<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         SEPTEMBER 30, 1997
 
                                       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 November 7, 1997, there were 8,572,390 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, 1996 and September 30, 1997..........................     3

         Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 1996
            and 1997, and for the period from inception (March 20, 1990) to September 30, 1997.........................     4

         Condensed Consolidated Statement of Cash Flows for nine months ended September 30, 1996 and 1997, 
            and for the period from inception (March 20, 1990) to September 30, 1997...................................     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>
                                                                                                    SEPTEMBER 30,
                                                                                     DECEMBER 31,       1997
                                                                                         1996        (UNAUDITED)
                                                                                     -------------  -------------
<S>                                                                                  <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents........................................................  $   6,563,957  $   5,118,707
  Short-term investments...........................................................     13,001,472     13,038,769
  Deposits and other prepaid expenses..............................................      1,087,516        925,022
                                                                                     -------------  -------------
    Total current assets...........................................................     20,652,945     19,082,498
Property and equipment--net........................................................      1,285,535      1,089,749
Long-term investments..............................................................     10,310,778     11,070,883
Other assets.......................................................................         66,377         41,486
                                                                                     -------------  -------------
TOTAL ASSETS.......................................................................  $  32,315,635  $  31,284,616
                                                                                     -------------  -------------
                                                                                     -------------  -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current obligation under capital leases..........................................  $     425,986  $     285,752
  Accounts payable.................................................................        126,003        233,787
  Accrued expenses.................................................................      1,312,964      2,506,933
  Deferred revenue.................................................................      1,000,000      3,000,000
                                                                                     -------------  -------------
    Total current liabilities......................................................      2,864,953      6,026,472
                                                                                     -------------  -------------
Long-term obligation under capital leases..........................................        188,974         12,816
                                                                                     -------------  -------------
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 8,558,902 shares at December 31, 1996 and 8,572,390 shares at 
    September 30,  1997............................................................         85,589         85,709
  Additional paid-in capital.......................................................     65,285,038     65,322,899
  Accumulated deficit..............................................................    (36,108,919)   (40,163,280)
                                                                                     -------------  -------------
    Total stockholders' equity.....................................................     29,261,708     25,245,328
                                                                                     -------------  -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.........................................  $  32,315,635  $  31,284,616
                                                                                     -------------  -------------
                                                                                     -------------  -------------
</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            NINE MONTHS ENDED
                                              SEPTEMBER 30,                 SEPTEMBER 30,            CUMULATIVE
                                       ----------------------------  ----------------------------      SINCE
                                           1996           1997           1996           1997         INCEPTION
                                       -------------  -------------  -------------  -------------  --------------
<S>                                    <C>            <C>            <C>            <C>            <C>
Revenues:
  License fees.......................  $          --  $          --  $   2,000,000  $   3,000,000  $   12,000,000
  Research and development...........      1,250,000      1,750,000      4,500,000      4,750,000      19,000,000
  Interest income....................        493,333        427,303        874,345      1,300,105       3,121,725
                                       -------------  -------------  -------------  -------------  --------------
    Total revenues...................      1,743,333      2,177,303      7,374,345      9,050,105      34,121,725
                                       -------------  -------------  -------------  -------------  --------------
Expenses:
  Research and development...........      3,244,848      3,583,909      8,923,289     10,815,197      59,358,666
  General and administrative.........        794,423        637,293      1,810,598      2,239,530      13,185,509
  Interest...........................         27,776         13,093        110,557         49,740       1,740,830
                                       -------------  -------------  -------------  -------------  --------------
    Total expenses...................      4,067,047      4,234,295     10,844,444     13,104,467      74,285,005
                                       -------------  -------------  -------------  -------------  --------------
Net loss.............................  $  (2,323,714) $  (2,056,992) $  (3,470,099) $  (4,054,362) $  (40,163,280)
                                       -------------  -------------  -------------  -------------  --------------
                                       -------------  -------------  -------------  -------------  --------------
Net loss per common share............  $       (0.27) $       (0.24) $       (0.50) $       (0.47)
                                       -------------  -------------  -------------  -------------  --------------
                                       -------------  -------------  -------------  -------------  --------------
Shares used in computing net loss per
  common share.......................      8,548,756      8,570,916      6,999,687      8,567,136
                                       -------------  -------------  -------------  -------------  --------------
                                       -------------  -------------  -------------  -------------  --------------
</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>
                                                                           NINE MONTHS ENDED
                                                                             SEPTEMBER 30,            CUMULATIVE
                                                                      ----------------------------      SINCE
                                                                          1996           1997         INCEPTION
                                                                      -------------  -------------  --------------
<S>                                                                   <C>            <C>            <C>
Cash flows from operating activities:
  Net loss..........................................................  $  (3,470,099) $  (4,054,362) $  (40,163,280)
  Adjustments to reconcile net loss to net cash used in
   operating activities:
   Depreciation and amortization....................................        504,160        439,243       2,983,829
   Noncash interest expense.........................................         15,583             --         465,477
   Noncash expenses related to options and warrants.................         24,890         24,891       1,143,761
   Changes in current assets and liabilities:
    Accounts receivable.............................................         99,159             --              --
    Deposits and prepaid expenses...................................       (415,717)       162,494        (925,022)
    Accounts payable................................................         35,709        107,783         233,786
    Accrued expenses................................................        219,478      1,193,970       2,506,934
    Deferred revenue................................................        250,000      2,000,000       3,000,000
                                                                      -------------  -------------  --------------
   Net cash used in operating activities............................     (2,736,837)      (125,981)    (30,754,515)
                                                                      -------------  -------------  --------------
Cash flows from investing activities:
  Purchases of property and equipment...............................        (96,100)      (243,457)     (3,448,845)
  Disposal of property and equipment, net...........................             --             --          28,040
  Purchases of investments..........................................    (17,632,072)   (16,115,728)    (54,316,420)
  Proceeds from investments.........................................             --     15,318,327      30,206,768
                                                                      -------------  -------------  --------------
    Net cash used in investing activities...........................    (17,728,172)    (1,040,858)    (27,530,457)
                                                                      -------------  -------------  --------------
Cash flows from financing activities:
  Proceeds from convertible notes payable to stockholders...........             --             --       9,400,000
  Payments of obligations under capital leases......................       (340,797)      (316,392)     (1,895,642)
  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..      5,889,530             --      25,661,526
  Proceeds from sale of common stock................................     27,964,287         37,981      28,043,587
                                                                      -------------  -------------  --------------
    Net cash provided by (used in) financing activities.............     33,513,020       (278,411)     63,403,679
                                                                      -------------  -------------  --------------
Net increase (decrease) in cash and cash equivalents................     13,048,011     (1,445,250)      5,118,707
Cash and cash equivalents, beginning of period......................      2,848,549      6,563,957              --
                                                                      -------------  -------------  --------------
Cash and cash equivalents, end of period............................  $  15,896,560  $   5,118,707  $    5,118,707
                                                                      -------------  -------------  --------------
                                                                      -------------  -------------  --------------
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....  $   1,055,816  $          --  $    9,905,710
                                                                      -------------  -------------  --------------
                                                                      -------------  -------------  --------------
  Issuance of warrants..............................................  $          --  $          --  $      741,737
                                                                      -------------  -------------  --------------
                                                                      -------------  -------------  --------------
  Interest paid during the period...................................  $      94,901  $      45,706  $    1,379,535
                                                                      -------------  -------------  --------------
                                                                      -------------  -------------  --------------
</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 anti-rejection pharmaceuticals 
and organ transplantation systems which represent a comprehensive approach to 
inducing long-term specific transplantation 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, 1996, 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 maturities of less than one year from the date of purchase. 
Long-term investments consist primarily of corporate notes with 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, 1996 and
September 30, 1997:
 
<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,   SEPTEMBER 30,
                                                                                         1996           1997
                                                                                     -------------  -------------
<S>                                                                                  <C>            <C>
Short-term:
  United States Treasury and Agency Securities
   (average maturity of 12 months).................................................  $          --  $   2,000,000
  Corporate Bonds (average maturity of seven and eight months).....................     12,015,442     10,039,221
  Commercial Paper (average maturity of 93 days and twelve months).................        986,030        999,548
                                                                                     -------------  -------------
                                                                                     $  13,001,472  $  13,038,769
                                                                                     -------------  -------------
                                                                                     -------------  -------------
Long-term:
  Corporate Bonds (average maturity of 13 months)..................................  $  10,310,778  $  11,070,883
                                                                                     -------------  -------------
                                                                                     -------------  -------------
</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 pro forma weighted average 
number of common shares outstanding during the periods presented, assuming 
the automatic conversion of all shares of Series A, B, D and E redeemable 
convertible preferred stock into shares of common stock on the date of 
issuance. Pursuant to the requirements of the SEC, common stock and preferred 
stock issued during the 12 months immediately preceding the initial public 
offering, plus shares of common stock that became issuable during the same 
period pursuant to the grant of common stock options and warrants, have been 
included in the calculation of pro forma weighted average number of common 
shares outstanding for all periods presented until the effective date of the 
Company's initial public offering using the treasury stock method.
 
4. NEW ACCOUNTING STANDARD
 
    In March 1997, the Financial Accounting Standards Board issued Statement 
No. 128, "Earnings Per Share", ("SFAS 128"). SFAS 128 establishes standards 
for computing and presenting earnings per share and applies to entities with 
publicly held common stock or potential common stock. This statement is 
effective for fiscal years ending after December 15, 1997 and early adoption 
is not permitted. When adopted, this statement will require restatement of 
prior years' earnings per share. The Company will adopt this statement for 
its fiscal year ended December 31, 1997. The Company believes that the 
adoption of SFAS 128 will not have a material effect on its financial 
statements.
 
5. 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 is earned. Deferred revenue represents amounts 
received in advance for research and development. Research and development 
expenses in the accompanying consolidated statements of operations include 
funded and unfunded expenses.
 
6. 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 September 30, 1997) 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") (5.78% at September 30, 1997) 
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 September 30, 1997.
 
                                       7
<PAGE>


                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY 
                        (A Development Stage Company)
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS
 
    The following discussion of the financial condition and results of 
operations of the Company for the three and nine months ended September 30, 
1996 and 1997 should be read in conjunction with the accompanying unaudited 
condensed consolidated financial statements and the related notes thereto.
 
    This report may contain certain forward looking statements which involve 
risks and uncertainties. Such statements are subject to certain factors which 
may cause the Company's plans and results to differ significantly from the 
plans and results discussed in forward looking statements. Factors that may 
cause such differences include, but are not limited to, the progress of the 
Company's research and development programs, the Company's ability to compete 
successfully, the Company's ability to attract and retain qualified 
personnel, the Company's ability to enter into and maintain collaborations 
with third parties, the Company's ability to enter into and progress in 
clinical trials, the time and costs involved 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, the Company's ability to obtain additional funds, and those 
other risks discussed under the heading "Business--Factors Which May Affect 
Results" in the Company's Annual Report on Form 10-K for the year ended 
December 31, 1996, as filed with the Securities and Exchange Commission.
 
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 long-term specific 
transplantation tolerance in humans. The major sources of the Company's 
working capital have been the proceeds of equity placements, sponsored 
research funding and license fees and capital lease financings. The Company 
has not generated any revenues from the sales 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 has committed research funding 
through March 1998 of $20.0 million, all of which had been received as of 
September 30, 1997, and agreed to pay license fees of $10.0 million, all of 
which had been received as of September 30, 1997. The $9.0 million payment 
from Novartis which was received during March 1997 is comprised of $6.0 
million in research funding for the gene transduction approach to 
xenotransplantation, which is being recognized as revenue on a straight-line 
basis over the one-year period from April 1, 1997 to March 31, 1998, and $3.0 
million in license fees which was recognized as revenue in April 1997. 
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, Novartis has committed up to $36.0 million in research 
funding, license fees and milestone payments, beginning in October 1997.
 
    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 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, of which $2.0 
million had been recognized as of September 30, 1997.

 
                                       8
<PAGE>


 
                 BIOTRANSPLANT INCORPORATED AND SUBSIDIARY 
                     (A Development Stage Company)

RESULTS OF OPERATIONS 
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
 
    Revenues increased to $2.2 million for the three months ended September 
30, 1997 from $1.7 million for the three months ended September 30, 1996. The 
increase in revenues was primarily due to $1.5 million in sponsored research 
funding from Novartis during the three months ended September 30, 1997, 
compared to $1.0 million during the three months ended September 30, 1996, as 
a result of the amendment and restatement of the collaboration agreement with 
Novartis in September, 1995.
 
    Research and development expenses increased to $3.6 million for the three 
months ended September 30, 1997 from $3.2 million for the three months ended 
September 30, 1996. This increase was primarily due to increases in sponsored 
research, research and development staff and associated increases in supplies 
and support services.
 
    General and administrative expenses decreased to $637,000 for the three 
months ended September 30, 1997 from $794,000 for the three months ended 
September 30, 1996. This decrease was primarily due to decreases in outside 
professional services in connection with market research and business 
development partially offset by increased administrative costs as a 
publicly-traded company.
 
    Interest income decreased to $427,000 for the three months ended 
September 30, 1997 from $493,000 for the three months ended September 30, 
1996. The decrease was due primarily to lower average cash balances available 
for investment.
 
    Interest expense decreased to $13,000 for the three months ended 
September 30, 1997 from $28,000 for the three months ended September 30, 
1996. 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 September 30, 1997 of $2.1 million, or $0.24 per share, 
compared to a net loss of $2.3 million, or $0.27 per share for the three 
months ended September 30, 1996.
 
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
 
    Revenues increased to $9.1 million for the nine months ended September 
30, 1997 from $7.4 million for the nine months ended September 30, 1996. The 
increase in revenues was due to increased research and development revenues 
which primarily consisted of funding from Novartis of $7.0 million for the 
nine months ended September 30, 1997 compared to $5.8 million for the nine 
months ended September 30, 1996, as a result of the amendment and restatement 
of the collaboration agreement. Interest income increased to $1.3 million for 
the nine months ended September 30, 1997 from $874,000 for the nine months 
ended September 30, 1996. The increase was due primarily to higher cash 
balances available for investment.
 
    Research and development expenses increased to $10.8 million for the nine 
months ended September 30, 1997 from $8.9 million for the nine months ended 
September 30, 1996. This increase was primarily due to increases in sponsored 
research programs and increases in research and development staff together 
with the associated increases in supplies and support services, partially 
offset by decreased expenditures related to the human clinical safety trials 
for BTI-322, which are currently being primarily conducted and funded by 
MedImmune.
 
    General and administrative expenses increased to $2.2 million for the 
nine months ended September 30, 1997 from $1.8 million for the nine months 
ended September 30, 1996. This increase was primarily due to increases in 
outside professional services in connection with market research and business 
development, increased headcount and related expenses for general and 
administrative personnel and increased administrative costs as a 
publicly-traded company.
 
                                       9
<PAGE>

                   BIOTRANSPLANT INCORPORATED AND SUBSIDIARY 
                       (A Development Stage Company)
 
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 have 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 $30.0 million 
from a research and development and collaboration agreement with Novartis, 
$3.8 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 $40.2 million and the investment of approximately 
$4.0 million in equipment and leasehold improvements through September 30, 
1997. 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, Novartis has committed up to $36.0 million in research 
funding, license fees and milestone payments, beginning in October 1997. 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 September 30, 1997. 
The Company had no significant commitments as of September 30, 1997 for 
capital expenditures.
 
    During the nine months ended September 30, 1996, the Company paid Stem 
Cell Sciences $676,000 for research support for calendar year 1997 and to 
maintain its pro rata equity interest in Stem Cell Sciences. In addition, the 
Company has an option to purchase additional shares of Stem Cell Sciences 
prior to December 1997, to maintain its pro rata equity interest. If the 
Company does not make such further investment, its rights to certain 
technologies become nonexclusive.
 
    The Company had cash and cash equivalents and investments of $29.2 
million as of September 30, 1997.
 
    The Company anticipates that its existing funds and interest earned 
thereon should be sufficient to fund its operating and capital requirements 
as currently planned through the end of 1998. 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.
 
    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.
  
                                       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
        Response: None
ITEM 5. OTHER INFORMATION
        Response: None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
a) Exhibits 
   +10.1   Collaboration and License Agreement between the Company and Novartis
           Pharma AG, dated October 6, 1997. 
    10.2   Promissory Note and Security Agreement between the Company and Fleet
           National Bank, dated September 5, 1997.
    11.1   Statement: Computation of Pro Forma Net Loss Per Common Share 
    27     Financial Data Schedule. 

b) Reports on Form 8-K
   None. 

   + Confidential materials omitted and filed separately 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: November 12, 1997 /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