended March 31, 1995. Cash provided by operating activities for the
six-month period ended March 31, 1995 was primarily due to the $5,000,000
license fee paid by Berlex under a product license agreement granting Berlex
exclusive marketing rights to the Company's Feridex I.V. MRI contrast agent.
Cash provided by investing activities was $15,566,035 for the six-month period
ended March 31, 1996 compared to $4,503,787 used in investing activities in the
six-month period ended March 31, 1995. Cash provided by investing activities in
the six-month period ended March 31, 1996


                                  Page 12 of 16

<PAGE>   13


included the proceeds of $7,651,237 from the sale of marketable securities and
the proceeds of $9,796,348 from maturing United States Treasury Notes.
Offsetting these proceeds was the purchase of marketable securities of
$1,559,320 in the six-month period ended March 31, 1996. Cash used in investing
activities in the six-month period ended March 31, 1995 included the purchase of
marketable securities of $4,455,519. Cash provided by financing activities for
the six-month period ended March 31, 1996 and 1995 was $110,650 and $82,113
respectively, which resulted from the issuance of common stock.

      Capital expenditures in the six-month period ended March 31, 1996 were
$322,230 compared to $798,268 in the six-month period ended March 31, 1995.
Capital expenditures in the six-month period ended March 31, 1995 included an
upgrade to the Company's magnetic resonance imaging equipment and furnishings
and equipment associated with the establishment of the Clinical Development
Group in the Company's Princeton, New Jersey office. The Company has no current
commitment for any significant expenditures on property, plant and equipment.
The Company expects that expenditures for research and development for the
remainder of fiscal 1996 will continue to increase due to human clinical trials
for the Company's development stage contrast agents and antiviral hepatitis
therapeutics.

      Management believes that funds for future needs can be generated from
existing cash balances, cash generated from investing activities and cash
generated from operations. In addition, the Company will consider from time to
time various financing alternatives and may seek to raise additional capital
through equity or debt financing or to enter into corporate partnering
arrangements. There can be no assurance, however, that such funding will be
available on terms acceptable to the Company, if at all.


                                  Page 13 of 16

<PAGE>   14




P
ART II.  OTHER INFORMATION


Item 4.  Submission of Matters to a Vote of Security Holders
         ---------------------------------------------------

         On February 6, 1996, the Company held its Annual Meeting of
Stockholders. At the meeting, the stockholders acted upon the following
proposals: (i) election of directors and (ii) ratification of the firm of
Coopers & Lybrand L.L.P. as independent auditors for the fiscal year ending
September 30, 1996. All of the above matters were approved by the stockholders.

         Votes "FOR" represent affirmative votes and do not include abstentions
or broker non-votes. In cases where a signed proxy was submitted without
designation, the shares represented by the proxy were voted "FOR" each proposal
in the manner described in the Proxy Statement. On the record date (December 8,
1995), 6,754,328 shares of the Company's common stock were issued and
outstanding.


<TABLE>
         Voting results were as follows:
<CAPTION>

                  Matters                            For          Against     Withheld     Abstain
                  -------                            ---          -------     --------     -------

<S>                                               <C>              <C>           <C>       <C>  
1.       Election of Directors
            Thomas Coor                           6,254,592         3,650        N/A         N/A
            Jerome Goldstein                      6,254,742         3,500        N/A         N/A
            Leslie Goldstein                      6,254,642         3,600        N/A         N/A
            Richard L. McIntire                   6,254,742         3,500        N/A         N/A
            Edward B. Roberts                     6,254,742         3,500        N/A         N/A
            Roger E. Travis                       6,243,742        14,500        N/A         N/A
            George M. Whitesides                  6,243,742        14,500        N/A         N/A
                                                  
2.       Ratification of Independent Auditors     6,241,791         9,001        N/A       7,450
</TABLE>




ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

      Statement regarding computation of Per Share Earnings is filed in Part II,
Exhibit 11, of this report and is incorporated by reference herein.

      The Company did not file any current reports on Form 8-K during the
quarter ended March 31, 1996.


                                  Page 14 of 16

<PAGE>   15





SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.





                                       ADVANCED MAGNETICS, INC.


Date   May 8,1996                  By  /s/ Jerome Goldstein
       --------------------------      ---------------------------------------
                                       Jerome Goldstein, President,
                                       Treasurer and Chairman of the Board of
                                       Directors


Date   May 8,1996                  By  /s/ Anthony P. Annese
       --------------------------      ---------------------------------------
                                       Anthony P. Annese, Vice President
                                       and Principal Accounting Officer



                                  Page 15 of 16

<PAGE>   16



                            ADVANCED MAGNETICS, INC.


<TABLE>
         Exhibit 11 - Statement Re Computation of Per Share Earnings
          Attached to and made part of Part II of Form 10-Q for the
 Three-Month and Six-Month Periods Ended March 31, 1996 and 1995 (unaudited)
<CAPTION>


                                          Three-Month Periods             Six-Month Periods
                                            Ended March 31,                 Ended March 31,
                                        ------------------------      -------------------------
                                           1996           1995          1996            1995
                                           ----           ----          ----            ----
<S>                                     <C>            <C>            <C>             <C>      
Weighted average number of shares
issued and outstanding                  6,765,007      6,724,796      6,760,299       6,720,831

Assumed exercise of options reduced 
by the number of shares which 
could have been purchased with 
the proceeds of those options                  --        110,574             --         107,666
                                        ---------      ---------      ---------       ---------

As adjusted                             6,765,007      6,835,370      6,760,299       6,828,497
                                        =========      =========      =========       =========
</TABLE>




                                  Page 16 of 16





<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
1996 2nd Quarter 10-Q Report and is qualified in its entirety by
reference to such Financial Statement.
</LEGEND>
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          SEP-30-1995
<PERIOD-START>                             JAN-01-1996
<PERIOD-END>                               MAR-31-1996
<CASH>                                      13,628,343
<SECURITIES>                                24,347,483
<RECEIVABLES>                                  601,047
<ALLOWANCES>                                         0
<INVENTORY>                                    103,230
<CURRENT-ASSETS>                            38,995,461
<PP&E>                                      12,406,227
<DEPRECIATION>                               5,656,796
<TOTAL-ASSETS>                              45,889,964
<CURRENT-LIABILITIES>                          975,417
<BONDS>                                              0
<COMMON>                                        67,671
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<OTHER-SE>                                           0
<TOTAL-LIABILITY-AND-EQUITY>                45,889,964
<SALES>                                         12,762
<TOTAL-REVENUES>                               476,069
<CGS>                                            2,550
<TOTAL-COSTS>                                2,914,282
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                            (2,438,213)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                                  0
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                               (2,438,213)
<EPS-PRIMARY>                                    (.36)
<EPS-DILUTED>                                        0
        

</TABLE>