<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-Q


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



For Quarter Ended September 30, 1996             Commission File Number 0-14587
                  ------------------                                    -------


                            GENETICS INSTITUTE, INC.
-------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


           Delaware                                    04-2718435
-------------------------------            ------------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)


 87 CambridgePark Drive, Cambridge, MA                               02140
-------------------------------------------------------------------------------
(Address of principal executive offices)                           (zip code)


Registrant's telephone number, including area code    (617) 876-1170
                                                   ----------------------------

                                      None
-------------------------------------------------------------------------------
(Former name, former address and former fiscal year if changed since last 
report)



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.      Yes   X     No
                                            -----      -----

29,589,784 shares of Common Stock, par value $.01 (including 12,752,894 shares
represented by Depositary Shares) were outstanding on November 1, 1996.




<PAGE>   2



                            GENETICS INSTITUTE, INC.


                                      INDEX
                                      -----






                                                                           Page
PART I - FINANCIAL INFORMATION                                            Number
------------------------------                                            ------

Item 1 - Financial Statements

  Consolidated Condensed Balance Sheets at
    September 30, 1996 and December 31, 1995..............................   3
  Consolidated Condensed Statements of Operations
    for the Three and Nine Months Ended September 30, 1996 and 1995 ......   4
  Consolidated Condensed Statements of Cash Flows
    for the Nine Months Ended September 30, 1996 and 1995.................   5
  Notes to Consolidated Condensed Financial Statements....................   6


Item 2 - Management's Discussion and Analysis of
  Financial Condition and Results of Operations...........................  10


PART II - OTHER INFORMATION
---------------------------

Item 1 - Legal Proceedings................................................  14

Item 6 - Exhibits and Reports on Form 8-K.................................  14

Signatures................................................................  15








                                     -2-


<PAGE>   3


                    GENETICS INSTITUTE, INC. AND SUBSIDIARIES
<TABLE>
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                 (Unaudited - in thousands except share amounts)
<CAPTION>

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

<S>                                         <C>                 <C>     
Cash and cash equivalents                   $106,025            $ 33,164
Marketable securities                        232,178             217,670
Accounts receivable                           61,636              40,876
Inventories:
    Materials and supplies                     6,840               5,769
    Work in progress                           2,292                 915
    Finished goods                            16,872              14,325
                                            --------            --------

                                              26,004              21,009

Other current assets                           6,060               5,844
                                            --------            --------

    Total current assets                     431,903             318,563

Property, plant and equipment                192,617             174,826
    Less accumulated depreciation            (77,526)            (65,710)
                                            --------            --------

                                             115,091             109,116

Other assets                                   5,720               6,132
                                            --------            --------

                                            $552,714            $433,811
                                            ========            ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable                            $  6,022            $  8,936
Accrued merger consideration                      --               7,615
Other accrued expenses                        33,629              27,145
                                            --------            --------

    Total current liabilities                 39,651              43,696

Shareholders' Equity:
    Common stock, par value $.01;
      authorized 50,000,000 shares               296                 268
    Additional paid-in capital               693,454             604,013
    Accumulated deficit                     (180,687)           (214,166)
                                            --------            --------

    Total shareholders' equity               513,063             390,115
                                            --------            --------

                                            $552,714            $433,811
                                            ========            ========
</TABLE>




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




                                       -3-


<PAGE>   4


                    GENETICS INSTITUTE, INC. AND SUBSIDIARIES

<TABLE>
                       CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                      (Unaudited - in thousands except per share data)
<CAPTION>

                                             Three Months Ended       Nine Months Ended
                                               September 30,             September 30,
                                            --------------------    ----------------------

                                              1996        1995        1996          1995
                                            -------      -------    --------      --------

<S>                                         <C>          <C>        <C>           <C>     
REVENUE
  Product sales                             $35,978      $14,841    $ 98,317      $ 61,350
  Royalties                                  17,044       14,733      60,572        38,692
  Collaborative research and development     13,440        2,920      43,935        30,133
                                            -------      -------    --------      --------

      Total revenue                          66,462       32,494     202,824       130,175

OPERATING EXPENSES
  Cost of sales                              13,395        4,260      37,795        31,140
  Research and development                   37,659       31,903     107,316        90,448
  General and administrative                  9,096        5,318      23,380        14,786
                                            -------      -------    --------      --------

      Total operating expenses               60,150       41,481     168,491       136,374
                                            -------      -------    --------      --------

INCOME (LOSS) FROM OPERATIONS                 6,312       (8,987)     34,333        (6,199)

OTHER INCOME, NET
  Investment income                           4,951        3,950      12,629        12,633
  (Loss) income of affiliates, net           (3,133)      (2,054)     (7,426)          117
  Other, net                                   (298)         785      (1,382)       (1,718)
                                            -------      -------    --------      --------

      Total other income, net                 1,520        2,681       3,821        11,032
                                            -------      -------    --------      --------

INCOME (LOSS) BEFORE INCOME TAXES             7,832       (6,306)     38,154         4,833

Provision for taxes on income                    --         (877)       (910)       (1,147)
                                            -------      -------    --------      --------

NET INCOME (LOSS)                           $ 7,832      $(7,183)   $ 37,244       $ 3,686
                                            =======      =======    ========       =======

NET INCOME (LOSS) PER COMMON SHARE          $   .25      $  (.27)   $   1.22       $   .14
                                            =======      =======    ========       =======

Weighted average common and common
  equivalent shares outstanding              31,727       26,745      30,551        27,225
                                            -------      -------    --------      --------
</TABLE>


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




                                       -4-


<PAGE>   5


                    GENETICS INSTITUTE, INC. AND SUBSIDIARIES
<TABLE>
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                           (Unaudited - in thousands)

<CAPTION>

                                                           Nine Months Ended September 30,
                                                           -------------------------------

                                                             1996                  1995
                                                           ---------             ---------
<S>                                                        <C>                   <C>      
OPERATING ACTIVITIES
Net income                                                 $  37,244             $   3,686
Adjustments to reconcile net income
   to net cash provided by (used in) operating
   activities -
      Depreciation and amortization                           12,414                13,386
      Equity in loss (income) of affiliates                    7,426                  (117)
      Compensation related to incentive plans                  1,231                   535
      Changes in assets and liabilities                      (22,401)              (22,510)
                                                           ---------             ---------
Net cash provided by (used in) operating activities           35,914                (5,020)
                                                           ---------             ---------
INVESTING ACTIVITIES
Purchase of marketable securities                           (164,536)             (168,619)
Proceeds from sale/maturity of marketable securities         146,263               215,054
Payment of merger consideration                               (7,614)                   --
Additions to property, plant and equipment                   (23,306)              (18,183)
Investments in affiliates                                     (7,426)               (1,720)
Other investing activities                                       293                   993
                                                           ---------             ---------

Net cash provided by (used in) investing activities          (56,326)               27,525
                                                           ---------             ---------
FINANCING ACTIVITIES
Proceeds from stock issuances                                 13,149                 4,349
Proceeds from sale-leaseback transaction                       5,035                    --
Proceeds from exercise of warrants                            75,089                    --
                                                           ---------             ---------

Net cash provided by financing activities                     93,273                 4,349
                                                           ---------             ---------

Net increase in cash and cash equivalents                     72,861                26,854

Cash and cash equivalents, beginning of period                33,164                21,793
                                                           ---------             ---------

Cash and cash equivalents, end of period                   $ 106,025             $  48,647
                                                           =========             =========

</TABLE>


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




                                       -5-


<PAGE>   6

                    GENETICS INSTITUTE, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (unaudited)

1. Significant Accounting Policies

   Basis of Presentation: The accompanying consolidated condensed financial
   statements are unaudited. In the opinion of management, all adjustments
   necessary for a fair presentation of these financial statements have been
   included. Such adjustments consisted only of normal recurring items. Interim
   results are not necessarily indicative of results for a full year. Certain
   amounts in the prior period financial statements have been reclassified to
   conform to the current period presentation. The consolidated condensed
   financial statements should be read in conjunction with the Company's audited
   consolidated financial statements and related footnotes for the year ended
   December 31, 1995.

   The consolidated condensed financial statements include all accounts of
   Genetics Institute, Inc. and its wholly owned subsidiaries. Investments in
   50% owned joint ventures are accounted for on the equity method. Under the
   equity method, investments in such affiliated joint ventures are recorded at
   cost and adjusted by the Company's share of the income and losses of and the
   investments in and distributions from such affiliates. All significant
   intercompany balances and transactions have been eliminated in consolidation.

   The preparation of financial statements in conformity with generally accepted
   accounting principles requires management to make estimates and assumptions
   that affect the reported amounts of assets and liabilities and disclosure of
   contingent assets and liabilities at the date of the financial statements and
   the reported amounts of revenues and expenses during the reporting period.
   Actual results could differ from those estimates.

2. Transactions with American Home Products Corporation

   On September 19, 1991, the Company and American Home Products Corporation
   ("AHP") entered into an Agreement and Plan of Merger (the "AHP Transaction")
   that was consummated on January 16, 1992 through which AHP acquired a 60%
   interest in the Company. In connection with the AHP Transaction, the Company
   issued 9,466,709 new shares of Common Stock to AHP for an aggregate purchase
   price of approximately $300.0 million and, for shares of Common Stock owned,
   the Company's shareholders received a combination of cash and Depositary
   Shares subject to a call option. Under the terms of the call option, AHP has
   the right but not the obligation, to purchase the outstanding Depositary
   Shares that it does not own, in whole but not in part, at any time until
   December 31, 1996, at a call price of $85.00 per share.

   Independent of its right to call the Depositary Shares, AHP is permitted to
   acquire additional Depositary Shares through open market purchases or
   privately negotiated purchases, provided that during the term of the call
   option its aggregate holdings do not exceed 75% of the Company's outstanding
   equity, subject to certain exceptions. As of September 30, 1996, AHP's total
   ownership position in the Company approximated 60%.

   The Company is engaged in collaborations with AHP in the development and
   commercialization of recombinant human interleukin-twelve (rhIL-12), an
   immune system modulatory protein, and the commercialization of
   Neumega[Registered Trademark] recombinant human interleukin-eleven
   (rhIL-11), a blood cell growth factor. A collaboration with AHP in the area
   of cellular adhesion discovery research ended as scheduled during the second
   quarter of 1995. Collaborative research and development revenue includes $1.1
   million and $6.8 million, respectively, for the three and nine month periods
   ended September 30, 1996 and $0.9 million and $8.7 million, respectively, for
   the three and nine month periods ended September 30, 1995, relating to these
   collaborations with AHP. (Loss) income of affiliates, net, includes losses of
   $(1.4) million and $(3.1) million for the three and nine month periods ended
   September 30, 1996, and losses of $(0.1) million and $(1.6) million for the
   three and nine month periods ended September 30, 1995, relating to these
   collaborations with AHP.


                                       -6-




<PAGE>   7

                    GENETICS INSTITUTE, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (unaudited)


3. Investments in Debt Securities

<TABLE>
   The Company's investment portfolio of debt securities consists of cash
   equivalents classified as held-to-maturity and marketable securities
   classified as available-for-sale. The fair value of cash equivalents
   approximated the amortized cost of $105.3 million at September 30, 1996.
   Aggregate fair value, amortized cost and average maturity for marketable
   securities held at September 30, 1996 and December 31, 1995 are presented
   below. The average maturities presented below include estimates of the
   effective life for certain securities whose actual maturities will differ
   from contractual maturities because the borrowers have the right to call or
   prepay the obligations without call or prepayment penalties.

<CAPTION>

                                        Amortized        Gross Unrealized          Fair
                                          Cost        Holding Gains (Losses)       Value
                                        ---------     ----------------------     --------

<S>                                     <C>           <C>           <C>          <C>     
September 30, 1996
(In thousands)

U.S. Government and Agency
   securities (average maturity
   of 2.8 years)                        $108,718      $  689        $  (653)     $108,754

Corporate and other debt securities
   (average maturity of 2.9 years)       123,453         490           (519)      123,424
                                        --------      ------        -------      --------

                                        $232,171      $1,179        $(1,172)     $232,178
                                        ========      ======        =======      ========
December 31, 1995
   (In thousands)

U.S. Government and Agency
   securities (average maturity
   of 3.5 years)                        $138,498      $2,823        $  (266)     $141,055

Corporate and other debt securities
   (average maturity of 2.6 years)        75,400       1,292            (77)       76,615
                                        --------      ------        -------      --------
                                        $213,898      $4,115        $  (343)     $217,670
                                        ========      ======        =======      ========
</TABLE>


   The fair value of marketable securities at September 30, 1996 was
   approximately equal to the amortized cost. For the three and nine month
   periods ended September 30, 1996, changes in the net unrealized holding gain
   (loss) of $0.5 million and $(3.8) million, respectively, are recorded in
   shareholders' equity. Gross realized gains and losses on sales of marketable
   securities for the three and nine month periods ended September 30, 1996 and
   1995 were not material to the results of operations.






                                       -7-


<PAGE>   8

                    GENETICS INSTITUTE, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (unaudited)

4. (Loss) Income of Affiliates, Net

   (Loss) income of affiliates, net consists of the Company's share of benchmark
   payments or license fees received by the joint ventures, net of the Company's
   share of research and development expenses incurred by affiliated joint
   ventures (excluding any research and development or other services provided
   by the Company to the joint ventures). The Company's share of the joint
   ventures' revenues, which ranges from 50% to 62.5%, is generally distributed
   when received by the joint venture. The Company's share of the joint
   ventures' expenses, which ranges from 25% to 50%, is generally funded as
   incurred. Investments in such affiliates are accounted for on the equity
   method and amounted to $0.9 million and $1.6 million at September 30, 1996
   and December 31, 1995, respectively.

   The more significant of these affiliates are GI-Yamanouchi, Inc. (GYJ), the
   GI-Yamanouchi European Partnership (GYEP) and IL-12 Partners. The GYJ and the
   GYEP are joint ventures with Yamanouchi Pharmaceutical Co., Ltd. (Yamanouchi)
   formed to develop and commercialize certain of the Company's product
   candidates in Japan and Europe, respectively. IL-12 Partners is a joint
   venture with AHP formed to develop and commercialize rhIL-12 worldwide except
   Japan.

   The Company's (loss) income of affiliates, net for the three and nine months
   ended September 30, 1996 and 1995 was as follows (in thousands):

<TABLE>
<CAPTION>

                                   Three months ended September 30,   Nine months ended September 30,
                                   --------------------------------   -------------------------------
                                           1996        1995                1996          1995
                                         -------      -------            --------      --------

<S>                                      <C>          <C>                <C>           <C>      
Combined net (loss) of
   affiliated joint ventures             $(9,015)     $(7,461)           $(22,494)     $(14,305)
                                         =======      =======            ========      ======== 
Company share of joint
   ventures' net (loss) based on
   ownership percentage share of
   revenues and expenses                  (4,457)      (3,448)            (11,102)       (6,088)

Elimination of Company share
   of joint venture expenses
   attributable to services provided
   by or benchmarks paid to the
   Company                                 1,324        1,394               3,676         6,205
                                         -------      -------            --------      -------- 
(Loss) income of affiliates, net         $(3,133)     $(2,054)           $ (7,426)     $    117
                                         =======      =======            ========      ======== 

</TABLE>


5. Contingencies

   The Company is involved in various legal proceedings including patent
   litigation of a nature considered normal to its business.

   Patent infringement proceedings are pending in Europe between Boehringer
   Mannheim GmbH ("Boehringer Mannheim"), the Company's licensee, and Ortho
   Pharmaceutical Co., Ltd. and certain Ortho affiliates, licensees of
   Kirin-Amgen, Inc.'s recombinant EPO patents, seeking injunctive relief and
   damages for infringement of their respective erythropoietin ("EPO") patent
   rights.


                                       -8-


<PAGE>   9

                    GENETICS INSTITUTE, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (unaudited)

   The patents which are at issue in these suits have also been the subject of
   European Patent Office proceedings. In June 1994, a claim in the Company's
   European patent covering homogeneous EPO compositions (the '539 patent) was
   upheld by the Opposition Division of the European Patent Office. This
   decision has been appealed. In September 1994, an appellate hearing was held
   before the Board of Technical Appeals of the European Patent Office relating
   to oppositions to Kirin-Amgen's European recombinant EPO patent. The Board
   ruled that a modified version of certain of Kirin-Amgen's original claims in
   the patent filing was valid. However, it is uncertain whether Kirin-Amgen's
   claims cover the making, using or selling of Boehringer Mannheim's
   recombinant EPO.

   The Company can provide no assurance as to the outcome of these European
   proceedings. If as a result of these proceedings Boehringer Mannheim is
   forced to withdraw from any or all markets, the Company's future royalty
   income from Boehringer Mannheim, (which, excluding $11.4 million recognized
   in connection with the termination of an escrow arrangement, totaled $17.0
   million for the nine month period ended September 30, 1996), could be reduced
   or eliminated.

   In the opinion of the Company, although the outcome of any currently pending
   litigation cannot be predicted with certainty, the ultimate liability of the
   Company in connection with pending litigation will not have a material
   adverse effect on the Company's financial position but could be material to
   the Company's future results of operations in any one accounting period.

6. Acquisition of SciGenics, Inc.

   In the fourth quarter of 1995, the Company acquired 100% of the callable
   common stock of SciGenics, Inc. ("SciGenics"). The acquisition was made
   pursuant to the terms of a cash tender offer in which the Company acquired
   approximately 67% of the callable common stock of SciGenics at $14.00 per
   share. The remaining equity interest in SciGenics was acquired upon the
   merger of a wholly owned subsidiary of the Company into SciGenics, with
   SciGenics being the surviving corporation. In the merger, each share of
   callable common stock of SciGenics not held by the Company was converted into
   the right to receive $14.00 in cash for a total purchase price of $29.3
   million for the 2,090,909 shares acquired. As of December 31, 1995, SciGenics
   shareholders holding 543,908 shares indicated their intention to demand an
   appraisal of the fair value of their shares under Delaware law and the
   Company accrued merger consideration of $14.00 per share for those shares.
   During the first quarter of 1996, certain of these shareholders elected to
   forego the appraisal process and tendered their shares. On April 7, 1996, all
   appraisal rights expired without any appraisal actions being filed and,
   during the second quarter of 1996, substantially all the remaining SciGenics
   shares were tendered for $14.00 per share.

7. Warrants

   Approximately 2.1 million warrants for the purchase of the Company's Common
   Stock at an exercise price of $35.92 per share were exercised on or before
   May 31, 1996, the expiration date of the warrants, providing the Company with
   $75.1 million of proceeds. Upon exercise, each warrant was converted into
   six-tenths of a Depositary Share and $20.00 in cash, which represented the
   same consideration received by shareholders in the AHP Transaction. As a
   result of the warrant exercises, the Company issued 836,149 shares of Common
   Stock to AHP and 1,254,224 Depositary Shares to warrant holders which
   contributed to a decrease in AHP's total ownership position in the Company
   from approximately 62% at March 31, 1996 to approximately 60% at September
   30, 1996.

                                       -9-


<PAGE>   10

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

   
   OVERVIEW

   Genetics Institute, Inc. and subsidiaries (the "Company") are principally
   engaged in discovering, developing and commercializing biopharmaceutical
   products using recombinant DNA and related technologies.

   The Company and American Home Products Corporation ("AHP") entered into a
   transaction (the "AHP Transaction") through which AHP acquired a majority
   interest in the Company effective January 16, 1992 (see Note 2 of Notes to
   Consolidated Condensed Financial Statements). Under the terms of a call
   option, AHP has the right, but not the obligation, to purchase the
   outstanding Depositary Shares that it does not own, in whole but not in part,
   at any time until December 31, 1996, at a call price of $85.00 per share (the
   "Call Option").

   RESULTS OF OPERATIONS

   Three and Nine Months Ended September 30, 1996 and 1995. The Company reported
   net income of $7.8 million for the third quarter ended September 30, 1996 and
   net income of $37.2 million for the nine months ended September 30, 1996,
   compared with a net loss of $7.2 million for the third quarter ended
   September 30, 1995 and net income of $3.7 million for the nine months ended
   September 30, 1995.

   The Company's revenues include product sales from the supply of recombinant
   human antihemophilic factor concentrate ("rhAHF") to Baxter Healthcare
   Corporation ("Baxter"), royalties on sales of products by licensees, and
   collaborative research and development revenue for activities conducted under
   agreements with the Company's joint venture partners and certain licensees.
   Revenue for the third quarter of 1996 totaled $66.5 million, an increase of
   105%, or $34.0 million, from the third quarter of 1995. Nine month revenue of
   $202.8 million increased 56% from the prior year level.

   Product sales of $36.0 million for the third quarter of 1996 increased $21.1
   million from the third quarter of 1995, and increased 60% for the first nine
   months of 1996, due primarily to increases in the unit volume of rhAHF
   shipped to Baxter. Royalties increased 16%, or $2.3 million, to $17.0 million
   for the third quarter of 1996 primarily due to increases in the volume of
   Baxter's sales of Recombinate[Trademark] Antihemophilic Factor (Recombinant)
   and in the volume of licensees' sales of erythropoietin ("EPO"). Royalties 
   for the first nine months of 1996 increased 57% to $60.6 million. The
   increase in the volume of EPO sold by licensees was partly offset by a
   governmental reduction of the price of EPO products in Japan, which was
   effective April 1, 1996. In January 1996, the company expanded and
   restructured its license agreement with Boehringer Mannheim GmbH
   ("Boehringer Mannheim") for EPO. Under the amended agreement, the Company
   licensed Boehringer Mannheim to sell EPO in additional countries in the
   Asia-Pacific area and Boehringer Mannheim agreed to pay the Company license
   fees and future benchmark payments for the expanded territories. The
   restructuring also provides Boehringer Mannheim with greater financial
   responsibility for and control over the prosecution and settlement of patent
   suits against third party infringers, and Boehringer Mannheim agreed to
   release from escrow $8.0 million in royalties it previously withheld from
   the Company to finance such litigation expenses, and to cease to withhold
   any additional royalties for this purpose. The restructuring established a
   new royalty rate applicable to Boehringer Mannheim's original territories
   that cannot be decreased by any future EPO patent settlement or for any
   other reason. Royalties in the first nine months of 1996 included $11.4
   million recognized in the first quarter of 1996 (including the $8.0 million
   released from escrow) relating to the termination of the escrow arrangement.
   Excluding this one-time amount, royalties for the first nine months of 1996
   increased 27%, or $10.5 million, to $49.2 million, primarily due to the
   increases in the volume of licensees' sales discussed above.


                                      -10-


<PAGE>   11

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

   Collaborative research and development revenue increased $10.5 million to
   $13.4 million for the third quarter of 1996, due primarily to the timing of
   benchmark payments under existing collaborative agreements, and increased
   46%, or $13.8 million, to $43.9 million for the first nine months of 1996.
   Collaborative research and development revenue includes payments of $12.5
   million in both the second quarter of 1996 and in the first quarter of 1995
   relating to an agreement between the Company and Sofamor Danek Group, Inc. to
   commercialize recombinant human bone morphogenetic protein-two ("rhBMP-2") in
   North America for use in certain surgical procedures involving the spine.
   Collaborative research and development revenue for the first nine months of
   1996 includes license fees and benchmark payments totaling $10.0 million,
   recorded in the first quarter of 1996, relating to the agreement with
   Boehringer Mannheim discussed above. Collaborative research and development
   revenue includes $1.1 million and $0.9 million for the third quarters of 1996
   and 1995, respectively, and $6.8 million and $8.7 million for the first nine
   months of 1996 and 1995, respectively, relating to collaborations with AHP in
   the development and commercialization of recombinant human interleukin-twelve
   ("rhIL-12"), an immune system modulatory protein, and in 1995 in the
   commercialization of Neumega[Registered Trademark] recombinant human
   interleukin-eleven ("rhIL-11") and in the area of cellular adhesion discovery
   research.

   Cost of sales includes royalties payable to third parties upon the receipt of
   certain royalty revenues from licensees. Such third party royalties totaled
   $2.2 million and $2.0 million in the third quarters of 1996 and 1995,
   respectively. Cost of sales excluding such third party royalties, as a
   percentage of product sales, was 31% and 15% for the third quarters of 1996
   and 1995, respectively, and 31% and 43% for the first nine months of 1996 and
   1995, respectively. In the third quarter of 1995, the Company recorded an
   adjustment to cost of sales as a result of a change in the estimated unit
   manufacturing costs of rhAHF for the 1995 production year. Excluding this
   adjustment, cost of sales as a percentage of product sales for the third
   quarter of 1995 was 39%. The significant improvement in gross margin for the
   first nine months of 1996 was primarily due to lower rhAHF unit manufacturing
   costs.

   Research and development expense increased 18% to $37.7 million in the third
   quarter of 1996 as compared with the third quarter of 1995 and increased 19%
   for the first nine months of 1996, primarily due to the expansion of certain
   clinical development programs and increases in the cost of the Company's
   discovery research programs in the genomics field. General and administrative
   expenses increased 71% in the third quarter of 1996 to $9.1 million and
   increased 58% in the first nine months of 1996, primarily due to expansion of
   the Company's commercial operations function and to an increase in market
   development and other preparatory activities related to the expected
   commercialization of BENEFIX[Trademark] recombinant Factor IX ("rFIX").
   General and administrative expenses for 1996 are expected to continue to
   exceed those recorded in 1995 as the Company puts in place the commercial
   infrastructure necessary to market and sell BENEFIX[Trademark] rFIX in North
   America.

   Investment income increased 25% in the third quarter of 1996 as compared with
   the comparable period of a year ago, primarily due to higher average balances
   of cash equivalents and marketable securities. The increase in cash
   equivalents and marketable securities relates primarily to the proceeds of
   $75.1 million received by the Company upon exercise of warrants in the first
   half of 1996.

   (Losses) of affiliates, net, of ($3.1) million and ($7.4) million were
   recorded in the three and nine months ended September 30, 1996, respectively,
   and (losses) income of affiliates, net, of ($2.1) million and $0.1 million
   were recorded in the three and nine months ended September 30, 1995,
   respectively. Certain of the Company's product development activities in
   Japan are being conducted through GI-Yamanouchi, Inc. (the "GYJ"), a joint
   venture with Yamanouchi Pharmaceutical Co., Ltd. ("Yamanouchi"). In the
   second

                                      -11-


<PAGE>   12

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

   quarter of 1995, the GYJ assigned its rights to the development and
   commercialization of rhBMP-2 in Japan to Yamanouchi and the Company
   recognized income of affiliates of $7.3 million in connection with this
   transaction. In addition, the Company is conducting certain rhIL-12 product
   development activities through IL-12 Partners, a joint venture with AHP.
   (Loss) income of affiliates, net includes $(1.4) million and $(0.1) million
   for the third quarter of 1996 and 1995, respectively, and $(3.1) million and
   $(1.6) million for the first nine months of 1996 and 1995, respectively,
   relating to the rhIL-12 collaboration with AHP.

   The Company did not record a provision for income taxes in the third quarter
   of 1996 based on management's present estimate that sufficient provision for
   1996 income taxes was recorded in the first half of the year.

   LEGAL PROCEEDINGS

   The Company is engaged in various legal proceedings including patent
   litigation of a nature considered normal to its business. See Note 5 of the
   Notes to Consolidated Condensed Financial Statements which is incorporated by
   reference herein.

   LIQUIDITY AND CAPITAL RESOURCES

   Cash, cash equivalents and marketable securities (recorded at fair value)
   totaled $338.2 million at September 30, 1996, an increase of $87.4 million
   from December 31, 1995. For the first nine months of 1996, $35.9 million in
   cash was provided by operating activities. In addition, the Company received
   proceeds of $75.1 million from the exercise of warrants, $13.1 million from
   the issuance of stock (primarily from the exercise of stock options), and
   $5.0 million from the sale-leaseback of equipment. These sources of cash were
   offset primarily by investments of $23.3 million in plant and equipment, the
   payment of merger consideration of $7.6 million to complete the acquisition
   of SciGenics, Inc. and investments of $7.4 million in affiliated joint
   ventures.

   The Company expects that its available cash and marketable securities,
   together with operating revenues, investment income and lease and debt
   financing arrangements, will be sufficient to finance its working capital and
   capital requirements for the foreseeable future. Over the next several years,
   the Company's working capital and capital requirements will be subject to
   change depending upon numerous factors including the level of capital
   expenditures, changes in the amount of expenditures committed to self-funded
   research and development programs, results of research and development
   activities, competitive and technological developments, the levels of
   resources which the Company devotes to the expansion of its clinical testing,
   manufacturing and marketing activities and the timing and cost of obtaining
   required regulatory approvals for new products.

   FINANCIAL OUTLOOK

   The Company expects to be profitable for the fourth quarter of 1996 and for
   the full year 1997, based principally on the current outlook for existing
   core business arrangements. However, the level of the Company's profitability
   for the fourth quarter of 1996 and the first quarter of 1997 is expected to
   be lower than that in the first three quarters of 1996 due primarily to the
   timing of benchmark payments under existing collaborative research and
   development agreements. The level of the Company's profitability for those
   periods and thereafter depends upon a number of factors including: the volume
   and cost of bulk



                                      -12-


<PAGE>   13

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

   rhAHF concentrate manufactured by the Company and sold to Baxter; the
   Company's ability to manufacture sufficient quantities of bulk rhAHF
   concentrate to meet Baxter's requirements; the volume and price of Baxter's
   sales of Recombinate[Trademark] Antihemophilic Factor (Recombinant);
   licensees' sales of EPO and the impact of infringement litigation on EPO
   royalty income (as discussed in "Legal Proceedings" above); the success of
   the Company's development collaborations with others (including AHP) and the
   achievement of development benchmarks under existing collaborative
   arrangements; and the ability of the Company to consummate new collaborative
   agreements. For 1997 and for years after 1997, profitability will also depend
   on the successful completion of clinical trials, subsequent regulatory
   approvals for commercialization of biopharmaceuticals under development,
   including BENEFIX[Trademark] rFIX and Nuemega[Registered Trademark] rhIL-11,
   and the timing of any such regulatory approvals.

   Future sales increases for Baxter's Recombinate[Trademark] and licensees' EPO
   are primarily dependent on further penetration of existing markets, the
   effects of competitive products and changes in reimbursement rates or the
   basis of reimbursement by governmental agencies. Future sales increases for
   Baxter's Recombinate[Trademark] may also be dependent on obtaining regulatory
   approvals for changes in and improvements to the Company's rhAHF
   manufacturing processes. Increases in licensees' sales of EPO are also
   dependent on product approvals in and penetration of new markets and the
   timing and nature of additional indications for which the product may be
   approved. In addition, international sales of Baxter's Recombinate[Trademark]
   and licensees' sales of EPO will continue to be subject to changes in foreign
   currency exchange rates.

   Adverse developments with respect to these matters could have a material
   adverse effect on the Company's results of operations. In addition, the
   Company's consolidated results of operations have fluctuated from period to
   period and may continue to fluctuate as a result of these factors.

   Significant volatility of market valuations has been associated with the
   business and operations of biopharmaceutical companies. Developments
   involving the Company or its competitors concerning discovery research
   programs, technological innovations, new commercial products, results of
   clinical trials, patents, proprietary rights and related infringement
   disputes, results of litigation, and the expense and time associated with
   obtaining requisite government approvals may have a significant impact on the
   Company's business and on its market valuation. As of September 30, 1996,
   four of the Company's proprietary product candidates were in human clinical
   trials. Phase I and phase II data are preliminary measurements of a product's
   safety and efficacy and do not necessarily assure positive phase III data or
   ultimate regulatory approval for commercial sale. The Company's market
   valuation could be subject to volatility based upon the outcome of clinical
   trials and as investors interpret the results of the Company's current and
   future clinical trials. The Company's market valuation could also be subject
   to volatility based upon the rate and timing of the cloning of novel genes in
   the Company's DiscoverEase[Trademark] Program. In addition, the Call Option
   held by AHP, which expires on December 31, 1996, may have an impact on the
   volatility of the Company's market valuation.

   


                                      -13-


<PAGE>   14


                           Part II - Other Information
                           ---------------------------


Item 1.  Legal Proceedings
-------  -----------------

         See Note 5 of Notes to the Consolidated Condensed Financial Statements
         provided in Part I of this Quarterly Report on Form 10-Q, which Note is
         hereby incorporated by reference.

Item 6.  Exhibits and Reports on Form 8-K
-------  --------------------------------

    (a)        The Exhibits filed as part of this Form 10-Q are listed on the
               Exhibit Index immediately preceding such Exhibits, which Exhibit
               Index is incorporated herein by reference.

    (b)        No reports were filed on Form 8-K during the quarter ended
               September 30, 1996.









                                      -14-
<PAGE>   15





                                   SIGNATURES


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


                               GENETICS INSTITUTE, INC.
                               ------------------------
                               (Registrant)




Date:  November 6, 1996        By: /s/ Garen G. Bohlin
       ----------------            ------------------------------------  
                                   Garen G. Bohlin,
                                   Executive Vice President and Chief Financial 
                                   Officer 
                                   (Principal Financial Officer and
                                   Principal Accounting Officer)








                                      -15-

<PAGE>   16






                                   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.


                                   GENETICS INSTITUTE, INC.
                                   ------------------------
                                   (Registrant)




Date:  November 6, 1996        By: /s/ Garen G. Bohlin
       ----------------            ------------------------------------  
                                   Garen G. Bohlin,
                                   Executive Vice President and Chief Financial 
                                   Officer 
                                   (Principal Financial Officer and
                                   Principal Accounting Officer)











                                     -15-


<PAGE>   17


                                  EXHIBIT INDEX
                                  -------------





Exhibit No.                      Description
-----------                      -----------

   10.1           Cross-License Agreement among Genetics Institute,
                  Stryker Corporation and Creative BioMolecules, Inc.,
                  dated as of July 15, 1996

   11             Computation of Earnings Per Share

   27             Financial Data Schedule (EDGAR)















                                      -16-