<PAGE>   1


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                    FORM 10-Q

(MARK ONE)
[ X ]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  
          EXCHANGE ACT OF 1934
For the quarter ended June 30, 1998

[   ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
          EXCHANGE ACT OF 1934
For the transition period from .................... to ....................

                         COMMISSION FILE NUMBER 00-22383

                          TRANSCEND THERAPEUTICS, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>
<S>                                           <C>

       DELAWARE                                         04-3174575
  (State or jurisdiction of                  (IRS Employer Identification No.)
incorporation or organization)
</TABLE>

                        640 MEMORIAL DRIVE, CAMBRIDGE, MA
                           02139 (Address of principal
                               executive offices)

                                 (617) 374-1200
              (Registrant's telephone number, including area code)

Indicate by check [x] 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 [   ]


The number of shares outstanding of each of the issuer's classes of common
stock, as of August 7, 1998, was 5,762,763 shares of Common Stock, par value
$0.01 outstanding.

This quarterly report on Form 10-Q contains 14 pages, of which this is page one.


<PAGE>   2


                          TRANSCEND THERAPEUTICS, INC.
                               REPORT ON FORM 10-Q
                       FOR THE QUARTER ENDED JUNE 30, 1998

TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                   PAGE
<S>             <C>                                                                                <C>
PART I         FINANCIAL INFORMATION

ITEM 1:        FINANCIAL STATEMENTS (Unaudited)

                 -  Condensed Balance Sheets - June 30, 1998 and December                             
               31, 1997                                                                             3

                 - Condensed Statements of Operations - Three months ended June
               30, 1998 and 1997, six months ended June 30, 1998 and 1997 and
               the period from January 1, 1993 (Commencement of Operations) to
               June 30, 1998                                                                        4

                 - Condensed Statements of Cash Flows - Three months ended June
               30, 1998 and 1997 and the period from January 1, 1993
               (Commencement of Operations) to June 30, 1998                                        5

                 - Notes to Condensed Financial Statements                                          7

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

PART II        OTHER INFORMATION                                                                   12

ITEM 2         Changes in Securities and Use of Proceeds
ITEM 4         Submission of Matters to a Vote of Security Holders
ITEM 5         Other Information
ITEM 6         Exhibits and Reports on Form 8-K

</TABLE>

                                       2

<PAGE>   3


PART 1: FINANCIAL INFORMATION

                          Transcend Therapeutics, Inc.
                          (A development stage company)

                            Condensed Balance Sheets
                                 (in thousands)
<TABLE>
<CAPTION>


                                                                JUNE 30, 1998        DECEMBER 31, 1997
                                                                 (Unaudited)              *(note)
<S>                                                          <C>                      <C>

ASSETS
Current assets:
   Unrestricted cash and cash equivalents                               $  10,472              $  10,989
   Restricted cash                                                          1,852                  5,805
   Prepaid expenses and other current assets                                   83                    161
   Other assets                                                                25                     25
                                                            ---------------------- ----------------------
Total current assets                                                       12,432                 16,980
   Property and equipment, net                                                144                    111
Other assets:
   Patents and licenses, net                                                  308                    335
                                                            ---------------------- ----------------------
          Total assets                                                  $  12,884             $   17,426
                                                            ====================== ======================


LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities:
   Accounts payable and accrued expenses                                 $  1,370              $   1,660

Stockholder's equity:
   Common stock                                                                58                     58
   Additional paid-in capital                                              38,433                 38,395
   Deferred compensation                                                    (570)                  (707)
   Deficit accumulated during the                                        (26,407)               (21,980)
       development stage
                                                            ---------------------- ----------------------

          Total stockholder's equity                                       11,514                 15,766
                                                            ====================== ======================
          Total liabilities and stockholder's equity                    $  12,884             $   17,426
                                                            ====================== ======================
</TABLE>

   * Note: The balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.



                             See accompanying notes.

 
                                      3
<PAGE>   4


                          Transcend Therapeutics, Inc.
                          (A development stage company)

                       Condensed Statements of Operations
                                   (Unaudited)
                     (in thousands except per share amounts)
<TABLE>
<CAPTION>

                                                                                                         Period Jan. 1, 1993
                                            Three Months                      Six Months                  (Commencement of
                                           Ended June 30,                    Ended June 30,                operations) to
                                        1998            1997              1998             1997             June 30, 1998
<S>                                 <C>              <C>              <C>                <C>      <C>   
Research and development contract
  revenues and license fees                                                                 $ 5,000                 $ 11,095
Operating expenses:
   Research and development                  $931         $ 1,255          $ 3,160            1,756                   19,501
   General and administrative                 794             944            1,671            1,915                   11,229
                                   --------------- --------------- ---------------- ---------------- ------------------------
Total operating expenses                    1,725           2,199            4,831            3,671                   30,730
Interest income                               192              85              405              110                    1,273
Interest expense                                                                                                       (532)
                                   --------------- --------------- ---------------- ---------------- ------------------------
Net income (loss)                         (1,533)         (2,114)          (4,426)            1,439               $ (18,894)
                                                                                                     ========================
Accretion of dividends and                     
   liquidation preference on
   redeemable non-convertible
   preferred stock                             --            (89)               --            (119)
                                   =============== =============== ================ ================
Net income (loss) to common             
   stockholders                         $ (1,533)       $ (2,203)        $ (4,426)          $ 1,320
                                   =============== =============== ================ ================

Net income (loss) per common             
   share                                 $ (0.27)        $ (2.78)         $ (0.77)            $1.67
                                   =============== =============== ================ ================

Net income (loss) per common
   share assuming dilution               $ (0.27)        $ (2.78)         $ (0.77)           $ 0.31
                                   =============== =============== ================ ================
</TABLE>



                             See accompanying notes.

                                       4
<PAGE>   5


                          Transcend Therapeutics, Inc.
                          (A development stage company)

                       Condensed Statements of Cash Flows
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                             
                                                                      Six Months Ended        Period Jan. 1, 1993 
                                                                          June 30,             (Commencement of  
                                                                -----------------------------     operations
                                                                    1998            1997        to June 30, 1998
                                                                ------------- --------------- --------------------
<S>                                                                  <C>           <C>                <C>
OPERATING ACTIVITIES:
Net income (loss)                                                    $(4,426)       $  1,439           $ (18,894)
Adjustments to reconcile net income (loss) to cash
 used in operating activities:
   Depreciation and amortization                                          47              42                  310
   Loss on sale of property and equipment                                                                       5
   Expenses incurred with related party settled
      with the issuance of common stock                                                                       304
   Amortization of deferred compensation expense                         137             142                  525
   Issuance of preferred stock in lieu of interest                                                            533
   Change in operating assets and liabilities:
      Restricted cash                                                  3,953         (3,264)              (1,852)
      Prepaid expenses and other current assets                           78            (17)                 (83)
      Other assets                                                                        16                 (21)
      Accounts payable and accrued expenses                            (258)             901                1,328
                                                                ------------- --------------- --------------------
Net cash used in operating activities                                  (469)           (741)             (17,845)

INVESTING ACTIVITIES:
Purchase of equipment and improvements                                  (53)            (31)                (230)
Proceeds from sale of equipment                                                                                 2
                                                                ------------- --------------- --------------------
Net cash used in investing activities                                   (53)            (31)                (228)

FINANCING ACTIVITIES:
Issuance of common stock and/or common stock warrants                                    178               16,740
Proceeds from issuance of debt                                                                              3,170
Payment on note payable to related party                                                                    (170)
Deferred costs of public offering                                                      (189)                (925)
Issuance of series A preferred stock warrants                                                                  16
Issuance of series A redeemable convertible
   preferred stock                                                                                          6,630
Issuance of series C redeemable convertible
   preferred stock                                                                                          2,000
Issuance of redeemable non-convertible
   preferred stock                                                                       861                1,039
Proceeds from exercise of stock options                                    5               6                   47
Purchase of treasury stock                                                                                    (2)
                                                                ------------- --------------- --------------------
Net cash provided by financing activities                                  5             856               28,545
                                                                ------------- --------------- --------------------
Increase (decrease) in cash and cash equivalents                       (517)              84               10,472
Cash and cash equivalents at beginning of period                      10,989             640                   --
                                                                ------------- -------------- --------------------
Cash and cash equivalents at end of period                          $ 10,472       $     724             $ 10,472
                                                                ============= =============== ====================
</TABLE>

                             See accompanying notes.

                                       5

<PAGE>   6


                          Transcend Therapeutics, Inc.
                          (A development stage company)

                     Notes to Condensed Financial Statements
                                  June 30, 1998
                                   (Unaudited)


(1)      BASIS OF PRESENTATION

         The accompanying unaudited condensed financial statements as of June
30, 1998 and for the three- and six-month periods ended June 30, 1998 and 1997
and for the period January 1, 1993 (commencement of operations) to June 30,
1998 have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and the rules of the Securities and Exchange Commission. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, such financial information includes all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation of the financial position at such date and the operating
results and cash flows for such periods. Operating results for the three-and
six-month period ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998. These
condensed financial statements and the related notes should be read in
conjunction with the audited annual financial statements of Transcend
Therapeutics, Inc. (the "Company") for the year ended December 31, 1997
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on March 31, 1998.

OVERVIEW

         The Company is dedicated to the development and commercialization of
products for unmet medical needs. In the second quarter of 1997, the Company
began a Phase III clinical trial to determine the safety and efficacy of the
Company's lead product candidate, Procysteine(R), in the treatment of acute
respiratory distress syndrome ("ARDS"). On August 13, 1998, the Company and BI
announced results from the unblinding of the Phase III clinical trial evaluating
the intravenous administration of Procysteine for the treatment of ARDS. These
results showed that Procysteine i.v. is not effective in the treatment of ARDS.
In March 1998, the Company had suspended the Phase III Clinical Trial following
a recommendation of an independent Safety Monitoring Board. The Safety
Monitoring Board had determined following a review of preliminary mortality data
on a total of 214 patients enrolled through March 18, 1998 that the incidence of
all-cause mortality in patients receiving Procysteine i.v. was higher than the
incidence in patients receiving a placebo. In May 1998, the Company announced
that it was discontinuing its Phase III Clinical Trial because its preliminary
review of the mortality data on the 214 patients enrolled in the study prior to
its suspension uncovered no clear explanation of the lower mortality observed in
the placebo group. To date, no explanation for the higher all-cause mortality
observed in the Procysteine group has been identified. The Company and BI will
make a determination whether to continue their work with Procysteine i.v. in the
near term. The Company continues to negotiate possible in-licensing
opportunities as well as other strategic options with respect to its business.
There can be no assurance that the Company will be successful in implementing
any such in-licensing or other strategic options in a timely manner or at all,
or that any such action would enhance the competitive position or future success
of the Company.


                                       6
<PAGE>   7


NET INCOME (LOSS) PER SHARE

          The following table sets forth the computation of net income (loss)
per share (in thousands except share data):
<TABLE>
<CAPTION>

                                                             THREE MONTHS ENDED JUNE 30,           SIX MONTHS ENDED JUNE 30,
                                                             ---------------------------           -------------------------       
                                                               1998               1997              1998               1997
                                                               ----               ----              ----               ----
<S>                                                       <C>                  <C>                 <C>              <C>
Numerator:
Net income (loss):                                                $ (1,533)         $ (2,114)          $ (4,426)            $ 1,439
Accretion of redeemable nonconvertible preferred stock                    0              (89)                  0              (119)
                                                           -----------------  ---------------  -----------------  -----------------
Numerator for net income (loss) per common share - net              
     income (loss) to common stockholders                           (1,533)           (2,203)            (4,426)              1,320
Numerator for net income (loss) per common share assuming
     dilution - net income (loss) to common stockholders 
     after assumed conversion                                       (1,533)           (2,203)            (4,426)              1,320
                                                           -----------------  ---------------  -----------------  -----------------

Denominator:
Denominator for net income (loss) per common share - 
     weighted - average shares                                    5,762,763           791,617          5,761,938            791,186
Effect of dilutive securities:
   Stock options                                                         --                --                 --            304,954
   Common stock warrants                                                 --                --                 --              5,000
Preferred stock                                                          --                --                 --          3,122,167
                                                          ------------------  ---------------   ----------------   ----------------
Dilutive potential common shares                                         --                --                 --          3,432,121
   Denominator for net income (loss) per common share
     assuming dilution - adjusted weighted-average 
     shares and assumed conversions                               5,762,763           791,617          5,761,938          4,223,307
                                                          ==================  ===============   ================    ===============
Net income (loss) per common share                                 $ (0.27)          $ (2.78)           $ (0.77)             $ 1.67
                                                          ==================  ===============   ================    ===============
Net income (loss) per common share assuming dilution               $ (0.27)          $ (2.78)           $ (0.77)             $ 0.31
                                                          ==================  ===============   ================    ===============
</TABLE>



IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

As of January 1, 1998, the Company adopted Financial Accounting Standard 130,
Reporting Comprehensive Income ("Statement 130"). Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components.
Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption were reported separately
in stockholder's equity to be included in other comprehensive income. During the
second quarters of 1998 and 1997, total comprehensive income was not materially
different from net income (loss).


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


THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES.
THE FOLLOWING DISCUSSION CONSTITUTES FORWARD LOOKING STATEMENTS INSOFAR AS IT
RELATES TO PROGRESS IN THE COMPANY'S RESEARCH AND DEVELOPMENT PROGRAMS, PRODUCT
DEVELOPMENT EXPECTATIONS, IN-LICENSING PLANS, EXPECTED CASH EXPENDITURES AND
EXPENSE LEVELS AND THE ADEQUACY OF THE COMPANY'S AVAILABLE RESOURCES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED
IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE TERMINATION OF THE
COMPANY'S WORK WITH PROCYSTEINE FOR THE TREATMENT OF ARDS, THE AVAILABILITY OF
FUNDS AND OTHER FACTORS DISCUSSED BELOW AND IN THE COMPANY'S REGISTRATION
STATEMENT ON FORM S-1 (FILE NO. 333-22817), AS AMENDED, AND THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997. READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH
SPEAK ONLY AS OF THE DATE OF THIS FORM 10-Q. THE COMPANY UNDERTAKES NO
OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES
AFTER THE DATE OF THIS FORM 10-Q OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED
EVENTS.

 
                                       7

<PAGE>   8

 
RESULTS OF OPERATIONS


THREE MONTHS ENDED JUNE 30, 1998


         The Company earned no revenues in the three-month periods ended June
30, 1998 and 1997.

         The Company's total operating expenses for the three-month periods
ended June 30, 1998 and 1997 were $1.7 million and $2.2 million, respectively.
Research and development expenses decreased to approximately $0.9 million for
the three months ended June 30, 1998 from approximately $1.3 million for the
three months ended June 30, 1997. The decrease was due primarily to reduced
costs associated with the Company's Phase III ARDS trial (the "Phase III Trial")
which commenced in the first quarter of 1997 and was discontinued in May 1998,
including staffing costs, clinical investigator grants, clinical site
monitoring, clinical supplies and data management expenses ("ARDS Development
Expenses"). ARDS Development Expenses related to the discontinued Phase III
Trial will also be incurred in the third quarter of 1998 relating to the
Company's evaluation of unblinded data in order to determine whether to resume
its work with Procysteine i.v. for the treatment of ARDS. The Company expects
that other research and development expenses may increase if the Company
undertakes additional clinical and pre-clinical programs.

         General and administrative expenses decreased to approximately $0.8
million for the three months ended June 30, 1998 from approximately $0.9 million
for the three months ended June 30, 1997. The decrease was due primarily to the
reduction of administrative charges associated with the suspended Phase III
Trial as well as a reduction in staffing costs. As of August 7, 1998 the Company
had 16 full-time employees.

         Other income for the each of the three-month periods ended June 30,
1998 and 1997 consists of interest income. Interest income for each of the
three-month periods ended June 30, 1998 and 1997 was $192,000 and $85,000,
respectively. The increase in interest income was due to higher average cash
balances following the Company's initial public offering of Common Stock which
was completed in July 1997.

         For each of the three-month periods ended June 30, 1998 and 1997, the
Company had net losses of $1.5 million and $2.2 million, respectively.


SIX MONTHS ENDED JUNE 30, 1998


         The Company earned no revenues in the six-month period ended June 30,
1998. In the six-month period ended June 30, 1997, the Company recognized as
revenue $5.0 million consisting of a non-refundable, non-creditable license fee
received from BI in exchange for which the Company granted BI exclusive rights
to various patents related to intravenous Procysteine(R).

         The Company's total operating expenses for the six-month periods ended
June 30, 1998 and 1997 were $4.8 million and $3.7 million, respectively.
Research and development expenses increased to approximately $3.1 million for
the six months ended June 30, 1998 from approximately $1.8 million for the six
months ended June 30, 1997. The increase was due primarily to accelerated
patient enrollment and other increased costs


                                       8

<PAGE>   9



associated with the Company's Phase III ARDS trial which commenced in the first
quarter of 1997 and was discontinued in May 1998, including staffing costs,
clinical investigator grants, clinical site monitoring, clinical supplies and
data management expenses.

         General and administrative expenses decreased to approximately $1.7
million for the six months ended June 30, 1998 from approximately $1.9 million
for the six months ended June 30, 1997. However, general and administrative
expenses for the first six months of 1997 included approximately $0.6 million of
non-recurring administration charges associated with the signing of the BI
Agreement and costs associated with the Company's initial public offering, which
was completed in July 1997. Excluding those non-recurring charges, general and
administration charges increased due to higher compensation expenses and
recruiting costs and costs associated with the transition of the Company's
operations from a private entity to a publicly traded company.

         Other income for the each of the six-month periods ended June 30, 1998
and 1997 consists of interest income. Interest income for each of the six-month
periods ended June 30, 1998 and 1997 was $405,000 and $110,000, respectively.
The increase in interest income was due to higher average cash balances
following the Company's initial public offering of Common Stock, which was
completed in July 1997.

         For the six-month period ended June 30, 1998, the Company had a net
loss of $4.4 million. For the six-month period ended June 30, 1997, the Company
recorded a net profit of $1.3 million, resulting from the receipt and
recognition of revenue consisting of a $5.0 million license fee from BI.


                                       9

<PAGE>   10


LIQUIDITY AND CAPITAL RESOURCES

         Since its inception through June 30, 1998, the Company has financed its
operations primarily with $13.6 million from the private sale of equity
securities, $30.3 million from the sale of equity securities and convertible
notes, $11.1 million in contract research and license fee payments, and $1.3
million in interest income.

         The Company had cash and cash equivalents of approximately $12.3
million at June 30, 1998, compared to $16.8 million at December 31, 1997. These
balances included cash, the use of which is restricted for ARDS Development
Expenses, of approximately $1.9 million and $5.8 million, respectively. Pursuant
to a Development and License Agreement entered into with BI for the development
and commercialization of Procysteine i.v. for the Treatment of ARDS ("the BI
Agreement"), the Company must use the BI license fee of $5.0 million and an
equity investment by BI of $5.0 million (received in the Company's initial
public offering) exclusively for ARDS Development Expenses. On August 13, 1998,
the Company and BI announced results from the unblinding of the Phase III
clinical trial evaluating the intravenous administration of Procysteine for the
treatment of ARDS. These results showed that Procysteine i.v. is not effective
in the treatment of ARDS. To date, no explanation for the higher all-cause
mortality observed in the Procysteine group has been identified. The Company and
BI will make a determination whether to continue their work with Procysteine
i.v. in the near term. Since March 1997, the Company has incurred $9.3 million
of ARDS Development Expenses under the BI Agreement (of which $8.1 million has
been paid as of June 30, 1998), including $1.0 million of ARDS Development
Expenses incurred in the three-month period ended June 30, 1998.

         The Company expects negative cash flows from operations to continue for
the foreseeable future.

         The Company anticipates that its existing cash and cash equivalents
available at June 30, 1998 will be sufficient to fund its operating expenses to
May 1999. However, there can be no assurance that the Company's estimates of
future operating losses and operating expenses are accurate.


         The Company's actual working capital needs and funding requirements
will depend upon numerous factors, some of which are beyond the Company's
control, including the progress of the external research and development
programs, the magnitude and scope of these activities, the timing, costs and
results of pre-clinical and clinical testing, the determination as to whether to
continue clinical development of Procysteine i.v., the timing and costs of
obtaining regulatory approvals, the level of resources that the Company commits
to the development of manufacturing, marketing and sales capabilities, the
ability of the Company to establish new and maintain existing collaborative
arrangements with BI and other companies, the costs of any acquisitions and/or
licensing of technology rights, the technological advances and activities of
competitors, the costs involved in preparing, filing, prosecuting, maintaining,
enforcing and defending patent claims and other intellectual property rights. On
August 13, 1998, the Company and BI announced results from the unblinding of the
Phase III clinical trial evaluating the intravenous administration of
Procysteine for the treatment of ARDS. These results showed that Procysteine
i.v. is not effective in the treatment of ARDS. To date, no explanation for the
higher all-cause mortality observed in the Procysteine group has been
identified. The Company and BI will make a determination whether to continue
their work with Procysteine i.v. in the near term. The Company continues to
negotiate possible in-licensing opportunities as well as other strategic options
with respect to its business. There can be no assurance that the Company will be
successful in implementing any such in-licensing or other strategic options in a
timely manner or at all, or that any such action would enhance the competitive
position or future success of the Company.

         The Company intends to seek additional funding through public or
private financing, research and development financing, mergers and/or
acquisitions, collaborative relationships or otherwise. If additional funds are
raised by issuing equity securities, further dilution to stockholders will
result. Debt financing, if available, may involve restrictive covenants. If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate certain of its product development programs, to license to
others rights to commercialize products or technologies that the Company would
otherwise seek to develop and commercialize itself or cease operations.


                                       10

<PAGE>   11


PART II:  OTHER INFORMATION


ITEM 2   Changes in Securities and Use of Proceeds

         (d) Use of Proceeds
             ---------------

                (1)          The effective date of the registration statement on
                             Form S-1 (the "Registration Statement") for the
                             Company's initial public offering of shares of its
                             common stock, $.01 par value per share, was July 2,
                             1997, and the commission file number of the
                             Registration Statement is 333-22817.

                (2)   (vii)  From July 2, 1997, the effective date of the
                             Registration Statement, to June 30, 1998, the
                             Company has used the net offering proceeds to the
                             Company as follows:

                             Accrued contract research payment.......   $130,000
                             Payment of operating expenses...........   $920,000
                             Payment of professional expenses related 
                             to the signing of the BI Agreement......   $150,000
                             Total................................... $2,525,000
                                
                             Payment of expenses were to persons other than
                             directors, officers, general partners of the
                             Company or their associates, persons owning 10% or
                             more of the equity securities of the Company or
                             affiliates of the Company.

                     (viii)  The use of proceeds described in the prospectus for
                             the offering contemplated the use of $8.0 million
                             of the $15.7 million in net proceeds from the
                             offering to fund the Company's Phase III Trial. The
                             use of proceeds described in (vii) above reflects
                             in part the subsequent reduction in costs
                             associated with the discontinuation of the Phase
                             III Trial , including staffing costs, clinical
                             investigator grants, clinical site monitoring,
                             clinical supplies and data management expenses.


ITEM 4  Submissions of Matters to a vote of Security Holders

         (a) The Company helds it Annual Meeting of Stockholder's on June 23,
1998 (the "Annual Meeting").

         (c)  At the Annual Meeting, the stockholders:

                  (1) Elected each of Philippe O. Chambon, Frank L. Douglas and
                  William C. Mills III as a director of the Company for a
                  three-year term by a vote of 4,059,105 shares for and 14,810
                  shares against.

                  (2) Approved an amendment of the Company's Amended and
                  Restated 1994 Equity Incentive Plan to increase the number of
                  shares of the Company's Common Stock reserved for issuance



                                       11



<PAGE>   12

                  thereunder by 300,000 shares from 775,891 shares to 1,075,891
                  shares. The amendment of the plan was approved by a vote of
                  3,468,380 shares for, 10,710 shares against, 4,200 shares 
                  abstained and 590,625 shares had no vote.

                  (3) Ratified the selection of Ernst & Young LLP as the
                  Company's independent accountants for the current fiscal year
                  by a vote of 4,073,815 shares for, 0 shares against and 100
                  shares abstained.


ITEM 5  Other Information

         On August 13, 1998, the Company and BI announced results from the
unblinding of the Phase III clinical trial evaluating the intravenous
administration of Procysteine for the treatment of ARDS. These results showed
that Procysteine i.v. is not effective in the treatment of ARDS. To date, no
explanation for the higher all-cause mortality observed in the Procysteine group
has been identified. The Company and BI will make a determination whether to
continue their work with Procysteine i.v. in the near term. The Company
continues to negotiate possible in-licensing opportunities as well as other
strategic options with respect to its business. There can be no assurance that
the Company will be successful in implementing any such in-licensing or other
strategic options in a timely manner or at all, or that any such action would
enhance the competitive position or future success of the Company.

         Any proposal that a stockholder wishes the Company to consider for
inclusion in the Company's proxy statement and form of proxy card for the
Company's 1999 Annual Meeting of Stockholders (the "1999 Meeting") must be
submitted to the Secretary of the Company at its offices, 640 Memorial Drive,
Cambridge, Massachusetts 02139, no later than January 15, 1999.

         In addition, the Company's Bylaws require all stockholder proposals to
be timely submitted in advance to the Company at the above address (other than
proposals submitted for inclusion in the Company's proxy statement and form of
proxy as described above). To be timely, the Secretary must receive such notice
not less than 60 days nor more than 90 days prior to the 1999 Meeting; provided
that, in the event that less than 70 days' notice or prior public disclosure of
the date of the 1999 Meeting is given or made, the notice must be received not
later than the close of business on the 10th day following the date on which
such notice of the date of the meeting was mailed or such public disclosure was
made, whichever occurs first.
ITEM 6  Exhibits and Reports on Form 8-K

         (a) See Exhibit Index

         (b) During the three months ended June 30, 1998, the Company filed no
         Current Reports on Form 8-K under the Securities Exchange Act of 1934,
         as amended.


                                       12

<PAGE>   13


                                   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.


Date  August 14, 1998  
      ---------------             TRANSCEND THERAPEUTICS, INC.
                                  (Registrant)

                                  By: /s/ Hector J. Gomez
                                  ----------------------------------------------
                                  Hector J. Gomez, M.D., Ph.D.
                                  President and Chief Executive Officer



Date  August 14, 1998              /s/ B. Nicholas Harvey             
      ---------------              ---------------------------------------------
                                   B. Nicholas Harvey
                                   Chief Financial Officer
                                   (Principal Financial and Accounting Officer)

                                       13



<PAGE>   14


                                  EXHIBIT INDEX

Item         Description
----         -----------

3.1          Second Amended and Restated Certificate of Incorporation of the 
             Registrant is incorporated herein by reference to Exhibit 3.2 to
             the Registrant's registration statement on Form S-1
             (File No. 333-22817) under the Securities Act of
             1933, as amended, as declared effective on July 2,
             1997 (the "S-1).

3.2          Amended and Restated By-Laws of the Registrant are incorporated 
             herein by reference to Exhibit 3.3 to the S-1.

27.1         Financial Data Schedule (period ended June 30, 1998)

27.2         Financial Data Schedule-Amended (period ended June 30, 1997)


                                       14