================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 205491

                                   -----------
                                    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, 1999

                                       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 October 29, 1999, there were 8,586,078 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, 1998 and September 30, 1999.............3

      Condensed Consolidated Statements of Operations for the three and nine months ended
            September 30, 1998 and 1999, and for the period from inception (March 20, 1990)
            to September 30, 1999......................................................................4

      Condensed Consolidated Statements of Cash Flows for the nine months ended September 30,
            1998 and 1999, and for the period from inception (March 20, 1990) to September 30, 1999....5

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

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

ITEM 3.  QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS....................................11

                           PART II. OTHER INFORMATION

ITEM 1 - 6. ..........................................................................................12

            SIGNATURES................................................................................13
</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,      1999
                                                               1998       (Unaudited)
                                                           ------------  -------------
<S>                                                        <C>            <C>
ASSETS
Current assets:
   Cash and cash equivalents                               $ 13,168,496   $ 18,887,553
   Short-term investments                                     6,842,963             --
   Prepaid expenses and other current assets                  1,212,294        452,573
                                                           ------------   ------------
      Total current assets                                   21,223,753     19,340,126

Property and equipment - net                                  1,458,025      1,459,885
Other assets                                                      1,541          1,539
                                                           ------------   ------------

TOTAL ASSETS                                               $ 22,683,319   $ 20,801,550
                                                           ============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current obligation under capital lease                  $     10,042   $      1,062
   Current portion of long-term debt                                 --        175,000
   Accounts payable                                             227,356        165,057
   Accrued expenses                                           2,112,658      2,828,262
   Deferred revenue                                           3,375,000      6,601,856
                                                           ------------   ------------
      Total current liabilities                               5,725,056      9,771,237
                                                           ------------   ------------
Long-term debt                                                       --        525,000
                                                           ------------   ------------

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 8,581,463 shares at
      December 31, 1998 and 8,586,078 shares at September
      30, 1999                                                   85,815         85,861
   Additional paid-in capital                                65,345,228     65,353,157
   Accumulated deficit                                      (48,472,780)   (54,933,705)
                                                           ------------   ------------
      Total stockholders' equity                             16,958,263     10,505,313
                                                           ------------   ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                 $ 22,683,319   $ 20,801,550
                                                           ============   ============
</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           Cumulative
                               September 30,                 September 30,               Since
                           1998           1999           1998             1999         Inception
                      -------------   -------------   -------------   -------------   -------------
<S>                   <C>             <C>             <C>             <C>             <C>
Revenues:
  License fees and
     milestone
     payments         $          --   $   2,500,000   $          --   $   2,500,000   $  17,500,000
  Research and
     development            875,000       1,234,619       4,125,000       3,711,619      30,775,119
  Interest income           285,450         160,789       1,044,761         559,695       5,430,352
                      -------------   -------------   -------------   -------------   -------------
      Total revenues      1,160,450       3,895,408       5,169,761       6,771,314      53,705,471
                      -------------   -------------   -------------   -------------   -------------

Expenses:
  Research and
     development          3,749,110       3,812,515      11,012,865      11,432,747      88,694,023
  General and
     administrative         563,795         683,940       1,902,452       1,797,677      18,183,760
  Interest                      948             485           9,128           1,815       1,761,393
                      -------------   -------------   -------------   -------------   -------------
      Total expenses      4,313,853       4,496,940      12,924,445      13,232,239     108,639,176
                      -------------   -------------   -------------   -------------   -------------

Net loss              $  (3,153,403)  $    (601,532)  $  (7,754,684)  $  (6,460,925)  $ (54,933,705)
                      =============   =============   =============   =============   =============


Basic and diluted
  net loss per
  common share        $       (0.37)  $       (0.07)  $       (0.90)  $       (0.75)
                      =============   =============   =============   =============

Weighted average
  common shares
  outstanding             8,578,858       8,583,844       8,578,770       8,583,351
                      =============   =============   =============   =============
</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          Cumulative
                                                          September 30,               Since
                                                      1998            1999         Inception
                                                  --------------  -------------  --------------
<S>                                                 <C>            <C>            <C>
Cash flows from operating activities:
   Net loss                                         $ (7,754,684)  $ (6,460,925)  $(53,933,705)
   Adjustments to reconcile net loss to net cash
   used in operating activities:
      Depreciation and amortization                      272,986        292,584      3,776,864
      Noncash interest expense                                --             --        465,477
      Noncash expenses related to options and
         warrants                                         24,890             --      1,185,244
      Changes in current assets and liabilities:
         Deposits and prepaid expenses                   499,263        759,721       (452,573)
         Accounts payable                               (132,789)       (62,299)       165,057
         Accrued expenses                               (195,306)       715,604      2,828,262
         Deferred revenue                             (4,125,000)     3,226,856      5,601,856
                                                    ------------   ------------   ------------
      Net cash used in operating activities          (11,410,640)    (1,528,459)   (40,363,518)
                                                    ------------   ------------   ------------

Cash flows from investing activities:
   Purchases of property and equipment                  (261,584)      (294,442)    (4,613,551)
   Disposal of property and equipment, net                    --             --         28,040
   Purchases of investments                           (8,118,416)      (404,136)   (66,541,876)
   Proceeds from investments                          19,059,883      7,247,099     66,541,875
                                                    ------------   ------------   ------------
      Net cash provided by (used in) investing
         activities                                   10,679,883      6,548,521     (4,585,512)
                                                    ------------   ------------   ------------

Cash flows from financing activities:
   Proceeds from convertible notes payable to
      stockholders                                            --             --      9,400,000
   Payments of obligations under capital leases         (174,893)        (8,980)    (2,193,148)
   Proceeds from sale/leaseback of equipment                  --             --        771,968
   Net proceeds from equipment leases                         --             --      1,422,240
   Net proceeds from long-term debt                           --        700,000        700,000
   Net proceeds from sale of redeemable
      convertible preferred stock                             --             --     25,661,526
   Proceeds from sale of common stock                     11,696          7,975     28,073,997
                                                    ------------   ------------   ------------
      Net cash provided by (used in) financing
         activities                                     (163,197)       698,995     63,836,583
                                                    ------------   ------------   ------------

Net increase (decrease) in cash and cash
   equivalents                                          (893,954)     5,719,057     18,887,553

Cash and cash equivalents, beginning of period         9,784,229     13,168,496             --
                                                    ------------   ------------   ------------

Cash and cash equivalents, end of period            $  8,890,275   $ 18,887,553   $ 18,887,553
                                                    ============   ============   ============

Supplemental disclosures and noncash transactions:
   Equipment acquired under capital leases          $         --   $         --   $ (2,210,270)
                                                    ============   ============   ============
   Conversion of convertible notes payable to
      stockholders and accrued interest into
      redeemable convertible preferred stock        $         --   $         --   $  9,905,710
                                                    ============   ============   ============
   Conversion of preferred stock into common
      stock                                         $         --   $         --   $ 36,202,290
                                                    ============   ============   ============
   Issuance of warrants                             $         --   $         --   $    741,737
                                                    ============   ============   ============
   Interest paid during the period                  $      6,557   $      1,745   $  1,389,116
                                                    ============   ============   ============
</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 ("BioTransplant" or 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, 1998, as filed with the SEC.

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, 1998 and September
30, 1999:

<TABLE>
<CAPTION>

                                                     December 31,   September 30,
                                                         1998           1999
                                                    -------------  -------------
    <S>                                               <C>            <C>
    Cash and cash equivalents:                        $13,168,496    $18,887,553

    Short-term Investments:
      Corporate Bonds (average maturity of 2
        months)                                         6,842,963             --
                                                      -----------    -----------

    Total cash and cash equivalents and
      investments                                     $20,011,459    $18,887,553
                                                      ===========    ===========
</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 since the
inclusion of shares issuable pursuant to the exercise of stock options and
warrants would be antidilutive. Antidilutive securities not included consist of
230,226 shares issuable pursuant to the exercise of common stock options and
136,247 shares issuable pursuant to exercise of common stock warrants.

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. Milestone payment revenue represents payments
for technology as certain research objectives are achieved. License fees and
milestone payments are recognized as revenue when all obligations as defined in
the individual arrangements are fulfilled by the Company and there is no risk of
refund. 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, and as amended and restated in August 1999, the Company
entered into a term note with a bank for certain equipment and fixtures. Under
the revised terms of the note, the Company may borrow up to $1,000,000 during a
specified drawdown period which expires on December 31, 1999, after which time
the outstanding balance will become payable in 36 equal monthly principal
installments plus interest. Borrowings under this term note bear annual floating
interest at the bank's Prime Rate (8.25% at September 30, 1999) or the Company
may elect to convert to the three-month London Interbank Offered Rate ("LIBOR")
(6.08% at September 30, 1999) plus 2.25%. Additionally, the Company may elect to
convert to a fixed rate offered by the bank on December 31, 1999 for the
duration of the repayment period. Borrowings under the term note are secured by
equipment and fixtures purchased using the proceeds of the note. The Company is
required to maintain certain covenants, including certain financial ratios or
unencumbered cash balances of not less than $8.0 million. At September 30, 1999,
$700,000 was outstanding under this term note and the Company was in compliance
with all covenants.

6. New Accounting Standards

Derivative Instruments and Hedging Activities

In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133").
The statement is effective for the year ended December 31, 2000. FAS 133
establishes accounting and reporting standards for derivative instruments
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. The
Company does not expect adoption of this statement to have a material impact on
the Company's financial statements.


                                       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 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, if ever. The Company
will be required to conduct significant additional 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
Pharma AG ("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, all of which had been received as of September 30,
1999, and agreed to pay license fees of $10.0 million, all of which had been
received as of September 30, 1999. Novartis has also agreed to fund certain
development and premarketing costs and products which may be developed as a
result of the collaboration, portions of which, under certain circumstances, may
be repayable from the Company's operating profits from sales of any such
products.

In October 1997, the Company and Novartis expanded their relationship by
entering into a collaboration and license agreement to develop and commercialize
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 assuming the agreement continues for its full term. As of September 30,
1999, research funding of $8.0 million, milestone payments of $2.5 million, and
license fees of $3.0 million had been received. In addition to research funding,
Novartis has also agreed to fund certain development and premarketing costs of
products which may be developed pursuant to the collaboration, portions of which
may be repayable under certain circumstances.

In October 1995, the Company and MedImmune Inc. ("MedImmune") entered into 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 provided $2.0 million of non-refundable research
support and has agreed to make milestone payments which could total up to an
additional $11.0 million assuming certain research objectives are achieved and
the agreement continues for its full term. Any milestone payments which are
received are repayable from royalties on such products.

Results of Operations
Three months Ended September 30, 1999 and 1998

Revenues increased to $3.9 million for the three months ended September 30, 1999
from $1.2 million for the three months ended September 30, 1998. The increase in
revenues was primarily due to a $2.5 million milestone payment from Novartis
recognized during the three months ended September 30, 1999. This increase was
offset by a decrease in interest income to $161,000 for the three months ended
September 30, 1999 from $285,000 for the three months ended September 30, 1998.
The decrease was due primarily to lower cash balances available for investment.

Research and development expenses increased to $3.8 million for the three months
ended September 30, 1999 from $3.7 million for the three months ended September
30, 1998. This increase was primarily due to additional external research
support combined with increases in research and development staff and associated
increases in supplies and support services.

General and administrative expenses increased to $684,000 for the three months
ended September 30, 1999 from $564,000 for the three months ended September 30,
1998. This increase was primarily due to increases in outside consulting
services rendered in connection with business development activities during the
three months ended September 30, 1999 compared to the three months ended
September 30, 1998.

Primarily as a result of the above factors the Company incurred a net loss for
the three months ended September 30, 1999 of $602,000, or $0.07 per share,
compared to a net loss of $3.0 million, or $0.37 per share for the three months
ended September 30, 1998.


                                       8
<PAGE>

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

Nine months Ended September 30, 1999 and 1998

Revenues increased to $6.8 million for the nine months ended September 30, 1999
from $5.2 million for the nine months ended September 30, 1998. The increase in
revenues was primarily due to $2.5 million milestone payment from Novartis
recognized during the three months ended September 30, 1999. Interest income
decreased to $560,000 for the nine months ended September 30, 1999 from $1.0
million for the nine months ended September 30, 1998. The decrease was due
primarily to lower cash balances available for investment.

Research and development expenses increased to $11.4 million for the nine months
ended September 30, 1999 from $11.0 million for the nine months ended September
30, 1998. This increase was primarily due to additional external research
support combined with increases in research and development staff and associated
increases in supplies and support services.

General and administrative expenses decreased to $1.8 million for the nine
months ended September 30, 1999 from $1.9 million for the nine months ended
September 30, 1998. This decrease was primarily due to decreases in outside
professional services rendered in connection with market research and business
development during the nine months ended September 30, 1999 compared to the nine
months ended September 30, 1998.

Liquidity and Capital Resources

Since its inception, the Company's operations have been funded principally
through the net proceeds of an aggregate of $64.2 million from sales of equity
securities. The Company has also received $50.8 million from research and
development and collaboration agreements with Novartis, $4.0 million from an
alliance agreement with MedImmune, $2.2 million in equipment lease financing and
$700,000 from a term note with a bank. The proceeds of the sales of equity
securities, 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 $54.9 million and the investment of
approximately $5.2 million in equipment and leasehold improvements through
September 30, 1999. The Company had no significant commitments as of September
30, 1999 for capital expenditures.

The Company had cash and cash equivalents and short-term investments of $18.9
million as of September 30, 1999.

The Company anticipates that its existing funds should be sufficient to fund its
operating and capital requirements as currently planned through 2000. 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.


                                       9
<PAGE>

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

Year 2000 Readiness

Historically, certain computer programs have been written using two digits
rather than four digits, to define the applicable year. This could lead, in many
cases, to a computer's recognition of a date using "00" as 1900 rather than the
year 2000. This phenomenon could result in significant computer system failures
or miscalculations, and is generally referred to as the "Year 2000" problem or
issue.

Generally, the Company has Year 2000 exposure in three areas: (i) financial and
management operating computer systems used to manage the Company's business,
(ii) microprocessors and other equipment used by the Company ("embedded chips")
and (iii) computer systems used by third parties, in particular financial
institutions, vendors and suppliers of the Company.

The Company has substantially completed an inventory of its financial and
management operating systems and has made a determination of which such systems
were or were not Year 2000 compliant. The company has tested each significant
program which is believed to be Year 2000 compliant and has remedied all
significant programs that are not Year 2000 compliant. In some cases, Year 2000
issues have been corrected through the development of new programs, which
enhance or provide new functionality to these financial and management operating
systems

The Company has completed an inventory and assessment of its exposure to
embedded chips in its facilities and in the equipment used in such facilities.
The Company has also completed an assessment of the capability of vendors of
such equipment to successfully remediate Year 2000 problems in equipment with
embedded chips. As of September 30, 1999, the Company has substantially
completed remediation efforts of its exposure to embedded chips in its
facilities or equipment.

The Company estimates that the cost to remediate its financial and management
operating systems and embedded chips in its facilities or equipment should not
exceed $25,000, including potential capital costs for new computers and related
equipment. This amount does not include costs for computer software developed in
order to provide or improve functionality.

The Company has also been interviewing third parties, vendors and suppliers of
the Company to determine their exposure to Year 2000 issues, their anticipated
risks and responses to those risks. The Company has substantially completed this
process and has addressed any significant risks as of September 30, 1999.

If the Company is unsuccessful in completing remediation of non-compliant
systems, correcting embedded chips that are not Year 2000 compliant and if any
third parties, vendors or suppliers cannot rectify Year 2000 issues, the Company
could incur additional costs, which may be substantial, to develop alternative
methods of managing its business and replacing non-compliant equipment. The
Company is in the process of establishing a contingency plan in the event of any
such noncompliance.

Factors Affecting Future Operating Results

This Quarterly Report 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 on Form 10-Q and in the Section titled
"Business - Factors That May Affect Results" in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998, as filed with the SEC, 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.


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<PAGE>

                    BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                          (A Development Stage Company)

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.

ITEM 3.  QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

The Company owns financial instruments that are sensitive to market risks as
part of its investment portfolio. The investment portfolio is used to preserve
the Company's capital until it is required to fund operations, including the
Company's research and development activities. All of these market-risk
sensitive instruments are classified as held-to-maturity and are not held for
trading purposes. The Company does not own derivative financial instruments in
its investment portfolio. The investment portfolio contains instruments that are
subject to the risk of a decline in interest rates.

INTEREST RATE RISK: The Company's investment portfolio includes investment grade
debt instruments. These bonds are subject to interest rate risk, and could
decline in value if interest rates fluctuate. Due to the short duration and
conservative nature of these instruments, the Company does not believe that it
has a material exposure to interest rate risk.


                                       11
<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 Letter Agreement, Security Agreement and Promissory Note between the
        Company and Fleet National Bank, dated August 10, 1999.
   27   Financial Data Schedule.

b) Reports on Form 8-K
   None.


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<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, 1999 /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)


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