<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

[X]       Quarterly report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934.

For the quarter period ended December 31, 1995

                                       OR

[ ]       Transition report pursuant to Section 13 or 15(d) of the Securities 
          Exchange Act of 1934.

For the transition period from        to 
                               ------    ------


                         Commission File Number: 0-10640


                              COLLAGEN CORPORATION

             (Exact name of registrant as specified in its charter)

       Delaware                                           94-2300486
State of Incorporation                        I.R.S. Employer Identification No.

                  2500 Faber Place, Palo Alto, California 94303
                            Telephone: (415) 856-0200

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

As of January 31, 1996, Registrant had outstanding 8,882,026 shares of common
stock, exclusive of 1,675,000 shares held by the Registrant as treasury stock.
<PAGE>   2
                              COLLAGEN CORPORATION

                                      INDEX

<TABLE>
<CAPTION>
PART I.           Financial Information                                 Page No.
                                                                        --------
<S>                                                                     <C>
Condensed Consolidated Balance Sheets -
December 31, 1995  and June 30, 1995..................................        3

Condensed Consolidated Statements of Income -
Three and six months ended December 31, 1995 and 1994.................        4

Condensed Consolidated Statements of Cash Flows -
Six months ended December 31, 1995 and 1994...........................        5

Notes to Condensed Consolidated Financial Statements..................     6-11

Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................    12-20





PART II.          Other Information

Other Information.....................................................    21-24

Signatures............................................................       25
</TABLE>




                                       2
<PAGE>   3
                         PART I. FINANCIAL INFORMATION
                              COLLAGEN CORPORATION
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)
               (In thousands, except share and per share amounts)


<TABLE>
<CAPTION>
                                                                        December 31,     June 30,
                                                                           1995            1995
                                                                        ------------     --------
<S>                                                                     <C>              <C>
ASSETS
 Current assets:
  Cash and cash equivalents                                               $ 28,545       $  6,155
  Short-term investments                                                     1,422          3,229
  Accounts receivable, net                                                  12,104         13,402
  Inventories, net                                                           7,570          5,056
  Other current assets, net                                                  6,010          5,568
                                                                          --------       --------
     Total current assets                                                   55,651         33,410

 Property and equipment, net                                                16,357         16,506
 Intangible assets and goodwill, net                                        11,066          2,727
 Investment in Target Therapeutics, Inc.                                    12,489         17,570
 Other investments & assets, net                                             6,696          6,693
                                                                          --------       --------
                                                                          $102,259       $ 76,906
                                                                          ========       ========

LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
  Accounts payable                                                        $  3,926       $  2,250
  Accrued purchase consideration for LipoMatrix, Incorporated               20,990          --
  Other accrued liabilities                                                 10,643         10,862
  Income taxes payable                                                      10,160          5,902
                                                                          --------       --------
     Total current liabilities                                              45,719         19,014

 Long-term liabilities:
  Deferred income taxes                                                      8,478          8,478
  Other long-term liabilities                                                2,888          1,494

 Stockholders' equity:
  Preferred stock, $.01 par value, authorized
   5,000,000 shares; none issued and outstanding                              --             --
  Common stock, $.01 par value, authorized:  28,950,000
   shares, issued:  10,557,026 shares at December 31, 1995
   (10,519,632 shares at June 30, 1995), outstanding:  8,882,026
    shares at December 31, 1995 (9,019,632 shares at June 30, 1995)            106            106
  Additional paid-in capital                                                63,896         63,855
  Retained earnings                                                         17,533         17,273
  Cumulative translation adjustment                                           (617)          (604)
  Treasury stock, at cost, 1,675,000 shares at December 31, 1995
   (1,500,000 shares at June 30, 1995)                                     (35,744)       (32,710)
                                                                          --------       --------
     Total stockholders' equity                                             45,174         47,920
                                                                          --------       --------
                                                                          $102,259       $ 76,906
                                                                          ========       ========
</TABLE>



                            See accompanying notes.


                                       3
<PAGE>   4
                              COLLAGEN CORPORATION
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                  (Unaudited)
                    (In thousands, except per share amounts)




<TABLE>
<CAPTION>
                                                              Three Months Ended          Six Months Ended
                                                                 December 31,               December 31,
                                                             --------------------      ---------------------
                                                               1995         1994         1995         1994
                                                             -------      -------      --------      -------
<S>                                                          <C>          <C>          <C>           <C>
Revenues:
 Product sales                                               $18,883      $18,870      $ 33,823      $34,302
 Other                                                          --           --           2,000        1,000
                                                             -------      -------      --------      -------
                                                              18,883       18,870        35,823       35,302
                                                             -------      -------      --------      -------

Costs and expenses:
 Cost of sales                                                 5,074        4,810         9,071        9,216
 Selling, general & administrative                            10,467        8,107        18,769       15,331
 Research & development                                        2,925        2,504         5,504        5,038
 Acquired in-process research and development                   --           --          14,800       --
                                                             -------      -------      --------      -------
                                                              18,466       15,421        48,144       29,585
                                                             -------      -------      --------      -------

Income (loss) from operations                                    417        3,449       (12,321)       5,717

Other income (expense):
 Net gain on investments, principally Therapeutics, Inc.      20,921          775        31,387          775
 Equity in earnings (losses) of affiliates, net                  415         (240)          (93)        (369)
 Interest income                                                 297           85           451          215
 Interest expense                                                (40)         (40)          (52)         (55)
                                                             -------      -------      --------      -------

Income before income taxes                                    22,010        4,029        19,372        6,283

Provision for income taxes                                    12,540        1,784        18,453        2,731
                                                             -------      -------      --------      -------

Net income                                                   $ 9,470      $ 2,245      $    919      $ 3,552
                                                             =======      =======      ========      =======

Net income per share                                         $  1.05      $   .24      $    .10      $   .37
                                                             =======      =======      ========      =======



Shares used in calculating per share information               9,059        9,465         9,087        9,517
                                                             =======      =======      ========      =======
</TABLE>


                            See accompanying notes.


                                       4
<PAGE>   5
                              COLLAGEN CORPORATION
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                Increase (Decrease) in Cash and Cash Equivalents
                                  (Unaudited)
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                         Six Months Ended
                                                                           December 31,
                                                                      --------------------
                                                                        1995         1994
                                                                      --------     -------
<S>                                                                   <C>          <C>
Cash flows from operating activities:
  Net income                                                          $    919     $ 3,552
  Adjustments to reconcile net income to net cash provided by
    (used in) operating activities:
      Acquired in-process research and development                      14,800        --
      Depreciation and amortization                                      2,968       1,954
      Gain on investments, net                                         (31,387)       (775)
    Changes in assets and liabilities:
      Income taxes payable                                               4,258       1,028
      Other                                                             (1,378)       (927)
                                                                      --------     -------
    Net cash provided by (used in) operating activities                 (9,820)      4,832
                                                                      --------     -------

Cash flows from investing activities:
  Net proceeds from sale of stock of Target Therapeutics, Inc.          42,073       1,102
  Proceeds from sales and maturities of short-term investments           3,123       4,903
  Purchase of short-term investments                                    (1,318)       --
  Expenditures for property and equipment                               (1,332)     (1,383)
  Increase in intangible and other assets                                 (458)       (653)
  Expenditures for investments in and loans to affiliates               (6,198)     (2,217)
  Acquisition of LipoMatrix, Incorporated, net of cash balances        (22,608)       --
  Accrued purchase consideration and other costs of
    acquisition of LipoMatrix                                           22,527        --
                                                                      --------     -------
    Net cash provided by investing activities                           35,809       1,752
                                                                      --------     -------

Cash flows from financing activities:
  Repurchase of common stock                                            (3,034)     (5,543)
  Net proceeds from issuance of common stock                                41       1,666
  Dividends paid                                                          (676)       (943)
  Proceeds from bank borrowings                                             70        --
                                                                      --------     -------
    Net cash used in financing activities                               (3,599)     (4,820)
                                                                      --------     -------

Net increase in cash and cash equivalents                               22,390       1,764

Cash and cash equivalents at beginning of period                         6,155       5,369
                                                                      --------     -------

Cash and cash equivalents at end of period                            $ 28,545     $ 7,133
                                                                      ========     =======
</TABLE>

                            See accompanying notes.


                                       5
<PAGE>   6
                              COLLAGEN CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

1.   Summary of Significant Accounting Policies

     Basis of Presentation

     The condensed consolidated financial statements include the accounts of
     Collagen Corporation ("the Company"), a Delaware corporation, and its
     wholly-owned and majority-owned subsidiaries. The financial statements
     include the accounts of LipoMatrix, Incorporated ("LipoMatrix"), of
     Neuchatel, Switzerland subsequent to August 22, 1995 when the Company
     entered into a stock purchase agreement with certain of the stockholders of
     LipoMatrix to purchase approximately 50% of the outstanding securities of
     LipoMatrix on a fully diluted basis. Subsequently, the Company entered into
     an agreement with certain of LipoMatrix's management and employees to
     purchase the remaining 10% of the outstanding securities on a fully diluted
     basis. This purchase increased the Company's ownership interest in
     LipoMatrix from approximately 40% to approximately 100% of the outstanding
     securities on a fully diluted basis and was closed in January 1996. Prior
     to August 22, 1995, LipoMatrix was accounted for under the equity method of
     accounting. All significant intercompany accounts and transactions have
     been eliminated. Investments in unconsolidated subsidiaries, and other
     investments in which the Company has a 20% to 50% interest or otherwise has
     the ability to exercise significant influence, are accounted for under the
     equity method (See note 4).

     The condensed consolidated balance sheet as of December 31, 1995, the
     condensed consolidated statements of income for the three and six months
     ended December 31, 1995 and 1994, and the condensed consolidated statements
     of cash flows for the six months ended December 31, 1995 and 1994, have
     been prepared by the Company, without audit. In the opinion of management,
     all necessary adjustments (which include only normal recurring adjustments)
     have been made to present fairly the financial position, results of
     operations and cash flows at December 31, 1995 and for all periods
     presented. Interim results are not necessarily indicative of results for a
     full fiscal year. The condensed consolidated balance sheet as of June 30,
     1995 has been derived from the audited consolidated financial statements at
     that date.

     Certain information and footnote disclosures normally included in financial
     statements prepared in accordance with generally accepted accounting
     principles have been condensed or omitted. These condensed consolidated
     financial statements should be read in conjunction with the audited
     consolidated financial statements and notes thereto for the year ended June
     30, 1995 included in the Company's 1995 Annual Report on Form 10-K.



                                       6
<PAGE>   7
     Cash, Cash Equivalents and Short-term Investments

     The Company considers all highly liquid investments with a maturity from
     date of purchase of three months or less to be cash equivalents. Short-term
     investments consist principally of bankers acceptances, commercial paper
     and master notes and have maturities greater than ninety days, but not
     exceeding one year.

     The Company's investment securities are classified as available-for-sale
     and their carrying value approximates fair value because of the short
     maturity of these investments. The Company determines the appropriate
     classification of investment securities at the time of purchase and
     reevaluates such designation as of each balance sheet date. Realized and
     unrealized gains and losses were immaterial for the three and six months
     ended December 31, 1995 and 1994.

     Intangible assets and goodwill

     The cost of identified intangible assets (customer lists, purchased
     developed technology, etc.) is generally amortized on a straight-line basis
     over periods from 2 to 7 years. The excess cost over the fair value of net
     assets acquired (goodwill) is generally amortized on a straight-line basis
     over periods generally not exceeding 7 years. The carrying value of
     intangible assets and goodwill is reviewed on a regular basis for the
     existence of facts or circumstances both internally and externally that may
     suggest impairment. To date no such impairment has been indicated.

2.   Inventories

     Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                       December 31, 1995          June 30, 1995
                                       -----------------          -------------
<S>                                    <C>                        <C>
              Raw materials            $             786          $         684
              Work-in-process                      3,405                  1,845
              Finished goods                       3,379                  2,527
                                       -----------------          -------------
                                       $           7,570          $       5,056
                                       =================          =============
</TABLE>

3.   Investment in Target Therapeutics, Inc.

     During the quarter ended December 31, 1995, the Company sold 800,000 shares
     (adjusted for a two-for-one stock split) of Target Therapeutics, Inc.
     ("Target") common stock for a pre-tax gain of approximately $24.0 million.
     The Company also recorded an investment reserve of $3.1 million in the
     quarter ended December 31, 1995 to write-down the carrying value of certain
     equity investments due to a decline in value determined to be other than
     temporary.



                                       7
<PAGE>   8
     Condensed Statement of Income information for Target is shown below:

<TABLE>
<CAPTION>
                                                Three Months Ended       Six Months Ended
                                                   December 31,            December 31,
                                              --------------------     -------------------
       (in thousands)                           1995         1994        1995        1994
                                              --------     -------     -------     -------
<S>                                           <C>          <C>         <C>         <C>
       Revenues                               $ 18,980     $12,479     $34,721     $24,022
       Cost of Revenues                          5,560       3,891      10,607       7,642
       Expenses                                  8,674       6,316      16,125      12,002
       Interest and other income                   427         610       1,033       1,221
                                              --------     -------     -------     -------
       Income before income taxes                5,173       2,882       9,022       5,559
       Provision for income taxes               (1,552)       (984)     (2,701)     (1,990)
                                              --------     -------     -------     -------
       Net income                             $  3,621     $ 1,898     $ 6,321     $ 3,609
                                              ========     =======     =======     =======
</TABLE>


     Target's common stock is quoted on The Nasdaq Stock Market. The closing
     price of Target's stock at December 29, 1995 was $42.75 per share. During
     January 1996, the Company sold an additional 110,000 shares of its Target
     common stock at an average selling price of approximately $54 per share for
     net pre-tax proceeds of approximately $5.9 million. As of January 31, 1996,
     the Company's ownership position in Target was approximately 18%. During
     December, 1995, the Company's interest in Target fell below 20%. Subsequent
     to that date, given that the Company does not have the ability to exercise
     significant influence, it will account for the investment on the cost
     basis.

4.   Acquisition of LipoMatrix

     LipoMatrix is the developer and manufacturer of the Trilucent(TM) breast
     implant, which is the first commercially available triglyceride-filled
     mammary implant in the world. The Company recently introduced the
     Trilucent(TM) implant in Europe and plans to introduce it in most countries
     of Western Europe over the remainder of the current fiscal year.

     On August 22, 1995, as part of the Company's strategy to expand in its
     marketing franchise in cosmetic medicine, the Company entered into a stock
     purchase agreement ("Agreement") with certain of the stockholders of
     LipoMatrix to purchase approximately 50% of its outstanding securities on a
     fully diluted basis. Subsequently, the Company entered into discussions
     with certain of LipoMatrix's management and employees to purchase the
     remaining 10% of the outstanding securities of LipoMatrix on a fully
     diluted basis. This purchase increased the Company's ownership interest in
     LipoMatrix from approximately 40% to approximately 100% of the outstanding
     securities on a fully diluted basis. In connection with the Agreement,
     certain LipoMatrix's shareholders granted to the Company an irrevocable
     proxy covering the voting rights of approximately 50% of the outstanding
     securities.



                                       8
<PAGE>   9
     The acquisition of LipoMatrix, which was accounted for as a purchase, had
     an aggregate purchase price of approximately $23.7 million, which was
     determined as follows:

<TABLE>
<CAPTION>
                                                                (in thousands)
<S>                                                             <C>
            Payable to LipoMatrix's shareholders                   $ 20,990

            Assumption of LipoMatrix's liabilities in excess
            of LipoMatrix's assets                                      926

            Balance of the Company's investment in
            LipoMatrix prior to date of acquisition                     909

            Direct acquisition costs                                    830
                                                                   --------
                                                                   $ 23,655
                                                                   ========
</TABLE>

     The Company completed the closing of the aforementioned acquisition of
     LipoMatrix in January 1996 at which time aggregate cash payments of
     approximately $20 million were made by the Company to the selling
     LipoMatrix stockholders, as well as certain of LipoMatrix's current and
     former employees.

     The assets and liabilities assumed by the Company were recorded based on
     their independently appraised fair values at the date of the acquisition,
     which are subject to final adjustments which the Company believes will not
     be significant. Of the purchase price of $23.7 million, $14.8 million was
     allocated to in-process research and development, $3.8 million to
     intangible assets and $5.1 million to goodwill. The amount allocated to
     in-process research and development was expensed in the six months ended
     December 31, 1995. The Company's results of operations for the six months
     ended December 31, 1995 include LipoMatrix's results from August 22, 1995
     through December 31, 1995.

     The unaudited pro forma results of operations of the Company for the six
     months ended December 31, 1995 and 1994, respectively, assuming the
     acquisition of LipoMatrix occurred on July 1, 1994, on the bases described
     above with all material intercompany transactions eliminated, are as
     follows:

<TABLE>
<CAPTION>
     Six months ended December 31,                        1995             1994
     --------------------------------------------------------------------------
     (in thousands, except income per share)
<S>                                                    <C>              <C>
     Total revenues                                    $35,838          $35,302
     Net income                                         14,703              178
     Net income per share                                 1.62              .02
</TABLE>




                                       9
<PAGE>   10
     The unaudited pro forma net income and per share amounts above do not
     include a charge for in-process research and development of $14.8 million
     arising from the acquisition of LipoMatrix. The pro forma results reflect
     amortization of acquired goodwill and other intangible assets.

     The unaudited pro forma information is not necessarily indicative of the
     actual results of operations had the transaction occurred at the beginning
     of the periods indicated, nor should it be used to project the Company's
     results of operations for any future dates or periods.

5.   Stock Repurchase Program

     In February 1993, the Company's Board of Directors authorized a stock
     repurchase program. During the three months ended December 31, 1995, the
     Company repurchased 125,000 shares of its common stock at an average
     acquisition price of approximately $18 per share. Since the inception of
     the stock repurchase program in February 1993, the Company has repurchased
     1,675,000 shares of its common stock at an average acquisition price of
     approximately $21 per share. As of December 31, 1995 the Company is
     authorized to repurchase an additional 125,000 shares under the program.
     The Company currently plans to keep the repurchased shares as treasury
     stock and may use this stock in various company stock benefit plans.

6.   Income Taxes

     The provision for income taxes for the six months ended December 31, 1995
     and 1994 was computed by applying the estimated annual income tax rates of
     approximately 54% (excluding the impact of the acquired in-process research
     and development charge for which no tax benefit is available) and 43%,
     respectively, to income before income taxes. The higher effective tax rate
     in the current fiscal quarter and year to date period was primarily due to
     consolidated losses in foreign subsidiaries for which no tax benefit is
     available, increased equity losses of certain affiliates, and increased
     write-downs of certain equity investments.

7.   Per Share Information

     Income per share for the three and six months ended December 31, 1995 and
     1994 have been computed based upon the weighted average number of common
     stock and dilutive common stock equivalent shares outstanding. Shares used
     in the per share computations are as follows (in thousands):



                                       10
<PAGE>   11
<TABLE>
<CAPTION>
                                           Three Months Ended        Six Months Ended
                                               December 31,             December 31,
                                           ------------------        ----------------
                                           1995          1994        1995        1994
                                           ----          ----        ----        ----
<S>                                        <C>          <C>          <C>         <C>
     Primary:

       Common stock                        8,916        9,278        8,954       9,336
       Stock options                         143          187          133         181
                                           -----        -----        -----       -----

       Weighted average number of
           common stock and dilutive
           common stock equivalent 
           shares outstanding              9,059        9,465        9,087       9,517
                                           =====        =====        =====       =====
</TABLE>



                                       11
<PAGE>   12
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS


The Company

Collagen Corporation (the "Company") is a technology-based company that
develops, manufactures and markets biomedical devices for the treatment of
defective, diseased, traumatized or aging human tissues.

The Company's revenues are derived primarily from the sale of products
principally used in reconstructive and cosmetic applications, the treatment of
stress urinary incontinence, and in bone repair. The Company markets its
reconstructive and cosmetic products directly and through a network of
international distributors and its stress urinary incontinence and bone repair
products through marketing partners.

On August 22, 1995, as part of the Company's strategy to expand in its marketing
franchise in cosmetic medicine, the Company entered into a stock purchase
agreement ("Agreement") with certain of the stockholders of LipoMatrix,
Incorporated ("LipoMatrix"), a developer and manufacturer of the Trilucent(TM)
breast implant ("Trilucent(TM) Implant"), to purchase approximately 50% of the
outstanding securities of LipoMatrix on a fully diluted basis. Subsequently, the
Company entered into an agreement with certain of LipoMatrix's management
and employees to purchase the remaining 10% of the outstanding securities on a
fully diluted basis. This purchase increased the Company's ownership interest in
LipoMatrix from approximately 40% to approximately 100% of the outstanding
securities on a fully diluted basis. In connection with the Agreement, certain
LipoMatrix's shareholders granted to the Company an irrevocable proxy covering
the voting rights of approximately 50% of the outstanding securities.

The acquisition of LipoMatrix, which was accounted for as a purchase, had an
aggregate purchase price of approximately $23.7 million (See Note 4 to Condensed
Consolidated Financial Statements.). The Company completed the closing of the
aforementioned acquisition of LipoMatrix in January 1996 at which time aggregate
cash payments of approximately $20 million were made by the Company to the
selling LipoMatrix stockholders as well as certain of LipoMatrix's current and
former employees.

In addition to joint development arrangements, the Company has an active program
for developing new products through affiliated companies in which the Company
makes equity and debt investments. The Company believes the formation of new
companies allows each to focus its technology on select market segments to bring
products to market efficiently and to expand its proprietary knowledge.



                                       12
<PAGE>   13
Results of Operations

The following tables show for the periods indicated the percentage relationship
to product sales of certain items in the Consolidated Statements of Income.

                            PERCENT OF PRODUCT SALES

<TABLE>
<CAPTION>
                                3 Months             3 Months             6 Months             6 Months
                                  Ended                Ended                Ended                Ended
                              Dec. 31, 1995        Dec. 31, 1994        Dec. 31, 1995        Dec. 31, 1994
                              -------------        -------------        -------------        -------------
<S>                           <C>                  <C>                  <C>                  <C>
   Product sales                  100%                  100%                 100%                 100%

   Other revenues                  --                    --                    6%                   3%

   Costs and expenses:

        Cost of sales              27%                   25%                  27%                  27%

        Selling,
        general  and
        administrative             55%                   43%                  56%                  45%



        Research and
        development                16%                   13%                  16%                  15%
</TABLE>



Product sales. Product sales in the three months ended December 31, 1995 were
$18.9 million, which were unchanged from the same prior-year quarter. Product
sales of $33.8 million in the six months ended December 31, 1995 decreased
approximately $500,000 or 1%, compared to product sales of $34.3 million for the
same prior-year period.

Worldwide sales of plastic surgery and dermatological products for the three and
six months ended December 31, 1995 were $16.1 million and $29.0 million,
respectively, up 15% and 19% from sales of $14.0 million and $24.3 million,
respectively, for the same periods in the prior year. Total unit sales increased
16% and 25% on a worldwide basis compared with the same periods in the prior
year. The Company believes the increase in sales in the current fiscal year
periods was a result of an increase in advertising and public relations
campaigns, an improvement in the overall environment for products in the
Company's sector of the health care industry, strong distributor sales,
especially in Japan, the launch of new syringe configurations and increased
physician interest in cosmetic procedures not reimbursed by third-party payers.
Additionally, the increase in sales was attributable in part to the launch of
the Trilucent(TM) breast implant (a new triglyceride-filled 



                                       13
<PAGE>   14
mammary implant) in Europe. International sales were favorably impacted by
foreign exchange rates by approximately $300,000 and $500,000, respectively, for
the three and six months ended December 31, 1995 compared with the same periods
in the prior year. (See "Operating Income " below.) The Company anticipates
continued growth in future worldwide demand for its plastic surgery and
dermatological products, but at rates lower than those achieved in the current
fiscal year periods.

During the three and six months ended December 31, 1995, pursuant to terms of an
agreement between the Company and C.R. Bard Inc. ("Bard"), the Company's
marketing partner for Contigen(R) Bard(R) Collagen Implant ("Contigen(R)
Implant"), the Company recorded income of $1.7 million and $2.7 million,
respectively, from Bard based on Bard's direct sales of Contigen(R) Implant to
physician customers. In June 1995, the Company announced that it expected to
ship little, if any, Contigen(R) Implant to Bard during fiscal year 1996 due to
excess inventory at Bard. The Company recorded minimal income from shipments of
Contigen(R) Implant to Bard in the six months ended December 31, 1995. In the
three and six months ended December 31, 1994, respectively, the Company recorded
income of $3.0 million and $6.6 million, respectively, from shipments of
Contigen(R) Implant to Bard. The Company also recorded income of $1.0 million
and $1.5 million, respectively, from Bard's direct sales of Contigen(R) Implant
to physician customers during the three and six months ended December 31, 1994,
respectively. Future income from Bard's direct sales of Contigen(R) Implant to
physician customers is expected to continue but may fluctuate significantly due
to market demand. As a result of the foregoing, total revenues from Contigen(R)
Implant during fiscal 1996 are expected to decline by more than 50 percent
compared with fiscal 1995.

For the three and six months ended December 31, 1995, sales of Collagraft(R)
Bone Graft Matrix ("Collagraft(R) Implant") and Collagraft(R) Bone Graft Matrix
Strip ("Collagraft(R) Strip") to the Company's marketing partner, Zimmer, Inc.
("Zimmer"), were approximately $844,000 and $1.8 million, respectively, compared
to combined sales of Collagraft(R) Implant and Collagraft(R) Strip of
approximately $605,000 and $1.6 million to Zimmer in the same periods in the
prior year. The Company expects sales of the Collagraft(R) Implant and
Collagraft(R) Strip for the remainder of the fiscal year to be at lower
levels than those reported in the six months ended December 31, 1995.

A number of uncertainties exist surrounding the marketing and distribution of
Contigen(R) Implant, Collagraft(R) Implant and Collagraft(R) Strip. The
Company's primary means of distribution for these products is through third
party firms, Bard, in the case of Contigen(R) Implant, and Zimmer, in the case
of Collagraft(R) Implant and Collagraft(R) Strip. The Company's business and
financial results could be adversely affected in the event that either or both
of these parties are unable to effectively market the products, accurately
anticipate customer demand, or effectively manage industry-wide pricing and cost
containment pressures in health care.

Other revenues. Other revenues in the six months ended December 31, 1995
consisted of a final milestone payment of $2 million from Bard in accordance
with an agreement between the Company and Bard. The Company recorded a milestone
payment of $1 million from Bard in the same prior-year period.



                                       14
<PAGE>   15
Cost of sales. Cost of sales as a percentage of product sales was 27% for both
the three and six months ended December 31, 1995, compared with 25% and 27% for
the same periods in the prior year. The higher cost of sales as a percentage of
product sales in the current fiscal quarter was primarily due to the inclusion
of initial start up manufacturing costs of the Trilucent(TM) Implant, which is
currently being launched in Europe. Unit cost of sales for collagen-based
products was considerably higher in the current fiscal year due to decreased
production volumes, primarily of Contigen(R) Implant. Due to the high fixed
costs of the Company's manufacturing facility, unit cost of sales is expected to
remain highly dependent on the level of output at the Company's manufacturing
facility, which is heavily dependent on production of Contigen(R) Implant. For
all products other than the Trilucent(TM) breast implant, the Company
anticipates that unit cost will be higher in fiscal 1996 compared to fiscal 1995
as a result of minimal or no shipments of Contigen(R) Implant to Bard. Cost of
sales as a percentage of sales is also contingent on the product mix of future
sales for which demand and pricing characteristics may vary.

SG&A. Selling, general and administrative ("SG&A") expenses were $10.5 million
and $18.8 million for the three and six months ended December 31, 1995,
respectively, an increase of 29% and 22% over $8.1 million and $15.3 million,
respectively, for the same periods in the prior year. SG&A expenses as a
percentage of product sales were 55% and 56% for the three and six months ended
December 31, 1995, compared to 43% and 45% for the same periods in the prior
year. The increase in SG&A expenses in the current fiscal year resulted
primarily from the inclusion of the operating results of LipoMatrix and
amortization expenses on purchased intangibles and goodwill resulting from the
acquisition of LipoMatrix and higher U.S. advertising and public relation
campaign expenses. Additionally, the increase was attributable to the costs of
launching the Trilucent(TM) Implant in Europe, higher international spending
related to an overall increase in sales, and an overall unfavorable impact of
foreign exchange rates, slightly offset by lower commission expense related to
international sales. The Company expects SG&A expenses this fiscal year, both in
absolute dollars and as a percentage of product sales, to be at levels higher
than those of the prior year primarily due to the inclusion of the operating
results of LipoMatrix, and the continued costs of launching the Trilucent(TM)
Implant in Europe.

R&D. Research and development ("R&D") expenses, which include expenditures for
regulatory compliance, were $2.9 million and $5.5 million (16% of product sales)
for the three and six months ended December 31, 1995, respectively, an increase
of 17% and 9% over $2.5 million and $5.0 million (13% and $15% of product
sales), respectively, for the same periods in the prior year. The increase in
R&D spending in the current fiscal year periods was primarily attributable to
R&D spending incurred by LipoMatrix, partially offset by completion of soft
tissue programs and lower expenses related to ISO 9000 certification. The
Company expects R&D spending for this fiscal year, both in absolute dollars and
as a percentage of product sales, to be at levels higher than those of the prior
year due to the inclusion of the operating results of LipoMatrix.



                                       15
<PAGE>   16
Acquired in-process research and development. The charge for acquired in-process
research and development ("in-process R&D") of $14.8 million in the six months
ended December 31, 1995 was a non-recurring charge related to the acquisition of
LipoMatrix. The value attributed to the in-process R&D was determined by an
independent appraisal.

Operating income/loss. Operating income was approximately $417,000 for the three
months ended December 31, 1995, compared with $3.4 million from the same
prior-year period. The Company's consolidated operating loss was $12.3 million
for the six months ended December 31, 1995, compared with an operating income
$5.7 million from the same prior-year period. The loss in the current fiscal
year was primarily due to the acquisition-related, non-recurring, in-process R&D
charge of $14.8 million. Excluding this acquisition related, non-recurring R&D
charge, operating income would have been approximately $2.4 million, for the six
months ended December 31, 1995 as compared with operating income of $5.7 million
for the six months ended December 31, 1995. This decrease in the current fiscal
year was primarily due to inclusion of the operating results of LipoMatrix.

Compared with foreign exchange rates for the same prior-year quarter, the impact
of foreign exchange rates in the current fiscal quarter on operating income was
a net increase of $30,000, resulting from an increase of approximately $300,000
in revenue on equivalent local currency sales, partially offset by an increase
of approximately $270,000 in operating expenses. Compared with foreign exchange
rates for the same prior-year period, the impact of foreign exchange rates in
the six months ended December 31, 1995 on operating income was a net increase of
$50,000, resulting from an increase of approximately $500,000 in revenue on
equivalent local currency sales, partially offset by an increase of
approximately $450,000 in operating expenses.

Gain on investments, net. In the three months ended December 31, 1995, the
Company recorded a net gain on investments of $20.9 million, resulting from the
sale of 800,000 shares (adjusted for a two-for-one stock split) of Target
Therapeutics, Inc. ("Target") common stock for a pre-tax gain of approximately
$24.0 million, partially offset by the recording of an investment reserve of
$3.1 million to write-down the carrying value of certain equity investments due
to a decline in value determined to be other than temporary. In the six months
ended December 31, 1995, the Company recorded a net gain on investments of $31.4
million, resulting from the sale of 1,400,000 shares (adjusted for a two-for-one
stock split) of common stock of Target for a pre-tax gain of approximately $35.4
million, partially offset by the recording of investment reserves of an
aggregate of $4.0 million to write-down the carrying value of certain equity
investments due to a decline in value determined to be other than temporary.

Equity in earnings/losses of affiliate companies. Equity in earnings of
affiliate companies was $415,000 for the three months ended December 31, 1995,
compared to equity in losses of $240,000 for the same prior-year quarter. For
the six months ended December 31, 1995, equity in losses of affiliate companies
was $93,000, compared with losses of $369,000 in the same prior-year period. The



                                       16
<PAGE>   17
earnings in the current fiscal quarter and the decrease in equity in losses of
affiliate companies in the six months period in the current fiscal year over the
same periods in the prior year were primarily due to increased equity in
earnings in Target and decreased equity in losses of LipoMatrix, which the
Company discontinued accounting for under the equity method after its
acquisition in August 1995, partially offset by increased losses recognized by
other affiliate companies. Net equity in earnings of affiliate companies in the
current fiscal quarter consisted of approximately $942,000 of earnings from
Target, partially offset by approximately $527,000 of losses from affiliate
companies other than Target. The Company intends to continue to expand its new
product development activities through more equity investments in or loans to
affiliate companies. These affiliate companies typically are in an early stage
of development and may be expected to incur substantial losses which in turn
will have an adverse effect on the Company's results. Furthermore, there can be
no assurance that any investments in affiliates will result in any return nor as
to the timing of such return, or that the Company will not lose its entire
investment.

As of December, 1995, given the Company's recent sales of Target stock, the
Company has less than a 20% interest in Target and does not have the ability to
exercise significant influence. Therefore, in future quarters, the Company will
no longer account for Target under the equity method.

Interest income. Interest income was $297,000 and $451,000 for the three and six
months ended December 31, 1995, respectively, compared with $85,000 and $215,000
for the same periods in the prior year. The increase in the current fiscal year
was primarily due to higher average short-term investment balances resulting
primarily from the sale of Target stock and higher interest rates, partially
offset by the repurchase of 125,000 shares of the Company's common stock. The
Company expects it's cash balances to decline and may borrow additional funds
under the line of credit facility in connection with the purchase and funding of
LipoMatrix. Accordingly, the Company expects to record net interest expense
during fiscal year 1997 versus net interest income during fiscal year 1996.

Income tax. The provision for income taxes for the six months ended December 31,
1995 and 1994 was computed by applying the estimated annual income tax rates of
approximately 54% (excluding the impact of the acquired in-process R&D charge
for which no tax benefit is available) and 43%, respectively, to income before
income taxes. The higher effective tax rate in the current fiscal quarter and
year to date period was primarily due to consolidated losses in foreign
subsidiaries for which no tax benefit is available, increased equity losses of
certain affiliates, and increased write-downs of certain equity investments.

Liquidity and Capital Resources

At December 31, 1995, the Company's cash, cash equivalents and short-term
investments were $30 million compared to $9.4 million at June 30, 1995. Net cash
used in operating activities was approximately $9.8 million in the six months
ended December 31, 1995 compared to approximately $4.8 million of net cash
provided by 


                                       17
<PAGE>   18
operating activities for the same period in the prior year. The $9.8 million net
cash used in operating activities was mainly attributable to a $8.5 million
estimated tax payment made in December 1995, a significant portion of which was
related to estimated taxes due on the sales of Target stock. Net cash provided
by investing and financing activities of approximately $32.4 million was
primarily due to pre-tax proceeds of approximately $42.1 million from the sale
of 1,400,000 shares (adjusted for a two-for-one stock split) of common stock of
Target by the Company during the six months ended December 31, 1995, partially
offset by payments of approximately $6.2 million for additional investments in
and loans to affiliates, payments of approximately $3.0 million to repurchase
125,000 shares of the Company's common stock at an average acquisition price of
approximately $18.00 per share, and payments of an aggregate cash dividend of
approximately $676,000 to the Company's stockholders in July 1995.

The Company anticipates capital expenditures, equity investments in, and loans
to affiliate companies to be approximately $18.0 million in fiscal 1996. As of
December 31, 1995, the Company's capital expenditures, equity investments in,
and loans to affiliate companies totaled approximately $7.5 million. In November
1995, the Company's Board of Directors declared a cash dividend of 7.5 cents per
share to stockholders of record on December 15, 1995. This dividend totaled
approximately $676,000 and was paid to stockholders on January 15, 1996. The
Company anticipates that the Board of Directors will review the possibility of
declaring an additional dividend before the end of the current fiscal year.
Additionally, in January 1995 the Company was authorized by the Board of
Directors to repurchase an additional 300,000 shares of the Company's common
stock in the open market, pursuant to a stock repurchase program initiated in
February 1993 of which the Company is authorized to repurchase 125,000 shares as
of December 31, 1995.

The Company's principal sources of liquidity include cash generated from
operations and its cash, cash equivalents and short-term investments. In
addition, during the fiscal quarter ended September 30, 1994, the Company's
Board of Directors authorized the Company to sell portions of its holdings then
of approximately 2.3 million shares of Target's common stock. Between July 1,
1994 and December 31, 1995, the Company sold an aggregate of 1,890,000 (adjusted
for a two-for-one stock spilt) shares of Target common stock for an aggregate
pre-tax gain of approximately $41.4 million. The pre-tax sales proceeds were
approximately $50.5 million. The Company anticipates that stock sales pursuant
to the authorization will be made from time to time, under SEC Rule 144, with
the objective of generating cash, for, among other things, further investments
in both current and new affiliate companies. In addition, the Company
established a $7.0 million revolving credit facility with a bank in November
1994, which was subsequently amended to $15.0 million in December 1995. As of
January 31, 1996 $10.0 million of this credit facility remained unused. The
Company believes that these sources should be adequate to fund its anticipated
cash needs through at least the next twelve months.

Factors That May Affect Future Results of Operations

A large portion of the Company's revenues in recent years has come from its
international operations. As a result, the Company's operations and financial
results



                                       18
<PAGE>   19
could be significantly affected by international factors, including numerous
regulatory agencies, changes in foreign currency exchange rates and foreign
economic and political conditions generally. The Company's operating strategy
takes into account changes in these factors over time; however, the Company's
results of operations could be significantly affected in the short term by
fluctuations in foreign currency exchange rates or disruptions to shipments.

All of the Company's manufacturing capacity for collagen products, the majority
of its research and development activities, its corporate headquarters, and
other critical business functions are located near major earthquake faults. In
addition, all of the Company's manufacturing capacity for collagen-based
products and the Trilucent(TM) Implant are located in two primary facilities
(one for collagen-based products and one for the Trilucent(TM) Implant), with
the Company currently maintaining only limited amounts of finished product
inventory. While the Company has some limited protection in the form of disaster
recovery programs and basic insurance coverages, the Company's operating results
and financial condition would be materially adversely affected in the event of a
major earthquake, fire or other similar calamity, affecting its manufacturing
facilities.

The Company is involved in various legal actions arising in the course of
business, some of which involve product liability and intellectual property
claims. The Company operates in an industry susceptible to claims that may
allege that the use of the Company's technology or products has resulted in
adverse effects or infringes on third-party technology. With respect to product
liability claims, such risks will exist even with respect to those products that
have received or in the future may receive regulatory approval for commercial
sale. It is possible that adverse product liability or intellectual property
actions could negatively affect the Company's future results of operations.

The Company has been and may be in the future the subject of negative publicity,
which can arise from various sources, ranging from the news media on cosmetic
procedures in general to legislative and regulatory investigations specific to
the Company concerning, among other things, the safety and efficacy of its
products. The Company is confident of the safety and effectiveness of its
products; however, there can be no assurance that such investigations or
negative publicity from such investigations or from the news media will not
result in a material adverse effect on the Company's future financial position,
its results of operations or the market price of its stock. In addition,
significant negative publicity could result in an increased number of product
liability claims.

The Company's manufacturing activities and products sold in the United States
are subject to extensive and rigorous regulations by the FDA and by comparable
agencies in certain foreign countries where these products are manufactured or
distributed. The FDA regulates the manufacture and sale of medical devices in
the U.S., including labeling, advertising and record keeping. Failure to obtain,
or delays in obtaining, the required regulatory approvals for new products, as
well as product recalls, both inside and outside of the U.S. could adversely
affect the Company.



                                       19
<PAGE>   20
Due to the factors noted above, as well as other factors that may affect the
Company's operating results, the Company's future earnings and stock price may
be subject to significant volatility, particularly on a quarterly basis. Any
shortfall in revenue or earnings from levels expected by securities analysts
could have an immediate and significant adverse effect on the trading price of
the Company's common stock in any given period. Additionally, the Company may
not learn of, or be able to confirm, such shortfalls until late in the fiscal
quarter, or following the end of the quarter, which could result in an even more
immediate and adverse effect on the trading price of the Company's common stock.
Finally, the Company participates in a highly dynamic industry, which often
results in significant volatility of the Company's common stock.








                                       20
<PAGE>   21
                           PART II. OTHER INFORMATION
                              COLLAGEN CORPORATION

Item 1.  Legal Proceedings

          On December 21, 1994, the Company filed suit against Matrix
          Pharmaceutical, Inc., ("Matrix") alleging fraud, misappropriation of
          trade secrets, unfair competition, breach of fiduciary duty, inducing
          breach of contract, breach of duty of loyalty and tortuous
          interference. The Company alleges that Matrix, which uses collagen for
          certain drug delivery applications, unlawfully obtained the Company's
          confidential and proprietary information relating to Collagen's
          products and operations by hiring ten former employees that the
          Company alleges had access to or were knowledgeable about the
          Company's proprietary information. On February 12, 1995, Matrix denied
          the Company's allegations and filed a cross-complaint charging the
          Company with, among other things, unfair competition, defamation and
          restraint of trade. Matrix also has requested certain declamatory
          relief. Howard Palefsky, the Company's Chairman of the Board and Chief
          Executive Officer, was personally named as an additional defendant to
          the Matrix defamation charge. In September, 1995, Collagen filed an
          amended complaint naming two additional former employees, and alleging
          the acquisition of additional proprietary information obtained
          unlawfully. On November 3, 1995, those two additional former employees
          filed a cross-complaint against the Company and Mr. Palefsky, claiming
          damages for, among other things, libel, invasion of privacy and
          intentional infliction of emotional distress.

Item 2.   Changes in Securities

          None

Item 3.   Defaults Upon Senior Securities

          None

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

          A.  On October 25, 1995, the Registrant held its Annual Meeting of 
          Stockholders.



                                       21
<PAGE>   22
          B. As listed below, all of Management's nominees for directors were
          elected at the meeting pursuant to proxies solicited pursuant to
          Regulation 14 under the Securities and Exchange Act of 1934 (in
          thousands).

<TABLE>
<CAPTION>
                                              No. of     No. of      No. of      No. of        No. of
                                               Votes      Votes      Votes        Votes        Broker
                    Name of Nominee             For      Against    Withheld    Abstained     Non-Votes
                    ---------------           ------     -------    --------    ---------     ---------
                 <S>                          <C>        <C>        <C>         <C>            <C>
                  Anne L. Bakar                8,048        0           129         0             0
                  John R. Daniels, MD          8,054        0           123         0             0
                  William G. Davis             8,054        0           123         0             0
                  Reid W. Dennis               8,052        0           125         0             0
                  Craig W. Johnson             7,971        0           206         0             0
                  Terry R. Knapp, MD           8,050        0           127         0             0
                  Michael F. Mee               7,960        0           217         0             0
                  Howard D. Palefsky           8,052        0           125         0             0
                  Rodney Perkins, MD           7,956        0           221         0             0
                  Gary S. Petersmeyer          8,054        0           123         0             0
                  Roger H. Salquist            8,052        0           125         0             0
</TABLE>

           C. The adoption of an amendment to the 1990 Directors' Stock Option
           Plan to increase the number of shares of common stock reserved for
           issuance thereunder by 100,000 shares was approved with 6,958,848
           shares voting in favor, 1,147,918 shares voting against, and 70,193
           shares abstaining.

           D. The appointment of Ernst & Young LLP as independent auditors of
           the Company for the fiscal year ending June 30, 1996 was ratified
           with 8,125,013 shares voting in favor, 19,797 shares voting against
           and 32,149 shares abstaining.

Item 5.    Other Information

           Subsequent to December 31, 1995, Becky Stirn was appointed Vice
           President of Global Marketing Strategy and Pierre Comte as Vice
           President and Chief Operating Officer of Trilucent(TM) Operations.
           Effective January 31, 1996, Dr. Terry Knapp, the former President and
           Chief Executive Officer of LipoMatrix and a member of the Company's
           Board of Directors, resigned his positions at LipoMatrix and as a
           member of the Collagen Board of Directors. The Company and Dr. Knapp
           are currently discussing his future role.


                                       22
<PAGE>   23
           Item 6.  Exhibits and Reports on Form 8-K

           A.  Exhibits

           Exhibit 10.67 (a) - Second Amendment, Third Amendment, and Fourth
           Amendment dated June 30, 1995, September 30, 1995, and December 26,
           1995, respectively, to Credit Agreement dated November 15, 1994 by
           and between the Bank of New York and the Registrant (such Credit
           Agreement previously filed as Exhibit 10.67 with Registrant's
           Quarterly Report on Form 10-Q for the quarter-ended December 31,
           1994).

           Exhibit 10.76 - Amended and Restated Secured Loan Agreement between
           Ross R. Erickson and the Registrant dated December 31, 1995.

           Exhibit 10.77 - Promissory Note between Howard D. Palefsky and the
           Registrant dated December 11, 1995.

           Exhibit 27 - Financial Data Schedule.

           B.  Reports on Form 8-K

           The Company filed the following report on Form 8-K during the fiscal
           quarter ended December 31, 1995, which related to the Company's
           acquisition of LipoMatrix, Incorporated.

           Form 8-K/A
           Report Date:  August 22, 1995
           Filing Date:  November 6, 1995
           Item 7a - Financial Statements of Acquired Business
           Item 7b - Pro Forma Financial Statements
           Item 7c - Exhibits



                                       23
<PAGE>   24
                              COLLAGEN CORPORATION
                                INDEX TO EXHIBITS

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

Exhibit 10.67 (a)                  Second Amendment, Third Amendment, and 
                                   Fourth Amendment dated June 30, 1995, 
                                   September 30, 1995, and December 26, 1995, 
                                   respectively, to Credit Agreement dated 
                                   November 15, 1994 by and between the Bank 
                                   of New York and the Registrant (such Credit
                                   Agreement previously filed as Exhibit 10.67
                                   with Registrant's Quarterly Report on Form 
                                   10-Q for the quarter-ended December 31, 
                                   1994).


Exhibit 10.76                      Amended and Restated Secured Loan Agreement 
                                   between Ross R. Erickson and the Registrant
                                   dated December 31, 1995.

Exhibit 10.77                      Promissory Note between Howard D. Palefsky 
                                   and the Registrant dated December 11, 1995.

Exhibit 27                         Financial Data Schedule.



                                       24
<PAGE>   25
                                   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.

                                            COLLAGEN CORPORATION

Date:  February 14, 1996                    /s/David Foster
                                            ------------------------------------
                                            David Foster
                                            Vice President and
                                            Chief Financial Officer
                                            (Principal Financial
                                            and Accounting Officer)


                                       25