<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 THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997

                                       OR

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

                         Commission file number: 0-19910

                           CREATIVE BIOMOLECULES, INC.
             (Exact name of registrant as specified in its charter)


                 DELAWARE                               94-2786743
       (State or other jurisdiction         (I.R.S. Employer Identification No.)
     of incorporation or organization)

      45 SOUTH STREET, HOPKINTON, MA                       01748
 (Address of principal executive offices)               (Zip Code)

       Registrant's telephone number, including area code: (508) 782-1100

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.
                                                [ X ] Yes   [   ] No

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

As of October 31, 1997, the registrant had 33,326,395 shares of common stock
outstanding.
<PAGE>   2
                               TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

<TABLE>
<S>   <C>         <C>                                                                               <C>
      Item  1.    Financial Statements

                  Consolidated Balance Sheets - September 30, 1997 and December 31, 1996               3

                  Consolidated Statements of Operations for the three months and
                       nine months ended September 30, 1997 and 1996                                   4

                  Consolidated Statements of Cash Flows for the nine months ended
                       September 30, 1997 and 1996                                                     5

                  Notes to Consolidated Financial Statements                                           6


      Item  2.    Management's Discussion and Analysis
                       of Financial Condition and Results of Operations                                7


PART II. OTHER INFORMATION

      Item 1.     Legal Proceedings                                                                    12

      Item 2.     Changes in Securities                                                                12

      Item 3.     Defaults Upon Senior Securities                                                      12

      Item 4.     Submission of Matters to a Vote of Security Holders                                  12

      Item 5.     Other Information                                                                    13

      Item 6.     Exhibits and Reports on Form 8-K                                                     13
</TABLE>

SIGNATURES

                                        2
<PAGE>   3
                  CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY
                         CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                              September 30,                December 31,
                                                                                   1997                        1996
                                                                                   ----                        ----
                                                                               (unaudited)
ASSETS
CURRENT ASSETS:
<S>                                                                          <C>                            <C>
  Cash and cash equivalents                                                     $ 8,195,661                 $38,248,988
  Marketable securities                                                          27,115,497                  11,826,266
  Accounts receivable                                                             4,290,050                   1,454,696
  Inventory                                                                       1,320,724                   1,341,914
  Prepaid expenses and other                                                        264,893                     208,886
                                                                                -----------                 -----------

    Total current assets                                                         41,186,825                  53,080,750
                                                                                -----------                 -----------

PROPERTY, PLANT AND EQUIPMENT - net                                              16,890,873                  16,224,376
                                                                                -----------                 -----------
OTHER ASSETS:
  Note receivable - officers                                                        273,334                     350,000
  Patents and licensed technology - net                                             359,338                     401,629
  Deferred patent application costs - net                                         4,080,216                   3,471,169
  Deposits and other                                                                177,130                     290,950
                                                                                -----------                 -----------
    Total other assets                                                            4,890,018                   4,513,748
                                                                                -----------                 -----------
TOTAL                                                                           $62,967,716                 $73,818,874
                                                                                ===========                 ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Lease obligations - current portion                                           $    50,486                 $    53,532
  Accounts payable                                                                1,281,569                   2,830,356
  Accrued liabilities                                                               456,763                     561,562
  Accrued compensation                                                            1,266,906                   1,460,856
  Deferred contract revenue                                                       1,000,000                          --
                                                                                -----------                 -----------
    Total current liabilities                                                     4,055,724                   4,906,306
                                                                                -----------                 -----------
LEASE OBLIGATIONS                                                                 1,614,731                   1,651,493
                                                                                -----------                 -----------
STOCKHOLDERS' EQUITY:
  Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued
  Common stock, $.01 par value, 50,000,000 shares authorized,
    33,182,728 shares and 32,769,553 shares issued and outstanding
    at September 30, 1997 and December 31, 1996, respectively                       331,827                     327,696
  Additional paid-in capital                                                    139,920,206                 138,371,802
  Accumulated deficit                                                           (82,954,772)                (71,438,423)
                                                                                -----------                 -----------
    Total stockholders' equity                                                   57,297,261                  67,261,075
                                                                                -----------                 -----------
TOTAL                                                                           $62,967,716                 $73,818,874
                                                                                ===========                 ===========
</TABLE>



SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                        3
<PAGE>   4
                   CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                      Three Months Ended               Nine Months Ended
                                                                 ----------------------------    -----------------------------
                                                                 September 30,  September 30,    September 30,   September 30,
                                                                      1997           1996            1997           1996
                                                                 -------------  -------------    -------------   -------------

REVENUE:
<S>                                                              <C>           <C>          <C>                <C>
  Research and development contracts                             $3,762,674     $ 1,766,887  $    9,651,740     $3,934,590
  Manufacturing contracts                                                --       1,888,820         393,926      4,213,914
  License fees                                                           --         101,000              --        622,584
  Interest                                                          555,893         355,406       1,836,035        820,842
  Other                                                                  --           1,758              35         21,900
                                                                 ----------     -----------    ------------    -----------
    Total revenues                                                4,318,567       4,113,871      11,881,736      9,613,830
                                                                 ----------     -----------    ------------    -----------
COSTS AND EXPENSES:
  Research and development                                        6,342,867       3,391,444      18,359,049     10,819,196
  Manufacturing contracts                                                --       1,562,839         273,757      3,390,890
  General and administrative                                      1,467,658       1,041,528       4,607,512      3,009,070
  Interest                                                           52,413          53,771         157,767        163,114
                                                                 ----------     -----------    ------------    -----------
    Total costs and expenses                                      7,862,938       6,049,582      23,398,085     17,382,270
                                                                 ----------     -----------    ------------    -----------
NET LOSS                                                        $(3,544,371)    $(1,935,711)   $(11,516,349)   $(7,768,440)
                                                                ===========     ===========    ============    ===========
NET LOSS PER COMMON SHARE                                       $      (.11)    $      (.06)   $      (.35)    $      (.26)
                                                                ===========     ===========    ===========     ===========
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING                                    33,110,299      30,932,154     32,993,795      29,681,685
                                                               ============     ===========    ===========     ===========

</TABLE>


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                        4
<PAGE>   5
                  CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                         Nine Months Ended
                                                                                   -------------------------------
                                                                                   September 30,     September 30,
                                                                                       1997             1996
                                                                                   ------------     ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                <C>              <C>
  Net loss                                                                         $(11,516,349)    $ (7,768,440)
                                                                                   ------------     ------------
  Adjustments to reconcile net loss to net cash
   provided by (used for) operating activities:
    Depreciation and amortization                                                     1,692,591        1,800,666
    Consulting expense                                                                  254,350               --
    Increase (decrease) in cash from:
       Accounts receivable                                                           (2,835,354)        (266,936)
       Inventory and prepaid expenses                                                   (34,817)        (203,936)
       Accounts payable and accrued liabilities                                      (1,847,536)       1,243,339
       Deferred contract revenue                                                      1,000,000               --
                                                                                   ------------     ------------
          Total adjustments                                                          (1,770,766)       2,573,133
                                                                                   ------------     ------------

  Net cash used for operating activities                                            (13,287,115)      (5,195,307)
                                                                                   ------------     ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of marketable securities                                                (21,572,059)      (7,231,423)
  Sales of marketable securities                                                      6,282,828        9,012,464
  Expenditures for property, plant and equipment                                     (2,037,824)      (2,534,913)
  Expenditures for patents                                                             (888,020)        (790,845)
  Decrease (increase) in note receivable - officers                                      76,666         (350,000)
  Decrease (increase) in deposits and other                                             113,820         (138,276)
                                                                                   ------------       ----------

  Net cash used for investing activities                                            (18,024,589)      (2,032,993)
                                                                                   ------------       ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from sale of equity:
    Common stock - other                                                              1,298,185          545,904
    Public placement of Common Stock                                                         --       14,000,000
    Cost of raising equity                                                                   --       (1,283,153)
  Repayments of obligations under capital leases                                        (39,808)         (36,111)
                                                                                   ------------     ------------

  Net cash provided by financing activities                                           1,258,377       13,226,640
                                                                                   ------------     ------------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS                                                        (30,053,327)       5,998,340
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                       38,248,988       11,917,779
                                                                                   ------------     ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                           $  8,195,661     $ 17,916,119
                                                                                   ============     ============
</TABLE>





SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                        5
<PAGE>   6
                   CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


1. Opinion of Management - The accompanying consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
applicable to interim periods. These statements are condensed and do not include
all disclosures as required by generally accepted accounting principles. In the
opinion of management, the unaudited financial statements contain all
adjustments (all of which were considered normal and recurring) necessary to
present fairly the Company's financial position and the results of operations
and cash flows for the periods presented. The financial statements should be
read in conjunction with the Company's audited consolidated financial statements
and notes thereto for the year ended December 31, 1996.

Interim results are not necessarily indicative of results for a full year and
such results are subject to year-end adjustments and independent audit.

2. Earnings Per Share - In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards Number 128 "Earnings
per Share" ("SFAS 128") which changes the method of calculating earnings per
share ("EPS"). SFAS 128 requires the presentation of "basic" EPS and "diluted"
EPS on the face of the income statement. Basic EPS is computed by dividing the
net income available to common stockholders by the weighted average shares of
common stock. The calculation of diluted EPS is similar to basic EPS except that
the denominator includes dilutive common stock equivalents such as stock options
and warrants. The statement is effective for financial statements in the fourth
quarter of 1997. The Company will adopt SFAS 128 in the fourth quarter of 1997,
as early adoption is not permitted, and will restate at that time EPS data for
prior periods. If SFAS 128 had been in effect during the current and prior
periods, basic EPS and diluted EPS would not have been significantly different
than primary EPS reported.

3. Stock Plans - The Company granted stock options to non-employee consultants
in 1997 and 1996. These options were valued based on the fair value of services
received. Total compensation expense recognized in the nine month period ended
September 30, 1997 was $254,350.

                                        6
<PAGE>   7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


GENERAL

        To date, most of the Company's revenues have been derived from research
and development payments and license fees under agreements with collaborative
partners. In 1995 and 1996, a significant portion of the Company's revenues also
were derived from contract manufacturing. The Company anticipates that over the
next several years its revenues will be derived primarily from agreements with
collaborative partners. The Company has been unprofitable since its inception
and expects to incur additional operating losses over the next several years.

        The Company's research agreements with collaborative partners have
typically provided for the partial or complete funding of research and
development for specified projects and royalties payable to the Company in
exchange for licenses to market the resulting products. The Company is presently
a party to major research collaborations with Stryker Corporation ("Stryker") to
develop products for orthopedic reconstruction and with Biogen, Inc. ("Biogen")
to develop products for the treatment of renal disorders. Under the research
portion of the collaboration with Stryker, the Company supplies an OP-1 product
to Stryker for clinical trials and other uses, provides clinical support and
performs research work pursuant to work plans established periodically by the
two companies. The current work plan establishes research objectives and funding
through April 1998. In December 1996, the Company signed a Research
Collaboration and License Agreement with Biogen (the "Biogen Research
Agreement"). Under the research collaboration, the Company performs research
work pursuant to work plans established periodically by the two companies and
supplies OP-1 to Biogen for preclinical and clinical uses. Although the Company
is seeking and in the future may seek to enter into collaborative arrangements
with respect to certain other projects, there can be no assurance that the
Company will be able to obtain such agreements on acceptable terms or that the
costs required to complete the projects will not exceed the funding available
for such projects from the collaborative partners.

        The Company's manufacturing contracts provide for technical
collaboration and manufacturing for third parties at the Company's manufacturing
facility in Lebanon, New Hampshire and at the Company's research facility in
Hopkinton, Massachusetts. The Company is presently a party to a manufacturing
contract with Biogen (the "Manufacturing Contract") to produce several of
Biogen's protein-based therapeutic candidates. The companies have agreed that
the supply of OP-1 to Biogen pursuant to the Biogen Research Agreement during
1997 will satisfy Biogen's 1997 obligations under the Manufacturing Contract.
The companies also agreed to extend the Manufacturing Contract for two years
through 1999, with Biogen having the option, but not the obligation, to use the
manufacturing facility for a mutually agreeable number of months in one of the
two years. Although the Company is seeking additional manufacturing contracts
for available cell culture and bacterial fermentation capacity, there can be no
assurance that the Company will be able to obtain such contracts on acceptable
terms.

        Revenue is earned and recognized based upon work performed, upon the
sale or licensing of product rights, upon shipment of product for use in
preclinical and clinical testing or upon attainment of benchmarks specified in
collaborative agreements. The Company's results of operations vary significantly
from year to year and quarter to quarter and depend on, among other factors, the
timing of contract manufacturing activities and the timing of payments made by
collaborative partners. The timing of the Company's contract revenues may not
match the timing of the Company's associated product development expenses. As a
result, research and development expenses may exceed contract revenues in any
particular period. Furthermore, aggregate research and development contract
revenues for any product may not offset all of the Company's development
expenses for such product.



                                        7
<PAGE>   8
RESULTS OF OPERATIONS

        THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996. The
Company's total revenues for the three and nine month periods ended September
30, 1997 were $4,319,000 and $11,882,000, respectively. This compared to total
revenues of $4,114,000 and $9,614,000 for the three and nine month periods ended
September 30, 1996, respectively. Research and development contract revenues
increased 113% to $3,763,000 for the three month period ended September 30, 1997
from $1,767,000 for the three month period ended September 30, 1996 and 145% to
$9,652,000 for the nine month period ended September 30, 1997 from $3,935,000
for the nine month period ended September 30, 1996. This increase is primarily a
result of research activity under the research collaboration with Biogen. The
Company anticipates that research and development contract revenues for the
remaining quarter of 1997 will continue at amounts higher than the prior year
primarily as a result of research activity under the research collaboration with
Biogen.

         Manufacturing contract revenues for the nine month period ended
September 30, 1997 reflect manufacturing for Biogen, under a Service Agreement
separate from the Biogen Research Agreement and Manufacturing Contract,
conducted at the Company's research facility in Hopkinton, Massachusetts. The
Company completed this manufacturing for Biogen in the second quarter of 1997.
Manufacturing contract revenues for the three and nine month periods ended
September 30, 1996 reflect manufacturing for Biogen, under the Manufacturing
Contract, conducted at the Company's manufacturing facility in Lebanon, New
Hampshire. The Company anticipates using the manufacturing facility for the
production of OP-1 for use by Stryker, Biogen and the Company for a substantial
portion of 1997. Therefore, the Company does not anticipate significant contract
manufacturing revenues for the remaining quarter of 1997.

        License fees and royalties revenues of $101,000 and $623,000 for the
three and nine month periods ended September 30, 1996, respectively, resulted
from licensing patent rights and know-how associated with certain protein
technology which is not central to the Company's business.

        Interest revenues increased 57% to $556,000 for the three month period
ended September 30, 1997 from $355,000 for the three month period ended
September 30, 1996 and 124% to $1,836,000 for the nine month period ended
September 30, 1997 from $821,000 for the nine month period ended September 30,
1996. The increase is due to an increase in average funds available for
investment. In December 1996, under the Biogen Research Agreement and a
Restricted Stock Purchase Agreement, as discussed further below, Biogen paid to
the Company a $10,000,000 license fee and made an $18,000,000 equity investment
in the Company's common stock.

        The Company's total costs and expenses, consisting primarily of research
and development expenses were $7,863,000 and $23,398,000 for the three and nine
month periods ended September 30, 1997, respectively. This compared to total
costs and expenses of $6,050,000 and $17,382,000 for the three and nine month
periods ended September 30, 1996, respectively. Research and development
expenses increased 87% to $6,343,000 for the three month period ended September
30, 1997 from $3,391,000 for the three month period ended September 30, 1996 and
70% to $18,359,000 for the nine month period ended September 30, 1997 from
$10,819,000 for the nine month period ended September 30, 1996. The increase in
research and development expenses is due to expanded research and development
activities including work in preparation for the planned filing of a Pre-Market
Approval application by Stryker for the bone graft substitute product, renal
disease therapy research as part of the Biogen collaboration and research into
neurological disease therapies and other indications proprietary to the Company.
The Company used the manufacturing facility in Lebanon, New Hampshire for the
three and nine month periods ended September 30, 1997 for the production of OP-1
for use by Stryker, Biogen and the Company. Costs associated with the production
of OP-1 for use by Stryker, Biogen and the Company are reported as research and
development expenses. Also contributing to the increase were staff increases and
a corresponding increase in purchases of laboratory supplies, services, and
recruiting and relocation expenses, as well as increased expenditures on
academic collaborations and subcontracted research related to technology and
product development. The Company anticipates that

                                        8
<PAGE>   9
research and development expenses for the remaining quarter of 1997 will
continue at amounts higher than the prior year primarily as a result of the
expanded research activities under the research collaborations with Stryker and
Biogen and the Company's proprietary programs.
      
         Cost of manufacturing contracts consist of the costs associated with
the manufacturing for Biogen, as discussed under manufacturing contract revenues
above.

        General and administrative expenses increased 41% to $1,468,000 for the
three month period ended September 30, 1997 from $1,042,000 for the three month
period ended September 30, 1996 and 53% to $4,608,000 for the nine month period
ended September 30, 1997 from $3,009,000 for the nine month period ended
September 30, 1996. The increase was due to increases in executive staff and
recruiting and relocation costs. The Company anticipates that general and
administrative expenses for the remaining quarter of 1997 will continue at
amounts higher than the prior year.

        Interest expense decreased 4% to $52,000 for the three month period
ended September 30, 1997 from $54,000 for the three month period ended September
30, 1996 and 3% to $158,000 for the nine month period ended September 30, 1997
from $163,000 for the nine month period ended September 30, 1996. The decrease
was due to the repayment of obligations under capital leases.

        As a result of the foregoing, the Company incurred a net loss of
$3,544,000 and $11,516,000 for the three and nine month periods ended September
30, 1997, respectively. This compared to a net loss of $1,936,000 and $7,768,000
for the three and nine month periods ended September 30, 1996, respectively.

LIQUIDITY AND CAPITAL RESOURCES

        At September 30, 1997, the Company's principal sources of liquidity
consisted of cash, cash equivalents and marketable securities of $35,311,000,
and a $15,000,000 unsecured line of credit from Biogen, as discussed further
below.

        The Company increased its investment in property, plant and equipment to
$30,496,000 at September 30, 1997 from $28,458,000 at December 31, 1996. The
Company currently plans to spend approximately $4,500,000 in the year ending
December 31, 1997 in leasehold improvements, equipment purchases and validation
expenses required to obtain FDA approval of the manufacturing facility and to
expand the Company's research, development and manufacturing capabilities. The
Company currently is seeking to secure a capital lease line under which it may
finance the purchase of certain equipment, if feasible. 

        The Company's collaborative agreements with Stryker provide for research
payments to the Company and royalty payments to the nonseller from sales of any
OP-1 products. The Company also has the exclusive right to supply Stryker's
worldwide commercial requirements for OP-1 products for use in orthopedic
reconstruction. Under the research portion of the collaboration, the Company
supplies OP-1 products to Stryker for clinical trials and other uses and
provides clinical support and performs research work pursuant to work plans
established periodically by the two companies. The current work plan establishes
research objectives and funding through April 1998 at which time the two
companies will negotiate whether and to what extent Stryker will continue to
provide financial support for research collaborations.


                                        9
<PAGE>   10
        In December 1996, the Company signed the Biogen Research Agreement to
collaborate on the development of the Company's morphogenic protein, OP-1, for
the treatment of renal disorders. Under the agreement, the Company granted to
Biogen exclusive worldwide rights to manufacture, market and sell OP-1 for the
treatment of renal disease. Biogen paid a $10,000,000 license fee in 1996 and
made an $18,000,000 equity investment in common stock at a premium over the
then-current market price per share. Biogen has guaranteed $10,500,000 in
research funding over a three year period ending December 31, 1999, of which
$3,000,000 had been recognized through September 30, 1997, will pay up to an
additional $69,000,000 upon the attainment of certain milestones and make
available a $15,000,000 line of credit. The Biogen Research Agreement further
provides for the payment of royalties to the Company based on product sales. The
Company may draw upon the $15,000,000 line of credit over a three year period
ending December 31, 1999 to fund the research and development of small molecule
products based on OP-1. Advances are limited to $5,000,000 per year. Biogen
received an exclusive option to obtain an exclusive, worldwide license to OP-1
based small molecule products for the treatment of renal disorders. In the event
Biogen exercises its option, Biogen will forgive the lesser of $10,000,000 or
the principal amount outstanding under the line of credit. The remaining
principal, together with all accrued and unpaid interest, is due and payable
five years from the date of the first advance and may be repaid, at the
Company's option, in either cash, common stock or reduction of royalties due the
Company from Biogen.

        In September 1994, the Company signed the three-year Manufacturing
Contract with Biogen to produce in the Company's manufacturing facility in
Lebanon, New Hampshire several of Biogen's protein-based therapeutic candidates
for use in Biogen's clinical trials. The contract covers the period from January
1995 through December 1997. As part of the research collaboration, the two
companies agreed to extend the Manufacturing Contract for two years through
December 31, 1999, with Biogen having the option, but not the obligation, to use
the manufacturing facility for a mutually agreeable number of months in one of
the two extension years. To enable the Company to meet its obligations under the
Manufacturing Contract, Biogen financed the construction of a 7,000 square foot
addition to the present facility for cGMP production using bacterial
fermentation at an estimated total cost of $2,900,000. The Company agreed to
reimburse Biogen for the construction costs and leasehold improvements at the
end of the contract term, including the extension, at an amount equal to
Biogen's construction costs less $300,000 and less all accumulated depreciation.
The reimbursement to Biogen is estimated to be no more than $2,100,000. Biogen
also agreed to lease equipment to the Company for the operation of such portion
of the facility and for cGMP production using bacterial fermentation by the
Company at an estimated total cost of $2,400,000, as provided in an equipment
lease agreement. The Company has the option to purchase the equipment at the end
of the extended lease term for an amount equal to its then fair market value or
for such other amount as is negotiated by the two parties.

        The Company anticipates that its existing capital resources should
enable it to maintain its current and planned operations through 1999. The
Company expects to incur substantial additional research and development and
other costs, including costs related to preclinical studies and clinical trials.
The Company's ability to continue funding its planned operations beyond 1999 is
dependent upon its ability to generate sufficient cash flow from collaborative
arrangements and manufacturing contracts, and in the future, royalties from the
sale of the Company's products by the Company's collaborative partners, and to
obtain additional funds through equity or debt financings, or from other sources
of financing, as may be required. The Company is seeking additional
collaborative arrangements and also expects to raise funds through one or more
financing transactions, as conditions permit. In addition, the Company is
investigating the feasibility of raising capital through the sale/leaseback or
debt financing of some of its capital assets. Over the longer term, because of
the Company's significant long-term capital requirements, the Company intends to
raise funds when conditions are favorable, even if it does not have an immediate
need for additional capital at such time. If substantial additional funding is
not available, the Company's business will be materially and adversely affected.




                                       10
<PAGE>   11
CAUTIONARY FACTORS WITH RESPECT TO FORWARD-LOOKING STATEMENTS

        This Form 10-Q contains forward-looking statements which are based on
management's current expectations and which involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements. The Company cautions investors that there can be
no assurance that the actual results or business conditions will not differ
materially from those projected or suggested in such forward-looking statements
as a result of various factors, including but not limited to the following:
uncertainty as to the Company's ability to commercialize its products and the
timing of any commercialization; the Company's reliance on its lead product
candidate and the Company's lack of control over the clinical progress of
several applications of its products, which are controlled by the Company's
collaborative partners; the Company's reliance on current and prospective
collaborative partners to supply funds for research and development and to
commercialize its products; intense competition related to the research and
development of morphogenic and other proteins for various applications and
therapies and the possibility that others may discover or develop, and the
Company may not be able to gain rights with respect to, the technology necessary
to commercialize its products; the Company's lack of experience in commercial
manufacturing and unproven ability to manufacture products on a large scale; the
Company's lack of marketing and sales experience and the risk that any products
that the Company develops may not be able to be marketed at acceptable prices or
receive commercial acceptance in the markets that the Company expects to target;
uncertainty as to whether there will exist adequate reimbursement for the
Company's products from government, private health insurers and other
organizations; and uncertainties as to the extent of future government
regulation of the Company's business. As a result, the Company's future
development efforts involve a high degree of risk.

                                      11
<PAGE>   12
PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

        Not Applicable.


ITEM 2. CHANGES IN SECURITIES

        Not Applicable


ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

        Not Applicable.


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

        Not Applicable.


ITEM 5. OTHER INFORMATION

        Not Applicable.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a)     Exhibits

        Exhibit
        Number   Description
        -------  -----------
        10.56    $350,000 Promissory Note, dated September 6, 1996, from Michael
                 Tarnow to the Registrant.

        27       Financial Data Schedule.

(b)     Reports on Form 8-K.

        No reports on Form 8-K were filed during the three month period ended
September 30, 1997.

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<PAGE>   13
                                  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, in Hopkinton, Massachusetts, on November
13, 1997.

                           CREATIVE BIOMOLECULES, INC.



                           By: /s/Wayne E. Mayhew III
                               ------------------------------------------
                               Wayne E. Mayhew III
                               Vice President and Chief Financial Officer



                          By:  /s/Susan B. Blanton
                               ------------------------------------------
                               Susan B. Blanton
                               Controller