<PAGE>
                                          
                         SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C.  20549
                                          
                                     FORM 10-K
                                          
                         FOR ANNUAL AND TRANSITION REPORTS
                      PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934

(Mark One)

X    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the fiscal year ended:  December 31, 1997

___  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from ________________________ to _____________________

                            Commission File No.  000-28324

                              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, Bldg.  75, Third Avenue, Charlestown, MA 02129
--------------------------------------------------------------------------------
                  (Address of Principal Executive Offices)(Zip Code)

Registrant's telephone number, including area code: (617) 241-5200

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

                             Common Stock, $.01 par value
-------------------------------------------------------------------------------
                                 Title of each class

<PAGE>


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                    Yes  X         No ___

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K.  [X]

     The aggregate market value of voting Common Stock held by non-affiliates of
the registrant was $24,145,980, based on the last reported sale price of the
Common Stock on the Nasdaq consolidated transaction reporting system on
March 19, 1998. 

     Number of shares outstanding of the registrant's class of Common Stock as
of March 19, 1998:  8,578,743.

Documents incorporated by reference:
Annual Report to Stockholders for fiscal year ended December 31, 1997 - Part II
Proxy Statement for the 1998 Annual Meeting of Stockholders - Part III


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PART I

ITEM 1.   BUSINESS

THE COMPANY

     BioTransplant Incorporated, a Delaware corporation organized in 1990 
("BioTransplant" or the "Company") is developing proprietary pharmaceuticals 
and organ transplantation systems which represent a comprehensive approach to 
inducing functional  tolerance in humans.  This tolerance, 
ImmunoCognance-TM-, would allow a transplant recipient to accept a donor 
organ as self, while maintaining the remainder of the recipient's immune 
defenses.  The Company's product candidates are intended to reduce or 
eliminate the need for lifelong immunosuppressive therapy, minimize 
infections and complications associated with organ transplantation, reduce 
the cost of treating end-stage organ disease, and increase the supply of 
transplantable organs.

     Organ transplantation is an established therapy for end-stage organ 
disease. Over 30,000 kidney, liver, heart and lung transplants were performed 
in the United States and Western Europe in 1996.  There is a critical 
shortage of organs worldwide, and large, growing waiting lists have been 
established for potential organ transplant recipients.  The Company estimates 
that over $5.0 billion is spent annually on organ transplantation in the 
United States alone.  However, the success of these procedures is frequently 
limited by the rejection of the transplanted organ by the recipient's immune 
system.  To prevent rejection of the transplanted organ, recipients must 
maintain a lifelong regimen of immunosuppressive therapy.  Over half of the 
costs of organ transplantation are attributable to care subsequent to the 
transplant, including lifelong immunosuppressive therapy, hospitalization due 
to complications resulting from the chronic use of immunosuppressive drugs, 
infections and transplant rejections.

     BioTransplant and MedImmune Inc. ("MedImmune") entered into an agreement 
in October 1995 relating to products to treat and prevent organ rejection 
derived from BioTransplant's BTI-322 and MedImmune's MEDI-500 rodent 
antibodies. BTI-322 and its humanized derivative, MEDI-507, are novel and 
proprietary monoclonal antibodies being developed as stand-alone 
anti-rejection products and as an important component in the Company's 
AlloMune and XenoMune Systems for organ transplantation.  The Company has 
retained exclusive rights to the use of BTI-322/MEDI-507 in its AlloMune and 
XenoMune Systems.

     A monoclonal antibody is a single antibody which reacts with a specific
molecule, called an antigen, which triggers a response from the immune system. 
By selectively inhibiting T cells in an antigen specific manner, in vitro
studies suggest that BTI-322/MEDI-507 leaves the remainder of the immune system
competent to respond to pathogens (foreign organisms that cause disease)
subsequent to BTI-322/MEDI-507 administration.  MEDI-507 is being evaluated
clinically in organ rejection,

                                          3

<PAGE>

Graft-versus-Host Disease ("GvHD") and pilot autoimmune disease trials. 
MEDI-500 is a monoclonal antibody that suppresses most T cells.  MEDI-500 is
currently in an NIH-sponsored Phase III trial for ex vivo depletion of T cells
in bone marrow which will be transplanted into cancer patients

     The AlloMune System is designed to reduce or eliminate the need for
lifelong immunosuppressive therapy in human-to-human organ transplantation by
inducing functional tolerance through the creation of mixed bone marrow
chimerism between the donor and the recipient.  Mixed bone marrow chimerism
re-educates the recipient's immune system to recognize the donor organ as self,
while maintaining the remainder of the recipient's immune defenses.  The Company
is currently conducting preclinical studies in which kidneys of intentionally
mismatched donor monkeys are being transplanted into monkey recipients which
have undergone conditioning and bone marrow infusion to produce mixed chimeras. 
To date, 9 out of 11 recipient monkeys have achieved mixed bone marrow chimerism
and functional tolerance with normal kidney function for periods ranging from 6
to 48 months without the need for chronic immunosuppressive therapy.  The
Company and its collaborators at the Massachusetts General Hospital ("MGH") have
begun a pilot trial in patients with a  prototype of the AlloMune System for
re-educating the patient's immune system.  The pilot trial is being conducted
under a protocol approved by MGH's Institutional Review Board.  The Company is
seeking to optimize the AlloMune System through additional preclinical testing
in primates in addition to filing an investigational new drug application
("IND") with the United States Food and Drug Administration ("FDA") for
human clinical trials.

     With the XenoMune System, BioTransplant hopes to build upon the Company's
proprietary knowledge and technology developed with the AlloMune System.  The
XenoMune System is designed to expand the pool of donor organs by using organs
derived from proprietary miniswine for transplantation into humans.  The Company
is working to achieve mixed bone marrow chimerism between cross-species donors
and recipients. The Company has established miniswine-to-primate mixed bone
marrow chimerism for more than 300 days and has had preliminary success with
miniswine-to-primate kidney transplant survival for up to 15 days, without
evidence of hyperacute rejection (rejection that begins immediately upon
transplantation and is the consequence of the recipient having preformed
antibodies against donor antigens).  In addition, the Company is actively
pursuing the genetic manipulation of the recipient's bone marrow with an MHC
(major histocompatibility complex) gene from the miniswine donor ("gene
transduction") as an alternate means for inducing long-term specific tolerance. 
The Company has entered into a strategic alliance with Novartis Pharma AG
("Novartis") to develop xenotransplantation (transplantation of organs between
different species) products utilizing gene transduction and mixed bone marrow
chimerism.  Pursuant to the Company's 



                                          4
<PAGE>

agreement with Novartis for products utilizing gene transduction, BioTransplant
is entitled to receive research funding and license fees of $30.0 million, all
of which had been received as of December 31, 1997.  Pursuant to the Company's
agreement with Novartis for products utilizing mixed bone marrow chimerism,
which began in October 1997, BioTransplant may receive research funding, license
fees and milestone payments of up to $36.0 million, of which $5.5 million had
been received as of December 31, 1997.  Additionally, the Company has entered
into an exclusive supply agreement with Charles River Laboratories ("CRL") for
the supply of miniswine cells and organs.

OVERVIEW OF ORGAN TRANSPLANTATION

     Organ Transplant Market

     During the last two decades organ transplantation has become an established
therapy for end-stage organ disease.  This is due in part to the significant
progress that has been made since the introduction of cyclosporine by Novartis
in 1983.  In 1996, over 30,000 organ transplants were performed in patients
suffering from end-stage kidney, liver, heart and lung disease in the United
States and Western Europe.  The Company estimates that over $5.0 billion is
spent annually in the United States on organ transplantation.  However, the
success of these procedures is frequently limited by the rejection of the
transplanted organ by the recipient's immune system.  To prevent rejection of
the transplanted organ, recipients must maintain a lifelong regimen of
immunosuppressive therapy.  Over half of the costs of organ transplantation, on
a patient by patient basis, are attributable to care subsequent to the
transplant, including lifelong immunosuppressive therapy, hospitalizations due
to complications resulting from the chronic use of immunosuppressive drugs,
infections and transplant rejections.  Other treatments for end-stage organ
disease, such as kidney dialysis, are even more expensive and many non-kidney
transplant patients die while waiting for organs.  Accordingly, improvements in
transplantation technology that reduce the wait for suitable organs and minimize
infections and other complications, including retransplantation and the
toxicities of chronic immunosuppressive drugs, can be expected to lower the
overall cost of treating end-stage organ disease.

     There is a critical shortage of organs worldwide and waiting lists have
been established for potential organ transplant recipients.  Over 50,000
patients in the United States suffering from end-stage organ disease were on
waiting lists for a lifesaving organ transplant in 1997, based on data provided
by the United Network for Organ Sharing ("UNOS"). This number has more than
tripled since 1988, and the number of deaths of people on the waiting list has
increased proportionately.  If an adequate supply of transplant organs were
available and the complications of transplantation minimized, the Company
estimates that an additional 100,000 critically ill patients annually could
benefit from organ transplantation as a replacement for disease-damaged organs
and as an alternative to artificial devices.

     Efforts to ease this organ shortage through public campaigns and
advertisements to enlarge the pool of potential organ donors have been only
moderately successful. 


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Increased automotive safety has adversely affected the donation rate.  In
addition, the quality of organs available for transplant has been declining,
which the Company believes may impact organ graft half-lives and increase the
number of organs needed for retransplantations.  The potential for
allotransplantation (transplantation of organs between different individuals of
the same species) to spread infectious disease has also limited the potential
donor pool.  While the number of cadaveric donors has increased in the last ten
years, the demand for organs has increased more rapidly.  Advances have been
made in obtaining multiple organs from a single donor and in organ preservation
techniques, but a severe shortage of organs still exists and the backlog of
patients awaiting transplantation continues to grow. The shortage of donor
organs restricts the number of transplant procedures performed and forces many
patients to undergo costly and less effective alternatives to transplantation
for as long as possible.  This delay renders transplant candidates much sicker
than they would have been if the organ transplant had been possible sooner.

     Transplantation Biology

     The immune system is one of the major biological defense mechanisms
protecting the individual against disease and invasion by pathogens.  It can
distinguish self from specific foreign substances (known as antigens) and
produce a specific biological response to clear and destroy the source of the
foreign ("non-self") antigen.

     When an individual receives an organ transplant, the recipient's immune
system generally recognizes the transplanted tissue as foreign and initiates an
immune response against the organ, resulting in organ rejection.  The immune
response results from the recognition by the immune system of foreign antigens
(histocompatibility antigens) on the surface of the cells of the donor which are
different from those of the recipient.  If, as in the case of identical twins,
the histocompatibility antigens of the donor and the recipient are identical, no
rejection response occurs.  In all other cases, antigenic differences can
provide sufficient stimulus to cause an immune response and, consequently,
rejection of the organ.

     The biological specificity of the immune response is controlled by a subset
of white blood cells known as T cells.  Throughout an individual's life, the
immune system reacts to foreign antigens and develops T cells capable of
recognizing and responding to specific foreign antigens, including specific T
cells capable of recognizing and reacting to specific foreign histocompatibility
antigens.  T cells learn to distinguish self from non-self when they mature in
the thymus, and this maturation step induces tolerance to the individual's own
antigens. When mature antigen specific T cells recognize histocompatibility
antigens in transplanted tissue, they become activated and initiate a cascade of
events, including the proliferation of T cells and B cells (another subset of
white blood cells).  Certain activated T cells can kill cells bearing foreign
antigens; and B cells are capable of producing antigen specific proteins called
antibodies.  Antibodies 

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can bind to foreign cells or proteins and lead to their destruction or clearance
from the body.

     The two earliest types of immune response to transplanted foreign tissue
are hyperacute and acute rejection.  Hyperacute rejection begins immediately
upon transplantation and results from the reactivity of preexisting antibodies
with antigens presented by the donor tissue.  In hyperacute rejection, the donor
organ is destroyed within minutes to hours.  No treatment is currently available
for hyperacute rejection.  Acute rejection occurs after transplantation of an
organ when T cells recognize the histocompatibility antigens of the donor as
foreign, become activated and, over a period of days or weeks, initiate a
rejection response which may lead to the ultimate loss of the organ.  The
current approach to preventing acute organ rejection in transplant patients is
to administer a combination of immunosuppressive medications which
non-specifically suppress the ability of T cells to recognize and respond to
antigens.  These medications, however, not only inhibit T cells from recognizing
histocompatibility antigens of donor organs, but also block the patient's T
cells from recognizing other foreign antigens.  As a result, the transplant
recipient is rendered vulnerable to viral, bacterial and fungal infections.  In
addition, long-term use of these immunosuppressive drugs can lead to
cardiovascular disease, kidney and liver damage, as well as an increased
incidence of certain types of cancer such as skin and lip cancer and lymphomas. 
Most importantly, despite the administration of various immunosuppressive
medications, instances of organ rejection still may occur and may necessitate
increased doses of immunosuppressive drugs or inclusion of other anti-rejection
therapies, thus compounding unwanted side effects and complications.  If the
rejection cannot be controlled, the rejected organ must be removed and another
transplant will be required, or in the case of heart, liver or lung
transplantation, the patient may die.

     Current Transplantation Procedures

     A patient with end-stage failure of a major organ (kidney, liver, heart or
lung) or a patient in need of a bone marrow transplant must undergo a long
process of treatment prior to and after transplantation.  For solid organ
transplantation, an attending physician must decide that the patient's organ is
irreversibly damaged and unable to sustain life and that the patient is able to
undergo the surgical and medical procedures associated with transplantation and
post-transplantation therapy.  Then, the patient must undergo tests to determine
his or her histocompatibility antigens, a process referred to as tissue typing. 
Once the patient's tissue type is known, a suitable donor organ or bone marrow
must be located.  During the waiting period, samples are taken from the
potential recipient and tested for the presence of antibodies to a panel of
histocompatibility antigens representative of the population of prospective
donors.  This procedure is known as the Panel Reactivity Antibody test and is
used to determine the potential for acute rejection of a transplant by an
individual recipient.

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     Once a potential donor is found, a cross-match test is performed in order
to determine whether a potential recipient is likely to experience hyperacute
rejection of the organ.  The cross-match is designed to determine whether the
patient has circulating antibodies to the foreign tissue of the potential donor,
or related antigens developed in response to transfusion, pregnancy or prior
transplantation which may react with the donor cells and thus the donor organ. 
The search for a reasonable tissue match based on histocompatibility antigens
can prolong the time spent on the organ transplant waiting list for a donor
organ.  In the event that an organ is found with characteristics that suggest
the likelihood of a good outcome, the organ transplant is performed.

     Neither tissue typing nor cross-match technology result in a perfectly
matched organ.  Therefore, foreign antigens will always be found on a donor
organ, except in the case of transplants from an identical twin.  The
differences in donor and recipient antigens will cause the recipient's immune
system to maintain a continuous response against the donor organ until rejection
occurs, unless the immune response is suppressed.  Following the transplantation
procedure, the challenge in patient management is to prevent acute rejection of
the organ by inhibiting T cell activation.  The success of the transplant is
dependent on the immunosuppressive regimen which is initiated on the day of
surgery and is continued daily for the rest of the patient's life.  Lifelong
immunosuppressive therapy usually consists of the administration of a
combination of immunosuppressants such as Sandimmune-Registered Trademark- or
Neoral-Registered Trademark- (also known as cyclosporin A), prednisone (a
steroid), Imuran-Registered Trademark- (an anti-metabolite, also known as
azathioprine) or CellCept-Registered Trademark- (also known as mycophenolate
mofetil).  Chronic immunosuppressant medications have a narrow therapeutic
window; that is, the administration of dosages which are too low results in
organ rejection, while the administration of dosages which are too high can
result in unacceptable toxicity, and increased risks of cancer and infection. 
Because these medications also block the patient's T cells from recognizing
foreign antigens, they render the patient susceptible to infections and tumors. 
In addition, patient noncompliance with the prescribed immunosuppressive therapy
is a significant clinical problem due to the fact that if these drugs are
stopped, rejection, sometimes irreversible, will occur.

     All patients receive chronic systemic immunosuppressants at the time of
transplantation in order to reduce the probability of subsequent rejection of
the organ.  Some patients also receive an anti-T cell antibody such as OKT3 or
ATGAM in an attempt to further decrease the probability of rejection (called
"induction therapy").  The efficacy of OKT3 or ATGAM for use in induction
therapy has not been established, and neither of these drugs, has been approved
at the present time by the FDA for use in induction therapy.  Zenapax-Registered
Trademark-, a humanized anti-T cell antibody, has recently been approved for
this indication.

     Approximately 20-40% of transplant patients will experience an acute
rejection episode in the first year after transplantation.  Additional
intermittent episodes of acute rejection also occur, often requiring
rehospitalization for a course of more intensive 


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immunosuppression and may result in graft loss.  Acute rejection episodes are
treated with a short course of high dose steroids, anti-thymocyte globulin (such
as ATGAM), or OKT3.  In many cases these treatments are successful in reversing
the acute rejection response.  If these treatments are successful in reversing
the acute rejection response, the recipient resumes chronic immunosuppressive
drug maintenance therapy.  However, the treatment of these rejection episodes is
associated with increased complications due to the additional immunosuppression.
Patients treated with antibody-based therapies (ATGAM or OKT3) sometimes respond
by producing antibodies specific to the therapeutic antibody.  This response can
limit the ability of the physician to use these agents more than once in a given
patient.  All of the immunosuppressive drugs used to suppress the rejection
response are toxic to the recipient and carry a variety of potentially serious
side effects, including complications such as fever, shortness of breath,
headaches, diarrhea, seizures or life-threatening cardiac reactions as well as
increased infection and a higher incidence of cancer.  Long-term use can cause
liver and kidney damage and bone marrow depletion.   Even with chronic
immunosuppression, the donor organ can be slowly rejected over a period of
years, a process which is called chronic rejection.

     An additional problem occurs in bone marrow transplantation.  T cells from
the donor are present in the marrow to be transplanted into the recipient. 
These T cells can respond to the recipient's cells and cause graft versus host
disease (GvHD), which is a rejection of the recipient by the T cells in the
donor bone marrow.  The therapies for GvHD are similar to solid organ rejection.
However, a significant number of GvHD patients that do not respond to steroids
will also fail to respond to any other currently available antilymphocytic
agents and will die as a result of the GvHD.

PRODUCTS UNDER DEVELOPMENT

     In order to address the problems of organ transplantation described 
above, BioTransplant is developing a portfolio of proprietary pharmaceuticals 
and organ transplant systems with the goal of inducing functional tolerance 
in humans.  The Company is developing methods of selectively inhibiting T 
cells responsible for organ rejection and modifying a patient's immune system 
to accept foreign organs as if they were self by combining components of the 
donor's immune system with the recipient's immune system.

     In October 1995, the Company and MedImmune formed a collaboration to
develop and commercialize products to treat and prevent organ transplant
rejection. The collaboration is based upon the development of products derived
from BTI-322 and MEDI-500. Under the terms of the collaboration agreement
between MedImmune and the Company, MedImmune is required to pay royalties to the
Company on sales of BTI-322, MEDI-507 and MEDI-500. MEDI-500 is a murine
monoclonal antibody which has been in-licensed to MedImmune by the University of
Kentucky. MEDI-500 suppresses most T cells by binding to a protein (the
alpha-beta receptor) on the cell surface.

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<PAGE>

MEDI-507

     MEDI-507, a humanized antibody derived from BTI-322, is a novel and
proprietary monoclonal antibody therapeutic candidate being developed as a
stand-alone anti-rejection product and as an important component in the
Company's AlloMune and XenoMune Systems.  By selectively inhibiting T cells in
an antigen specific manner in vitro, the Company believes that BTI-322/MEDI-507
leaves the remainder of the immune system competent to respond to pathogens
subsequent to BTI-322/MEDI-507 administration.  The Company believes that
MEDI-507 offers unique advantages when administered at the time of
transplantation, as an agent for the prevention of acute organ rejection and in
inhibiting GvHD following bone marrow transplantation.  

     MEDI-507 is a monoclonal antibody that binds to CD2, an important
therapeutic target on the surface of T cells.  The Company believes that
MEDI-507  interferes with signaling through CD2, thereby preventing T cell
activation.  Other therapies used for the treatment of acute rejection only
inhibit T cell activation around the time of the treatment period.  However,
based on in vitro experiments, the Company expects that MEDI-507 will have a
lasting effect even after administration and will continue to selectively
suppress T cell responsiveness to the donor antigens.  If the mechanism of
action is substantiated by further data, the Company believes that MEDI-507 may
be effective against T cell mediated diseases (such as psoriasis, inflammatory
bowel disease, Crohn's disease and rheumatoid arthritis).  BTI-322, the rodent
form of MEDI-507, (originally known as LO-CD2a) was discovered in the
Experimental Immunology Unit of the Catholic University of Louvain, Belgium, by
Drs. Herve Bazin and Dominique Latinne.  The Company obtained exclusive rights
to develop and commercialize this antibody in early 1993.

     Clinical Development.  Early clinical results and research data suggest
BTI-322/MEDI-507 has the potential to be a safe and effective agent for the
prevention and treatment of allograft (intra-species transplants) and xenograft
(inter-species transplants) rejection and GvHD.  Prior to the grant of an
exclusive license to BTI-322 to the Company in 1993, four patients had been
treated for either acute kidney rejection or GvHD under a compassionate use
protocol approved by the Catholic University of Louvain hospital ethical
committee.

     In 1994, the Company conducted a physician-sponsored safety trial with
BTI-322 for the treatment of acute rejection of renal transplants in two centers
in Belgium under a protocol approved by the hospital ethical committees. 
Twenty-four patients were treated.  One patient withdrew from the study.  A
total of 13 patients completed treatment for their first rejection episode, 12
of whom responded to the treatment.  A second group of 10 patients who had
experienced multiple rejections, or had failed to respond to conventional
treatment (including steroids and OKT3), were also treated.  Seven of these
patients responded to treatment.  The majority of patients received the antibody
without the steroid pre-treatment typically used to reduce side effects 


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associated with T cell specific antibodies, and the therapy was well tolerated. 
Non-life-threatening side effects of limited duration were observed, mainly
during the first of ten daily doses administered to each patient.  These side
effects were less severe than those generally observed in similar patients
treated with steroid pre-treatment and OKT3 or ATGAM.  The results of this study
were submitted to the FDA as part of an IND in early 1995.  The Company and
MedImmune have conducted a Phase I/II trial of BTI-322 at MGH under this IND for
the treatment of acute renal rejection with steroid coverage for the first dose.

     The Company supported a physician-sponsored Phase I/II clinical trial at
the Catholic University of Louvain, for the use of BTI-322 as a component of
induction therapy in renal allograft transplantation.  Induction therapy is a
clinical protocol used at the time of transplantation to reduce the probability
of subsequent organ rejection by the recipient.  Forty patients were randomized
equally, to receive either conventional therapy or BTI-322 and conventional
therapy.  The last patient was enrolled in February 1996.  The rate of acute
rejection after the administration of induction therapy with BTI-322 is
significantly lower than that of the control group of twenty patients who
received only conventional therapy.  This difference in rejection rates between
the two groups is still significant at an 18-month follow-up.  A
physician-sponsored Phase I/II clinical trial of BTI-322 for induction therapy
for liver allograft transplantation has been approved by the Catholic University
of Louvain hospital ethical committee and is currently enrolling patients. 

     Under a compassionate use protocol, BTI-322 has also been used to treat
steroid-resistant GvHD.  Six patients have been treated with BTI-322 and five
patients demonstrated reversal of certain of their symptoms during the course of
treatment with BTI-322.  Two patients have shown no relapse of symptoms in the
absence of chronic steroid treatment for six and seven months, respectively,
after the antibody therapy.  The other four patients suffered relapse of their
GvHD after completion of BTI-322 administration and subsequently died due to the
consequences of their disease.  The Company believes that BTI-322 administered
at the onset of GvHD symptoms has a greater probability of long-term clinical
success.  A physician-sponsored Phase I/II trial for the early treatment of
steroid-resistant GvHD using BTI-322 recently commenced in Europe and MedImmune
began a Phase I/II clinical trial in the United States in late 1996.

     Although the Company believes the rodent antibody, BTI-322, is acceptable
in the prevention and treatment of allograft organ rejection, it may not be
appropriate for diseases which require multiple courses of the drug, such as T
cell mediated chronic diseases (including psoriasis, inflammatory bowel disease,
Crohn's disease and rheumatoid arthritis).  Therefore, the Company has developed
MEDI-507, a humanized form of BTI-322, by incorporating the specificity of
BTI-322 on the backbone of a human antibody molecule.  In experiments done to
date by the Company, the humanized form of the antibody has similar functional
effects to those of the rodent antibody.  Clinical 


                                          11
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testing of MEDI-507 began in 1997 in alliance with MedImmune.  INDs were filed
for prevention of renal allograft rejection and for the treatment of steroid
resistant GvHD and psoriasis.  See "-- Patents and Proprietary Rights." 

     MEDI-500

     Clinical Development.  MEDI-500 has been evaluated in several
transplantation clinical trials involving approximately 400 individuals. A Phase
II clinical trial comparing MEDI-500 with OKT3, the then only commercially
available monoclonal antibody for treatment of acute rejection, suggested that
MEDI-500 may have a similar efficacy profile to OKT3 but with reduced side
effects. MEDI-500 is currently being evaluated for prevention of GvHD by ex vivo
T cell depletion in a Phase III clinical trial sponsored by the National Heart,
Lung and Blood Institute ("NHLBI").

     The AlloMune System 

     The Company's AlloMune System is designed to allow the transplantation of
mismatched organs from human donors, so as to reduce or eliminate the need for
lifelong systemic immunosuppressive therapy.  The proposed AlloMune System
incorporates several components into a proprietary and integrated system to
create mixed bone marrow chimerism leading to functional tolerance.

     The AlloMune System is being designed to achieve functional tolerance to 
the mismatched organ through the creation of mixed bone marrow chimerism. 
Chimeric bone marrow contains the cells of both the donor and the recipient. 
The creation of the mixed chimeric state will cause the recipient's newly 
differentiated T cells to become specifically tolerant to the donor antigens 
and regard them as self.  The advantage of the induction of donor functional 
tolerance is that the recipient will retain its ability to respond to the 
antigens of foreign pathogens without responding to the donor antigens on the 
organ transplant.  This tolerance will reduce or eliminate the need for 
lifelong immunosuppressive therapy.  The Company has exclusive rights to 
patent applications directed towards producing mixed bone marrow chimerism.

     Prior to transplantation of the donor bone marrow, the recipient is 
given injections of an anti-T cell antibody in order to block the recipient's 
immune response to the new foreign antigens from the donor and to deplete the 
recipient's mature T cells.  Concurrent with the administration of the anti-T 
cell antibody, the recipient receives doses of radiation to make space in the 
recipient's bone marrow and allow the transplanted bone marrow to "seed" the 
newly created space.  A splenectomy is performed at the time of organ 
transplantation, and bone marrow from the donor is then injected into the 
recipient. The organ is then transplanted and a short course (expected to 
last approximately one month) of cyclosporine is administered.

     The Company is currently conducting preclinical studies in which kidneys of
intentionally fully mismatched donor monkeys are being transplanted into
recipient

                                          12
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monkeys which have undergone the bone marrow chimerism procedure.  One of the 
first recipients has achieved mixed bone marrow chimerism with normal kidney 
function for over 1,400 days, without chronic systemic immunosuppressive 
therapy.  In addition, one recipient has demonstrated tolerance to a skin 
graft from the donor monkey, in the absence of immunosuppressive drugs.  
However, the recipient monkey has rejected skin grafts transplanted from 
another monkey (third party donor), indicating that the monkey is 
specifically tolerant to the antigens of the donor and thus has a normal 
ability to respond to foreign antigens.  The Company has analyzed the ability 
of T cells from the chimeric monkeys to respond to cells from the donor and 
other monkeys.  The Company has demonstrated that the T cells from some 
chimeric monkeys do not become activated by donor cells in culture but will 
respond to cells from other monkeys (third party donors).

     To date, the creation of mixed bone marrow chimerism and normal kidney
function has been replicated in eight out of ten additional monkeys for periods
from 6 to 48 months.

     The Company is continuing to evaluate modifications to the conditioning
regimen in rodent and large animal models.  Recent evidence from the Company's
rodent models has demonstrated the ability to eliminate or greatly reduce the
level of irradiation needed to establish a state of mixed bone marrow chimerism,
and the Company intends to evaluate this approach in large animal models.

     The Company intends to continue to  optimize the AlloMune System through
additional preclinical trials in primates in addition to filing an IND with the
FDA for clinical trials.  The Company's academic collaborators have initiated an
institutional review board ("IRB") approved clinical trial of a pilot proof of
principle evaluation of the prototype AlloMune System in humans.

     The XenoMune System 

     Xenotransplantation is designed to address the issue of limited human organ
availability.  With the XenoMune System, BioTransplant hopes to build upon the
Company's proprietary knowledge and technology developed with the AlloMune
System to achieve transplantation of organs from animals into humans, using
organs derived from miniswine.  Many of the components of the proposed AlloMune
System are also part of the proposed XenoMune System.  However, there are
additional unique components in the XenoMune System.

     The proposed XenoMune System is expected to include miniswine kidneys, 
hearts, lungs and other organs for transplantation.  Pursuant to a 
collaboration agreement with CRL, the Company has obtained exclusive rights 
to miniswine which are being specifically developed by CRL for use in 
xenotransplantation.  These miniswine are an appropriate donor choice for 
xenotransplantation because of their size, physiology, 

                                          13
<PAGE>

inbreeding at swine histocompatibility genes, long-term documented medical 
history and breeding capacity. However, although the Company uses these 
miniswine as a potential donor of xenogeneic organs because the animals offer 
advantages over the use of other species, recent scientific publications by 
others have demonstrated, under laboratory conditons, that certain porcine 
viruses, called porcine endogenous retroviruses ("PERV") have the 
potential to infect human cells.

     Untreated swine-to-primate organ transplants normally result in hyperacute
organ rejection within hours of the transplant.  One of the significant
challenges in xenotransplantation is overcoming hyperacute rejection, which is
mediated by pre-existing antibodies in the recipient which react with the donor
tissue ("natural antibodies").  To avoid the hyperacute rejection of a miniswine
organ, BioTransplant is using a proprietary absorption technique, licensed from
a third party, to absorb natural antibodies from the recipient's blood prior to
the transplant of miniswine organs into monkeys.

     To prevent acute rejection of the transplanted miniswine organ, the Company
is working to achieve mixed bone marrow chimerism between cross-species donors
and recipients.  As one alternative method of inducing specific tolerance, the
Company is actively pursuing a gene transduction approach.

     Research and Preclinical Development.  To avoid hyperacute rejection of
miniswine kidneys by baboons and cynomolgus monkeys the Company has used its
absorption technique.  Up to 15 day survival of the miniswine kidneys has been
achieved without pathological signs of hyperacute rejection.  Based on
preliminary data, the Company believes that this technique will also remove
natural antibodies from human blood.

     The Company has achieved mixed bone marrow chimerism and long-term
xenograft tolerance between rat and mouse.  The Company has also demonstrated
chimerism and long-term acceptance of miniswine skin grafts on immunocompetent
rodents.  In addition, the Company has established mixed bone marrow chimerism
in the miniswine-to-primate model.  The Company has developed a proprietary
method to promote the engraftment of swine bone marrow in primates and has
thereby achieved miniswine-to-primate bone marrow chimerism engraftment for 300
days.  The use of this technique in a protocol similar to the AlloMune System
has produced long-term xeno-chimerism in three out of three primates and has
resulted in a diminished miniswine-specific T cell response from the chimeric
monkeys.  Lack of priming and diversification of the humoral response was also
demonstrated.   These results represent progress towards the generation of
functional tolerance to miniswine antigens.

     The Company's collaborators at MGH have published the first successful
demonstration in a pig-to-mouse model of tolerance to permanently re-educate the
immune system to accept transplanted tissue from a different species in the
absence of immunosuppressive drugs.

     
                                          14
<PAGE>

     A gene transduction approach to xenotransplantation is also being
developed.  The Company has demonstrated that gene transfer of a single
histocompatibility complex gene from one inbred line of miniswine to another
fully-mismatched inbred line by retroviral gene transfer into the recipient's
own bone marrow cells can induce functional tolerance to a donor kidney without
chronic immunosuppressive therapy.  Based on this observation, the Company has
performed miniswine to primate experiments using similar gene transduction
techniques.  In these experiments, multilineage expression of the miniswine MHC
gene was demonstrated for eight months in the initial primate recipient.  The
primate recipients of gene transduced bone marrow have been demonstrated to have
a diminished immune response to pig antigens.  Additionally, recent data using a
mouse model testing the ability to use gene therapy to deplete the antibodies
responsible for hyperacute rejection have shown encouraging results.   This
protocol is currently being tested in primates.  The Company has entered into a
strategic alliance with Novartis for the development of xenotransplantation
products utilizing gene transduction and mixed bone marrow chimerism and with
CRL for the supply of miniswine.  See "Collaborations and Agreements - Novartis"
and "- Charles River Laboratories."

COLLABORATIONS AND AGREEMENTS

     As part of its strategy, the Company has established alliances with
pharmaceutical and other biotechnology companies, academic institutions and
scientists and government laboratories.  Currently, its principal strategic
alliances are the following:

     Dr. David H. Sachs/The Massachusetts General Hospital

     In January 1991, the Company entered into a ten-year agreement with MGH
under which BioTransplant funds a portion of the research of Dr. Sachs and other
MGH personnel, including Drs. A. Benedict Cosimi, Megan Sykes, Christian LeGuern
and Jay Fishman in the area of transplantation of organs and tissues and, in
particular, xenograft transplantation involving primates, mice and miniswine. 
In exchange for such research funding, MGH has granted the Company exclusive
worldwide rights to technology and inventions developed in the course of the
Company funded research, subject to a royalty to be paid to MGH and subject to
the usual retention rights of the United States Government.  BioTransplant also
has a right of first refusal in connection with any additional research
proposals in the field of tissue and organ transplantation to be submitted by
Dr. Sachs and his colleagues (who are funded by BioTransplant) to other
commercial sponsors.  

     Novartis Pharma

     In April 1993, the Company entered into a five-year collaboration agreement
with Novartis, the world's leading supplier of transplantation therapeutics,
which was amended and restated in September 1995 (the "Novartis Gene
Transduction Agreement"),

                                         15
                                          
<PAGE>

to develop and commercialize xenotransplantation products utilizing gene
transduction.  Pursuant to the Novartis Gene Transduction Agreement, the Company
has received research funding of $20.0 million and license fees of $10.0 million
in connection with the research by the Company of certain xenotransplantation
products. In October 1997, the Company entered into a collaboration and license
agreement with Novartis to develop and commercialize transplantation products
utilizing the Company's proprietary mixed bone marrow chimerism technology (the
"Novartis Bone Marrow Agreement").  Pursuant to the Novartis Bone Marrow
Agreement, the Company may receive research funding, license fees and milestone
payments of up to $36 million.  As of December 31, 1997, research funding of
$3.5 million and license fees of $2.0 million had been received.  In addition,
in 1992 Novartis purchased $5.0 million of the Company's Series B Convertible
Preferred Stock ("Series B Stock"), which converted into 532,125 shares of
Common Stock upon consummation of the Company's initial public offering. In 
1997, revenues from the Company's collaboration agreements with Novartis 
accounted for 82% of the Company's total revenues.

     Pursuant to the terms of both Novartis Agreements, Novartis is obliged to
fund the development costs associated with certain xenotransplantation products
developed by the Company subject to reimbursement of a portion thereof by the
Company, if the Company elects to co-promote such products.  Under certain
conditions, the Company has the right to co-promote such products solely in
North America and to receive an agreed upon share of profits, if any, derived
from North American sales.  The Company is entitled to receive royalties on the
sale of such licensed products by Novartis outside of North America and, to the
extent that the Company elects not to co-promote in North America, on sales in
North America as well.  Royalties and profits from any licensed products
developed will depend, in part, upon the efforts of Novartis to perform clinical
testing, obtain regulatory approvals and market and sell such products both
within and outside of the United States.  The amount and timing of the resources
devoted to these activities by Novartis will be controlled by Novartis.  Under
certain circumstances, Novartis may develop or market products competitive with
the Company's xenotransplantation products utilizing the gene transduction or
mixed bone marrow chimerism approaches.  Pursuant to the Novartis Agreements,
Novartis has an option under certain circumstances to obtain an exclusive
license to inventions developed in the course of BioTransplant research funded
by Novartis for use outside the field of xenotransplantation.

     MedImmune

     In October 1995, the Company and MedImmune formed a collaborative agreement
for the development and commercialization of products to treat and prevent organ
transplant rejection. The collaboration is based upon the development of
products derived from BTI-322, MEDI-507, MEDI-500 and future generations of
products derived from these molecules. Pursuant to the collaboration, the
Company granted MedImmune an exclusive worldwide license to develop and
commercialize BTI-322 and MEDI-507 and any products based on BTI-322 or
MEDI-507, other than the use of BTI-322 or MEDI-507 in kits or systems for
xenotransplantation or allotransplantation. MedImmune paid 



                                          16
<PAGE>

BioTransplant a $2.0 million license fee at the time of formation of the
collaboration, and agreed to fund and assume responsibility for clinical testing
and commercialization of any resulting 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 BTI-322, MEDI-507 or MEDI-500, as well as to pay royalties on any
sales of BTI-322, MEDI-507, MEDI-500 and future generations of products, if any.
Royalties will depend, in part, upon the efforts of MedImmune to perform
clinical testing, obtain regulatory approvals and market and sell BTI-322,
MEDI-507 and MEDI-500. The amount and timing of the resources devoted to these
activities by MedImmune will be controlled by MedImmune.

     Charles River Laboratories

     In March 1991, BioTransplant entered into an exclusive research and supply
agreement with CRL, a wholly-owned subsidiary of Bausch & Lomb, Inc., which
assigned its rights in the agreement to an affiliate, Wilmington Partners L.P.,
in 1993. CRL is a leading company in providing genetically-defined and
"pathogen-free" animals to the biomedical community. Pursuant to the agreement,
CRL is the exclusive supplier of miniswine and/or miniswine organs to be
delivered by the Company as part of the XenoMune System.  To date, CRL has
assumed all of the costs of maintaining, expanding and improving the miniswine
herd, including extensive research and development costs associated with
achieving "specific pathogen-free" status for the herd in support of the
delivery of transplantable organs.  The Company and CRL are currently
negotiating the terms of a new agreement pursuant to which the Company will
assume the costs of maintaining the miniswine herd and, upon commencement of 
commercial sales of miniswine organs, the Company and CRL will seek to enter
into a definitive supply agreement for the ongoing supply of miniswine.  

     Stem Cell Sciences

     The Company has entered into a strategic alliance with Stem Cell Sciences
Pty Ltd. ("Stem Cell Sciences") for the purpose of genetically engineering
miniswine. BioTransplant has been granted worldwide, exclusive rights, subject
to the payment of a royalty, to technology, products and processes for the
derivation and manipulation of porcine embryonic stem cells developed during the
research term and useful in xenotransplantation in humans. In addition, Stem
Cell Sciences will be creating relevant transgenic miniswine for the Company.
BioTransplant has made equity investments in Stem Cell Sciences, which 
represent 30% of the outstanding shares of that company. At least half of the 
consideration received by Stem Cell Sciences from the Company's equity 
investment will be used to fund research in the development of germ line 
competent porcine embryonic stem cells and, in particular, the development of 
technology, products and processes useful for xenotransplantation in humans. 
BioTransplant made additional 

                                          17
<PAGE>

investments in Stem Cell Sciences in 1996 and 1997 to maintain its 30% 
ownership position and support additional research through December 31, 1998. 
The Company has the option to make a further equity investment in 1998 to 
maintain its ownership percentage. If the Company does not make such further 
investment then its rights become nonexclusive.

     Other Arrangements

     Catholic University of Louvain (Belgium).  BioTransplant is funding
research at the Experimental Immunology Unit of the Catholic University of
Louvain, Belgium (Drs. Herve Bazin and Dominique Latinne), for the development
of monoclonal antibodies.  The Company has exclusive worldwide commercialization
rights to discoveries, including BTI-322, made in laboratories under the
Company's sponsorship, subject to a royalty.

     Alberta Research Council (Canada).  BioTransplant has entered into a
worldwide license (subject to a royalty) with the Alberta Research Council for
specified patents and patent applications covering technology potentially useful
for removal of natural antibodies against xenografts.  The license is exclusive,
except for one patent application directed to the removal of natural antibodies
against xenografts which is co-owned by one of the inventors and was assigned to
a competitor.  The Alberta Research Council has also granted to BioTransplant a
non-exclusive, worldwide license to use any of its information, data, formulas
or processing information which pertain to the manufacture, development or use
of any products resulting from the licensed patents in the field of
xenotransplantation.

MANUFACTURING AND SUPPLY

     The Company currently has no manufacturing facilities or staff for clinical
or commercial production of any compounds or systems under consideration as
product candidates.  The Company plans to rely on third parties initially to
manufacture certain of its product candidates for research, preclinical testing,
clinical trials and commercialization, if any, with a long-term objective to
develop internal manufacturing capability where appropriate.  There is no
assurance that the Company will be able to develop or contract for manufacturing
capabilities of any of its products or systems on acceptable terms.

     Materials for preclinical studies and ongoing and planned clinical trials
with the rodent BTI-322 were manufactured by a contractor in Europe. Supplies of
MEDI-507 required for preclinical studies, clinical trials and commercial
products are being manufactured by MedImmune using its own manufacturing
facilities.

     The manufacture of the Company's AlloMune and XenoMune Systems may require
the production of cytokines, monoclonal antibodies and gene transfer vectors. 

                                          18
<PAGE>

The Company has the capacity to produce these materials in sufficient quantity
and of sufficient quality to support preclinical studies.  Materials of the
quality suitable for clinical trials will have to be produced by third party
manufacturers.  In addition, the Company has entered into an agreement with
Dendreon, formerly Activated Cell Therapy, to provide a system for handling,
transferring and purifying donor bone marrow.  CRL has agreed to supply
miniswine and miniswine organs exclusively for BioTransplant in connection with
xenotransplantation.

SALES AND MARKETING

     MedImmune has exclusive worldwide marketing rights to its proprietary
product, MEDI-500, as well as to BTI-322, MEDI-507 and future generations of
these products, if any.  MedImmune has disclosed that it has a sales and
marketing organization of over 70 people.  Five regional business directors,
each with 15 or more years of sales, marketing or managed care experience,
manage the regional business units established by MedImmune.  MedImmune has
disclosed that it has over 45 sales and managed care representatives covering
approximately 500 hospitals and clinics in the United States which specialize in
transplantation and/or pediatric/neonatal intensive care for the promotion of
their products.  MedImmune began marketing its product for transplantation
medicine, CytoGam-Registered Trademark-, in 1993 with its own 14 person sales
force.  The sales and marketing teams were expanded in January 1996 to its
current 70 person level with the approval for marketing by the FDA of
MedImmune's second product, RespiGam-Registered Trademark-.

     BioTransplant currently holds all marketing rights to the AlloMune System,
although the Company may seek a corporate partner to support the development and
commercialization of the AlloMune System.  In the United States, the Company
currently intends to market the AlloMune System and related products and systems
to organ transplant centers (estimated at approximately 275), which the Company
believes will allow significant market coverage with relatively few sales
personnel.  To implement this marketing strategy, the Company intends to hire a
limited number of sales and marketing personnel.  In foreign markets, the
Company expects to use local pharmaceutical companies to market its products and
systems due to the complexities of foreign regulations and medical practices.

     Pursuant to the collaboration agreement between BioTransplant and Novartis,
Novartis has been granted exclusive worldwide rights to market
xenotransplantation products based on gene transduction or mixed bone marrow
chimerism, subject to the Company's right to co-promote in North America under
certain conditions.  The Company currently intends to exercise this co-promotion
right at such time as Novartis has submitted an application for regulatory
approval of the XenoMune System to the FDA.  To the extent the Company develops
a xenotransplantation product that does not utilize technology which has already
been licensed, the Company may seek to collaborate with a third party or may
seek to market such product on its own. 

                                          19
<PAGE>


     Due to the early stage of the Company's development efforts, the Company
has no marketing or sales personnel.  There can be no assurance that the Company
will be able to successfully develop an effective marketing and sales
organization or enter into acceptable collaborative agreements with third
parties for the marketing of those products for which the Company has retained
marketing rights.

RESEARCH AND DEVELOPMENT

     The Company's total research and development expenses were $9.5 million,
$12.3 million and $14.0 million for 1995, 1996 and 1997, respectively.
Collaborative research and development revenues totalled  $9.9 million, $7.8
million and $12.1 million in 1995, 1996 and 1997, respectively.

PATENTS AND PROPRIETARY RIGHTS

     As of March 24, 1998, there were 15 patents issued and 37 patent 
applications pending in the United States Patent and Trademark Office owned by 
or licensed to BioTransplant.  The Company has also filed corresponding patent 
applications in selected foreign countries for certain of these U.S. patent 
applications.  BioTransplant believes that its proprietary rights in its 
technology are important to its ability to develop and commercialize products 
and to profit from its research.

     The Company's strategy is to pursue aggressively a strong patent portfolio.
There can be no assurance that patent applications owned by or licensed to the
Company will issue or that, if issued, they will provide the Company with
significant protection against competitors.  There can be no assurance that
BioTransplant will not need to acquire licenses under patents belonging to
others for technology potentially useful or necessary to BioTransplant, and the
cost and availability of such licenses are currently unknown.  Moreover, there
can be no assurance that any patents issued to or licensed by the Company will
not be challenged, invalidated, infringed upon or designed around by others or
that others will not hold patent rights that prevent the Company from
commercializing the patented invention.

                                          20
<PAGE>

     The Company is aware of granted patents which claim monoclonal 
antibodies which bind to T cells and the therapeutic use thereof.  These 
patents are owned by Johnson & Johnson, which manufactures and sells OKT3, a 
T cell binding monoclonal antibody. Although BTI-322 is also a monoclonal 
antibody which binds to T cells, the Company believes that BTI-322 is 
distinguishable from the monoclonal antibodies claimed in such patents, and 
does not infringe such patents either literally or under the doctrine of 
equivalents.  Notwithstanding such belief, there is a risk that the patent 
owner could initiate patent infringement litigation to prevent the 
manufacture, sale and use of BTI-322.  If the patentee should prevail in such 
litigation, the Company could be required to pay damages and reimburse the 
patentee for the cost of such litigation.  In addition, if the patentee was 
not prepared to grant a license to the Company, an injunction could issue 
which would prevent the manufacture, sale and use of BTI-322.  In addition, 
MEDI-500 is a monoclonal antibody which binds to T cells, and may be subject 
to similar risks as BTI-322.  If the manufacture, sale or use of MEDI-500 
infringes these patents, the royalties, if any, relating to MEDI-500 may be 
reduced or eliminated.

     The Company has reviewed issued patents which include claims relating to
the process for producing humanized rodent monoclonal antibodies.  These patents
are held by biotechnology companies and an academic institution.  While BTI-322
is a rodent antibody, the Company and MedImmune intend to commercialize
MEDI-507, a humanized version of BTI-322.  The Company and MedImmune have
obtained a license from Protein Design Laboratories Inc. under their patents. 
However, there can be no assurance that the Company will be able to obtain
additional such licenses on acceptable terms, if at all.  Failure to obtain such
licenses could require the Company to suspend or modify MEDI-507 and would limit
the use of BTI-322 to indications not requiring repeated multiple
administrations.

     The Company is also aware of a granted United States patent directed to the
production of transgenic animals by the use of a microinjection technique which
is licensed to a competitor.  Such patent could have an adverse impact on the
Company's ability to produce transgenic animals by microinjection.  In addition,
the Company is aware of a United States patent which is directed to embryonic
stem cells.  Such patent may have an adverse impact on the Company's program for
producing transgenic swine by the use of embryonic stem cells.

     Pursuant to a collaboration with CRL, the Company has obtained exclusive
rights to a herd of miniswine maintained by CRL.  There are no United States or
foreign patents or patent applications relating to such miniswine.  See
"Collaborations and Agreements - Charles River Laboratories."

     Some of the Company's know-how and technology is not patentable.  To
protect its rights, the Company requires all employees, consultants, advisors
and collaborators to enter into confidentiality agreements with BioTransplant. 
There can be no assurance, 


                                          21
<PAGE>


however, that these agreements will provide meaningful protection for the
Company's trade secrets, know-how or other proprietary information in the event
of any unauthorized use or disclosure.  Further, in the absence of patent
protection, the Company's business may be adversely affected by competitors who
independently develop substantially equivalent technology.

COMPETITION

     The products being developed by the Company compete with existing and new
products being created by pharmaceutical, biopharmaceutical, biotechnology
companies and universities.  Many of these entities have significantly greater
research and development capabilities, as well as substantial marketing,
manufacturing, financial and managerial resources and represent significant
competition for the Company.  There can be no assurance that developments by
others will not render the Company's products or technologies obsolete or
noncompetitive or that the Company will be able to keep pace with technological
developments.  Many of the competitors have developed or are in the process of
developing technologies that are, or in the future may be, the basis for
competitive products.  Some of these products may have an entirely different
approach than products being developed by the Company and may be more effective
and less costly.  In addition, many of these competitors have significantly
greater experience than the Company in undertaking preclinical testing and human
clinical trials of products and obtaining FDA and other regulatory approvals of
such products.  Accordingly, the Company's competitors may succeed in
commercializing products more rapidly than the Company.  In addition, colleges,
universities, government agencies and other public and private research
organizations conduct research and may market commercial products on their own
or through joint ventures.  These institutions are becoming more active in
seeking patent protection and licensing arrangements to collect royalties for
use of technology that they have developed.  These institutions also compete
with the Company in recruiting and retaining highly qualified scientific
personnel.

     In particular, there are several commercially available anti-rejection
drugs that will compete with BTI-322 and MEDI-500 products, including OKT3 and
ATGAM.  To the extent that these therapeutics address the problems associated
with transplantation on which the Company has focused, they may represent
significant competition.  In addition, Roche (Protein Design Laboratories, Inc.)
and Novartis have conducted clinical trials with potentially competitive
compounds.  Roche has received regulatory approval with one such compound,
Zenapax, and Roche and Novartis are seeking regulatory approval with respect to
other compounds.

     In addition, the Company is aware of other biotechnology companies
attempting xenotransplants, including Imutran Ltd., a wholly-owned subsidiary of
Novartis, Nextran Inc., a wholly owned subsidiary of Baxter HealthCare, Alexion
Pharmaceuticals, Inc. and SangStat Medical Corp.  Some of the Company's
competitors are using organs derived from genetically modified transgenic donors
which are designed to eliminate hyperacute 


                                          22
<PAGE>

rejection in humans.  Despite the Company's progress in creating tolerance 
for transplantation, there can be no assurance that others will not be 
successful in inducing tolerance.  In addition, the development of superior 
immunosuppressant therapeutics, mechanical organ systems and other 
improvements in therapies for end stage organ disease could adversely affect 
the size of the Company's available markets.

GOVERNMENT REGULATION

     The development and commercialization of the Company's products will be
subject to regulation in the United States by the FDA and by comparable
regulatory authorities in foreign countries.

     Based upon initial discussions with the FDA, the Company believes that
BTI-322 will be classified as a "biologic" and regulated under the Public Health
Service Act and the Federal Food, Drug and Cosmetic Act.  The Company expects
the AlloMune and XenoMune Systems to be classified as a Combination Product,
with the Center for Biologics Evaluation and Research ("CBER") assuming
principal responsibilities for the review, assisted by the Center for Devices
and Radiologic Health.  Development of a therapeutic product for human use under
either act is a multi-step process.  First, in vitro or animal testing must
establish the potential safety and efficacy of the experimental product in a
given disease.  Once the product has been found to be reasonably safe and
potentially efficacious in animals, suggesting that human testing would be
appropriate, an IND must be submitted to the FDA as a precondition to human
clinical trials.

     Clinical trials typically involve three phases, although those phases 
can overlap.  Phase I is conducted to evaluate the safety and 
pharmacokinetics of the experimental product in humans, and if possible, to 
gain early indications of efficacy.  Phase I studies may also evaluate 
various routes, dosages and schedules of product administration.  If 
acceptable product safety is demonstrated, Phase II studies are initiated.  
Phase II trials are designed to evaluate the effectiveness of the product in 
the treatment of a given indication and typically involve a relatively small 
number of patients.  The optimal routes, dosages and schedules of 
administration are confirmed in these studies. If Phase II trials indicate 
safety and efficacy, Phase III studies will be commenced.  Phase III studies 
further test for product safety and efficacy in an expanded patient 
population in order to evaluate the overall risk/benefit relationship of the 
product and to provide an adequate basis for physician labeling.  These 
studies also may compare the safety and efficacy of the product with 
currently available products.  It is not possible to estimate the time in 
which Phase I, II and III studies will be completed with respect to a given 
product, although the time period may last as long as several years.

     Following completion of these clinical investigations, the preclinical 
and clinical evidence that has been accumulated, together with manufacturing 
data, is submitted to the FDA in a Biologics License Application ("BLA") 
which is an integration of the Product License Application ("PLA") and 
Establishment License Application ("ELA") for a well-characterized biologic 
drug in the United States.

                                          23
<PAGE>

Approval of the BLA is necessary before a company may market the 
product.  The approval process can be very lengthy and depends upon the time 
it takes to review the submitted data, the FDA's comments on the application 
and the time required for the Company to provide satisfactory answers or 
additional clinical data when requested.  The FDA has ongoing adverse 
experience reporting requirements once the BLA is approved.

     The results of all preclinical, development/manufacturing and Phase I, II
and III clinical study data generated in Europe or the United States may also be
submitted to the European Medicines Evaluation Agency ("EMEA"), the counterpart
of the FDA, for approval as a Marketing Approval Application ("MAA"), which is
the equivalent of a PLA or BLA.  The application procedure is known as the
"Centralized" procedure.  The MAA is assigned to a "rapporteur," who coordinates
the assessment of the application by a team of "experts" in the preclinical,
product manufacturing and clinical areas.  An overview of the results of the
assessment are then presented to the Committee on Proprietary Medicinal Products
("CPMP"). The CPMP, which is comprised of two members from each Member State of
the European Union, evaluates both the MAA and the rapporteur's recommendations
and forms an opinion on the approval or rejection of the MAA.  This opinion is
then referred to the European Commission, and the European Council if
appropriate, for a final decision.  Approval of the MAA permits product
marketing within all countries of the European Union.  This MAA procedure takes
a minimum of 300 days, excluding the time taken by the applicant to respond to
questions raised by the CPMP.

     The manufacture of xenograft products for human transplantation can be 
expected to present novel questions concerning both the safety of the 
products produced thereby and compliance with current good manufacturing 
practices in the production of biologics.  The BLA will not be approved 
unless manufacturing procedures and facilities comply with strict FDA 
requirements concerning good manufacturing practices as well as any special 
requirements imposed as a part of the BLA approval.  A portion of the Phase 
III clinical trials of a biological product must use material produced by 
such procedures and in such facilities.  Continued compliance with current 
good manufacturing practice is required to be eligible to continue to market 
the products once they are approved.

     The Orphan Drug Act of 1983 generally provides incentives to manufacturers
to undertake development and marketing of products to treat relatively rare
diseases, those where fewer than 200,000 persons in the United States at the
time of application for orphan drug designation would be likely to receive the
treatment.  BioTransplant intends 


                                          24
<PAGE>

to pursue this designation with respect to any of its products intended for
patient populations in the United States of less than 200,000.

     A product that receives orphan drug designation by the FDA and is the first
product to receive FDA marketing approval for its indication is entitled to a
seven-year exclusive marketing period in the United States for that indication. 
A product that is considered by the FDA to be different from a particular orphan
drug or is approved for different indications is not barred from sale in the
United States during the seven-year exclusive marketing period.  In the European
Union, although there are some minor orphan drug provisions in some countries,
there is, as yet, no equivalent overall process to that followed in the United
States.

REIMBURSEMENT

     Major health insurance programs in the United States, including Blue Cross
and Blue Shield and other managed care plans which cover more than 125 million
Americans, pay for most non-kidney transplantation costs for their members.  
Kidney transplants (and dialysis) are funded by Medicare, a federally supported
program which pays for over 65% of the costs associated with end-stage renal
disease.   The Company expects that private health insurance and the Medicare
program will continue to reimburse transplant expenses at current levels in the
majority of cases.  The Company plans to design its clinical trials to
demonstrate lower overall treatment costs for end-stage organ disease compared
to alternative therapies.   Since some of the Company's organ transplantation
systems are designed to allow rescue from life-threatening disease for which
there are no alternative treatments, the Company believes that those products
will receive reimbursement commensurate with current practices.  However,
pending or future health care reform proposals could result in significant
changes in the United States reimbursement climate.

FACTORS THAT MAY AFFECT RESULTS

     This Annual Report on Form 10-K 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 Annual Report on Form 10-K.

     Lack of Commercial Products; No Assurance of Successful Product
Development.  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, 

                                          25
<PAGE>

any product.  The Company has no products available for sale and does not expect
to have any of its potential products available for at least the next several
years, if at all.  The Company's potential products will require significant
additional development, preclinical and clinical testing, regulatory approval
and additional investment prior to commercialization.  The Company's potential
products are subject to the risks of failure inherent in the development of
products based on new technologies.  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.

     History of Losses and Accumulated Deficit; No Assurance of Revenue or
Operating Profit.  The Company has generated no revenues from product sales and
has experienced significant operating losses since inception.  As of December
31, 1997, the Company's accumulated deficit was approximately $39.3 million. 
The Company expects to incur substantial additional costs, resulting in
significant and increasing losses for at least the next several years. 
Revenues, if any, that the Company may receive in the next few years will be
limited to payments under the Company's agreements with Novartis and MedImmune,
and any other research or product development relationships that the Company may
hereafter establish, and interest income.  The Company's ability to achieve
significant revenue or profitability is dependent on successfully completing the
development of its products, obtaining required technology licenses and
regulatory approvals, and manufacturing and marketing its products.  There can
be no assurance, however, that the Company will successfully develop,
commercialize, manufacture or market any of its potential products, obtain
regulatory approvals, patents or third-party licenses to technology or ever
achieve profitability.

     Need for Substantial Additional Funds.  The Company will need substantial
additional funds before it can expect to realize significant product revenue. 
The Company's working capital needs and additional funding requirements will
depend upon numerous factors, including the progress of the Company's research
and development programs and the external research and development programs
being supported by the Company, the timing and results of preclinical and
clinical testing, the timing and costs of obtaining regulatory approvals, the
level of resources that the Company commits to the development of manufacturing,
marketing and sales capabilities, the ability of the Company to maintain
existing and establish new collaborative arrangements with other companies to
provide funding to the Company, the technological advances and activities of
competitors, and other factors.  The Company believes that it has sufficient
funds to fund its operating expenses and capital requirements as currently
planned at least through mid-1999.  Substantial additional funds will be
required to support the Company's operations.  The Company anticipates that
these funds will be obtained from external sources and intends to seek
additional equity, debt or lease financing to fund future operations.  The
Company also expects to seek additional collaborative arrangements with
corporate partners in order to fund its 


                                          26
<PAGE>

research and development programs.  There can be no assurance, however, that the
Company will be able to negotiate such arrangements or obtain the additional
funding that it will require on acceptable terms, if at all.

     Reliance upon Third Parties.  The Company's strategy for development and 
commercialization of its products entails entering into arrangements with 
corporate, government and academic collaborators, such as Novartis and 
MedImmune, as well as third party manufacturers, licensors, licensees and 
others.  There can be no assurance that the Company will be able to maintain 
its existing arrangements or establish additional collaborative arrangements 
or license agreements that the Company deems necessary or acceptable to 
develop and commercialize its potential pharmaceutical products or that such 
collaborative arrangements or license agreements will be successful or that 
current or potential collaborators will not seek alternative means of 
developing the products.  In 1997, revenues from the Company's collaborative 
agreements with Novartis accounted for approximately 82% of the Company's 
total revenues. A loss of a strategic alliance partner such as Novartis could 
have an adverse effect on the Company's business, financial condition and 
results of operations. In addition, both of the Company's corporate 
collaborators are independently developing products that may be competitive 
with products they are developing in collaboration with BioTransplant.  In 
addition, the Company is entitled to receive royalties on MEDI-500, a product 
proprietary to MedImmune, and any such royalties are wholly dependent on the 
efforts of MedImmune to develop and market such product.

     Novel Therapeutic Approach; Technological Uncertainties.  While the
Company's BTI-322 antibody has the ability to induce antigen specific
hyporesponsiveness in vitro, the Company has not proven that this activity can
be induced clinically.  BTI-322/MEDI-507 has been tested in relatively few
patients.  There can be no assurance that the clinical activity already seen
will continue to be encouraging.  Furthermore, the Company's AlloMune and
XenoMune Systems are based on creating long-term functional tolerance by
introducing mixed bone marrow chimerism or gene transduction.  These approaches
are novel and, to the Company's knowledge, have never been achieved in humans,
including by the Company.  There can be no assurance that the Company will be
successful in achieving long-term functional tolerance, that the AlloMune and
XenoMune Systems will be useful clinically or that physicians will adopt such
novel therapeutic approaches.

     Uncertainties Associated with Preclinical and Clinical Testing.  Before
obtaining regulatory approvals for the commercial sale of any of the Company's
potential products, the products will be subjected to extensive preclinical and
clinical testing to demonstrate their safety and efficacy in humans.  The
failure to adequately demonstrate the safety and efficacy of a therapeutic
product under development could delay or prevent regulatory approval of the
product and would have a material adverse effect on the Company.  Furthermore,
the Company has limited experience in conducting clinical trials.  The Company
is dependent on MedImmune to conduct clinical trials for MEDI-507, Novartis to
conduct clinical trials for the development of xenotransplantation products
utilizing gene transduction or mixed bone marrow chimerism and may become
dependent on other third parties to conduct future clinical trials of its
AlloMune System and any other products.

                                          27
<PAGE>

     Uncertainties Regarding Patents and Proprietary Rights; Potential Third
Party Claims.  The Company's success depends, in part, on its ability to obtain
patent protection for its products.  The Company has filed, or has licensed
exclusively, patents and patent applications in connection with various aspects
of its products under development.  There can be no assurance that patent
applications relating to the Company's products or technology will result in
patents being issued or that, if issued, the patents will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company.  In addition, patents may have been
granted, or may be granted, covering products or processes that are necessary
for or useful to the development of the Company's products.  Holders of these
patents could prevent the Company from commercializing its products or require
the Company to obtain licenses to develop, manufacture or market its products. 
There can be no assurance that the Company will be able to obtain such licenses
on commercially reasonable terms, if at all, or that the patents underlying the
licenses will be valid and enforceable.  There has been significant litigation
in the industry regarding patents and other proprietary rights.  If the Company
became involved in litigation regarding its intellectual property rights, the
cost of such litigation could be substantial.

     In addition, some of the Company's know-how and technology is not
patentable.  For example, there are no patents or patent applications covering
the miniswine supplied by Charles River Laboratories.  To protect its rights,
the Company requires all employees, consultants, advisors and collaborators to
enter into confidentiality agreements with BioTransplant.  There can be no
assurance, however, that these agreements will provide meaningful protection for
the Company's trade secrets, know-how or other proprietary information in the
event of any unauthorized use or disclosure.  Further, in the absence of patent
protection, the Company's business may be adversely affected by competitors who
independently develop substantially equivalent technology.  See "-- Patents and
Proprietary Rights."

     No Assurance of FDA Approval; Comprehensive and Evolving Government
Regulation; Limited Regulatory Precedent.  The Company's research, development
and clinical programs, as well as its manufacturing operations, are subject to
extensive regulation by numerous government authorities in the United States and
other countries.  All of the Company's products require governmental approvals
for commercialization, none of which have yet been obtained.  Preclinical and
clinical trials and manufacturing of many of the Company's products will be
subject to the rigorous testing and approval processes of the FDA and
corresponding foreign regulatory authorities.  There is presently limited
regulatory precedent for approval of products based on monoclonal antibodies.  

     The FDA has not yet established definitive regulatory guidelines for
xenotransplantation and for assessing the risks of animal pathogens, but has
drafted guidelines in an attempt to reduce the risk of contamination of
transplanted organs with infectious agents.

                                          28
<PAGE>

In particular, in October 1997 the FDA instructed all sponsors of human 
clinical trials involving porcine tissue to test for the presence of 
infection with PERV in porcine cells and for evidence of PERV in patient 
blood samples prior to the transplantation of any additional patients in 
clinical trials.  There can be no assurance that the FDA will not require 
additional extensive testing for PERV or that the FDA will establish 
definitive guidelines for xenotransplantation.  Even if the FDA establishes 
definitive guidelines for xenotransplantation, there can be no assurance that 
the Company will be able to comply with such guidelines.  Any inability to 
comply with FDA guidelines, once developed, could have a material adverse 
effect on the Company's business.

     The regulatory process, which includes preclinical, clinical and
post-clinical testing of the Company's products to establish their safety and
efficacy, requires many years to complete and the expenditure of substantial
resources.  Delays in obtaining approvals could adversely affect the marketing
of products under development by the Company and the Company's ability to
generate commercial product revenues.  There can be no assurance that requisite
regulatory approvals will be obtained within a reasonable period of time, if at
all.  Moreover, if regulatory approval of a product is granted, such approval
may impose limitations on the indicated uses for which such product may be
marketed.  Further, even if such regulatory approval is obtained, a marketed
product, its manufacturer and its manufacturing facilities are subject to
continual review and periodic inspections, and later discovery of previously
unknown problems with a product, such as the presence of PERV in porcine cells
or clinical trial subjects, or with a manufacturer or facility may result in
restrictions on such product or manufacturer, including withdrawal of the
product from the market.  Failure to comply with the applicable regulatory
requirements can, among other things, result in fines, suspensions of regulatory
approvals, product recalls, operating restrictions and criminal prosecution.

     Intense Competition.  The products being developed by the Company 
compete with existing and new products being created by pharmaceutical, 
biopharmaceutical and biotechnology companies, as well as universities and 
other research institutions.  Many of these entities have significantly 
greater research and development capabilities, as well as substantial 
marketing, manufacturing, financial and managerial resources, and represent 
significant competition for the Company.  There can be no assurance that 
developments by others will not render the Company's products or technologies 
obsolete or noncompetitive or that the Company will be able to keep pace with 
technological developments.  Many of the competitors have developed or are in 
the process of developing technologies that are, or in the future may be, the 
basis for competitive products.  Some of these products may have an entirely 
different approach than products being developed by the Company and may be 
more effective and less costly.  In addition, many of these competitors have 
significantly greater experience than the Company in undertaking preclinical 
testing and human clinical trials of products and obtaining FDA and other 
regulatory approvals of such products.  Accordingly, the Company's 
competitors may succeed in commercializing products more rapidly than the 



                                          29
<PAGE>

Company.  In addition, colleges, universities, government agencies and other 
public and private research organizations conduct research and may market 
commercial products on their own or through joint ventures.  These 
institutions are becoming more active in seeking patent protection and 
licensing arrangements to collect royalties for use of technology that they 
have developed.  These institutions also compete with the Company in 
recruiting and retaining highly qualified scientific personnel.

     Dependence on Key Personnel.  The Company depends to a considerable 
degree on a limited number of key personnel.  During the Company's limited 
operating history, many key responsibilities within the Company have been 
assigned to a relatively small number of individuals.  The Company does not 
maintain "key man" insurance on any of its employees.  The loss of certain 
senior management could adversely affect the business of the Company.

     Limited Manufacturing and Marketing Capabilities.  Because of the
relatively early stage of the Company's research and development programs, the
Company has not yet invested significantly in manufacturing, marketing,
distribution or product sales resources.  The Company currently does not have
the capacity to manufacture its potential products, and is dependent on contract
manufacturers or collaborative partners for the production of its potential
products for preclinical research and clinical trial purposes and may be
dependent on such manufacturers or collaborative partners for commercial
production.  There can be no assurance that the Company will be able to enter
into arrangements with third parties for such purposes.  In the event that the
Company is unable to establish its own manufacturing facilities or obtain
contract manufacturing on commercially acceptable terms, it may not be able to
commercialize its products as planned.  The Company has no experience in
manufacturing pharmaceutical or other products or in conducting manufacturing
testing programs or in the clinical evaluations required to obtain FDA and other
regulatory approvals.

     Uncertainty Relating to Third-Party Reimbursement and Product Pricing.  The
successful commercialization of the Company's products will depend substantially
on reimbursement of the costs of such products and related treatments at
acceptable levels from government authorities, private health insurers and other
organizations, such as health maintenance organizations ("HMOs").  There can be
no assurance that reimbursement in the United States or foreign countries will
be available for any products the Company may develop or, if available, will not
be decreased in the future, or that reimbursement amounts will not reduce the
demand for, or the price of, the Company's products, thereby adversely affecting
the Company's business.  Currently, no reimbursement plan exists for the costs
associated with the Company's AlloMune and XenoMune Systems.

     Potential Product Liability; Limited Product Liability Insurance.  The
Company's business exposes it to potential product liability risks which are
inherent in the testing, manufacturing, marketing and sale of human therapeutic
products, and there can be no 

                                         30

<PAGE>

assurance that the Company will be able to avoid significant product liability
exposure.  Product liability insurance for the biopharmaceutical industry is
generally expensive, if available at all.  The Company currently has limited
product liability insurance covering its clinical trials.  However, there can be
no assurance that it will be able to maintain such insurance on acceptable
terms, that such insurance will provide adequate protection against potential
liabilities or that the Company will be able to obtain product liability
insurance for the use of its potential commercial products.  Any inability to
obtain sufficient insurance coverage at an acceptable cost or otherwise to
protect against potential product liability claims could prevent or limit the
commercialization of products developed by the Company.  Furthermore, a product
liability claim, and any related adverse publicity, could have a material
adverse effect on the business or financial condition of the Company.

EMPLOYEES

     As of March 19, 1998, the Company had 63 full time employees.

ITEM 2.   PROPERTIES

     Since October 1994, the Company has occupied a 27,000 square foot 
facility containing office and laboratory space located in the Charlestown 
Navy Yard in Charlestown, Massachusetts, pursuant to a 10-year lease which 
expires in 2004. The Company has the option to extend the lease for an 
additional five-year term. The Company believes that these leased facilities 
are adequate to meet the Company's purposes for at least the next three years.

ITEM 3.   LEGAL PROCEEDINGS

     The Company is not a party to any material legal proceeding.

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

     No matters were submitted to a vote of security holders of the Company,
through solicitation of proxies or otherwise, during the last quarter of the
year ended December 31, 1997.

EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth the names, ages and positions of the
executive officers of the Company.

<TABLE>
<CAPTION>
Name                              Age   Position
<S>                               <C>   <C>

</TABLE>

                                          31

<PAGE>

<TABLE>
<S>                               <C>   <C>

Elliot Lebowitz, Ph.D.             56   President and Chief Executive 
                                        Officer, Director

James Hope, Ph.D.                  46   Senior Vice President of Development

Julia L. Greenstein, Ph.D.         41   Senior Vice President of Research and    
                                        Chief Scientific Officer

Mary White-Scharf, Ph.D.           47   Vice President of Research

Robert S. Kauffman, M.D., Ph.D.    49   Vice President of Clinical Affairs

Richard V. Capasso, C.P.A.         36   Vice President, Finance and 
                                        Treasurer

</TABLE>
          
     Dr. Lebowitz has served as President and Chief Executive Officer and as a
member of the Board of Directors of the Company since April 1991.  From 1985 to
1991, he served as Vice President for Research and Development at C.R. Bard,
Inc., directing internal and collaborative research and development programs for
Bard's Vascular Systems, Cardiosurgery and Cardiopulmonary Divisions.  From 1981
until 1985, Dr. Lebowitz served as Director of Long Range Research and
Development at DuPont Corporation, developing immunopharmaceuticals.  From 1977
until 1981, he served as Division Manager of the Medical Products Division of
New England Nuclear Corporation which developed, manufactured and sold
radiopharmaceuticals for in vivo diagnosis.  Earlier in his career, Dr. Lebowitz
served at Brookhaven National Laboratories, where he developed Thallium-201, a
radiopharmaceutical for the diagnosis of coronary artery disease.  Dr. Lebowitz
was a founder of Diagnostic Isotopes, Inc., a radiopharmaceutical company which
was subsequently acquired by Hoffmann-La Roche Inc., a pharmaceutical company. 
He was also a founder of Procept, Inc., a biopharmaceutical company which
focuses on rational drug design.  He holds a B.A. from Columbia College and a
Ph.D. from Columbia University.

     Dr. Hope has served as Senior Vice President of Development of the Company
since December 1995.  From August 1992 until December 1995, he served as Vice
President of Development of the Company.  From 1990 until 1992, he served as
Executive Director of Operations Technical Support of Serono Laboratories, Inc.
where he directed the transfer, scale-up and validation of biopharmaceutical
manufacturing processes.  From 1986 until 1990, he served as the Director of
Bioprocess Development and Production at Invitron Corp., a contract manufacturer
for the development and scale-up of mammalian, cell-based biopharmaceutical
manufacturing processes.  Dr. Hope received a B.S. in microbiology and chemistry
from the University of Reading (U.K.) and a Ph.D. in biochemistry from the
University of London (U.K.).

                                          32
<PAGE>

     Dr. Greenstein has served as Senior Vice President of Research and Chief
Scientific Officer of the Company since December 1995.  From February 1994 until
December 1995, she served as Vice President of Research of the Company.  From
1992 until 1994, she served as Vice President, Discovery Research, and from 1991
until 1992, as Director of Immunology, at ImmuLogic Pharmaceutical Corporation,
a biotechnology company which she joined in 1987 and worked on a T cell mediated
approach to allergy desensitization.  From 1986 until 1987, Dr. Greenstein was
an Assistant Professor of Pathology at Harvard Medical School and the Dana
Farber Cancer Institute.  She received her B.A. from Russell Sage College and
her Ph.D. in microbiology from the University of Rochester Medical School.

     Dr. White-Scharf has served as Vice President of Research of the Company
since December 1995.  From September 1991 until December 1995 she served as
Director of Monoclonal Antibody Development of the Company where she directed
the BTI-322 program and the Company's hybridoma discovery, scale-up, antibody
purification and antibody engineering.  From 1989 to 1991, she served as a
Research Scientist at Repligen Corporation, a biotechnology company, where she
directed its efforts to generate a broadly neutralizing monoclonal antibody to
HIV-1.  Dr. White-Scharf received her B.S. in biology from Southern Methodist
University, her M.A. in physiology from the University of Texas Medical Branch
and her Ph.D. in medical microbiology from Stanford University School of
Medicine.

     Dr. Kauffman has served as Vice President of Clinical Affairs of the
Company since June 1996.  From April 1995 until June 1996, he served as Medical
Director of Serono Laboratories, a biotechnology company where he participated
in the development program for recombinant human growth hormone for treatment of
AIDS-associated wasting.  From 1993 to 1995, he served as Executive Director,
Medical Research at Syntex Research, a pharmaceutical company, where he was
leader of the clinical development team that implemented the three Phase III
studies leading to U.S., European and Canadian marketing approval of CellCept
(mycophenolate mofetil) for prevention of renal allograft rejection.  From 1989
to 1993 he served as Associate Medical Director at Syntex Research.  Dr.
Kauffman received his B.A. in biology from Temple University, and his M.D. and
Ph.D. in microbiology from the University of Pennsylvania School of Medicine.

     Mr. Capasso has served as Vice President, Finance and Treasurer of the
Company since May 1997.  From December 1994 until May 1997 he served as Director
of Finance of the Company and from December 1991 until December 1994 he served
as Controller of the Company.  From 1988 to 1991, Mr. Capasso served as Manager
of Financial Reporting and Controller at Softbridge, Inc., a computer software
development company.  From 1984 to 1988, he served as a member of the
professional staff of the Enterprise Group of Arthur Andersen LLP, an
international public accounting firm.  Mr. Capasso received his B.S. from
Northeastern University with a major in accounting and received his C.P.A. in
1987.

                                          33
<PAGE>

                                       PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     (a)  Market Price of and Dividends on the Registrant's Common Stock and
          Related Stockholder Matters.

     The Common Stock of BioTransplant Incorporated has been traded on the
Nasdaq National Market under the symbol BTRN since May 8, 1996.  Prior to May 8,
1996, the Company's Common Stock was not publicly traded.  The following table
sets forth for the periods indicated the high and low sales prices per share of
the Common Stock as reported by the Nasdaq National Market.

<TABLE>
<CAPTION>
                                                          1996
                                                    ----------------
                                                     High       Low
                                                    ------    ------
<S>                                                 <C>       <C>
Second Quarter...................................   $11.00    $ 8.13
    (May 8 through June 30, 1996) 

Third Quarter....................................   $ 8.50    $ 5.63

Fourth Quarter...................................   $ 7.00    $ 5.00

</TABLE>

<TABLE>
<CAPTION>
                                                          1997
                                                    ----------------
                                                     High       Low
                                                    ------    ------
<S>                                                 <C>       <C>

First Quarter....................................   $ 8.13    $ 5.75

Second Quarter...................................   $ 7.50    $ 6.25

Third Quarter....................................   $ 6.63    $ 4.25

Fourth Quarter...................................   $ 7.50    $ 5.00

</TABLE>

     On March 19, 1998, the Company had approximately 500 stockholders of
record.  On March 19, 1998, the closing price of the Company's Common Stock on
the Nasdaq National Market was $4.03.  The Company has never declared or paid
any dividends on its Common Stock.  The Company does not expect to pay cash
dividends in the foreseeable future.

     (b)  Use of Proceeds.

                                          34

<PAGE>

     The following information is provided pursuant to Rule 463 under the 
Securities Act of 1933, as amended (the "Securities Act"), with respect to 
the Company's first registration statement filed pursuant to the Securities 
Act:

     On May 7, 1996, the Securities and Exchange Commission declared effective a
registration statement on Form S-1 (333-2144) (the "Registration Statement")
registering 3,220,000 shares (the "Shares") of the Company's common stock, $.01
par value per share ("Common Stock").  An offering of such Shares (the
"Offering") commenced on the same date.  UBS Securities LLC and Pacific Growth
Equities, Inc. were the managing underwriters for the Offering.  The Offering
terminated after the sale of all of the Shares.  All of the Shares were sold on
behalf of the Company and the aggregate offering price of the Shares was
$30,590,000.

     The following is a statement of the amount of expenses incurred for the
Company's account in connection with the issuance and distribution of the
securities registered for each of the following:

<TABLE>
<S>                                                    <C>
Underwriting discounts and commissions:                $ 2,141,300
Other expenses:                                        $   484,917
     Total expenses:                                   $ 2,626,217

          Net offering proceeds to the Company after
              deducting total expenses:                $27,963,783

</TABLE>

     None of the foregoing expenses were direct or indirect payments to 
directors, officers, general partners of the Company or their associates; 
persons owning 10 percent (10%) or more of any class of equity securities of 
the issuer; or affiliates of the Company.

     Set forth below is the amount of net offering proceeds to the Company 
used for each of the following:

<TABLE>
<S>                                                      <C>
Construction of plant, building and facilities           $         0
Purchase and installation of machinery and equipment:    $   424,000
Purchases of real estate                                 $         0
Acquisitions of other businesses                         $         0
Repayment of indebtedness:                               $   728,000
Working capital:                                         $ 8,044,000
Temporary investments:                                   $18,768,000

</TABLE>

     Temporary investments include United States Treasury and agency, 
securities, corporate bonds and commercial paper.

     None of such uses of the net offering proceeds were direct or indirect 
payments to directors, officers, general partners of the Company or their 
associates; persons 

                                          35
<PAGE>

owning 10 percent (10%) or more of any class of equity securities of the issuer;
or affiliates of the Company.  Such payments did not represent a material change
in the use of proceeds described in the prospectus contained in the Registration
Statement.

ITEM 6 .  SELECTED CONSOLIDATED FINANCIAL DATA

     Incorporated by reference from the Company's 1997 Annual Report to
Stockholders under the heading "Selected Consolidated Financial Data."

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

     Incorporated by reference from the Company's 1997 Annual Report to
Stockholders under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated financial statements and supplementary data of the Company
required by this item are listed under Item 14 below and are incorporated by
reference from the Company's 1997 Annual Report to Stockholders.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     There have been no disagreements with the Company's independent accountants
on accounting and financial matters.

                                       PART III

ITEMS 10-13.

     The information required for Part III in this Annual Report on Form 10-K is
incorporated by reference from the Company's definitive proxy statement for the
Company's 1998 Annual Meeting of Stockholders.  Such information will be
contained in the sections of such proxy statement captioned "Stock Ownership of
Certain Beneficial Owners and Management", "Election of Directors", "Board and
Committee Meetings", "Compensation for Directors", "Compensation of Executive
Officers", and "Certain Relationships and Related Transactions".  Information
regarding executive officers of the Company is also furnished in Part I of this
Annual Report on Form 10-K under the heading "Executive Officers of the
Registrant."

                                          36
<PAGE>


                                       PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a)  The following documents are included as part of this Annual Report on
Form 10-K or are incorporated by reference from the Company's 1997 Annual Report
to Stockholders. 

<TABLE>
<CAPTION>
                                                                            Page
<S>                                                                         <C>
1.   The following financial statements (and related notes) of the 
     Company are incorporated by reference from the Company's 1997
     Annual Report to Stockholders 

     Report of Independent Public Accountants                              F-5*

     Consolidated Balance Sheets as of December 31, 1996 and 1997          F-6*

     Consolidated Statements of Operations for the years ended
      December 31, 1995, 1996 and 1997 and for the period
      from inception (March 20, 1990) to December 31, 1997                 F-7*

     Consolidated Statements of Stockholders' Equity (Deficit) for
      the period from inception (March 20, 1990) to December 31, 1997      F-8*

     Consolidated Statements of Cash Flows for the years ended
      December 31, 1995, 1996 and 1997 and for the period
      from inception (March 20, 1990) to December 31, 1997                 F-9*

     Notes to Consolidated Financial Statements                            F-10*

     *Refers to page number of 1997 Annual Report

</TABLE>

2.   All schedules are omitted as the information required is inapplicable or
     the information is presented in the consolidated financial statements or 
     the related notes.

3.   The Exhibits listed in the Exhibit Index immediately preceding the Exhibits
     are filed as part of this Annual Report on Form 10-K.

          (b)  No Current Reports on Form 8-K were filed by the Company during
the last quarter of the period covered by this Report.

                            ------------------------------

                                          37
<PAGE>

     The following trademarks are mentioned in this Annual Report on Form 10-K:

                                  BioTransplant-TM-
                                     AlloMune-TM-
                                     BTI-322-TM-
                                     XenoMune-TM-
                                     ImmunoCognance-TM-



                                          38
<PAGE>

                                      SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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 on the 25th day 
of March, 1998.

                                       BIOTRANSPLANT INCORPORATED

                                       By:/s/ Elliot Lebowitz, Ph.D.
                                          ---------------------------
                                          Elliot Lebowitz, Ph.D.


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.



Signature                     Title                               Date
---------                     -----                               ----

/s/ Elliot Lebowitz, Ph.D.    President, Chief Executive          March 25, 1998
--------------------------    Officer and Director 
Elliot Lebowitz, Ph.D.        (Principal Executive Officer)    

/s/ Richard V. Capasso        Vice President, Finance and         March 25, 1998
--------------------------    Treasurer (Principal Financial 
Richard V. Capasso            and Accounting Officer)   


/s/ William W. Crouse         Director                            March 25, 1998
--------------------------    
William W. Crouse   


/s/ James C. Foster           Director                            March 25, 1998
--------------------------    
James C. Foster     


/s/ Daniel O. Hauser          Director                            March 25, 1998
--------------------------    
Daniel O. Hauser    

                                          39
<PAGE>


/s/ Robert A. Vukovich        Director                            March 25, 1998
--------------------------    
Robert A. Vukovich  

/s/ Daniel P. Kearney         Director                            March 25, 1998
--------------------------    
Daniel P. Kearney   


/s/ Donald R. Conklin         Director                            March 25, 1998
--------------------------    
Donald R. Conklin   
 
                                          40
<PAGE>

                                    Exhibit Index

     The following exhibits are filed as part of this Annual Report on Form
10-K.

<TABLE>
<CAPTION>
Exhibit No.                          Description
-----------                          -----------
<S>           <C>
  **3.1       Restated Certificate of Incorporation.

  **3.2       By-laws, as amended to date.

   *4.1       Specimen certificate for shares of Common Stock.

 *+10.1       Research and License Agreement between the Company and The 
              General Hospital Corporation, dated January 1, 1991 as amended 
              by Agreements dated November 10, 1993, June 28, 1995, November 1,
              1995, December 19, 1995, December 22, 1995 and January 31, 1996 
              (the "1991 MGH Agreement").

 *+10.2       Research and License Agreement between the Company and The 
              General Hospital Corporation dated December 8, 1992.

 *+10.3       Research and License Agreement between the Company and The 
              General Hospital Corporation dated August 1, 1994.

 *+10.4       Alliance Agreement between the Company and MedImmune, Inc., dated 
              October 2, 1995.

 *+10.5       Research and Supply Agreement between the Company and Charles 
              River Laboratories, Inc. dated March 1, 1991, as supplemented by 
              letter dated April 10, 1992.

 *+10.6       Amended and Restated Collaboration Agreement between the Company 
              and Novartis Pharma, Inc. dated September 7, 1995.

 *+10.7       Shareholders' Agreement by and among the Company, Castella 
              Research, Secure Sciences and Stem Cell Sciences Pty. Ltd. dated 
              April 5, 1994, as amended.

 *+10.8       Research and License Agreement between the Company and Stem Cell 
              Sciences Pty Ltd. dated April 5, 1994 as amended.

  *10.9       Form of Common Stock Warrant issued to certain investors in 1993 
              and January 1994 and Schedule of Warrantholders.

  *10.10      Form of Common Stock Warrant issued to affiliates of BioLease, 
              Inc. in June 1994 and Schedule of Warrantholders.

</TABLE>
                                          41
<PAGE>

<TABLE>
<S>           <C>
   *10.11     Common Stock Warrant issued to Aberlyn Holding Company dated 
              June 16, 1993.

   *10.12     Common Stock Warrant issued to Aberlyn Capital Management dated  
              June 16, 1993.

   *10.13     Common Stock Warrant issued to Aberlyn Capital Management Limited 
              Partnership dated November 18, 1994.

   *10.14     Common Stock Warrant issued to Aberlyn Capital Management Limited 
              Partnership dated November 18, 1994.

   *10.15     Form of Common Stock Warrant issued to certain investors in 
              August 1994 and Schedule of Warrantholders.

   *10.16     Form of Common Stock Warrant issued to certain investors in 
              October 1994 and Schedule of Warrantholders.

   *10.17     Form of Common Stock Warrant issued to certain investors in 
              August 1995 and Schedule of Warrantholders.

   *10.18     Convertible Promissory Note and Warrant Purchase Agreement by 
              and among the Company, HealthCare Ventures II, L.P. and Everest 
              Trust dated December 20, 1991.

   *10.19     Preferred Stock Warrant Agreement between the Company and 
              Comdisco, Inc., dated December 12, 1991, as clarified by a Letter 
              Agreement dated May 15, 1992.

   *10.20     Convertible Promissory Note and Warrant Purchase Agreement by and 
              among the Company and the parties signatory thereto dated 
              October 31, 1994.

   *10.21     Third Amended and Restated Stockholders Agreement by and among 
              the Company and the parties signatory thereto; as amended by a 
              Consent, Waiver and Amendment dated January 23, 1996.

   *10.22     Form of Consent, Waiver and Amendment Agreement to Third Amended 
              and Restated Stockholders' Agreement by and among the Company and
              the parties signatory thereto.

(1)*10.23     Amended 1991 Stock Option Plan.

(1)*10.24     1994 Directors' Equity Plan.

</TABLE>

                                          42
<PAGE>

<TABLE>
<S>           <C>

    *10.25    Consulting Agreement between the Company and Dr. David H. Sachs 
              dated January 1, 1991 as amended by an Agreement dated 
              January 1, 1998.

    *10.26    Master Lease Agreement between the Company and Aberlyn Capital 
              Management Limited Partnership dated May 12, 1993.

    *10.27    Master Lease Agreement between the Company and Comdisco, Inc., 
              dated December 12, 1991.

    *10.28    Lease between the Company and BioLease, Inc. dated March 17, 1994.

  **+10.29    Development and Supply Agreement between BioTransplant 
              Incorporated and Activated Cell Therapy, dated August 22, 1996.

  **+10.30    Supply Agreement between BioTransplant Incorporated and Neose
              Technologies, Inc., dated September 20, 1996.

 ***+10.31    Agreement to further vary Shareholder's Agreement between 
              BioTransplant Incorporated and C.R., S.S. and Stem Cell 
              Sciences Pty., Ltd., dated December 20, 1996.

 ***+10.32    Agreement to further vary Shareholder's Agreement between 
              BioTransplant Incorporated and C.R., S.S. and Stem Cell 
              Sciences Pty., Ltd., dated March 16, 1997, as amended.

****+10.33    Collaboration and License Agreement between the Company and 
              Novartis Pharma AG, dated October 6, 1997.

 ****10.34    Promissory Note and Security Agreement between the Company and 
              Fleet National Bank, dated September 5, 1997.

     13       1997 Annual Report to Stockholders (which shall be deemed filed 
              only with respect to those portions specifically incorporated by 
              reference herein).

     23       Consent of Arthur Andersen LLP.

     27.1     Financial Data Schedule - Year Ended December 31, 1997.

     27.2     Restated Financial Data Schedule - Year Ended December 31, 1996 
              and for the quarters ended September 30, 1996, June 30, 1996 
              and March 31, 1996.
</TABLE>
-------------------
(1)  Management contract or compensatory plan or arrangement filed as an exhibit
     to this Form pursuant to Items 14(a) and 14(c) of Form 10-K.

                                          43

<PAGE>

*    Incorporated herein by reference to the Company's Registration Statement on
     Form S-1, as amended (File No. 333-2144).

**   Incorporated herein by reference to the Company's Form 10-Q for the quarter
     ended September 30, 1996.

***  Incorporated herein by reference to the Company's Form 10-Q for the quarter
     ended March 31, 1997.

**** Incorporated herein by reference to the Company's Form 10-Q for the quarter
     ended September 30, 1997.

+    Confidential treatment requested as to certain portions.


                                          44