<PAGE>

                                  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 JUNE 30, 2000

                                       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 July 25, 2000, the registrant had 38,257,391 shares of Common Stock
outstanding.
<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>


PART I.   FINANCIAL INFORMATION                                                          Page Number
<S>                                                                                       <C>
          Item 1.  Financial Statements
                   Consolidated Balance Sheets - June 30, 2000 (unaudited) and
                   December 31, 1999                                                          3

                   Unaudited Consolidated Statements of Operations for the three and six
                   months ended June 30, 2000 and 1999                                        4

                   Unaudited Consolidated Statements of Comprehensive Income/(Loss) for
                   the three and six months ended June 30, 2000 and 1999 4
                   Unaudited Consolidated Statements of Cash Flows for the six
                   months ended June 30, 2000 and 1999                                        5

                   Notes to Unaudited Consolidated Financial Statements                       6

          Item 2.  Management's Discussion and Analysis of Financial Condition
                   and Results of Operations                                                  8

          Item 3.  Quantitative and Qualitative Disclosures About Market Risk                13


PART II.  OTHER INFORMATION

          Item 1.  Legal Proceedings                                                         14

          Item 2.  Changes in Securities                                                     14

          Item 3.  Defaults Upon Senior Securities                                           14

          Item 4.  Submission of Matters to a Vote of Security Holders                       14

          Item 5.  Other Information                                                         14

          Item 6.  Exhibits and Reports on Form 8-K                                          14
</TABLE>

SIGNATURES

<PAGE>

<TABLE>
<CAPTION>

CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
================================================================================================================
                                                                                 June 30,           December 31,
                                                                                  2000                 1999
                                                                               -----------          ------------
                                                                               (unaudited)
<S>                                                                            <C>                 <C>
ASSETS
------
CURRENT ASSETS:
  Cash and cash equivalents                                                    $  13,551,065       $   2,751,069
  Marketable securities                                                            2,970,186          18,619,516
  Marketable securities-restricted                                                 5,315,850                  --
  Accounts receivable                                                                     --              60,296
  Prepaid expenses and other                                                         877,125             146,764
  Deferred merger costs                                                            1,697,366                  --
                                                                               -------------       -------------
    Total current assets                                                          24,411,592          21,577,645
                                                                               -------------       -------------

PLANT AND EQUIPMENT - net                                                          1,525,755           2,130,158
                                                                               -------------       -------------

OTHER ASSETS:
  Patents and licensed technology - net                                              928,625             951,198
  Deferred patent application costs - net                                          4,518,220           4,124,716
  Deposits and other                                                                   5,554             108,574
                                                                               -------------       -------------
     Total other assets                                                            5,452,399           5,184,488
                                                                               -------------       -------------
TOTAL                                                                          $  31,389,746       $  28,892,291
                                                                               =============       =============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
  Lease obligations - current portion                                          $     279,248       $     347,323
  Accounts payable                                                                   396,738             612,811
  Accrued liabilities                                                              1,833,413           1,895,634
  Accrued compensation                                                               640,255             944,270
  Deferred revenue                                                                        --             661,279
                                                                               -------------       -------------
     Total current liabilities                                                     3,149,654           4,461,317
                                                                               -------------       -------------

LEASE OBLIGATIONS                                                                    647,983           1,009,388
                                                                               -------------       -------------

COMMITMENTS

STOCKHOLDERS' EQUITY:
  Preferred stock, $.01 par value, 10,000,000 shares authorized
  Common Stock, $.01 par value, 50,000,000 shares authorized, 38,253,641
    shares and 36,665,115 shares issued and outstanding at June 30, 2000
    and December 31, 1999, respectively                                              382,536             366,651

  Additional paid-in capital                                                     153,096,739         144,680,760
  Officer notes receivable                                                        (1,131,380)                 --
  Accumulated other comprehensive income                                           5,194,802             (30,801)
  Accumulated deficit                                                           (129,950,588)       (121,595,024)
                                                                               -------------       -------------
     Total stockholders' equity                                                   27,592,109          23,421,586
                                                                               -------------       -------------
TOTAL                                                                          $  31,389,746       $  28,892,291
                                                                               =============       =============
</TABLE>

See notes to unaudited consolidated financial statements

                                       3
<PAGE>
<TABLE>
<CAPTION>

CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
============================================================================================================================

                                                  Three Months Ended June 30,                 Six Months Ended June 30,
                                             ----------------------------------          ----------------------------------
                                                 2000                   1999                 2000                  1999
                                             ------------          ------------          ------------          ------------
                                                        (unaudited)                                  (unaudited)

<S>                                          <C>                   <C>                   <C>                   <C>
REVENUES:
  Research and development contracts         $      7,471          $    757,542          $    677,858          $  1,582,187
                                             ------------          ------------          ------------          ------------
     Total revenues                                 7,471               757,542               677,858             1,582,187
                                             ------------          ------------          ------------          ------------

COSTS AND EXPENSES:
  Research and development                      1,910,895             2,613,208             3,984,233             5,342,125
  General and administrative                    1,159,618             1,530,690             5,853,476             3,060,328
                                             ------------          ------------          ------------          ------------
     Total costs and expenses                   3,070,513             4,143,898             9,837,709             8,402,453
                                             ------------          ------------          ------------          ------------

NET OPERATING LOSS                             (3,063,042)           (3,386,356)           (9,159,851)           (6,820,266)
                                             ------------          ------------          ------------          ------------

OTHER  INCOME/(EXPENSES)
  Interest and other                              284,650               495,667               583,546             1,251,400
  Interest expense                                (41,020)              (35,591)              (84,655)              (68,252)
  Gain on sale of assets                          305,396                  --                 305,396                  --
                                             ------------          ------------          ------------          ------------
    Total other income/(expenses)                 549,026               460,076               804,287             1,183,148
                                             ------------          ------------          ------------          ------------

NET LOSS                                       (2,514,016)           (2,926,280)           (8,355,564)           (5,637,118)

ACCRETION ON SERIES 1998/A
PREFERRED STOCK                                      --              (2,006,391)                 --              (2,395,559)
                                             ------------          ------------          ------------          ------------

NET LOSS APPPLICABLE TO
COMMON STOCKHOLDERS                          $ (2,514,016)         $ (4,932,671)         $ (8,355,564)         $ (8,032,677)
                                             ============          ============          ============          ============

BASIC AND DILUTED LOSS
PER COMMON SHARE                             $       (.07)         $       (.14)         $       (.22)         $       (.23)
                                             ============          ============          ============          ============

COMMON SHARES FOR BASIC
AND DILUTED
LOSS COMPUTATION                               38,238,907            35,512,694            37,897,905            35,091,833
                                             ============          ============          ============          ============
</TABLE>

<TABLE>
<CAPTION>


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
------------------------------------------------------

<S>                                          <C>                   <C>                   <C>                   <C>
NET LOSS                                     $ (2,514,016)         $ (2,926,280)         $ (8,355,564)         $ (5,637,118)

UNREALIZED GAIN/(LOSS) ON
MARKETABLE SECURITIES                              12,660              (110,359)                9,403              (110,325)

UNREALIZED GAIN ON MARKETABLE
SECURITIES-RESTRICTED                           5,216,200                    --             5,216,200                    --
                                             ------------          ------------          ------------          ------------

COMPREHENSIVE INCOME/(LOSS)                  $  2,714,844          $ (3,036,639)         $ (3,129,961)         $ (5,747,443)
                                             ============          ============          ============          ============
</TABLE>



See notes to unaudited consolidated financial statements

                                       4
<PAGE>

<TABLE>
<CAPTION>

CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
===========================================================================================================
                                                                             Six Months Ended June 30,
                                                                         ----------------------------------
                                                                             2000                  1999
                                                                         ------------          ------------
                                                                                     (unaudited)
<S>                                                                    <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                 $ (8,355,564)         $ (5,637,118)
                                                                         ------------          ------------
Adjustments to reconcile net loss to net cash used:
  Depreciation and amortization                                               507,973               466,549
  Compensation expense                                                      3,139,478                64,000
  Gain on disposal of assets                                                 (305,396)                   --
  Reorganization expense adjustment                                            39,141                    --
  Deferred patent and application costs                                            --                88,104
  Increase (decrease) in cash from:
    Accounts receivable                                                        60,296               607,462
    Prepaid expenses and other                                               (380,361)              (32,630)
    Deferred merger costs                                                  (1,697,366)                   --
    Accounts payable and accrued liabilities                                 (634,991)           (2,359,125)
    Deferred contract revenue                                                (661,279)           (1,500,000)
                                                                         ------------          ------------
       Total adjustments                                                       67,495            (2,665,640)
                                                                         ------------          ------------

    Net cash used  for operating activities                                (8,288,069)           (8,302,758)
                                                                         ------------          ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities                                                  --            (6,409,882)
Sale of marketable securities                                              15,658,733            21,713,362
Expenditures for property, plant and equipment                                (16,462)             (411,258)
Expenditures for patents                                                     (489,102)             (366,439)
Proceeds from sale of assets related to merger                                200,000                    --
Deposits                                                                        3,370                    --
                                                                         ------------          ------------
  Net cash provided by investing activities                                15,356,539            14,525,783
                                                                         ------------          ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of equity:
  Common Stock - other                                                      3,853,445               198,868
  Warrant exercises                                                           307,561                    --
Repurchase of Series 1998/A Preferred Stock                                        --           (22,470,347)
Increase in obligations under capital leases                                       --               186,900
Repayments of obligations under capital leases                               (429,480)              (93,355)
                                                                         ------------          ------------

  Net cash provided by (used for) financing activities                      3,731,526           (22,177,934)
                                                                         ------------          ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                       10,799,996           (15,954,909)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                              2,751,069            17,738,044
                                                                         ------------          ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                 $ 13,551,065          $  1,783,135
                                                                         ============          ============

SUPPLEMENTAL DISCLOSURE OF NON CASH
INVESTING AND FINANCING ACTIVITIES:
Property and equipment purchased under capital lease obligations         $         --          $    271,321
                                                                         ============          ============
Conversion of Series 1998/A Preferred Stock to Common Stock              $         --          $  2,978,000
                                                                         ============          ============
Officer notes payable for exercise of stock options                      $  1,131,380          $         --
                                                                         ============          ============
</TABLE>


See notes to unaudited consolidated financial statements

                                       5
<PAGE>

CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

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 at June 30, 2000 and the results of operations and cash flows for
      the three and six months ended June 30, 2000 and 1999. 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, 1999.

      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.    Merger - On February 15, 2000, the Company announced that it will merge
      with Ontogeny, Inc., and Reprogenesis, Inc., to form a public company
      named Curis, Inc. Under the terms of the merger, which is subject to
      shareholder approval, Creative's stockholders will receive three Curis
      shares for every ten shares of Creative Common Stock. Following the
      completion of the transaction, Creative's stockholders will hold
      approximately 43%, Ontogeny's stockholders will hold approximately 38% and
      Reprogenesis' stockholders will hold approximately 19% of Curis. The
      merger will be accounted for under the purchase method of accounting for
      business combinations, with the Company being the acquiring company for
      accounting purposes. Each company is holding its stockholder meeting on
      July 31, 2000 to vote on the proposed merger to form Curis, Inc. The
      merger is expected to close in the third quarter of 2000. As of June 30,
      2000, the Company has incurred and deferred approximately $1.7 million of
      costs directly attributable to the merger. In addition, if the merger is
      approved, the Company will owe an incremental $750,000 for investment
      banking fees. Such costs will be included in determining the final
      purchase price or will be expensed in the event the merger is not
      consummated. The Company expects additional merger transaction costs will
      be incurred and expensed at the close of the merger in the third quarter
      of 2000 and is estimated at $2.6 million. These costs include
      approximately $2.2 million for severance, termination benefits and
      outplacement costs and approximately $380,000 for closing the Company's
      two Hopkinton, Massachusetts facilities. There may be additional costs
      associated with the extension of the exercise period through December 31,
      2000 for certain terminated employee's stock options (See Note 4).

3.    The Company owns 107,142 shares of common stock in a company which
      completed an initial public offering in the second quarter of 2000. These
      securities are restricted because they cannot be freely traded until
      October 7, 2000. In addition, the Company holds a warrant to purchase
      53,571 shares of common stock which expire on January 27, 2005. As of June
      30, 2000, the warrants were valued at approximately $1,740,000. The
      Company has classified these securities as available-for-sale and has
      recorded the appreciation and the carrying value of the investment of
      approximately $5,216,000 in other comprehensive income as of June 30,
      2000.

4.    Reorganization - In October 1999, the Company was reorganized and the
      Board approved a plan to focus its operations and financial resources on
      the development of morphogenic protein-based clinical candidates for the
      treatment of stroke and renal disease. The reorganization charge included
      $511,000 related primarily to termination benefits in the reduction of
      employees, which $95,503 remained to be paid as of December 31, 1999.
      During the quarter ended March 31, 2000, the Company determined that
      health insurance claims were less than originally estimated. This resulted
      in a reduction in the reorganization charges and the related accrual of
      approximately $38,000. During the quarter ended June 30, 2000, the Company
      paid approximately $6,000 for employee outplacement costs. As of June 30,
      2000, there were no accrued costs remaining to be paid.

5.    Stock Option Amendment - On February 8, 2000, the Board of Directors
      approved the immediate acceleration of the vesting period of unvested
      stock options held by the Company's executive officers and outside
      directors and the extension of the exercise period for one year. Vesting
      for approximately 1,264,000 options was accelerated and the exercise
      period for approximately 2,361,000 vested options was extended, resulting
      in a non-cash compensation charge of $3,139,000 recorded in the quarter
      ending March 31, 2000. In April 2000, the Board of Directors approved a
      modification to extend the exercise period to December 31, 2000 for
      certain stock options held by certain employees upon the employee's future
      termination in connection with the merger. As a result of this extension,
      the Company may incur a

                                       6
<PAGE>

      non-cash compensation charge, dependent upon the number of employees
      severed as a result of the merger and the market price of the Company's
      stock at the close of the merger.

6.    Lease Obligations - In March 2000, the Company entered into a sublease for
      its Boston, Massachusetts facility lease commencing on July 1, 2000. The
      sublease terminates on July 31, 2002, also the termination date of the
      Company's original lease on this facility. On June 30, 2000, associated
      with the sublease for its Boston facility, the Company purchased certain
      of its capital equipment leases and simultaneously sold these assets to
      the subtenant for $350,000. In addition, the Company also sold certain
      assets. The Company recorded a total net gain of approximately $305,000 in
      relation to the sale of these assets. In April 2000, the Company agreed to
      terminate one of its Hopkinton, Massachusetts facility leases on July 31,
      2000.

      Future minimum operating lease obligations at June 30, 2000 were as
      follows:

<TABLE>
<CAPTION>

YEAR ENDING DECEMBER 31,            Operating            Sublease        Net Obligation
------------------------------  ---------------     ---------------    ----------------
<S>                               <C>                 <C>                <C>
2000                                 $  318,198         $  (241,086)           $ 77,112
2001                                    528,825            (482,172)             46,653
2002                                    274,558            (281,267)             (6,709)
2003                                      8,483                   -               8,483
Thereafter                                    -                   -                   -
                                ---------------     ---------------    ----------------
Total minimum lease payments         $1,130,064         $(1,004,525)           $125,539
                                ===============     ===============    ================
</TABLE>

7.    New Accounting Standards - In June 1998, the Financial Accounting
      Standards Board, or FASB, released Statement of Financial Accounting
      Standards No. 133, "Accounting for Derivative Instruments and Hedging
      Activities," which the Company will be required to adopt effective
      January 1, 2001. SFAS No. 133 establishes standards for reporting and
      accounting for derivative instruments, and conforms the requirements for
      treatment of hedging activities across the different types of exposures
      hedged. The Company has not yet completed its evaluation of SFAS No. 133,
      and is, therefore unable to disclose the impact adoption will have on its
      consolidated financial position or results of operations.

      In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
      Certain Transactions involving Stock Compensation". The interpretation
      clarifies the application of Opinion 25 in certain situations, as defined.
      The interpretation is effective July 1, 2000 but would cover certain
      events having occurred after December 15, 1998. The Company has not yet
      completed its evaluation of FASB Interpretation No. 44, and is, therefore,
      unable to disclose the impact adoption will have on its consolidated
      financial position or results of operations.

                                       7
<PAGE>

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

GENERAL

To date, we have derived most of our revenues from research and development
payments and license fees under agreements with collaborative partners.  We
anticipate that over the next several years we will derive most of our revenues
from agreements with collaborative partners, including possible royalty revenues
from Stryker Corporation, or Stryker.  We have never been profitable and expect
to incur additional operating losses in the remainder of 2000.  Results beyond
2000 will depend largely on the timing and magnitude of royalty payments from
Stryker if the OP-1 Device, currently under regulatory review with the Food and
Drug Administration, or FDA, and certain international regulatory agencies, is
approved for commercial sale and is sold.  We may not receive substantial
royalties from Stryker, and, if we do, we cannot be sure when those royalties
will be received. We may incur continued losses in future years.

Our research agreements with collaborative partners have typically obligated
such collaborative partners to provide for the partial or complete funding of
research and development for specified projects and pay royalties to us in
exchange for licenses to market the resulting products.  We have been a party to
research collaborations with Stryker to develop products for orthopaedic
reconstruction and dental therapeutics and with Biogen Inc., or Biogen, to
develop products for the treatment of renal disorders.  Each of these research
collaborations was restructured in 1998.

Under the research portion of our collaboration with Stryker, prior to its
restructuring in November 1998, we supplied OP-1 products to Stryker for
clinical trials and other uses, provided manufacturing regulatory support and
performed research work pursuant to work plans we both established periodically.
In November 1998, we sold certain of our OP-1 manufacturing rights and
facilities to Stryker.  In fiscal 1999 and 2000, we have focused internal
research efforts on developing new tissue regeneration therapies in non-bone
applications and do not anticipate significant revenue from Stryker in the
remainder of 2000.

We are developing an OP-1 based therapy for chronic renal failure, a condition
characterized by the slow progressive loss of kidney function ultimately
resulting in the need for kidney transplantation or dialysis.  Chronic renal
failure represents a substantial unmet medical need.  Preclinical studies
indicate that OP-1 administration improves kidney function in animal models of
both acute and chronic renal failure.  In 1998, we modified our partnership in
renal therapy with Biogen.  Biogen provided funding to us through December 1999
pursuant to an option to resume responsibility for development of OP-1 as a
therapy for chronic renal failure.  As of December 31, 1999, Biogen did not
exercise its option, and we have assumed all rights to OP-1 renal therapies.

In October 1999, we reorganized and the Board approved a plan to focus our
operations and financial resources on the development of morphogenic protein-
based clinical candidates for the treatment of stroke and renal disease. In
connection with this reorganization, we reduced our headcount from 70 to 43
employees. In the year ending December 31, 1999, we recorded approximately
$511,000 in operating expenses for salary termination costs.

On February 15, 2000, we announced that we will merge with Ontogeny, Inc., and
Reprogenesis, Inc., to form a public company named Curis, Inc.  Under the terms
of the merger, which is subject to stockholder approval, our stockholders will
receive three Curis shares for every ten shares of our Common Stock. Following
completion of the transaction, our stockholders will hold approximately 43%,
Ontogeny's stockholders will hold approximately 38% and Reprogenesis'
stockholders will hold approximately 19% of Curis. The merger will be accounted
for under the purchase method of accounting for business combinations, with the
Company being the acquiring company for accounting purposes. Each company is
holding its stockholder meeting on July 31, 2000 to vote on the proposed merger
to form Curis, Inc.  The merger is expected to close in the third quarter of
2000.

                                       8
<PAGE>

Although we are seeking to enter into collaborative arrangements with respect to
certain other projects, there can be no assurance that we 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.  Upon consummation of our proposed merger with Ontogeny
and Reprogenesis, Curis, the successor entity intends to review the research and
development pipeline of the combined companies and allocate resources among the
various research and development projects based on their strategic fit and the
availability of internal resources.

We earn and recognize revenue 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.  Our results of operations vary significantly from year to year and
quarter to quarter and depend on, among other factors, the timing of payments
made by collaborative partners.  The timing of our contract revenues may not
match the timing of our 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 our development expenses for such product.

RESULTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999.  Our total revenues for the
three and six month periods ended June 30, 2000, which consisted entirely of
research and development revenues, were $7,000 and $678,000, respectively. Our
total revenues for the three and six month periods ended June 30, 1999, which
consisted entirely of research and development revenues, were $758,000 and
$1,582,000, respectively.  Research and development contract revenues decreased
99% from $758,000 for the three month period ended June 30, 1999 to $7,000 for
the three month period ended June 30, 2000 and decreased 57% from $1,582,000 for
the six month period ended June 30, 1999 to $678,000 for the six month period
ended June 30, 2000.  The decrease in research and development contract revenues
from 1999 to 2000 primarily is a result of the termination of the Biogen
research contract which provided research funding during 1999.  This decrease
was offset in part by the recognition of deferred contract revenue from Stryker
in the first quarter of 2000.

Our total costs and expenses decreased 26% from $4,144,000 for the three month
period ended June 30, 1999, to $3,071,000 for the three month period ended June
30, 2000 and increased 17% to $9,838,000 for the six month period ended June 30,
2000 from $8,402,000 for the six month period ended June 30, 1999.  Research and
development expenses decreased 27% from $2,613,000 for the three month period
ended June 30, 1999 to $1,911,000 for the three month period ended June 30, 2000
and decreased 25% from $5,342,000 for the six month period ended June 30, 1999
to $3,984,000 for the six month period ended June 30, 2000.  The decrease in
research and development expenses in both the three and six month periods is due
primarily to the October 1999 company-wide reorganization, which resulted in a
reduction in our employee headcount.  As a result of the decrease in employee
headcount, payroll related expenses and lab supplies were substantially lower in
the three and six month periods ended June 30, 2000 as compared to the same
periods in 1999.  This decrease was partially offset by slightly higher costs
for external scientific consultants and collaborations.  We anticipate that
research and development expenses in the remaining quarters of 2000 will be
substantially less than in the comparable periods of 1999.

General and administrative expenses decreased 24% from $1,531,000 for the three
month period ended June 30, 1999 to $1,160,000 for the three month period ended
June 30, 2000 and increased 91% to $5,853,000 for the six month period ended
June 30, 2000 from $3,060,000 for the six month period ended June 30, 1999.  The
decrease in the three month period mainly is due to the reduction in payroll
expenses related to the October 1999 company wide reorganization.  The increase
in the six month period primarily is due to a one-time non-cash charge of
$3,139,000 for compensation expense related to the February 8, 2000 acceleration
of certain stock options and the extension of the exercise period for options
held by the Company's executive officers and outside directors.  Payroll
expenses decreased due to reduced employee headcount following the October 1999
company-wide reorganization. This decrease was partially offset by increases in
legal and other consulting costs. We anticipate that general and administrative
expenses for the remaining quarters of 2000 will be at amounts lower than the
comparable periods in 1999.

                                       9
<PAGE>

Interest and other income consisted primarily of interest revenues and decreased
43% from $496,000 for the three month period ended June 30, 1999 to $285,000 for
the three month period ended June 30, 2000 and decreased 53% from $1,251,000 for
the six month period ended June 30, 1999 to $584,000 for the six month period
ended June 30, 2000.  This decrease was primarily attributed to lower average
balances of cash and marketable securities during the three and six months ended
June 30, 2000 as compared to the same periods of 1999 due principally to our
repurchase of all of the outstanding Series 1998/A Preferred Stock for
approximately $22,470,000 in May 1999.

Interest expense increased 15% from $36,000 for the three month period ended
June 30, 1999 to $41,000 for the three month period ended June 30, 2000 and
increased 24% from $68,000 for the six month period ended June 30, 1999 to
$85,000 for the six month period ended June 30, 2000.  The increase in interest
expense for the three and six month periods ended June 30, 2000 is due to an
increase in our obligations under capital leases as compared to the same periods
a year ago.

In February 2000, the Company announced that it will merge with Ontogeny, Inc.,
and Reprogenesis, Inc., to form a public company named Curis, Inc.  Each company
is holding its stockholder meeting on July 31, 2000 to vote on the proposed
merger to form Curis, Inc.  The merger is expected to close in the third quarter
of 2000.  In contemplation of the merger, the Company closed its Boston office.
Gain on sale of assets in the three and six months ended June 30, 2000 is
$305,000.  This gain represents closing the Company's Boston facility including
the sale of certain leased assets in the facility, and the sale of other assets
in one of the Company's other facilities.

As a result of the foregoing, we incurred a net loss of $2,514,000 for the three
month period ended June 30, 2000, compared to a net loss of $2,926,000 for the
three month period ended June 30, 1999 and a net loss of $8,356,000 for the six
months ended June 30, 2000, compared to a net loss of $5,637,000 for the six
months ended June 30, 1999.

Accretion and Repurchase Costs on Series 1998/A Preferred Stock was $2,006,000
and $2,396,000 for the three and six month periods ended June 30, 1999,
respectively, and included the following:  $102,000 and $385,000, respectively,
calculated at the rate of 5% per annum of the stated value of the outstanding
Series 1998/A Preferred Stock; $38,000 and $144,000, respectively, of accretion
of issuance costs related to the sale of Series 1998/A Preferred Stock; and as a
result of the repurchase of the Series 1998/A Preferred Stock on May 7, 1999, a
one-time charge of approximately $1,867,000 recorded in the second quarter of
1999 which represents accretion of the Series 1998/A Preferred Stock up to its
repurchase amount and accretion of all remaining issuance costs.  As a result of
that transaction, the Series 1998/A Preferred Stock was retired and there will
be no subsequent conversions into Common Stock.

In computing the net loss applicable to common stockholders for the three and
six months ended June 30, 1999, accretion of the Series 1998/A Preferred Stock
mentioned above is included.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2000, our principal sources of liquidity consisted of cash, cash
equivalents and marketable securities of $16,521,000. We have restricted
marketable securities of $5,316,000. We have financed our operations primarily
through placements of equity securities, revenues received under agreements with
collaborative partners, and more recently, manufacturing contracts and the sale
of our OP-1 manufacturing rights and facilities to Stryker.

The Company owns 107,142 shares of common stock in a company which completed an
initial public offering in the second quarter of 2000. These securities are
restricted because they cannot be freely traded until October 7, 2000. In
addition, the Company holds a warrant to purchase 53,571 shares of common stock
which expire on January 27, 2005. As of June 30, 2000, the warrants were valued
at approximately $1,740,000. The Company has classified these securities as
available-for-sale and has recorded the appreciation and the carrying value of
the investment of approximately $5,216,000 in other comprehensive income as of
June 30, 2000.

Cash used for operating activities of $8,319,000 in the six months ended June
30, 2000 compared to $8,303,000 in the six months ended June 30, 1999.

Cash provided by investing activities of $15,388,000 in the six months ended
June 30, 2000 compared to $14,526,000 of cash provided by for investing
activities in the six months ended June 30, 1999.  We decreased our investment
in property, plant and equipment to $8,094,000 at June 30, 2000 from $8,625,000
at December 31, 1999 due to the sale of certain assets related to the proposed
merger.  We have budgeted to spend

                                       10
<PAGE>

approximately $220,000 during the remaining quarters of 2000 on equipment
purchases to upgrade our research and development capabilities. In the past, we
have entered into lease agreements to provide for the lease financing of
laboratory and office equipment. We may enter into similar agreements in the
future.

Financing activities in the six months ended June 30, 2000 provided $3,732,000
of cash as compared with $22,178,000 used in the six months ended June 30, 1999.

On May 27, 1998, we completed a private placement with three institutional
investors for the sale of 25,000 shares of Series 1998/A Preferred Stock, with a
stated value of $1,000 per share resulting in net proceeds of approximately
$23,618,000 after expenses.  On May 7, 1999, subsequent to the end of the first
fiscal quarter of 1999, we repurchased 20,486 shares, which represented all of
the outstanding Series 1998/A Preferred Stock following final conversions, for
approximately $22,470,000 in cash.  As a result of this transaction, the Series
1998/A Preferred Stock has been retired and there will be no subsequent
conversions into Common Stock.

In December 1998, we amended our 1996 Licensing and Development Agreement with
Biogen, Inc.  Under the amended agreement, Biogen paid $3,000,000 to fund our
research in 1999 for development of OP-1 as a therapy for chronic renal failure.
Biogen retained an option through December 1999 to resume responsibility for
development of OP-1 as a therapy for chronic renal failure.  Biogen did not
exercise its option by December 31, 1999 and has no further obligation to
provide funds to us.  We have assumed all rights and responsibilities,
independent of Biogen, for the development of renal failure therapies.

We anticipate that our existing capital resources should enable us to maintain
our current and planned operations through at least approximately March 2001. We
expect to incur substantial additional research and development and other costs,
including costs related to preclinical studies and clinical trials.  Our ability
to continue funding planned operations is dependent upon our ability to generate
sufficient cash flow from royalties on Stryker products, if approved for
commercial sale, from collaborative arrangements and from additional funds
through equity or debt financings, or from other sources of financing, as may be
required.  We are seeking additional collaborative arrangements and also expect
to raise funds through one or more financing transactions, if conditions permit.
Over the longer term, because of our significant long-term capital requirements,
we intend to raise funds when conditions are favorable, even if we do not have
an immediate need for additional capital at such time.  If Stryker products are
not approved for commercial sale and we do not receive royalties from Stryker
and/or if substantial additional funding is not available, our business will be
materially and adversely affected.

NEW ACCOUNTING STANDARDS

In June, 1998, the Financial Accounting Standards Board, or FASB, released
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which the Company will be required to adopt
effective January 1, 2001.  SFAS No. 133 establishes standards for reporting and
accounting for derivative instruments, and conforms the requirements for
treatment of hedging activities across the different types of exposures hedged.
The Company has not yet completed its evaluation of SFAS No. 133, and is
therefore unable to disclose the impact adoption will have on its consolidated
financial position or results of operations.

In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation".  The interpretation
clarifies the application of Opinion 25 in certain situations, as defined.  The
interpretation is effective July 1, 2000 but would cover certain events having
occurred after December 15, 1998.  The Company has not yet completed its
evaluation of FASB Interpretation No. 44, and is, therefore, unable to disclose
the impact adoption will have on its consolidated financial position or results
of operations.

                                       11
<PAGE>

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.
Our actual results may differ significantly from the results discussed in the
forward-looking statements.  We caution investors that there is no guarantee
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:

 .     Our reliance on current and prospective collaborative partners to supply
      funds for research and development and to commercialize our products;
 .     Uncertainty as to timing of and our ability to commercialize our products;
 .     Our reliance on our lead product candidate;
 .     Our lack of control over the clinical or regulatory progress of several
      applications for our products, which are controlled by our collaborative
      partners;
 .     Our reliance on programs in various stages of preclinical development and
      early stage research;
 .     Our reliance on key management personnel;
 .     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 we may not be able to
      gain rights with respect to, the technology necessary to commercialize our
      products;
 .     Our lack of development, commercial manufacturing, marketing and sales
      experience and the risk that any products that we develop may not be able
      to be marketed at acceptable prices or receive commercial acceptance in
      the markets that we expect to target;
 .     Our lack of control over government approvals on our lead product;
 .     Uncertainty related to market conditions affecting the biotechnology
      industry;
 .     Uncertainty as to the extent of future government regulation of our
      business;
 .     Uncertainty as to whether there will exist adequate reimbursement for our
      products from governments, private health insurers and other
      organizations; and
 .     Uncertainty as to whether the merger will be approved by our shareholders
      and regulatory authorities, and if approved, whether the benefits of
      integration will be achieved.

As a result, our future development and commercialization efforts involve a high
degree of risk.

                                       12
<PAGE>

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
================================================================================

The Company's market risk disclosures set forth in the 1999 Form 10-K/A have not
changed significantly through the quarter ended June 30, 2000.

                                       13
<PAGE>

PART II - OTHER INFORMATION

Item 1.   Legal Proceedings.

          Not Applicable.

ITEM 2.   CHANGES IN SECURITIES.

(a)       Not Applicable.

(b)       Not Applicable.

(c)       Not Applicable.

(d)       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
          ------   -----------

          27       Financial Data Schedule.

          (b)  Reports on Form 8-K.

               Not Applicable.

                                       14
<PAGE>

                                   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 July 26,
2000.



                                    CREATIVE BIOMOLECULES, INC.



                                    By:   /s/Steven L. Basta
                                         --------------------
                                         Vice President, Finance and Business
                                         Development



                                    By:  /s/Susan M. Letterie
                                         ---------------------
                                         Director of Accounting


                                       15
<PAGE>

                                   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 July 26,
2000.



                                         CREATIVE BIOMOLECULES, INC.



                                         By:
                                            ---------------------
                                            Steven L. Basta
                                            Vice President, Finance and Business
                                            Development



                                         By:
                                            ---------------------
                                            Susan M. Letterie
                                            Director of Accounting


                                       16
<PAGE>

                                 EXHIBIT INDEX


   Exhibit
   Number    Description
   ------    -----------


   27        Financial Data Schedule