<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   -----------
                                    FORM 10-Q
                                   -----------

(Mark One)


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


FOR THE PERIOD ENDED        JUNE 30, 1998

                                       OR

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


COMMISSION FILE NUMBER: 0-28324


                           BIOTRANSPLANT INCORPORATED
             (Exact name of registrant as specified in its charter)


           DELAWARE                                            04-3119555
  (State or other jurisdiction of                          (I.R.S. Employer
  incorporation or organization)                         Identification No.)


                 CHARLESTOWN NAVY YARD, BUILDING 75 THIRD AVENUE
                        CHARLESTOWN, MASSACHUSETTS 02129
                    (Address of principal executive offices)


                                 (617) 241-5200
              (Registrant's telephone number, 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 file such reports), and (2) has been subject to such
filing requirements for the past 90 days:

                     Yes   X         No
                         ----           ----




As of July 31, 1998, there were 8,578,743 shares of the Registrant's Common
Stock outstanding.


<PAGE>


                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                                    FORM 10-Q
                                      INDEX




                           PART I. FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                                                                     Page No.
                                                                                                                     --------
<S>      <C>                                                                                                         <C>
ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

         Condensed Consolidated Balance Sheets as of December 31, 1997 and June 30, 1998...............................3

         Condensed Consolidated Statement of Operations for the three and six months ended June 30, 1997
                  and 1998, and for the period from inception (March 20, 1990) to June 30, 1998........................4

         Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 1997 and 1998,
                  and for the period from inception (March 20, 1990) to June 30, 1998..................................5

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

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS............................................................................8


                                                 PART II. OTHER INFORMATION

ITEM 1. - 6. .........................................................................................................11

                  SIGNATURES..........................................................................................12

</TABLE>


                                      2

<PAGE>

PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                                                    June 30,
                                                                                             December 31,             1998
                                                                                                 1997              (Unaudited)
                                                                                          -------------------    ----------------
<S>                                                                                       <C>                    <C>
ASSETS
Current assets:
     Cash and cash equivalents                                                                $    9,784,229        $ 10,541,253
     Short-term investments                                                                       19,862,617          12,201,247
     Accounts receivable                                                                                   -                   -
     Prepaid expenses and other current assets                                                     1,238,500             988,695
                                                                                          -------------------    ----------------
         Total current assets                                                                     30,885,346          23,731,195

Property and equipment - net                                                                       1,003,249             893,199
Long-term investments                                                                              1,015,202                   -
Other assets                                                                                          34,727              18,135
                                                                                          ===================    ================

TOTAL ASSETS                                                                                   $  32,938,524        $ 24,642,529
                                                                                          ===================    ================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Current obligation under capital leases                                                 $       177,667             $11,317
     Accounts payable                                                                                289,535             309,530
     Accrued expenses                                                                              2,182,216           1,878,033
     Deferred revenue                                                                              4,125,000             875,000
                                                                                          -------------------    ----------------
         Total current liabilities                                                                 6,774,418           3,073,880
                                                                                          -------------------    ----------------

Long-term obligation under capital leases                                                             10,042               4,170
                                                                                          -------------------    ----------------

Stockholders' equity:
     Preferred stock, $.01 par value, authorized 2,000,000 shares; issued and
         outstanding - no shares                                                                           -                   -
     Common stock, $.01 par value, authorized 25,000,000 shares; issued and
         outstanding 8,575,390 shares at December 31, 1997 and 8,578,743 shares
         at June 30, 1998
                                                                                                      85,754              85,787
     Additional paid-in capital                                                                   65,330,483          65,342,146
     Accumulated deficit                                                                         (39,262,173)        (43,863,454)
                                                                                          -------------------    ----------------
         Total stockholders' equity                                                               26,154,064          21,564,479
                                                                                          ===================    ================

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                     $  32,938,524        $ 24,642,529
                                                                                          ===================    ================
</TABLE>



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


                                      3

<PAGE>


                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)


<TABLE>
<CAPTION>

                                           Three Months Ended                       Six Months Ended                  Cumulative
                                                June 30,                                June 30,                         Since
                                        1997                1998                1997                 1998              Inception
                                  -----------------   -----------------    ----------------    -----------------   -----------------
<S>                               <C>                 <C>                  <C>                 <C>                 <C>
Revenues:
     License fees                   $    3,000,000     $             -       $   3,000,000       $            -    $  14,000,000
     Research and development            1,750,000             875,000           3,000,000            3,250,000       24,625,000
     Interest income                       468,085             342,728             872,802              759,311        4,312,189
                                  -----------------   -----------------    ----------------    -----------------   --------------
         Total revenues                  5,218,085           1,217,728           6,872,802            4,009,311       42,937,189
                                  -----------------   -----------------    ----------------    -----------------   --------------

Expenses:
     Research and development            3,863,044           3,578,174           7,231,287            7,263,756       69,795,208
     General and administrative            933,653             584,240           1,602,237            1,338,657       15,247,280
     Interest                               16,541               2,654              36,647                8,179        1,758,155
                                  -----------------   -----------------    ----------------    -----------------   --------------
         Total expenses                  4,813,238           4,165,068           8,870,171            8,610,592       86,800,643
                                  -----------------   -----------------    -----------------   -----------------   --------------

Net (income) loss                    $     404,847     $    (2,947,340)      $  (1,997,369)      $   (4,601,281)   $ (43,863,454)
                                  =================   =================    ================    =================   ==============

Basic and diluted net income
     (loss) per common share         $        0.05     $         (0.34)      $       (0.23)      $        (0.54)
                                  =================   =================    ================    =================

Weighted average common shares
     outstanding                         8,569,006           8,578,743           8,565,216            8,578,724
                                  =================   =================    ================    =================
</TABLE>


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


                                      4

<PAGE>

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


<TABLE>
<CAPTION>

                                                                                      Six Months Ended                 Cumulative
                                                                                          June 30,                        Since
                                                                                  1997                1998              Inception
                                                                            -----------------   -----------------    ---------------
<S>                                                                         <C>                 <C>                  <C>
Cash flows from operating activities:
     Net loss                                                                  $  (1,997,369)      $  (4,601,281)   $(43,863,454)
     Adjustments to reconcile net loss to net cash provided by
        (used in) operating activities:
         Depreciation and amortization                                               292,807             219,459       3,345,687
         Noncash interest expense                                                          -                   -         465,477
         Noncash expenses related to options and warrants                             16,594              16,594       1,168,652
         Changes in current assets and liabilities:
              Accounts receivable                                                   (250,000)                  -               -
              Deposits and prepaid expenses                                          379,737             249,805        (988,695)
              Accounts payable                                                        30,081              19,995         309,530
              Accrued expenses                                                       489,938            (304,184)      1,878,032
              Deferred revenue                                                     3,500,000          (3,250,000)        875,000
                                                                            -----------------   -----------------   -------------
         Net cash provided by (used in) operating activities                       2,461,788          (7,649,612)    (36,809,771)
                                                                            -----------------   -----------------   -------------

Cash flows from investing activities:
     Purchases of property and equipment                                            (111,497)           (109,410)     (3,615,691)
     Disposal of property and equipment, net                                               -                   -          28,040
     Purchases of investments                                                     (9,119,176)         (6,356,467)    (63,607,185)
     Proceeds from investments                                                    13,244,081          15,033,038      51,405,937
                                                                            -----------------   -----------------   -------------
         Net cash provided by (used in) investing activities                       4,013,408           8,567,161     (15,788,899)
                                                                            -----------------   -----------------   -------------

Cash flows from financing activities:
     Proceeds from convertible notes payable to stockholders                               -                   -       9,400,000
     Payments of obligations under capital leases                                   (209,979)           (172,221)     (2,178,723)
     Proceeds from sale/leaseback of equipment                                             -                   -         771,968
     Net proceeds from equipment leases                                                    -                   -       1,422,240
     Net proceeds from sale of redeemable convertible preferred stock                      -                   -      25,661,526
     Proceeds from sale of common stock                                               37,981              11,696      28,062,912
                                                                            -----------------   -----------------   -------------
         Net cash provided by (used in) financing activities                        (171,998)           (160,525)     63,139,923
                                                                            -----------------   -----------------   -------------

Net increase in cash and cash equivalents                                          6,303,198             757,024      10,541,253

Cash and cash equivalents, beginning of period                                     6,563,957           9,784,229               -
                                                                            -----------------   -----------------   -------------

Cash and cash equivalents, end of period                                       $  12,867,155       $  10,541,253   $  10,541,253
                                                                            -----------------   -----------------   -------------
                                                                            -----------------   -----------------   -------------

Supplemental disclosures and noncash transactions:
     Increase in equipment under capital leases                                $           -       $          -    $  (2,210,270)
                                                                            -----------------   -----------------   -------------
                                                                            -----------------   -----------------   -------------

     Conversion of convertible notes payable to stockholders and
         accrued interest into redeemable convertible preferred stock          $           -       $          -     $  9,905,710
                                                                            -----------------   -----------------   -------------
                                                                            -----------------   -----------------   -------------

     Issuance of warrants                                                      $           -       $          -     $    741,737
                                                                            -----------------   -----------------   -------------
                                                                            -----------------   -----------------   -------------

     Interest paid during the period                                           $      15,285       $       6,036    $  1,393,407
                                                                            -----------------   -----------------   -------------
                                                                            -----------------   -----------------   -------------

</TABLE>


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


                                      5

<PAGE>
                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


1.   Operations and Basis of Presentation

BioTransplant Incorporated (the "Company") was incorporated on March 20, 1990.
The Company is developing proprietary pharmaceuticals and organ transplantation
systems which represent a comprehensive approach to inducing functional
tolerance in humans.

The Company is in the development stage and is devoting substantially all of its
efforts toward product research and development and raising capital. The Company
is subject to a number of risks similar to those of other development stage
companies, including dependence on key individuals, competition from larger
companies, the development of commercially usable products, obtaining regulatory
approval for products under development, the development and marketing of
commercial products, and the need to obtain adequate additional financing
necessary to fund the development of its products.

The interim financial statements herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and include, in the opinion of management, all
adjustments, consisting of normal, recurring adjustments, necessary for a fair
representation of interim period results. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The results for the interim periods
presented are not necessarily indicative of results to be expected for the
fiscal year or any future period. These condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1997, as filed with the Securities and
Exchange Commission.

2.   Cash Equivalents and Investments

Cash equivalents include short-term, highly liquid investments with original
maturities of less than three months from the date of purchase. Short-term
investments consist primarily of corporate notes and securities issued by the
United States Treasury or other United States government agencies with original
maturities of greater than three months and remaining maturities of less than
one year. Long-term investments consist primarily of corporate notes with
remaining maturities of greater than one year. In accordance with Financial
Accounting Standards Board Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", the Company's investments are
classified as held-to-maturity and are stated at amortized cost, which
approximates market value.

The Company held the following investments at December 31, 1997 and June 30,
1998:

<TABLE>
<CAPTION>
                                                              December 31,         June 30,
                                                                  1997               1998
                                                             ---------------    ----------------
<S>                                                          <C>                <C>
Short-term:
  United States Treasury and Agency Securities
       (average maturity of 2 months)                          $  2,000,000        $          -
  Corporate Bonds (average maturity of 4 months)                 16,862,948          11,201,340
  Commercial Paper (average maturity of 8 and 5 months)             999,669             999,907
                                                             ===============    ================
                                                                $19,862,617         $12,201,247
                                                             ===============    ================
Long-term:
  Corporate Bonds (average maturity of 16 months)              $  1,015,202       $           -
                                                             ===============    ================
</TABLE>


                                      6

<PAGE>


                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
                                   (Unaudited)


3.   Net Loss Per Common Share

Net loss per common share is based on the weighted average number of common
shares outstanding during the periods presented, in accordance with Financial
Accounting Standards Board Statement No. 128, "Earnings Per Share". Diluted net
loss per common share is the same as basic net loss per common share as the
inclusion of stock issuable pursuant to options and warrants would be
antidilutive.

4.   Revenue Recognition

Substantially all of the Company's license and research and development revenues
are derived from two collaborative research arrangements. Annual research and
development payments are recognized on a straight-line basis over the period of
the contract, which approximates when work is performed and costs are incurred.
License fee revenue represents technology transfer fees received for rights to
certain technology of the Company. License fees are recognized as revenue when
earned. Deferred revenue represents amounts received in advance of revenue
recognition for research and development. Research and development expenses in
the accompanying consolidated statements of operations include funded and
unfunded expenses.

5.   Term Note

In September 1997, the Company entered into a term note with a bank, whereby the
Company may borrow up to $500,000 for certain equipment and fixtures during a
specified drawdown period, after which time the outstanding balance will become
payable in 36 equal monthly principal installments plus interest. This term note
bears annual floating interest at the Bank's Prime Rate (8.50% at June 30, 1998)
during the drawdown period with an option to convert during the repayment period
to an annual fixed rate at the three month London Interbank Offered Rate
("LIBOR") (5.69% at June 30, 1998) plus 2.25%. This term note is secured by
equipment and fixtures purchased under these borrowings. There were no
borrowings outstanding under this term note at June 30, 1998.


                                      7
<PAGE>

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

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

Overview

Since commencement of operations in 1990, the Company has been a development
stage company engaged primarily in the research and development of proprietary
pharmaceuticals and organ transplantation systems which represent a
comprehensive approach to inducing functional tolerance in humans. The major
sources of the Company's working capital have been the proceeds from sales of
equity securities, sponsored research funding and license fees and capital lease
financings. The Company has not generated any revenues from the sale of products
to date, and does not expect to receive any product revenues for several years.
The Company will be required to conduct significant research, development,
testing and regulatory compliance activities that, together with general and
administrative expenses, are expected to result in significant and increasing
operating losses for at least the next several years.

In 1993, and as amended and restated in September 1995, the Company and Novartis
entered into a collaboration agreement for the development and commercialization
of xenotransplantation products utilizing gene transduction. Under the
agreement, Novartis committed research funding through March 1998 of $20.0
million and agreed to pay license fees of $10.0 million. All funds were received
as of March 31, 1998. Novartis has also agreed to fund certain development and
premarketing costs of such products, portions of which, under certain
circumstances, may be repayable from the Company's operating profits from sales
of such products.

In October 1997, the Company and Novartis expanded their relationship in
xenotransplantation by entering into a collaboration and license agreement for
the development and commercialization of xenotransplantation products utilizing
the Company's proprietary mixed bone marrow chimerism technology. Under the
agreement, the Company may receive from Novartis research funding, license fees,
and milestone payments of up to $36.0 million. As of June 30, 1998, research
funding of $3.5 million and license fees of $2.0 million had been received. In
addition to research funding, Novartis will also fund certain development and
premarketing costs of such products. Portions of these costs may be repayable
under certain circumstances.

In October 1995, the Company and MedImmune formed a collaborative research
agreement for the development of products to treat and prevent organ rejection.
MedImmune paid the Company a $2.0 million license fee at the time of execution
of the agreement, and agreed to fund and assume responsibility for clinical
testing and commercialization of BTI-322/MEDI-507 and other related products.
MedImmune has agreed to provide research support and make milestone payments
which could total up to an additional $14.0 million, up to $12.0 million of
which is repayable from royalties on such products.


Results of Operations
Three months Ended June 30, 1998 and 1997

Revenues decreased to $1.2 million for the three months ended June 30, 1998 from
$5.2 million for the three months ended June 30, 1997. The anticipated decrease
in revenues was primarily due to $850,000 in sponsored research funding from
Novartis during the three months ended June 30, 1998, compared to a $3.0 million
license fee and $1.5 million in sponsored research funding from Novartis and
$250,000 in sponsored research funding from MedImmune during the three months
ended June 30, 1997. Interest income decreased to $343,000 for the three months
ended June 30, 1998 from $468,000 for the three months ended June 30, 1997. The
decrease was due primarily to lower cash balances available for investment.

Research and development expenses decreased to $3.6 million for the three months
ended June 30, 1998 from $3.9 million for the three months ended June 30, 1997.
This decrease was primarily due to decreases in the purchase of research
supplies and support services in the three months ended June 30, 1998 compared
to the three months ended June 30, 1997.

General and administrative expenses decreased to $584,000 for the three months
ended June 30, 1998 from $934,000 for the three months ended June 30, 1997. This
decrease was primarily due to decreases in outside professional services
rendered in connection with a reduction in market research and business
development in the three months ended June 30, 1998 compared to the three months
ended June 30, 1997.

Interest expense decreased to $3,000 for the three months ended June 30, 1998
from $17,000 for the three months ended June 30, 1997. The decrease was
primarily due to decreasing balances on existing obligations under capital
leases.

As a result of the above factors the Company generated a net loss for the three
months ended June 30, 1998 of $2.9 million, or $0.34 per share, compared to net
income of $405,000, or $0.05 per share for the three months ended June 30, 1997.


                                      8


<PAGE>

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

Six months Ended June 30, 1998 and 1997

Revenues decreased to $4.0 million for the six months ended June 30, 1998 
from $6.9 million for the six months ended June 30, 1997. The anticipated 
decrease in revenues was due to decreased research and development revenues 
which primarily consisted of funding from Novartis of $3.3 million for the 
six months ended June 30, 1998 compared to $5.5 million for the six months 
ended June 30, 1997. The six months ended June 30, 1997 included a $3.0 
million license fee for certain gene therapy related technology. Interest 
income decreased to $859,000 for the six months ended June 30, 1998 from 
$873,000 for the six months ended June 30, 1997. The decrease was due 
primarily to lower cash balances available for investment.

Research and development expenses increased to $7.3 million for the six months
ended June 30, 1998 from $7.2 million for the six months ended June 30, 1997.
This increase was primarily due to increases in research and development staff
partially offset by decreases in the purchase of research supplies and support
services.

General and administrative expenses decreased to $1.3 million for the six months
ended June 30, 1998 from $1.6 million for the six months ended June 30, 1997.
This decrease was primarily due to decreases in outside professional services
rendered in connection with a reduction in market research and business
development in the six months ended June 30, 1998 compared to the six months
ended June 30, 1997.


Liquidity and Capital Resources

In May 1996, the Company completed an initial public offering of 3,220,000
shares of common stock at a price of $9.50 per share, and received net proceeds
of approximately $28.0 million. In addition, all outstanding shares of
redeemable convertible preferred stock were automatically converted into
5,202,154 shares of common stock upon the closing of the initial public
offering.

Since its inception and prior to the completion of the Company's initial public
offering, the Company's operations had been funded principally through the net
proceeds of an aggregate of $36.2 million from private placements of equity
securities. The Company has also received $35.5 million from research and
development and collaboration agreements with Novartis, $4.0 million from an
alliance agreement with MedImmune and $2.2 million in equipment lease financing.
The proceeds of the private placements, notes payable and capital leases and
cash generated from the corporate collaborations with Novartis and MedImmune
have been used to fund operating losses of approximately $43.9 million and the
investment of approximately $4.2 million in equipment and leasehold improvements
through June 30, 1998. In September 1997, the Company entered into a term note
with a bank, whereby the Company may borrow up to $500,000 for certain equipment
and fixtures. There were no borrowings outstanding under this term note at June
30, 1998. The Company had no significant commitments as of June 30, 1998 for
capital expenditures.

The Company had cash and cash equivalents and investments of $22.7 million as of
June 30, 1998.

The Company anticipates that its existing funds should be sufficient to fund its
operating and capital requirements as currently planned through at least June
30, 1999. However, the Company's cash requirements may vary materially from
those now planned, due to many factors, including, but not limited to, the
progress of the Company's research and development programs, the scope and
results of preclinical and clinical testing, changes in existing and potential
relationships with corporate collaborators, the time and cost in obtaining
regulatory approvals, the costs involved in obtaining and enforcing patents,
proprietary rights and any necessary licenses, the ability of the Company to
establish development and commercialization capacities or relationships, the
costs of manufacturing and other factors, including those discussions below
under "Factors Affecting Future Operating Results".

The Company expects to incur substantial additional costs, including costs
related to research and development activities, preclinical studies, clinical
trials, obtaining regulatory approvals, manufacturing and the expansion of its
facilities. The Company will need to raise substantial additional funds through
additional financings including public or private equity offerings and
collaborative arrangements with corporate partners. There can be no assurance
that funds will be available on terms acceptable to the Company, if at all. If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate certain of its product development programs or to license to
others the right to commercialize products or technologies that the Company
would otherwise seek to develop and commercialize itself, any of which would
have a material and adverse effect on the Company.

The Company is conducting a software review to identify functions that may need
correction to be "Year 2000" compliant. The Year 2000 problem is the result of
computer programs being written to recognize two digits rather than four to
define the applicable year causing computer programs to interpret a date using
"00" as the year 1900 rather than the year 2000, which could result in software
failures or miscalculations.


                                     9

<PAGE>


                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

The Company is evaluating its information systems and corporate technologies in
an effort to ensure that the software used to manage its business will continue
to function properly in the year 2000. All evaluation costs will be expensed as
incurred. While the Company believes that the software used to manage its
business will be Year 2000 compliant and does not expect Year 2000 issues to
have a significant impact on the Company's ongoing results of operations, the
Company may experience disruptions in its business operations as a result of
software used by vendors or suppliers that is not year 2000 compliant. There can
be no assurance that Year 2000 problems will not be encountered or that the
costs incurred to resolve such problems will not be material.


FACTORS AFFECTING FUTURE OPERATING RESULTS

This Quarterly Report to Stockholders on Form 10-Q contains forward-looking
statements. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates," "plans,"
"expects," "intends," and similar expressions are intended to identify
forward-looking statements. There are a number of important factors that could
cause the Company's actual results to differ materially from those indicated by
such forward-looking statements. These factors include, without limitation,
those set forth below and elsewhere in this Quarterly Report to Stockholders on
Form 10-Q and in the Section titled "Business - Factors That May Affect Results"
in the Company's Annual Report to Stockholders on Form 10-K for the year ended
December 31, 1997, as filed with the Securities and Exchange Commission, which
Section is incorporated herein by reference.

The Company is in the early development stage and has been engaged, to date, 
primarily in organizational and research and development activities. The 
Company has not yet completed the development of, or conducted significant 
human testing with respect to, any product. In particular, the Company's 
AlloMune-TM- and XenoMune-TM- Systems are based upon approaches which are novel 
and, to the Company's knowledge, have never been achieved in humans, 
including by the Company. There can be no assurance that any of the Company's 
products will be successfully developed, prove to be safe and efficacious in 
clinical trials, meet applicable regulatory standards, obtain required 
regulatory approvals, be capable of being produced in commercial quantities 
at reasonable costs or be successfully marketed.

The Company has a substantial accumulated deficit. The Company expects to incur
losses for at least the next several years and that such losses will increase as
the Company expands its research and development activities. The Company will
require substantial additional funds for its research and product development
programs, operating expenses, the pursuit of regulatory approvals and expansion
of its production, sales and marketing capabilities. Adequate funds for these
purposes, whether through equity or debt financings, collaborative or other
arrangements with corporate partners or from other sources, may not be available
when needed or on terms acceptable to the Company. Insufficient funds could
require the Company to delay, scale back or eliminate certain of its research
and product development programs or to license to third parties to commercialize
products or technologies that the Company would otherwise develop or
commercialize itself.

The Company's strategy for development and commercialization of its products
entails entering into arrangements with third parties. There can be no assurance
that the Company will be able to maintain its existing arrangements or establish
additional arrangements that the Company deems necessary or acceptable to
develop and commercialize its potential pharmaceutical products or that such
arrangements will be successful. If any of the Company's strategic partners were
to breach or terminate its agreement with the Company or otherwise fail to
conduct its collaborative activities successfully in a timely manner, such delay
or termination could have a material adverse effect on the Company's business,
financial condition and results of operations.

Proprietary rights relating to the products of BioTransplant will be protected
from unauthorized use by third parties only to the extent that they are covered
by valid and enforceable patents or are maintained in confidence as trade
secrets. There may be pending or issued third-party patents relating to the
products of BioTransplant and BioTransplant may need to acquire licenses to, or
to contest the validity of, any such patents. It is likely that significant
funds would be required to defend any claim that BioTransplant infringes a
third-party patent. There can be no assurance that any license required under
any such patent would be made available.

Other factors that may affect the Company's future operating results include 
the inherent risk of product liability claims which may result from the 
testing, marketing and sale of human therapeutic products, the Company's 
fluctuations in quarterly operating results, the Company's ability to 
continue to attract and retain qualified management and scientific staff, 
risks associated with the regulatory approval process, and its ability to 
anticipate or respond adequately to rapid and significant technological 
changes that may develop in the field of human therapeutic products.

                                     10
<PAGE>




                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

PART II. OTHER INFORMATION

ITEM 1.       LEGAL PROCEEDINGS
              Response:  None

ITEM 2.       CHANGES IN SECURITIES
              Response:  None

ITEM 3.       DEFAULTS UPON SENIOR SECURITIES
              Response:  None

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


The Company held its Annual Meeting of Stockholders on Tuesday, May 19, 1998.
The following represents the results of the voting on proposals submitted to a
vote of stockholders at such meeting:

1. Proposal to elect seven directors for the ensuing year.

<TABLE>
<CAPTION>
                                                     Number of Votes
                                                For                 Abstaining
                                        --------------------    -------------------
          <S>                           <C>                     <C>
          Elliot Lebowitz, Ph.D.                  7,285,302                 30,250
          Donald R. Conklin                       7,285,302                 30,250
          William W. Crouse                       7,285,302                 30,250
          James C. Foster, J.D.                   7,285,302                 30,250
          Daniel O. Hauser, Ph.D.                 7,285,302                 30,250
          Robert A. Vukovich, Ph.D.               7,285,302                 30,250
</TABLE>


2.   Proposal to ratify the selection by the Board of Directors of Arthur
     Andersen LLP as the Company's independent accountants for 1998.

<TABLE>
<CAPTION>
                                        Number of Votes                                    Number of
                       For               Against              Abstaining                Broker Non-Votes
                 ----------------    -----------------   ----------------------    ---------------------
                 <S>                 <C>                 <C>                       <C>
                    7,287,852                0                     0                          700
</TABLE>


ITEM 5.  OTHER INFORMATION
         Response:  None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

a)   Exhibits
    +10.1     Miniswine Transfer and Maintenance Agreement
     27       Financial Data Schedule.

b)   Reports on Form 8-K 
     None.


+ Confidential materials omitted and filed seperately with the Securities and 
  Exchange Commission

                                     11
<PAGE>

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)



                                   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.

                           BioTransplant Incorporated
                           (Registrant)

Date: August 13, 1998      /s/ Elliot Lebowitz
                           ----------------------------------------------
                           Elliot Lebowitz
                           President and Chief Executive Officer
                           (Principal Executive Officer)


                           /s/ Richard V. Capasso
                           ----------------------------------------------
                           Richard V. Capasso
                           Vice President, Finance and Treasurer
                           (Principal Financial and Accounting Officer)


                                      12