<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC  20549


                                   FORM 10-Q

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


FOR THE QUARTER ENDED MARCH 31, 1999         COMMISSION FILE NO.  0-20948
                                                                  -------

                                AUTOIMMUNE INC.
            (Exact Name of Registrant as Specified in its Charter)



             DELAWARE                                    13-348-9062
     (State of Incorporation)              (I.R.S. Employer Identification No.)



                    128 SPRING STREET, LEXINGTON, MA  02421
                   (Address of Principal Executive Offices)


                                (781) 860-0710
               (Registrant's Telephone No., including Area Code)


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 filed such reports), and (2) has been subject to such
filing requirements for the past 90 days.

          Yes   X              No _____
              -----                


 Number of shares outstanding of the registrant's Common Stock as of April 30,
                                     1999:

     Common Stock, par value $.01                16,555,949 shares outstanding

<PAGE>
 
                                AUTOIMMUNE INC.

                         QUARTER ENDED MARCH 31, 1999

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION                                                                 Page Number
<S>                                                                                            <C>
Item 1 - Financial Statements

          Balance Sheet
             December 31, 1998 and March 31, 1999...........................................        2

          Statement of Operations
             for the three months ended March 31, 1998 and 1999 and for the period
             from inception (September 9, 1988) through March 31, 1999......................        3

          Statement of Cash Flows
             for the three months ended March 31, 1998 and 1999
             and for the period from inception (September 9, 1988)
             through March 31, 1999.........................................................        4

          Notes to the Unaudited Financial Statements.......................................        5

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


PART II - OTHER INFORMATION

Item 6(b) - Reports on Form 8-K.............................................................        9

Signatures..................................................................................       10
</TABLE>

                                       1

<PAGE>
 
                                AUTOIMMUNE INC.
                         (A DEVELOPMENT STAGE COMPANY)
                                 BALANCE SHEET
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,              MARCH 31,
                                                                           1998                     1999
                                                                      --------------           --------------
<S>                                                                   <C>                      <C>
ASSETS
Current assets:
   Cash and cash equivalents                                          $   4,801,000            $   5,734,000
   Marketable securities                                                 12,727,000                8,537,000
   Interest receivable                                                       77,000                   70,000
   Prepaid expenses and other current assets                                129,000                  160,000
                                                                      --------------           --------------

          Total current assets                                           17,734,000               14,501,000    

Fixed assets, net                                                           538,000                  457,000
Other assets                                                                 54,000                   54,000   
                                                                      --------------           --------------

                                                                      $  18,326,000            $  15,012,000
                                                                      ==============           ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                   $     677,000            $     975,000
   Accrued expenses                                                         539,000                  448,000
   Current portion of obligations under capital leases                      193,000                  121,000
                                                                      --------------           --------------

          Total current liabilities                                       1,409,000                1,544,000
                                                                      --------------           --------------

Obligations under capital leases                                                  -                        -   
                                                                      --------------           --------------

Commitments and contingencies
                                                                      --------------           --------------

Stockholders' equity:
   Common stock, $.01 par value; 25,000,000 shares
    authorized; 16,548,995 and 16,555,949 shares issued and           
    outstanding at December 31, 1998 and March 31, 1999,
    respectively                                                            166,000                  166,000 
   Additional paid-in capital                                           117,551,000              117,564,000
   Deficit accumulated during the development stage                    (100,805,000)            (104,262,000)
   Valuation allowance for marketable securities                              5,000                        -
                                                                      --------------           --------------

          Total stockholders' equity                                     16,917,000               13,468,000  
                                                                      --------------           --------------
                                        
                                                                      $  18,326,000            $  15,012,000
                                                                      ==============           ==============
</TABLE> 

                                       2

<PAGE>
 
                                AUTOIMMUNE INC.
                         (A DEVELOPMENT STAGE COMPANY)
                            STATEMENT OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                 PERIOD FROM
                                                                                                  INCEPTION
                                                       THREE MONTHS ENDED                    (SEPTEMBER 9, 1988)
                                               MARCH 31,                MARCH 31,                  THROUGH
                                                 1998                     1999                 MARCH 31, 1999
                                             -------------            -------------            --------------
<S>                                          <C>                      <C>                    <C>
Revenue:
  Option fees                                $          -             $          -             $   2,200,000
  Research and development
    revenue under collaborative
    agreements                                          -                        -                   955,000
                                             -------------            -------------            --------------

       Total revenue                                    -                        -                 3,155,000 
                                             -------------            -------------            --------------

Costs and expenses:
  Research and development:
    Related party                                 317,000                  384,000                18,546,000  
    All other                                   2,544,000                2,790,000                85,896,000
  General and administrative                      441,000                  491,000                13,730,000
                                             -------------            -------------            --------------

       Total costs and expenses                 3,302,000                3,665,000               118,172,000        
                                             -------------            -------------            --------------

Interest income                                   456,000                  209,000                11,061,000
Interest expense                                   (2,000)                  (1,000)                 (302,000)
                                             -------------            -------------            --------------

                                                  454,000                  208,000                10,759,000  
                                             -------------            -------------            --------------

       Net Loss                              $ (2,848,000)            $ (3,457,000)            $(104,258,000)
                                             =============            =============            ==============


Net loss per share - basic                   
  and diluted                                $      (0.17)            $      (0.21)
                                             =============            =============
Weighted average shares
  outstanding - basic and diluted              16,417,461               16,555,640   
                                             =============            =============                    
</TABLE> 

                                       3
<PAGE>
 
                                AUTOIMMUNE INC.
                         (A DEVELOPMENT STAGE COMPANY)
                            STATEMENT OF CASH FLOWS
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                                                PERIOD FROM       
                                                                                                                 INCEPTION        
                                                                                                          (SEPTEMBER 9, 1988)   
                                                                      THREE MONTHS ENDED                       THROUGH         
                                                              MARCH 31, 1998       MARCH 31, 1999              MARCH 31, 1999      
                                                            ----------------       --------------         ------------------- 
<S>                                                         <C>                    <C>                    <C>                    
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                    $  (2,848,000)           $ (3,457,000)          $ (104,258,000)  
Adjustment to reconcile net loss to net cash
  used by operating activities:
   Interest expense related to demand notes
     converted into Series A mandatorily
     redeemable covertible preferred stock                              -                       -                   48,000
   Patent costs paid with junior convertible
     preferred and common stock                                         -                       -                    3,000   
   Depreciation and amortization                                  152,000                 132,000                4,285,000
   (Gain)/loss and sale/disposal of fixed assets                        -                  (5,000)                 601,000
   Decrease in capitalized patent costs                                 -                       -                  563,000
   (Increase) decrease in interest receivable                     100,000                   7,000                  (70,000)
   (Increase) decrease in prepaid expenses and other
     current expenses                                            (241,000)                (31,000)                (160,000)
   Increase in accounts payable                                   418,000                 298,000                  975,000
   Increase (decrease) in accrued expenses                       (138,000)                (91,000)                 448,000
                                                            --------------           -------------          ---------------   

          Net cash used by operating activities                (2,557,000)             (3,147,000)             (97,565,000)    
                                                            --------------           -------------          ---------------   

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale marketable securities          (11,342,000)             (3,303,000)            (260,707,000) 
Proceeds from sale/maturity of available-for-sale      
  marketable securities                                         5,609,000               7,488,000              241,159,000
Proceeds from maturity of held-to-maturity
  marketable securities                                                 -                       -               11,011,000
Proceeds from sale of equipment                                         -                   5,000                   70,000
Purchase of fixed assets                                                -                 (51,000)              (5,288,000)
Increase in patent costs                                                -                       -                 (563,000)
Increase in other assets                                          (24,000)                      -                 (179,000)
                                                            --------------           -------------          ---------------   

          Net cash provided (used) by investing activities      (5,757,000)             4,139,000              (14,497,000)    
                                                            --------------           -------------          ---------------   

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale-leaseback of fixed assets                             -                      -                2,872,000         
Payments on obligations under capital leases                       (71,000)               (72,000)              (2,751,000) 
Net proceeds from issuance of mandatorily redeemable
  convertible preferred stock                                            -                      -               10,011,000
Proceeds from bridge notes                                               -                      -                  300,000
Proceeds from issuance of common stock                             136,000                 13,000              105,164,000
Proceeds from issuance of convertible notes payable                      -                      -                2,200,000
                                                            --------------           -------------          ---------------   

          Net cash provided (used) by financing activities          65,000                (59,000)             117,796,000 
                                                            --------------           -------------          ---------------   

Net increase (decrease) in cash and cash equivalents            (8,249,000)               933,000                5,734,000

Cash and cash equivalents, beginning of period                  13,833,000              4,801,000                        -
                                                            --------------           -------------          ---------------   

Cash and cash equivalents, end of period                    $    5,584,000           $  5,734,000           $    5,734,000  
                                                            ==============           =============          ===============   
</TABLE> 

                                       4

<PAGE>
 
                                AUTOIMMUNE INC.

                  NOTES TO THE UNAUDITED FINANCIAL STATEMENTS


1.   INTERIM FINANCIAL DATA

     The interim financial data as of March 31, 1999 and for the three month
     periods ended March 31, 1998 and 1999, and for the period from inception
     (September 9, 1988) through March 31, 1999 are unaudited; however, in the
     opinion of the Company, these interim data include all adjustments,
     consisting only of normal recurring adjustments necessary for a fair
     presentation of the results for these interim periods. These financial
     statements should be read in conjunction with the financial statements and
     the notes thereto for the period ended December 31, 1998 including in the
     Company's Form 10-K. Results for interim periods are not necessarily
     indicative of results for the entire year.


2.   CASH EQUIVALENTS AND MARKETABLE SECURITIES

     The following is a summary of cash equivalents held by the Company. Cash
     equivalents are carried at fair market value, which approximated amortized
     cost at December 31, 1998 and March 31, 1999:

<TABLE>
<CAPTION>
                                             DECEMBER 31,         MARCH 31,
                                                 1998               1999
                                             ------------        -----------
     <S>                                     <C>                 <C>
     Money market                            $   924,000         $   795,000
     U.S. Government debt securities           2,441,000           4,651,000
                                             -----------         -----------
                                             $ 3,365,000         $ 5,446,000
                                             ===========         ===========
</TABLE>


The following is a summary of available-for-sale marketable securities held by 
the Company at December 31, 1998 and March 31, 1999 which are carried at fair 
market value:

<TABLE>
<CAPTION>
                           MATURITY              FAIR        UNREALIZED         UNREALIZED           AMORTIZED
                             TERM               VALUE          GAINS              LOSSES                COST
                         -------------       ------------    ----------         ----------          ------------
<S>                      <C>                 <C>             <C>                <C>                 <C>
DECEMBER 31, 1998

U.S. Government
 debt securities         within 1 year       $ 12,727,000     $ 6,000           $ (1,000)           $ 12,722,000
                                             ============    ==========         ==========          ============


MARCH 31, 1999

U.S. Government
 debt securities         within 1 year       $  8,537,000     $     -           $      -            $  8,537,000
                                             ============    ==========         ==========          ============   
</TABLE>


All of the Company's marketable securities are classified as current at December
31, 1998 and March 31, 1999 as these funds are highly liquid and are available 
to meet working capital needs and to fund current operations. Gross realized 
gains and losses on sales of marketable securities for the three month periods 
ended March 31, 1998 and March 31, 1999 were not significant.

Marketable securities which were purchased and sold in periods prior to adoption
of Statement of Financial Accounting Standards (SFAS) No. 115 on January 1, 1994
other than held-to-maturity marketable securities, are included in the category 
available-for-sale marketable securities in the "period from inception" column 
of the statement of cash flows.

                                       5

<PAGE>
 
                                AUTOIMMUNE INC

                  NOTES TO THE UNAUDITED FINANCIAL STATEMENTS


3.   FIXED ASSETS

     Fixed assets consist of the following:

<TABLE>
<CAPTION>
                                                    ESTIMATED
                                                   USEFUL LIFE              DECEMBER 31,               MARCH 31,
                                                     (YEARS)                    1998                     1999
                                                  --------------           ---------------         --------------
     <S>                                          <C>                      <C>                      <C> 
     Laboratory equipment                             2 - 5                $ 1,394,000              $ 1,376,000      
     Office and computer equipment                    4 - 5                    434,000                  434,000 
     Leasehold improvements                           2 - 7                    461,000                  461,000 
                                                                           ---------------         --------------

                                                                             2,289,000                2,271,000
     Less - accumulated depreciation and               
       amortization                                                          1,751,000                1,814,000
                                                                           ---------------         --------------

                                                                           $   538,000              $   457,000
                                                                           ===============         ==============
</TABLE> 

     In the first quarter of 1999, a fixed asset with a cost of $70,000 and 
     accumulated depreciation of $70,000 was sold for $5,000.

4.   ACCRUED EXPENSES

     Accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                              DECEMBER 31,     MARCH 31,
                                                 1998            1999 
                                              ------------     ---------
     <S>                                      <C>              <C> 
     Accrued employee costs                   $   322,000      $ 282,000
     Accrued professional fees                    217,000        166,000
                                              ------------     ---------

                                              $   539,000      $ 448,000
                                              ============     =========
</TABLE> 


5.   COMPREHENSIVE INCOME

     In the first quarter of 1998, the Company adopted SFAS No. 130, Reporting
     Comprehensive Income. This statement requires disclosure of comprehensive
     income and its components in interim and annual reports. Comprehensive
     income includes all changes in stockholders' equity during a period except
     those resulting from investments by stockholders and distributions to
     stockholders. Accordingly, the components of comprehensive income include
     net income and unrealized gains and losses on available-for-sale
     securities. Comprehensive loss for the three month periods ended March 31,
     1998 and 1999 was $2,851,000 and $3,462,000, respectively.

     Net unrealized loss on marketable securities is comprised of the following:

<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED
                                                                          MARCH 31,
                                                                 1998                   1999
                                                               --------               --------
     <S>                                                       <C>                    <C>
     Unrealized holding gain (loss) arising during
       the period                                              $ (1,000)              $ (2,000)
     Reclassification adjustment for (gain) loss
       included in net income                                    (2,000)                (3,000)
                                                               --------               -------- 

     Net unrealized gain (loss) on marketable securities       $ (3,000)              $ (5,000)
                                                               ========               ======== 
</TABLE> 

                                       6

<PAGE>
 
                                AUTOIMMUNE INC

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

RESULTS OF OPERATIONS

OVERVIEW

Since its inception through March 31, 1999, the Company has incurred ongoing
losses from operations and has cumulative losses as of March 31, 1999 totaling
$104,258,000. To date, the Company has not recorded any revenues from the sale
of products. Revenues recorded through March 31, 1999 were earned in connection
with contract research and the granting of certain short-term rights.

The Company expects to remain in the development stage for the foreseeable 
future and accordingly, expects to continue to incur substantial losses.

THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1999

Research and development expenses were $2,861,000 and $3,174,000 for the three 
month periods ended March 31, 1998 and 1999, respectively. The increase is due 
to increased research and clinical trial activity levels.

General and administrative expenses were $441,000 and $491,000 for the three 
month periods ended March 31, 1998 and 1999, respectively. The increase in 
general and administrative expenses is due primarily to increased personnel 
costs and corporate activity.

Net interest income was $454,000 and $208,000 for the three month periods ended 
March 31, 1998 and 1999, respectively. The decrease is due to a lower balance of
cash available for investment.

The net loss was $2,848,000 and $3,457,000 for the three month periods ended 
March 31, 1998 and 1999, respectively. The change reflects an increase in 
personnel costs, research and clinical trial activity levels. The net loss per 
share increased from $0.17 for the three months ended March 31, 1998 to $0.21 
for the three months ended March 31, 1999.

LIQUIDITY AND CAPITAL RESOURCES

The Company's needs for funds have historically fluctuated from period to period
as it has increased or decreased the scope of its research and development 
activities. Since inception, the Company has funded these needs almost entirely 
through sales of its equity securities.

The Company's working capital and capital requirements will depend on numerous 
factors, including the progress of the Company's research and development 
activities, the level of resources that the Company devotes to the development, 
clinical, regulatory and marketing aspects of its products, the extent to which 
it proceeds by means of collaborative relationships with pharmaceutical 
companies and its competitive environment. The Company believes that current 
cash and marketable securities, and the interest earned from the investment 
thereof, will be sufficient to meet the Company's operating expenses and capital
requirements through the Phase III clinical program of Colloral. At the 
appropriate time, the Company intends to seek additional funding through public 
or private equity or debt financings, collaborative arrangements with 
pharmaceutical companies or from other sources. If additional funds are 
necessary but not available, the Company will have to reduce certain areas of 
research, product development, manufacturing or marketing activity, or otherwise
modify its business strategy, and its business will be materially adversely 
affected.

                                       7

<PAGE>
 
                                AUTOIMMUNE INC

In order to preserve principal and maintain liquidity, the Company's funds are 
invested in U.S. Treasury obligations and other short-term instruments. As of 
March 31, 1999, the Company's cash and cash equivalents and marketable 
securities totaled $14,271,000. Current liabilities at March 31, 1999 were 
$1,544,000.

YEAR 2000 PREPAREDNESS

The Company's management has completed its review of Year 2000 issues and 
believes that Year 2000 issues will not have a material effect on the Company's 
business, results of operations or financial condition. The major functions of 
the Company that utilize computers and could be susceptible to Year 2000 issues 
are manufacturing, clinical data and analysis, financial and general office. The
scope of the Year 2000 issues for each of these functions is described below.

Manufacturing. The Company's internal bulk manufacturing process is a mechanical
process. Neither the process nor the raw materials used in the process are 
expected to be affected by Year 2000 issues. The Company maintains data relating
to its manufacturing processes on databases using standard software packages 
that are Year 2000 compliant. It also maintains all data in hard copy format. 
The Company has been upgrading its hardware systems used to maintain 
manufacturing data as system requirements have changed and these upgrades have 
included Year 2000 solutions. The Company anticipates that its hardware systems
will be fully upgraded and Year 2000 compliant before December 31, 1999. The
Company uses outside vendors to perform filling, labeling and distribution
services in connection with its manufacturing process. The Company maintains
data relating to such services both in hard copy format and on databases. The
vendor that the Company anticipates using for these services has represented
that it will be Year 2000 compliant before December 31, 1999. In any event, hard
copy records can be used and will meet the Company's requirements.

Clinical Data and Analysis. The firm AutoImmune has contracted with to manage 
and analyze clinical data has represented to the Company that it is Year 2000 
compliant. In addition, the data that the Company intends to submit to the FDA 
will be based on patient activity occurring prior to January 1, 2000 and is in a
format that can be accessed with standard programs.

Financial. The Company has been upgrading its financial systems as its 
requirements have changed and these upgrades have included Year 2000 solutions. 
The final component is expected to be upgraded in the second quarter of 1999 and
will be Year 2000 compliant. These upgrades would have occurred regardless of 
Year 2000 concerns.

General Office. The Company's office computers have been updated as the 
Company's requirements have increased. As a result, almost all are Year 2000
compliant. The Company's network and phone systems require Year 2000 software 
upgrades that are scheduled for installation in the last quarter of 1999. The 
estimated cost of these upgrades is $20,000.

Impact of Year 2000. The Company's exposure to Year 2000 is limited by the 
nature of its operations. The Company is not electronically dependent on its 
vendors. Its software packages, other than its network and phone systems 
packages, are standard and the Company's hardware is already Year 2000 compliant
or is scheduled to be upgraded before December 31, 1999. These upgrades to the 
Company's hardware systems would have occurred regardless of the Year 2000. In 
the worst case scenario, the Company could easily revert to using hard copies. 
This scenario would be more time consuming, but would not be expected to result 
in revenue losses or liability to third parties.

                                       8

<PAGE>
 
                                AUTOIMMUNE INC.



PART II - OTHER INFORMATION


Item 6(b) - REPORTS ON FORM 8-K

               No reports on Form 8-K have been filed during the quarter for 
          which this report is filed.

                                       9

<PAGE>
 
                                AUTOIMMUNE INC.


SIGNATURES

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


                                   AUTOIMMUNE INC.

Date: May 11, 1999                 /s/ Robert C. Bishop
                                   ----------------------------------------
                                   Robert C. Bishop
                                   President and Chief Executive Officer


                                   /s/ Heather A. Ellerkamp
                                   ----------------------------------------
                                   Heather A. Ellerkamp     
                                   Director of Finance and Treasurer

                                      10