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                       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, 1998
                                       OR
 
  / /    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)
 
<TABLE>
<S>                     <C>
       DELAWARE          04-3119555
   (State or Other         (I.R.S.
   Jurisdiction of        Employer
   Incorporation or     Identification
    Organization)       No.)
</TABLE>
 
      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
 
    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 $14,626,987 based on the last reported sale price of the
Common Stock on the Nasdaq consolidated transaction reporting system on March
15, 1999.
 
    Number of shares outstanding of the registrant's class of Common Stock as of
March 15, 1999: 8,583,338.
 
    Documents incorporated by reference:
 
    Proxy Statement for the 1999 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 pharmaceuticals and systems
based on its unique and proprietary enabling technologies, which are designed to
re-educate the body's immune system to accept foreign tissue, to allow safer,
more enduring organ transplantation and also potentially creating valuable new
treatments for other diseases such as blood cell cancers. This
ImmunoCognance-TM- technology 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 products under development 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 1998. 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 the development of products to treat and prevent organ
rejection and to treat certain autoimmune disorders, derived from
BioTransplant's BTI-322 rodent antibody. The BTI-322 rodent antibody and its
humanized derivative, MEDI-507, are novel and proprietary monoclonal antibodies
being developed by MedImmune as stand-alone anti-rejection products and as an
important component in the Company's AlloMune-TM- and XenoMune-TM- 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, to trigger 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, Graft-versus-Host Disease ("GvHD") and pilot
autoimmune disease trials.
 
    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 continuing 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.
Mixed bone marrow chimerism and functional tolerance with normal kidney function
for periods over five years without the need for chronic immunosuppressive
therapy and with no signs of chronic rejection has been demonstrated. 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
 
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Review Board. The Company also has filed an investigational new drug application
("IND") with the United States Food and Drug Administration ("FDA") and has been
cleared to commence clinical trials under the IND. The Company recently received
approval from a hospital Institutional Review Board ("IRB") to begin a trial and
is working with several other hospitals to secure IRB approval for the trials.
In addition, the Company is seeking to optimize the AlloMune System through
additional preclinical testing in primates.
 
    The Company is also investigating the use of the AlloMune-TM- System for
additional applications, including treatment of cancer and hematological
disorders. In December 1998, BioTransplant collaborators from MGH presented data
at the annual meeting of the American Society of Hematology on a novel approach
to treating blood cell cancers that are unresponsive to standard therapies. This
new approach re-programs the immune system, using a combination of chemotherapy
and the approach used in BioTransplant's AlloMune-TM- System, to make bone
marrow transplant (BMT) recipients more successful in eliminating cancerous
blood cells. Following the BMT, recipients may receive an infusion of donor
white blood cells to eliminate the remaining cancerous cells in the recipient.
 
    In studies presented by Drs. Megan Sykes and Thomas Spitzer of MGH, 15 bone
marrow recipients received the new BMT therapy and 12 of 13 evaluable patients
developed a stable chimeric immune system (containing both donor and recipient
elements). In addition, a shift toward the production of more donor cells was
induced in some BMT recipients following an infusion of donor-derived white
blood cells. Further analysis indicated that six of 11 evaluable patients
achieved a complete remission and two of 11, a partial remission, despite having
advanced cancers that did not respond to other treatments. Seven of the 15
patients who received the new therapy are alive and progression free at a median
period of 169 days (range, 27 to 475 days) following BMT. BioTransplant expects
to submit an IND for this AlloMune-TM- System approach to treating blood cell
cancers in 1999.
 
    With the XenoMune System, BioTransplant hopes to build upon the Company's
proprietary knowledge and technology being 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 detectable by PCR assay for more than 300 days. These
chimeric animals have shown early signs of functional tolerance to porcine
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. Pursuant to the
Company's 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, 1998. 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
$11.0 million had been received as of December 31, 1998. Additionally, the
Company has entered into an exclusive supply agreement with Charles River
Laboratories ("CRL") for the supply of miniswine cells and organs. During 1998,
Novartis agreed to share in certain costs of developing and maintaining the
miniswine at CRL and Stem Cell Sciences.
 
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 1998, over 30,000 organ transplants were performed in patients
 
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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 60,000 patients in
the United States suffering from end-stage organ disease were on waiting lists
for a lifesaving organ transplant in 1998, 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. 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 retransplantation. 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.
 
                                       5
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    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 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.
 
    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
 
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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 and
Simulect-Registered Trademark-, a chimeric anti-T cell antibody, have 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 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
 
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were self by combining components of the donor's immune system with the
recipient's immune system. The Company is also investigating the use of certain
of its products under development for additional applications, including
treatment of cancer and hematological disorders.
 
    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.
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 and MEDI-507.
 
    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-TM- 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. Clinical testing of MEDI-507 began in 1997 in alliance with
MedImmune. A Phase I, open-label, dose-escalating safety trial for prevention of
renal allograft rejection was completed in 1998. Thirteen patients were given an
initial dose of MEDI-507 within six hours after kidney transplant surgery and a
second dose 60-72 hours later. Results indicated that MEDI-507 was generally
well-tolerated and no anti-MEDI-507-antibodies were detected following
administration. A Phase I/II trial for the treatment of adult steroid-resistant
GvHD completed enrollment of patients in 1998, and results of this trial are
expected to be presented at a medical conference in 1999.
 
    In December of 1998, MedImmune announced plans to initiate two additional
Phase I/II clinical trials to evaluate MEDI-507. Both studies are expected to be
completed in 1999. In the first study, adult steroid-naive stem cell transplant
(SCT) or bone marrow transplant (BMT) recipients will receive MEDI-507 or
placebo combined with corticosteroids (methylprednisolone) for initial treatment
of acute GvHD. Because this study would be the first to evaluate MEDI-507 as
part of initial treatment of GvHD, all patients are expected to receive the
standard initial GvHD treatment with corticosteroids. It is anticipated that
this
 
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Phase I/II trial will include up to 32 patients recruited from up to 15 centers.
At year-end 1998, the trial protocol had been approved by the FDA, and patient
recruitment had begun.
 
    In the second study, MEDI-507 will be assessed in an open-label trial for
its ability to treat GvHD in pediatric SCT or BMT patients. Currently there are
no agents approved for the treatment of GvHD in children. Up to 20 pediatric
patients (age 2-17) are expected to be recruited from at least ten centers for
this Phase I/II study. At year-end 1998, the clinical trial protocol had been
submitted for approval to the FDA and if approved, the study would commence
enrollment following the entry of initial patients in the adult trial.
 
    A Phase I clinical study evaluating MEDI-507 for the treatment of psoriasis
is currently ongoing. MedImmune has announced that it expects to have results
from this trial in 1999.
 
    In 1998, MEDI-507 received orphan drug designation from the Office of Orphan
Products Development of the FDA for MEDI-507 for the treatment of GvHD. The
Orphan Drug Act was established to encourage development of drugs for rare
diseases and conditions affecting a small patient population (generally less
than 200,000 people). Orphan designation of a product can potentially provide a
company with seven years of market exclusivity if the company is the first to
receive FDA product marketing approval for the orphan drug in the designated
indication. Additionally, this designation provides a company with tax credits
of 50 percent for clinical research expenses and the opportunity for clinical
research grants.
 
    During 1998, two patents were issued by the United States Patent and
Trademark Office: a patent covering composition of matter and the use of BTI-322
and MEDI-507 to inhibit T cell-mediated immune responses, and a patent covering
the use of any antibody that binds to the target epitope recognized by the
BTI-322 and MEDI-507 antibodies. Both of these patents are exclusively licensed
to the Company pursuant to its agreement with the Catholic University of
Louvain. See "--Collaborations and Agreements--Catholic University of Louvain,"
and "--Patents and Proprietary Rights."
 
    THE ALLOMUNE-TM- SYSTEM
 
    The Company's AlloMune-TM- 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
 
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fully mismatched donor monkeys are being transplanted into recipient 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 six 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 1998 the Company filed, and
received clearance of, an IND with the FDA for clinical trials of the
AlloMune-TM- System in living donor kidney transplantation. The Company recently
received approval from a hospital IRB to begin a trial and is working with
several other hospitals to secure IRB approval for the trials. The Company's
academic collaborators have initiated an IRB approved clinical trial of a pilot
proof-of-principle evaluation of the prototype AlloMune System in humans. The
Company is also investigating the use of the AlloMune-TM- System for additional
applications, including treatment of cancer and hematological disorders. In
December 1998, BioTransplant collaborators from the Massachusetts General
Hospital (MGH) presented data at the annual meeting of the American Society of
Hematology on a novel approach to treating blood cell cancers that are
unresponsive to standard therapies. This new approach re-programs the immune
system, using a combination of chemotherapy and the approach used in
BioTransplant's AlloMune-TM- System, to make bone marrow transplant (BMT)
recipients more successful in eliminating cancerous blood cells. Following the
BMT, recipients may receive an infusion of donor white blood cells to eliminate
the remaining cancerous cells in the recipient.
 
    In studies presented by Drs. Megan Sykes and Thomas Spitzer of MGH, 15 bone
marrow recipients received the new BMT therapy and 12 of 13 evaluable patients
developed a stable chimeric immune system (containing both donor and recipient
elements). In addition, a shift toward the production of more donor cells was
induced in some BMT recipients following an infusion of donor-derived white
blood cells. Further analysis indicated that six of 11 evaluable patients
achieved a complete remission and two of 11, a partial remission, despite having
advanced cancers that did not respond to other treatments. Seven of the 15
patients who received the new therapy are alive and progression free at a median
period of 69 days (range, 27 to 475 days) following BMT. BioTransplant expects
to submit an IND for this AlloMune-TM- System approach in 1999.
 
    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 being 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.
 
                                       10
<PAGE>
    The proposed XenoMune System is expected to include miniswine kidneys,
hearts, lungs and other organs for transplantation. Pursuant to a Miniswine
Transfer and Maintenance 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, inbreeding at swine
histocompatibility genes, long-term documented medical history and breeding
capacity. However, although the Company intends to use these miniswine as a
potential donor of xenogeneic organs because of these advantages, recent
scientific publications by others have demonstrated, under laboratory
conditions, that certain porcine viruses, called porcine endogenous retroviruses
("PERV") have the potential to infect human cells. The Company has an active
program addressing the characterization of the PERV from our herd of miniswine
relative to its infectivity of 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. BioTransplant is also examining
the effect of human complement inhibitory protein transgenic porcine cells
provided by its collaborator Novartis.
 
    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 alternative methods of inducing specific tolerance, the
Company is actively pursuing gene transduction and thymic transplantation
approaches.
 
    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. The use of this
technique in a protocol similar to the AlloMune System has produced
xeno-chimerism in 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.
 
    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.
 
                                       11
<PAGE>
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, to develop and commercialize
xenotransplantation products utilizing gene transduction (the "Novartis Gene
Transduction Agreement"). 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"). The research
program under the Novartis Bone Marrow Agreement is for a period of three years.
Pursuant to the Novartis Bone Marrow Agreement, the Company may receive research
funding, license fees and milestone payments of up to $36 million, assuming the
agreement continues for its full term. As of December 31, 1998, research funding
of $8.0 million and license fees of $3.0 million had been received. The Novartis
Bone Marrow Agreement was amended in October 1998 to include support for certain
costs of developing and maintaining the miniswine. 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 1998, revenues from
the Company's collaboration agreements with Novartis accounted for 84% of the
Company's total revenues.
 
    Pursuant to the terms of both Novartis Agreements, Novartis is obligated to
fund the development costs associated with certain xenotransplantation products
which may be developed by the Company, subject to reimbursement of a portion of
such costs by the Company, if the Company elects to co-promote any such
products. Under certain conditions, the Company has the right to co-promote any
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 any 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
 
                                       12
<PAGE>
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 (a product candidate
proprietary to MedImmune) 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 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. As of December 31,
1998, MedImmune has provided $2.0 million in non-refundable research support and
has agreed to make milestone payments which could total up to an additional
$11.0 million, all 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. Prior to 1998, CRL
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. Pursuant to the amended agreement, 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. The agreement is for a term of five years and may be renewed for an
additional five-year period by mutual agreement of the parties. The Novartis
Bone Marrow agreement was also amended in 1998 to provide for Novartis to share
certain of these miniswine maintenance costs with the Company.
 
    STEM CELL SCIENCES
 
    The Company has entered into a strategic alliance with Stem Cell Sciences
Pty Ltd. ("Stem Cell Sciences") for the purpose of developing genetically
engineered 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
and nuclear transfer technology 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. Substantially all of the consideration received by Stem Cell
Sciences from the Company's equity investment will be used to fund the research
and development of nuclear transfer technology and, in particular, the
development of technology, products and processes useful for xenotransplantation
in
 
                                       13
<PAGE>
humans. BioTransplant made additional investments in Stem Cell Sciences in 1996,
1997 and 1998 to maintain its 30% ownership position and to support additional
research through December 31, 1999. The Company is currently in the process of
exercising an option to make a further equity investment in 1999 to maintain its
ownership percentage. If the Company does not make such further investment to
maintain its ownership percentage then the agreement will terminate and the
Company's rights shall become nonexclusive.
 
    In 1998, the Novartis Bone Marrow Agreement was amended to include support
for certain research by Stem Cell Sciences into the development of transgenic
miniswine which incorporate certain Novartis' technology.
 
    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 products or systems under development. 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 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.
The Company has the capacity to produce these materials in sufficient quantity
and of sufficient quality to support preclinical studies. However, 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 Corporation (formerly known as 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 BTI-322, MEDI-507
and future generations of these products, if any.
 
                                       14
<PAGE>
    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 (for solid organ
transplantation) 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.
 
    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 $12.3 million,
$14.0 million and $14.7 million for 1996, 1997 and 1998, respectively.
Collaborative research and development revenues totaled $7.8 million, $12.1
million and $6.7 million in 1996, 1997 and 1998, respectively.
 
PATENTS AND PROPRIETARY RIGHTS
 
    As of March 15, 1999 there were 27 patents issued and 32 patent applications
pending in the United States Patent and Trademark Office owned by or licensed to
BioTransplant. The Company's issued patents have terms expiring between 2005 and
2016. 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.
 
    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
 
                                       15
<PAGE>
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.
 
    The Company has reviewed issued patents which include claims relating to
humanized 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,
if required, 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.
 
    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, 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/MEDI-507 products, including OKT3 (marketed by
Ortho Biotech, Inc., a subsidiary of Johnson and Johnson), ATGAM (marketed by
Pharmacia Upjohn), ThymoGlobulin-Registered Trademark- (marketed by SangStat
 
                                       16
<PAGE>
Medical Corporation), Zenapax-Registered Trademark- (marketed by Roche
Laboratories) and Simulect-Registered Trademark- (marketed by Novartis). 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, 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 and
Alexion Pharmaceuticals, Inc. Some of the Company's competitors are using organs
derived from genetically modified transgenic donors which are designed to
eliminate hyperacute 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 numerous regulatory authorities
including the Federal Food and Drug Administration (FDA) and Federal Trade
Commission (FTC) and by comparable regulatory authorities in foreign countries.
These regulatory authorities and other federal, state, and local entities will
regulate, among other things, the preclinical and clinical testing, safety,
effectiveness, approval, clearance, manufacturing, labeling, packaging, export,
storage, recordkeeping, adverse event reporting, and promotion and advertising
of the Company's products.
 
    FDA approval or clearance of the Company's products, including a review of
the manufacturing processes and facilities used to produce such products will be
required before the products may be marketed in the United States. Based upon
initial discussions with the FDA, the Company believes that BTI-322 will be
classified as a biological product by FDA. Biological products are subject to
dual regulation. Their approval for marketing, among other things, is regulated
under the Public Health Service Act through a Biologics License Application
(BLA). However, biological products are also drugs and must meet drug standards
under the Federal Food, Drug and Cosmetic Act such as good manufacturing
practices regulations and regulations governing clinical trials. 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.
 
    The manufacture of xenograft products for human transplantation can be
expected to present novel questions concerning both the safety and effectiveness
of the products and compliance with and further development of standards for
good manufacturing practices of such products. The Public Health Service (PHS)
published draft guidance in 1996 on infectious disease issues related to
xenotransplantation, and in January 1998, PHS held a public meeting on emerging
policy issues, but final guidance and/or regulations do not yet exist. The
Company cannot predict the content of future policy or regulations relating to
such products, or the effect such policy or regulation may have on its ability
to research, develop, manufacture, and market its products.
 
    Development of a therapeutic product for human use under applicable laws and
regulations is a multi-step process. First, in vitro and/or animal testing must
be conducted in accordance with good laboratory practices to establish the
potential safety and effectiveness of the experimental product in a given
disease. If a product is found to be reasonably safe and potentially effective
in preclinical trials, the next step in the process is human clinical trials. An
Investigative New Drug Application (IND) containing, among other things, the
preclinical data, chemistry, manufacturing, and control information, and an
investigative plan, must be submitted to FDA and allowed to become effective by
the agency before such trials may begin. There can be no assurance that
submission of an IND will result in the ability to
 
                                       17
<PAGE>
commence clinical trials. In addition, FDA may place a clinical trial on hold or
terminate it if, among other reasons, it concludes that clinical subjects are
being exposed to an unacceptable health risk.
 
    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
effectiveness. 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. In Phase II, clinical trials are
conducted in groups of patients afflicted with a specific disease or condition
for which the product is intended for use in order to further test safety, begin
evaluating effectiveness, optimize dosage amounts, and determine dose schedules
and routes of administration. If Phase II studies yield satisfactory results and
no hold is placed on further studies by FDA, Phase III studies are commenced.
Phase III studies are usually randomized, double blind studies testing for
product safety and effectiveness in an expanded patient population in order to
evaluate the overall risk/benefit relationship of the product and to provide an
adequate basis for product labeling. These studies also may compare the safety
and effectiveness 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, if at all, and the time period may
last as long as several years.
 
    Following completion of clinical investigations, the preclinical and
clinical data that has been accumulated, together with chemistry, manufacturing,
and controls specifications and information are submitted to the FDA in a BLA.
To approve a product regulated under a BLA, the agency must determine, among
other things, that the product is safe, pure, and potent, and that any facility
in which it is manufactured, processed, packed, or held, meets standards
designed to assure the product's continued safety, purity, and potency. There
can be no assurance that a product will be approved in a timely manner, if at
all. The approval process can be very lengthy and depends, among other things,
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 if requested.
 
    If a BLA is approved, continued compliance with strict FDA requirements
concerning good manufacturing practices, enforced by periodic inspections, and
adverse event reporting, as well as any special requirements imposed as a part
of the BLA approval will be required to continue marketing the approved product.
Changes to approved biological products that affect safety or effectiveness
require approved supplemental applications, as do changes in manufacturing that
have a substantial potential to adversely affect product safety or
effectiveness. Such supplemental applications may require the submission of
clinical or comparability data and must be approved before the product may be
marketed as modified.
 
    In addition, the nature of marketing claims that the Company will be
permitted to make in the labeling and advertising of its products will be
limited to those specified in an FDA clearance or approval, and claims exceeding
those that are cleared or approved will constitute violation of the Act.
Violations of the Act or regulatory requirements at any time during the product
development process, approval process, or after approval may result in agency
enforcement actions, including recall, license suspension or revocation, seizure
of products, fines, injunctions and/or civil or criminal penalties. Any such
agency action could have a material adverse effect on the Company.
 
    The Company's advertising of its products will also be subject to regulation
by the Federal Trade Commission (FTC) under the FTC Act. The FTC Act prohibits
unfair methods of competition and unfair or deceptive acts in or affecting
commerce. Violations of the FTC Act, such as failure to have substantiation for
product claims, would subject the Company to a variety of enforcement actions,
including compulsory process, cease and desist orders, and injunctions. FTC
enforcement can result in orders requiring, among other things, limits on
advertising, corrective advertising, consumer redress, and recision of
contracts. Violations of FTC enforcement orders can result in substantial fines
or other penalties.
 
    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
 
                                       18
<PAGE>
the United States at the time of application for orphan drug designation would
be likely to receive the treatment. 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. BioTransplant intends to pursue
this designation with respect to any of its products intended for patient
populations in the United States of less than 200,000. MEDI-507 has received
Orphan Drug designation, both as a standalone product, and as a component of the
Company's AlloMune-TM- System, however, there can be no assurance that such
status will be attained for other such products. In addition, Orphan drug
exclusivity can be terminated for a number of reasons, including that the
manufacturer cannot provide an adequate supply of the drug.
 
    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. 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 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 (EU),
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.
Approval procedures for marketing of products in countries that are not EU
Member States vary from country to country and the time required for approval
may be longer or shorter than that required for FDA approval. In addition, for
products exported from the United States to any foreign country or territory,
applicable FDA export requirements must be met.
 
REIMBURSEMENT
 
    Major health insurance programs in the United States, including Blue Cross
and Blue Shield and other managed care plans which provide health insurance
coverage to 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.
 
                                       19
<PAGE>
FACTORS THAT MAY AFFECT RESULTS
 
    This Annual Report on Form 10-K contains forward-looking statements. For
this purpose, any statements contained in this Report that are not statements of
historical fact may be deemed to be forward-looking statements. Words such as
"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.
 
    WE HAVE NOT SUCCESSFULLY DEVELOPED ANY PRODUCTS.  We are in the early
development stage and, to date, we have been engaged primarily in organizational
and research and development activities. We have not yet completed the
development of, conducted significant human testing with respect to, or marketed
any of our potential products. Neither we, nor any other company, has
successfully developed and sold the types of products we plan to develop using
our technologies. Our potential products will require significant additional
development efforts including, preclinical and clinical testing and regulatory
approval prior to commercial use. Our product development efforts may fail for
many reasons, including because:
 
    - the candidate drug or potential product fails in preclinical studies;
 
    - a potential product is not shown to be safe and effective in clinical
      studies;
 
    - required regulatory approvals are not obtained;
 
    - a potential product cannot be produced in commercial quantities at an
      acceptable cost; or
 
    - a product does not gain market acceptance.
 
    Therefore, there is no certainty that we will be able successfully to
develop, manufacture or market our products.
 
    WE HAVE NOT ACHIEVED PROFITABILITY.  As of December 31, 1998, our
accumulated deficit was approximately $48.5 million. We expect to incur
substantial additional costs, resulting in significant and increasing losses for
at least the next several years. Revenues, if any, which we may receive in the
next few years will be limited to payments under our agreements with Novartis
and MedImmune, and any other research or product development relationships that
we may establish in the future, and interest income. Our ability to achieve
significant revenue or profitability depends on our ability to successfully
complete the development of our products, obtain required technology licenses
and regulatory approvals, and market our products. There can be no assurance,
however, that we will successfully develop, commercialize, manufacture or market
any of our potential products, obtain regulatory approvals, patents or
third-party licenses to technology or ever achieve profitability.
 
    WE EXPECT TO REQUIRE ADDITIONAL FUNDING.  We will need substantial
additional funds before we can expect to realize significant product revenue.
Our future capital requirements will depend upon numerous factors, including:
 
    - the progress of our research and development programs, as well as the
      magnitude of such programs;
 
    - the progress of research and development programs being conducted by other
      parties that are supported by us;
 
    - the timing, scope and results of preclinical and clinical testing;
 
    - the timing and costs involved in obtaining regulatory approvals;
 
    - the level of resources that we commit to the development of manufacturing,
      marketing and sales capabilities;
 
                                       20
<PAGE>
    - our ability to maintain existing and establish new collaborative
      arrangements with other companies to provide us with additional funding;
      and
 
    - competing technological and market developments.
 
    We believe that we have sufficient funds to fund our operating expenses and
capital requirements as currently planned through the end of 2000. We plan to
obtain additional funding to support our operations and research and development
programs through establishing additional collaborative arrangements with
existing and new corporate partners and through debt, equity or lease
financings. Such additional financing may not be available to us on terms that
we deem acceptable, if at all.
 
    If we raise additional funds by issuing equity securities, further dilution
to our existing stockholders will result. In addition, the terms of the
financing may adversely affect the holdings or the rights of such stockholders.
If we are unable to obtain funding on a timely basis, we may be required to
significantly curtail one or more of our research or development programs. If we
seek funds through arrangements with collaborative partners or others, we may be
required to relinquish rights to certain of our technologies, product candidates
or products which we would otherwise pursue on our own.
 
    WE DEPEND UPON OUR COLLABORATORS.  We currently plan to develop and
commercialize our products by entering into arrangements with corporate,
government and academic collaborators, such as Novartis and MedImmune, as well
as third party manufacturers, licensors, licensees and others. We may not be
able to maintain our existing arrangements or establish additional collaborative
arrangements or license agreements that we deem necessary or acceptable to
develop and commercialize our potential 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 1998, revenues from our collaborative agreements with Novartis
accounted for 84% of our total revenue. A loss of a strategic partner such as
Novartis could have a material adverse effect on our business, financial
condition and results of operations. Both of our current corporate collaborators
are independently developing products that may be competitive with products they
are developing in collaboration with us. In addition, we are entitled to receive
royalties on MEDI-500, a product proprietary to MedImmune. The amount of any
earned royalties under this arrangement are entirely dependent on the efforts of
MedImmune to develop and market MEDI-500.
 
    THERE ARE UNCERTAINTIES RELATING TO OUR TECHNOLOGICAL APPROACHES.  While our
BTI-322 antibody has the ability to induce antigen specific hyporesponsiveness
in the laboratory, we have not proven that this activity can be induced in
humans. BTI-322/MEDI 507 has been tested in relatively few patients. There can
be no assurance that the clinical results already seen will continue to be
encouraging. Furthermore, our AlloMune and XenoMune Systems are based on
creating long-term specific transplantation tolerance by introducing mixed bone
marrow chimerism or gene transduction. These approaches are novel and, to our
knowledge, have never been achieved in humans, including by us. There can be no
assurance that we will be successful in achieving long-term specific
transplantation tolerance, that the AlloMune and XenoMune Systems will be
successfully developed or that physicians will adopt such novel therapeutic
approaches.
 
    THERE ARE UNCERTAINTIES ASSOCIATED WITH CLINICAL TRIALS.  Before obtaining
regulatory approvals for the commercial sale of any of our potential products,
the products will be subjected to extensive preclinical and clinical testing to
demonstrate their safety and effectiveness in humans. The failure to adequately
demonstrate the safety and effectiveness of any of our potential products could
delay or prevent regulatory approval of the product and would have a material
adverse effect on our business, operations and financial condition. Furthermore,
we have limited experience in conducting clinical trials. We are dependent on
(i) MedImmune to conduct clinical trials for MEDI 507, (ii) Novartis to conduct
clinical trials for the development of xenotransplantation products utilizing
mixed chimerism and (iii) may become dependent on other third parties to conduct
future clinical trials of our AlloMune System and any other products.
 
                                       21
<PAGE>
    WE MAY NOT BE ISSUED PATENTS; OUR INTELLECTUAL PROPERTY RIGHTS ARE SUBJECT
TO THIRD PARTY CLAIMS. Our success depends, in part, on our ability to obtain
and maintain patent protection for our products. We have filed, or have licensed
exclusively, patents and patent applications in connection with various aspects
of our products which are currently under development. There can be no assurance
that the filing of patent applications relating to our products or technology
will result in patents being issued or that, if issued, the patents protect or
benefit us or give us adequate protection from competing products. In addition,
patents may have been granted, or may be granted, to other parties covering
products or processes that are necessary for or useful to the development of our
products. The holders of these patents could prevent us from commercializing our
products or require us to obtain licenses from them to develop, manufacture or
market our products. There can be no assurance that we 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 we became involved in litigation regarding our intellectual property
rights, the cost of such litigation could be substantial.
 
    We hold rights under the patents of certain third parties that we consider
necessary for the development of our technology. We will most likely need to
obtain additional licenses to patents of others in order to commercialize
certain of the products that we are currently developing. We cannot be certain
that we will be able to obtain such licenses or, if we can do so, how much they
will cost. In addition, under many of the agreements under which we have
licenses to the patents or patent applications of others, we are required to
meet specified milestone or diligence requirements in order to keep our license.
We cannot be certain that we will satisfy any of these requirements.
 
    In addition, some of our know-how and technology is not patentable. To
protect our rights, we require all employees, consultants, advisors and
collaborators to enter into confidentiality agreements with us. There can be no
assurance, however, that these agreements will provide meaningful protection for
our trade secrets, know-how or other proprietary information in the event of any
unauthorized use or disclosure. Further, in the absence of patent protection,
our business may be adversely affected by competitors who independently develop
technology which is substantially equivalent to ours. See "--Patents and
Proprietary Rights."
 
    THERE IS NO CERTAINTY THAT WE WILL OBTAIN GOVERNMENTAL APPROVALS; THE
APPROVAL PROCESS IS COSTLY AND LENGTHY.  Our research and development programs
and clinical programs, as well as our manufacturing activities, are subject to
extensive regulation by numerous government authorities in the United States and
other countries. All of our products will require governmental approvals prior
to commercialization and there is no guarantee such approvals will be granted in
a timely manner, or at all, and if granted, will not impose conditions and
limitations on marketing. SEE Government Regulation--FDA Regulation. We have not
obtained such marketing approval for any of our potential products. The
regulatory process to obtain such marketing approval requires preclinical
testing and clinical trials of a potential product to establish its safety and
effectiveness in humans. There is no guarantee that the FDA will allow human
clinical trials to begin, or if they begin, allow them to continue. To date,
there is limited regulatory precedent for the approval of products based on
monoclonal antibodies.
 
    Xenotransplantation is a new and evolving medical technology and the FDA has
not yet established a predictable pathway to market for xenotransplant products.
FDA has not yet established final or comprehensive guidelines for
xenotransplantation, including for assessing the risks of the transfer of animal
pathogens to humans in connection with the use of such technology. PHS has
issued draft guidelines in an attempt to reduce the risk of contamination of
transplanted organs with infectious agents. In addition, in October 1997, FDA
instructed all sponsors of human clinical trials involving porcine tissue to
test for the presence of PERV in 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 for other risks as they are recognized or that the
FDA will establish guidelines or regulations regarding xenotransplantation.
Further, there can be no assurance that
 
                                       22
<PAGE>
we will be able to comply with any guidelines or regulations that the FDA may
issue. Should new concerns arise and/or requirements be imposed after clinical
trials have begun, such trials may have to be halted or redone. Any such events
could have a material adverse effect on the Company's business, financial
condition, results of operations, and ability to market its products.
 
    The regulatory process, which includes preclinical, clinical, and
post-clinical testing of our products to establish their safety, purity and
potency, and preapproval inspection of our manufacturing establishments to
ensure compliance with good manufacturing practices and the capability to
manufacture a safe, pure, and potent product, requires many years to complete
and the expenditure of substantial resources. Delays in obtaining approvals
could adversely affect the marketing of products under development and our
ability to generate commercial product revenues. There can be no assurance that
we will be able to obtain requisite regulatory approvals 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 or conditions on marketing such as requirements for
costly post-marketing follow-up studies. As to products for which we obtain
marketing approval, we, the manufacturer of the product (if other than us), and
the manufacturing facilities will be subject to continual review and periodic
inspections by the FDA. The subsequent discovery of previously unknown problems
with the 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 products or manufacturer, including withdrawal of the product from the
market. If we fail to comply with the applicable regulatory requirements, we may
be subject to, among other things, fines, suspensions or revocations of
regulatory approvals, product recalls, product seizure, injunction, and/or civil
or criminal prosecution. Any such events could have a material adverse effect on
the Company's business, financial condition, results of operations, and ability
to market its products.
 
    We are also subject to numerous and varying foreign regulatory requirements
governing the design and conduct of clinical trials and the manufacturing and
marketing of our products. The approval procedure varies among countries. The
time required to obtain foreign approvals often differs from that required to
obtain FDA approval. Moreover, approval by the FDA does not insure approval by
regulatory authorities in other countries.
 
    The Company cannot predict the nature of any future laws, regulations,
interpretations, or applications, nor can it predict what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on its business in the future. Any such requirements could delay or
prevent regulatory approval or clearance of products under development. Any such
requirements could have a material adverse effect on the Company's business,
financial condition, results of operations, and ability to market its products.
 
    All of the foregoing regulatory matters also are applicable to development,
manufacturing and marketing undertaken by our licensees and other collaborators.
 
    WE ARE SUBJECT TO INTENSE COMPETITION.  The products being developed by us
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 us. There can be no assurance that developments by others will
not render our products or technologies obsolete or noncompetitive or that we
will be able to keep pace with technological developments. Many of our
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 us and may be more effective and less costly. In addition, many of these
competitors have significantly greater experience than us in undertaking
preclinical testing and human clinical trials of products and obtaining FDA and
other regulatory approvals of such products. Accordingly, our competitors may
succeed in commercializing products more rapidly than us. In addition, colleges,
universities, government
 
                                       23
<PAGE>
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 us in recruiting and retaining
highly qualified scientific personnel.
 
    WE DEPEND UPON KEY PERSONNEL.  We depend to a considerable degree on a
limited number of key personnel. During our limited operating history, many key
responsibilities within BioTransplant have been assigned to a relatively small
number of individuals. We do not maintain "key man" insurance on any of our
employees. The loss of the services of certain members of senior management
could adversely affect our business.
 
    WE HAVE LIMITED MANUFACTURING AND MARKETING CAPABILITIES.  Because of the
relatively early stage of our research and development programs, we have not yet
invested significantly in manufacturing, marketing, distribution or product
sales resources. We currently do not have the capacity to manufacture our
potential products, and are dependent on contract manufacturers or collaborative
partners for the production of our 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
we will be able to enter into arrangements with third parties for such purposes.
In the event that we are unable to establish our own manufacturing facilities or
obtain contract manufacturing on commercially acceptable terms, we may not be
able to commercialize our products as planned. We have 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.
 
    THERE ARE UNCERTAINTIES RELATING TO THIRD-PARTY REIMBURSEMENT.  The
successful commercialization of our 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 we 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, our products, thereby adversely affecting our
business. Currently, no reimbursement plan exists for the costs associated with
our AlloMune and XenoMune Systems.
 
    THERE IS UNCERTAINTY RELATING TO THE IMPACT OF THE YEAR 2000 ISSUE.  The
year 2000 issue is the result of computer programs being written using two
digits (rather than four) to define the applicable year. Any of our programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000, which could result in system failures or
miscalculations. We use a significant number of computer software programs and
operating systems in our internal operations, including applications used in
support of research and development activities, accounting, and various
administrative functions. Although we believe that our internal software
applications contain software source code that is able to interpret
appropriately the dates following December 31, 1999, our failure to make or
obtain necessary modifications to our software could result in systems
interruptions or failures that could have a material adverse effect on our
business. We do not anticipate that we will incur material expenses to make our
computer software programs and operating systems Year 2000 compliant.
Unanticipated costs necessary to update software or potential systems
interruptions could exceed our present expectations and consequently have a
material adverse effect on our business. In addition, if our key service
providers fail to make their respective computer software programs and operating
systems Year 2000 compliant it could have a material adverse effect on our
business.
 
    WE MAY BE EXPOSED TO PRODUCT LIABILITY CLAIMS AND WILL REQUIRE PRODUCT
LIABILITY INSURANCE. The clinical investigation, marketing and sale of human
health care products entail an inherent risk of allegations of product
liability, and we cannot predict if product liability claims will be asserted
against us. We currently have limited product liability insurance coverage
covering our clinical trials. We will seek
 
                                       24
<PAGE>
additional product liability insurance if and when our products are
commercialized; however, we cannot predict if adequate insurance coverage will
be available at acceptable costs, if at all, or that a product liability claim
would not materially adversely affect our business or financial condition. Our
inability to obtain sufficient insurance coverage at an acceptable cost or
otherwise to protect against potential product liability claim, may cause us to
prevent or limit the commercialization of our products. Some medical centers
will not participate in FDA-approved clinical studies unless a company has
adequate product liability insurance.
 
EMPLOYEES
 
    As of March 15, 1999, the Company had 67 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 15-year lease which expires in 2009.
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, 1998.
 
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>
 
Elliot Lebowitz, Ph.D.                                         57   President and Chief Execuitve Officer, Director
 
James Hope, Ph.D.                                              47   Senior Vice President of Development
 
Julia L. Greenstein, Ph.D.                                     42   Senior Vice President of Research and Chief
                                                                    Scientific Officer
 
Mary White-Scharf, Ph.D.                                       48   Vice President of Research
 
Richard V. Capasso, C.P.A.                                     37   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
 
                                       25
<PAGE>
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.).
 
    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.
 
    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.
 
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
 
                                       26
<PAGE>
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>
                                                                                                           1997
                                                                                                   --------------------
 
<S>                                                                                                <C>        <C>
                                                                                                     HIGH        LOW
                                                                                                   ---------  ---------
 
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>
 
<TABLE>
<CAPTION>
                                                                                                           1998
                                                                                                   --------------------
 
<S>                                                                                                <C>        <C>
                                                                                                     HIGH        LOW
                                                                                                   ---------  ---------
 
First Quarter....................................................................................  $    6.13  $    3.75
 
Second Quarter...................................................................................  $    4.25  $    3.13
 
Third Quarter....................................................................................  $    3.75  $    1.50
 
Fourth Quarter...................................................................................  $    3.00  $    1.00
</TABLE>
 
    On March 15, 1999, the Company had approximately 600 stockholders of record.
On March 15, 1999, the closing price of the Company's Common Stock on the Nasdaq
National Market was $2.44. 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.
 
                                       27
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
 
                      SELECTED CONSOLIDATED FINANCIAL DATA
 
<TABLE>
<CAPTION>
                                                                                                          PERIOD FROM
                                                                                                           INCEPTION
                                                                                                        (MARCH 20, 1990)
                                                            YEARS ENDED TO DECEMBER 31,                        TO
                                             ---------------------------------------------------------    DECEMBER 31,
                                                1994       1995        1996        1997        1998           1998
                                             ----------  ---------  ----------  ----------  ----------  ----------------
<S>                                          <C>         <C>        <C>         <C>         <C>         <C>
                                                                (IN THOUSANDS EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
  License fees.............................  $    1,500  $   4,000  $    2,000  $    5,000  $    1,000     $   15,000
  Research and development.................       1,500      5,875       5,750       7,125       5,688         27,063
  Interest income..........................         163        168       1,296       1,731       1,318          4,871
                                             ----------  ---------  ----------  ----------  ----------       --------
    Total Revenues.........................       3,163     10,043       9,046      13,856       8,006         46,934
                                             ----------  ---------  ----------  ----------  ----------       --------
Expenses:
  Research and development.................      11,767      9,460      12,268      13,988      14,730         77,261
  General and administrative...............       2,518      1,939       2,680       2,963       2,477         16,386
  Interest.................................         146        731         135          58          10          1,760
                                             ----------  ---------  ----------  ----------  ----------       --------
    Total expenses.........................      14,431     12,130      15,083      17,009      17,217         95,407
                                             ----------  ---------  ----------  ----------  ----------       --------
    Net loss...............................  $  (11,268) $  (2,087) $   (6,037) $   (3,153) $   (9,211)    $  (48,473)
                                             ----------  ---------  ----------  ----------  ----------       --------
                                             ----------  ---------  ----------  ----------  ----------       --------
Net loss per common share:
  Basic and diluted........................              $  (16.78) $    (1.08) $    (0.37) $    (1.07)
                                                         ---------  ----------  ----------  ----------
                                                         ---------  ----------  ----------  ----------
Weighted average common shares outstanding
  (1):
Basic and diluted..........................                124,373   5,582,055   8,568,709   8,578,941
                                                         ---------  ----------  ----------  ----------
                                                         ---------  ----------  ----------  ----------
</TABLE>
 
<TABLE>
<CAPTION>
                                                                              YEARS ENDED DECEMBER 31,
                                                                -----------------------------------------------------
<S>                                                             <C>        <C>        <C>        <C>        <C>
                                                                  1994       1995       1996       1997       1998
                                                                ---------  ---------  ---------  ---------  ---------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.....................................  $   2,343  $   2,849  $   6,564  $   9,784  $  13,168
Marketable securities.........................................     --         --         13,001     19,863      6,843
Working capital...............................................        148         86     17,788     24,111     15,499
Long-term investments.........................................     --         --         10,311      1,015     --
Total assets..................................................      4,801      5,372     32,316     32,939     22,683
Long-term obligation under capital leases, net of current
  portion.....................................................      1,066        615        189         10         --
Redeemable convertible preferred stock........................     23,772     29,241         --         --         --
Stockholders' equity (deficit)................................    (27,030)   (28,840)    29,262     26,154     16,958
</TABLE>
 
------------------------
 
(1) Computed on the basis described in Note 2(f) of Notes to Consolidated
    Financial Statements, Item 8, "Financial Statements and Supplementary Data"
 
                                       28
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS
 
    OVERVIEW
 
    Since commencement of operations in 1990, the Company has been engaged
primarily in the research and development of proprietary pharmaceuticals and
organ transplantation systems, which represent a comprehensive approach to
inducing functional tolerance in humans. The major sources of the Company's
working capital have been the proceeds from sales of equity securities,
sponsored research funding and license fees and capital lease financings. The
Company has not generated any revenues from the sale of products to date, and
does not expect to receive any product revenues for several years, if ever. The
Company will be required to conduct significant additional research,
development, testing and regulatory compliance activities that, together with
general and administrative expenses, are expected to result in significant and
increasing operating losses for at least the next several years.
 
    In 1993, and as amended and restated in September 1995, the Company and
Novartis entered into a collaboration agreement for the development and
commercialization of xenotransplantation products utilizing gene transduction.
Under the agreement, Novartis committed research funding through March 1998 of
$20.0 million, all of which had been received as of December 31, 1998, and
agreed to pay license fees of $10.0 million, all of which had been received as
of December 31, 1998. Novartis has also agreed to fund certain development and
premarketing costs and products which may be developed as a result of the
collaboration, portions of which, under certain circumstances, may be repayable
from the Company's operating profits from sales of any such products.
 
    In October 1997, the Company and Novartis expanded their relationship by
entering into a collaboration and license agreement to develop and commercialize
xenotransplantation products utilizing the Company's proprietary mixed bone
marrow chimerism technology. Under the agreement, the Company may receive from
Novartis research funding, license fees, and milestone payments of up to $36
million assuming the agreement continues for its full term. As of December 31,
1998, research funding of $8.0 million and license fees of $3.0 million had been
received. In addition to research funding, Novartis will also fund certain
development and premarketing costs of such products, portions of which may be
repayable under certain circumstances.
 
    In October 1995, the Company and MedImmune entered into a collaborative
research agreement for the development of products to treat and prevent organ
rejection. MedImmune paid the Company a $2.0 million license fee at the time of
execution of the agreement, and agreed to fund and assume responsibility for
clinical testing and commercialization of BTI-322 and other related products.
MedImmune has provided $2.0 million of non-refundable research support and has
agreed to make milestone payments which could total up to an additional $11.0
million. Any milestone payments which are received are repayable from royalties
on such products.
 
RESULTS OF OPERATIONS
 
Years Ended December 31, 1998 and 1997
 
    Revenues decreased to $8.0 million in 1998 from $13.9 million in 1997. The
decrease in revenues was primarily due to $6.7 million in sponsored research and
license revenue from the Novartis agreements in 1998, compared to $11.4 million
in sponsored research and license revenue from Novartis during 1997.
Additionally, interest income decreased to $1.3 million in 1998 compared to $1.7
million in 1997. The decrease was due to lower average cash balances available
for investment during 1998.
 
    Research and development expenses increased to $14.7 million in 1998 from
$14.0 million in 1997. This increase was primarily due to additional external
research support combined with increases in research and development staff and
associated increases in supplies and support services.
 
                                       29
<PAGE>
    General and administrative expenses decreased to $2.5 million in 1998 from
$3.0 million in 1997. This decrease was primarily due to decreased outside
professional services rendered in connection with market research and business
development.
 
    Interest expense decreased to $10,000 in 1998 from $59,000 in 1997. This
decrease was primarily due to decreasing balances on existing obligations under
capital leases.
 
    As a result of the above factors, the Company incurred a net loss for 1998
of $9.2 million compared to a net loss of $3.2 million for 1997.
 
Years Ended December 31, 1997 and 1996
 
    Revenues increased to $13.9 million in 1997 from $9.0 million in 1996. The
increase in revenues was primarily due to $11.4 million in sponsored research
and license revenue from the Novartis agreements in 1997, compared to $6.8
million in sponsored research and license revenue from Novartis during 1996.
Additionally, interest income increased to $1.7 million in 1997 compared to $1.3
million in 1996. The increase was due to higher average cash balances available
for investment as a result of the initial public offering of the Company's
common stock, completed in May 1996, and the funding received from the Novartis
agreements.
 
    Research and development expenses increased to $14.0 million in 1997 from
$12.3 million in 1996. This increase was primarily due to additional external
research support combined with increases in research and development staff and
associated increases in supplies and support services.
 
    General and administrative expenses increased to $3.0 million in 1997 from
$2.7 million in 1996. This increase was primarily due to increased
administrative costs as a publicly-traded company including increases in general
and administrative staff and related costs.
 
    Interest expense decreased to $59,000 in 1997 from $135,000 in 1996. This
decrease was primarily due to decreasing balances on existing obligations under
capital leases.
 
    As a result of the above factors, the Company incurred a net loss for 1997
of $3.2 million compared to a net loss of $6.0 million for 1996.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    Since its inception, the Company's operations have been funded principally
through the net proceeds of an aggregate of $64.2 million from sales of equity
securities. The Company has also received $41.0 million from research and
development and collaboration agreements with Novartis, $4.0 million from an
alliance agreement with MedImmune and $2.2 million in equipment lease financing.
The proceeds of the sales of equity securities, notes payable and capital leases
and cash generated from the corporate collaborations with Novartis and MedImmune
have been used to fund operating losses of approximately $48.5 million and the
investment of approximately $4.9 million in equipment and leasehold improvements
through December 31, 1998. The Company is in the process of extending and
increasing its term note with a bank from $500,000 to $1.0 million for certain
equipment and fixtures borrowing. There were no borrowings outstanding under
this term note at December 31, 1998. The Company had no significant commitments
as of December 31, 1998 for capital expenditures.
 
    The Company has entered into sponsored research and consulting agreements
with certain hospitals, academic institutions and consultants, requiring
periodic payments by the Company. Aggregate minimum funding obligations under
these agreements, which include certain cancellation provisions, total
approximately $7.0 million, which includes approximately $5.9 million in 1999.
 
    The Company had cash and cash equivalents and investments of $20.0 million
as of December 31, 1998.
 
                                       30
<PAGE>
    The Company anticipates that its existing funds should be sufficient to fund
its operating and capital requirements as currently planned through 2000.
However, the Company's cash requirements may vary materially from those now
planned, due to many factors, including, but not limited to, the progress of the
Company's research and development programs, the scope and results of
preclinical and clinical testing, changes in existing and potential
relationships with corporate collaborators, the time and cost in obtaining
regulatory approvals, the costs involved in obtaining and enforcing patents,
proprietary rights and any necessary licenses, the ability of the Company to
establish development and commercialization capacities or relationships, the
costs of manufacturing and other factors.
 
    The Company expects to incur substantial additional costs, including costs
related to research and development activities, preclinical studies, clinical
trials, obtaining regulatory approvals, manufacturing and the expansion of its
facilities. The Company will need to raise substantial additional funds, through
additional financings including public or private equity offerings and
collaborative arrangements with corporate partners. There can be no assurance
that funds will be available on terms acceptable to the Company, if at all. If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate certain of its product development programs or to license to
others the right to commercialize products or technologies that the Company
would otherwise seek to develop and commercialize itself, any of which would
have a material and adverse effect on the Company.
 
YEAR 2000 READINESS
 
    Historically, certain computer programs have been written using two digits
rather than four digits, to define the applicable year. This could lead, in many
cases, to a computer's recognition of a date using "00" as 1900 rather than the
year 2000. This phenomenon could result in significant computer system failures
or miscalculations, and is generally referred to as the "Year 2000" problem or
issue.
 
    The Company is currently in the process of assessing its exposure to the
Year 2000 problem, and is establishing a comprehensive response to that
exposure. Generally, the Company has Year 2000 exposure in three areas: (i)
financial and management operating computer systems used to manage the Company's
business, (ii) microprocessors and other equipment used by the Company
("embedded chips") and (iii) computer systems used by third parties, in
particular financial institutions, vendors and suppliers of the Company.
 
    At December 31, 1998, the Company had completed an inventory of its
financial and management operating systems and made a preliminary determination
of which programs were or were not Year 2000 compliant. Prior to June 30, 1999,
the company intends to test each significant program which is believed to be
Year 2000 compliant and to remediate all significant programs that are not Year
2000 compliant. In some cases, Year 2000 issues will be corrected in the
development of new programs, which enhance or provide new functionality to these
financial and management operating systems. The Company expects to substantially
complete Year 2000 testing and remediation on its financial and management
operating systems by June 30, 1999.
 
    The Company has begun an inventory and assessment of its exposure to
embedded chips in its facilities or equipment used in those facilities and
capability of vendors of such equipment to successfully remediate Year 2000
problems in equipment with embedded chips. The Company expects to substantially
complete remediation efforts of its exposure to embedded chips in its facilities
or equipment by June 30, 1999.
 
    The Company estimates that the cost to remediate its financial and
management operating systems and embedded chips in its facilities or equipment
should not exceed $25,000, including potential capital costs for new computers
and related equipment. This amount does not include costs for computer software
developed in order to provide or improve functionality.
 
                                       31
<PAGE>
    The Company has also recently begun interviewing third parties, vendors and
suppliers of the Company to determine their exposure to Year 2000 issues, their
anticipated risks and responses to those risks. The Company expects to
substantially complete this process and address any significant risks by June
30, 1999.
 
    If the Company is unsuccessful in completing remediation of non-compliant
systems, correcting embedded chips and if any third parties, vendors or
suppliers cannot rectify Year 2000 issues, the Company could incur additional
costs, which may be substantial, to develop alternative methods of managing its
business and replacing non-compliant equipment. The Company is in the process of
establishing a contingency plan in the event of any such noncompliance.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
 
    The Company owns financial instruments that are sensitive to market risks as
part of its investment portfolio. The investment portfolio is used to preserve
the Company's capital until it is required to fund operations, including the
Company's research and development activities. All of these market-risk
sensitive instruments are classified as held-to-maturity and are not held for
trading purposes. The Company does not own derivative financial instruments in
its investment portfolio. The investment portfolio contains instruments that are
subject to the risk of a decline in interest rates.
 
    INTEREST RATE RISK:  The Company's investment portfolio includes investment
grade debt instruments. These bonds are subject to interest rate risk, and could
decline in value if interest rates fluctuate. Due to the short duration and
conservative nature of these instruments, the Company does not believe that it
has a material exposure to interest rate risk.
 
                                       32
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To BioTransplant Incorporated:
 
    We have audited the accompanying consolidated balance sheets of
BioTransplant Incorporated (a Delaware corporation in the development stage) and
subsidiary as of December 31, 1997 and 1998, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1998 and for the period from
inception (March 20, 1990) to December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
BioTransplant Incorporated and subsidiary as of December 31, 1997 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998 and for the period from inception (March
20, 1990) to December 31, 1998, in conformity with generally accepted accounting
principles.
 
                                          /S/ ARTHUR ANDERSEN LLP
 
Boston, Massachusetts
January 27, 1999
 
                                       33
<PAGE>
                   BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
 
                         (A DEVELOPMENT STAGE COMPANY)
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                             DECEMBER 31,
                                                                                     ----------------------------
<S>                                                                                  <C>            <C>
                                                                                         1997           1998
                                                                                     -------------  -------------
                                      ASSETS
Current assets:
  Cash and cash equivalents........................................................  $   9,784,229  $  13,168,496
  Short-term investments...........................................................     19,862,617      6,842,963
  Prepaid expenses and other current assets........................................      1,238,500      1,212,294
                                                                                     -------------  -------------
      Total current assets.........................................................     30,885,346     21,223,753
                                                                                     -------------  -------------
Property and equipment, at cost:
  Equipment under capital leases...................................................      2,210,170         45,000
  Laboratory equipment.............................................................        961,220      3,521,985
  Leasehold improvements...........................................................        628,217        696,016
  Office equipment.................................................................        266,182        615,616
                                                                                     -------------  -------------
                                                                                         4,065,789      4,878,617
  Less--Accumulated depreciation...................................................      3,062,540      3,420,592
                                                                                     -------------  -------------
                                                                                         1,003,249      1,458,025
                                                                                     -------------  -------------
Long-term investments..............................................................      1,015,202             --
                                                                                     -------------  -------------
Other assets.......................................................................         34,727          1,541
                                                                                     -------------  -------------
                                                                                     $  32,938,524  $  22,683,319
                                                                                     -------------  -------------
                                                                                     -------------  -------------
                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current obligation under capital leases..........................................  $     177,667  $      10,042
  Accounts payable.................................................................        289,535        227,356
  Accrued expenses.................................................................      2,182,216      2,112,658
  Deferred revenue.................................................................      4,125,000      3,375,000
                                                                                     -------------  -------------
      Total current liabilities....................................................      6,774,418      5,725,056
                                                                                     -------------  -------------
Long-term obligation under capital leases..........................................         10,042             --
                                                                                     -------------  -------------
Commitments (Notes 11 and 12)
Stockholders' equity:
  Preferred stock, $.01 par value--
    Authorized--2,000,000 shares
    Issued and outstanding--no shares..............................................             --             --
  Common stock, $.01 par value--
    Authorized--25,000,000 shares
    Issued and outstanding--8,575,390 shares in 1997,
     and 8,581,463 shares in 1998..................................................         85,754         85,815
Additional paid-in capital.........................................................     65,330,483     65,345,228
Deficit accumulated during the development stage...................................    (39,262,173)   (48,472,780)
                                                                                     -------------  -------------
      Total stockholders' equity...................................................     26,154,064     16,958,263
                                                                                     -------------  -------------
                                                                                     $  32,938,524  $  22,683,319
                                                                                     -------------  -------------
                                                                                     -------------  -------------
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       34
<PAGE>
                   BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
 
                         (A DEVELOPMENT STAGE COMPANY)
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                           FOR THE YEARS ENDED DECEMBER 31,          CUMULATIVE
                                                      -------------------------------------------      SINCE
                                                          1996           1997           1998         INCEPTION
                                                      -------------  -------------  -------------  --------------
<S>                                                   <C>            <C>            <C>            <C>
Revenues:
  License fees......................................  $   2,000,000  $   5,000,000  $   1,000,000  $   15,000,000
  Research and development..........................      5,750,000      7,125,000      5,688,500      27,063,500
  Interest income...................................      1,296,143      1,731,258      1,317,780       4,870,657
                                                      -------------  -------------  -------------  --------------
      Total revenues................................      9,046,143     13,856,258      8,006,280      46,934,157
                                                      -------------  -------------  -------------  --------------
Expenses:
  Research and development..........................     12,268,263     13,987,982     14,729,825      77,261,276
  General and administrative........................      2,680,380      2,962,644      2,477,460      16,386,083
  Interest..........................................        134,608         58,886          9,602       1,759,578
                                                      -------------  -------------  -------------  --------------
      Total expenses................................     15,083,251     17,009,512     17,216,887      95,406,937
                                                      -------------  -------------  -------------  --------------
      Net loss......................................  $  (6,037,108) $  (3,153,254) $  (9,210,607) $  (48,472,780)
                                                      -------------  -------------  -------------  --------------
                                                      -------------  -------------  -------------  --------------
Net loss per common share:
  Basic and diluted.................................  $       (1.08) $        (.37) $       (1.07)
                                                      -------------  -------------  -------------
                                                      -------------  -------------  -------------
Weighted average common shares outstanding:
  Basic and diluted.................................      5,582,055      8,568,709      8,578,941
                                                      -------------  -------------  -------------
                                                      -------------  -------------  -------------
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       35
<PAGE>
                   BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
 
                         (A DEVELOPMENT STAGE COMPANY)
 
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
 
<TABLE>
<CAPTION>
                                                                                                        DEFICIT
                                                                  COMMON STOCK                        ACCUMULATED         TOTAL
                                                             ----------------------    ADDITIONAL     DURING THE      STOCKHOLDERS'
                                                               NUMBER       $.01         PAID-IN      DEVELOPMENT        EQUITY
                                                             OF SHARES    PAR VALUE      CAPITAL         STAGE          (DEFICIT)
                                                             ----------   ---------    -----------   -------------    -------------
<S>                                                          <C>          <C>          <C>           <C>              <C>
Inception, March 20, 1990..................................         --     $    --     $        --   $         --     $         --
  Net loss.................................................         --          --              --       (142,353)        (142,353)
                                                             ----------   ---------    -----------   -------------    -------------
Balance, December 31, 1990.................................         --          --              --       (142,353)        (142,353)
  Sale of common stock.....................................    102,572       1,026           3,077             --            4,103
  Issuance of warrants.....................................         --          --          22,000             --           22,000
  Net loss.................................................         --          --              --     (2,637,206)      (2,637,206)
                                                             ----------   ---------    -----------   -------------    -------------
Balance, December 31, 1991.................................    102,572       1,026          25,077     (2,779,559)      (2,753,456)
  Net loss.................................................         --          --              --     (6,188,344)      (6,188,344)
                                                             ----------   ---------    -----------   -------------    -------------
Balance, December 31, 1992.................................    102,572       1,026          25,077     (8,967,903)      (8,941,800)
  Issuance of warrants.....................................         --          --         476,800             --          476,800
  Exercise of stock options................................         63           1              46             --               47
  Deferred compensation on stock Options...................         --          --         105,546             --          105,546
  Net loss.................................................         --          --              --     (7,748,627)      (7,748,627)
                                                             ----------   ---------    -----------   -------------    -------------
Balance, December 31, 1993.................................    102,635       1,027         607,469    (16,716,530)     (16,108,034)
  Exercise of stock options................................     17,406         174           1,448             --            1,622
  Restricted stock sold to Directors.......................      1,250          12           8,738             --            8,750
  Issuance of warrants.....................................         --          --         165,937             --          165,937
  Deferred compensation on stock Options...................         --          --         170,225             --          170,225
  Net loss.................................................         --          --              --    (11,268,042)     (11,268,042)
                                                             ----------   ---------    -----------   -------------    -------------
Balance, December 31, 1994.................................    121,291       1,213         953,817    (27,984,572)     (27,029,542)
  Issuance of warrants.....................................         --          --          99,000             --           99,000
  Exercise of stock options................................      5,303          53           7,301             --            7,354
  Deferred compensation on stock Options...................         --          --         170,225             --          170,225
  Net loss.................................................         --          --              --     (2,087,239)      (2,087,239)
                                                             ----------   ---------    -----------   -------------    -------------
Balance, December 31, 1995.................................    126,594       1,266       1,230,343    (30,071,811)     (28,840,202)
  Conversion of preferred stock into common stock..........  4,770,430      47,704      36,154,586             --       36,202,290
  Issuance of common stock in initial public offering, net
    of issuance costs of $2,681,920........................  3,220,000      32,200      27,875,880             --       27,908,080
  Issuance of common stock pursuant to antidilution
    rights.................................................    431,724       4,317          (4,317)            --               --
  Exercise of stock options................................     10,154         102          28,546             --           28,648
  Net loss.................................................         --          --              --     (6,037,108)      (6,037,108)
                                                             ----------   ---------    -----------   -------------    -------------
Balance, December 31, 1996.................................  8,558,902      85,589      65,285,038    (36,108,919)      29,261,708
  Exercise of stock options................................     15,238         153          45,407             --           45,560
  Restricted stock sold to directors.......................      1,250          12              38             --               50
  Net loss.................................................         --          --              --     (3,153,254)      (3,153,254)
                                                             ----------   ---------    -----------   -------------    -------------
Balance, December 31, 1997.................................  8,575,390      85,754      65,330,483    (39,262,173)      26,154,064
  Exercise of stock options................................      6,073          61          14,745             --           14,806
  Net loss.................................................         --          --              --     (9,210,607)      (9,210,607)
                                                             ----------   ---------    -----------   -------------    -------------
Balance, December 31, 1998.................................  8,581,463     $85,815     $65,345,228   $(48,472,780)    $ 16,958,263
                                                             ----------   ---------    -----------   -------------    -------------
                                                             ----------   ---------    -----------   -------------    -------------
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       36
<PAGE>
                   BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
                         (A DEVELOPMENT STAGE COMPANY)
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                      FOR THE YEARS ENDED DECEMBER 31,
                                                                   ---------------------------------------    CUMULATIVE
                                                                       1996          1997         1998      SINCE INCEPTION
                                                                   ------------  ------------  -----------  ---------------
<S>                                                                <C>           <C>           <C>          <C>
Cash flows from operating activities:
    Net loss.....................................................  $ (6,037,108) $ (3,153,254) $(9,210,607)  $(48,472,780)
    Adjustments to reconcile net loss to net cash provided by
      (used in) operating activities-
        Depreciation and amortization............................       667,820       581,641      358,052      3,484,280
        Noncash interest expense on convertible notes payable to
          stockholders...........................................        15,583            --           --        465,477
        Noncash expenses related to options and warrants.........        33,187        33,188       33,186      1,185,244
        Changes in current assets and liabilities-
            Accounts receivable..................................       250,000            --           --             --
            Prepaid expenses and other current assets............      (744,213)     (150,984)      26,206     (1,212,294)
            Accounts payable.....................................       (61,222)      163,532      (62,179)       227,356
            Accrued expenses.....................................       345,534       869,252      (69,558)     2,112,658
            Deferred revenue.....................................      (750,000)    3,125,000     (750,000)     3,375,000
                                                                   ------------  ------------  -----------  ---------------
                Net cash provided by (used in) operating
                  activities.....................................    (6,280,419)    1,468,375   (9,674,900)   (38,835,059)
                                                                   ------------  ------------  -----------  ---------------
Cash flows from investing activities:
    Purchases of property and equipment..........................      (123,135)     (300,893)    (812,828)    (4,319,109)
    Disposal of property and equipment, net......................            --            --           --         28,040
    Purchases of investments.....................................   (38,200,692)  (19,050,026)  (8,887,022)   (66,137,740)
    Proceeds from investments....................................    14,888,441    21,484,458   22,921,877     59,294,776
                                                                   ------------  ------------  -----------  ---------------
                Net cash provided by (used in) investing
                  activities.....................................   (23,435,386)    2,133,539   13,222,027    (11,134,033)
                                                                   ------------  ------------  -----------  ---------------
Cash flows from financing activities:
    Proceeds from convertible notes payable to stockholders......            --            --           --      9,400,000
    Payments of obligations under capital leases.................      (450,748)     (427,252)    (177,666)    (2,184,168)
    Proceeds from sale/leaseback of equipment....................            --            --           --        771,968
    Proceeds from equipment leases...............................            --            --           --      1,422,240
    Net proceeds from sale of redeemable convertible preferred
      stock......................................................     5,889,530            --           --     25,661,526
    Proceeds from sale of common stock, net......................    27,992,431        45,610       14,806     28,066,022
                                                                   ------------  ------------  -----------  ---------------
                Net cash provided by (used in) financing
                  activities.....................................    33,431,213      (381,642)    (162,860)    63,137,588
                                                                   ------------  ------------  -----------  ---------------
Net increase in cash and cash equivalents........................     3,715,408     3,220,272    3,384,267     13,168,496
Cash and cash equivalents, beginning of period...................     2,848,549     6,563,957    9,784,229             --
                                                                   ------------  ------------  -----------  ---------------
Cash and cash equivalents, end of period.........................  $  6,563,957  $  9,784,229  $13,168,496   $ 13,168,496
                                                                   ------------  ------------  -----------  ---------------
                                                                   ------------  ------------  -----------  ---------------
Supplemental disclosure of noncash transactions:
    Equipment acquired under capital leases......................  $         --  $         --  $        --   $ (2,210,170)
                                                                   ------------  ------------  -----------  ---------------
                                                                   ------------  ------------  -----------  ---------------
    Conversion of convertible notes payable to stockholders and
      accrued interest into redeemable convertible preferred
      stock......................................................  $  1,055,816  $         --  $        --   $  9,905,710
                                                                   ------------  ------------  -----------  ---------------
                                                                   ------------  ------------  -----------  ---------------
    Conversion of preferred stock into common stock..............  $ 36,202,290  $         --  $        --   $ 36,202,290
                                                                   ------------  ------------  -----------  ---------------
                                                                   ------------  ------------  -----------  ---------------
    Issuance of warrants.........................................  $         --  $         --  $        --   $    741,737
                                                                   ------------  ------------  -----------  ---------------
                                                                   ------------  ------------  -----------  ---------------
    Leasehold improvements acquired through issuance of
      redeemable convertible preferred stock.....................  $         --  $         --  $        --   $    619,584
                                                                   ------------  ------------  -----------  ---------------
                                                                   ------------  ------------  -----------  ---------------
Supplemental disclosure of cash flow information:
    Interest paid during the period..............................  $    118,900  $     53,542  $     6,975   $  1,394,346
                                                                   ------------  ------------  -----------  ---------------
                                                                   ------------  ------------  -----------  ---------------
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       37
<PAGE>
                   BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
 
                         (A DEVELOPMENT STAGE COMPANY)
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(1) OPERATIONS
 
    BioTransplant Incorporated (the "Company") was incorporated on March 20,
1990. The Company is developing pharmaceuticals and systems based on its unique
and proprietary enabling technologies, which are designed to re-educate the
body's immune system to accept foreign tissue, allowing safer, more enduring
organ transplantation and also creating potentially valuable new treatments for
other diseases such as blood cell cancers. BioTransplant is initially focused on
enhancing the safety and expanding access to organ transplants, and is advancing
the development of a range of products with multiple indications, both alone and
in partnership with leading pharmaceutical companies.
 
    The Company is in the development stage and is devoting substantially all of
its efforts toward product research and development and raising capital. The
Company is subject to a number of risks similar to those of other development
stage companies, including its dependence on key individuals and collaborative
research partners, competition from substitute products and larger companies, no
assurance that the Company will be able to develop and market commercially
usable products or obtain regulatory approval for its products under
development, and the need to obtain adequate additional financing necessary to
adequately fund the development of its products.
 
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    The accompanying consolidated financial statements reflect the application
of certain accounting policies described below and elsewhere in the notes to
consolidated financial statements.
 
    (A) PRINCIPLES OF CONSOLIDATION
 
    The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All material intercompany accounts
and transactions have been eliminated in consolidation.
 
    (B) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
 
    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
    (C) CASH AND CASH EQUIVALENTS AND INVESTMENTS
 
    Cash and cash equivalents include short-term, highly liquid investments with
original maturities of less than three months from the date of purchase.
Short-term investments consist primarily of corporate notes and securities
issued by the United States Treasury or other United States government agencies
with maturities of less than one year from the date of purchase. Long-term
investments consist primarily of corporate notes with maturities of more than
one year. In accordance with Financial Accounting Standards Board Statement No.
115, "Accounting for Certain Investments in Debt and Equity Securities", the
Company's investments are classified as held-to-maturity and are stated at
amortized cost, which approximates market value. At December 31, 1998 the
weighted average maturity of all investments was two months.
 
                                       38
<PAGE>
                   BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
 
                         (A DEVELOPMENT STAGE COMPANY)
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    The Company held the following cash equivalents and investments at December
31, 1997 and 1998:
 
<TABLE>
<CAPTION>
                                                                     1997           1998
                                                                 -------------  -------------
<S>                                                              <C>            <C>
Cash and cash equivalents:.....................................  $   9,784,229  $  13,168,496
                                                                 -------------  -------------
Short-term investments:
  United States Treasury and Agency Securities
    (average maturity of 2 months).............................  $   2,000,000  $          --
  Corporate Bonds (average maturity of 4 months and 2
    months)....................................................     16,862,948      6,842,963
  Commercial Paper (average maturity of 8 months)..............        999,669             --
                                                                 -------------  -------------
                                                                    19,862,617      6,842,963
                                                                 -------------  -------------
Long-term investments:
  Corporate Bonds (average maturity of 16 months)..............      1,015,202             --
                                                                 -------------  -------------
  Total cash and cash equivalents and investments..............  $  30,662,048  $  20,011,459
                                                                 -------------  -------------
                                                                 -------------  -------------
</TABLE>
 
    There were no realized gains or losses in the years ended December 31, 1996,
1997 and 1998.
 
    (D) DEPRECIATION AND AMORTIZATION
 
    The Company provides for depreciation using the straight-line method by
charges to operations in amounts estimated to allocate the cost of these assets
over a five-year life. Amortization of equipment under capital lease and
leasehold improvements is computed using the straight-line method over the
shorter of the estimated useful life of the asset or the lease term.
 
    (E) REVENUE RECOGNITION
 
    Substantially all of the Company's license and research and development
revenues are derived from three collaborative research arrangements (see Note
9). Annual research and development payments are recognized on a straight-line
basis over the period of the contract, which approximates when work is performed
and costs are incurred. License fee revenue represents technology transfer fees
received for rights to certain technology of the Company. License fees are
recognized as revenue when all obligations as defined in the individual
arrangements are fulfilled by the Company and there is no risk of refund.
Deferred revenue represents amounts received in advance for research and
development. Research and development expenses in the accompanying consolidated
statements of operations include funded and unfunded expenses.
 
    (F) NET LOSS PER COMMON SHARE
 
    In 1997, the Company adopted Financial Accounting Standards Board Statement
No. 128, "Earnings Per Share", ("FAS 128"), effective December 15, 1997. FAS 128
establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock or potential common stock.
The Company has applied the provisions of FAS 128 retroactively to all periods
presented. Diluted weighted average shares is the same as basic weighted average
shares since the inclusion of shares issuable pursuant to the exercise of stock
options and warrants would have been antidilutive.
 
                                       39
<PAGE>
                   BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
 
                         (A DEVELOPMENT STAGE COMPANY)
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    Calculations of basic and diluted net loss per common share are as follows:
 
<TABLE>
<CAPTION>
                                                       1996           1997           1998
                                                   -------------  -------------  -------------
<S>                                                <C>            <C>            <C>
Net loss.........................................  $  (6,037,108) $  (3,153,254) $  (9,210,607)
                                                   -------------  -------------  -------------
                                                   -------------  -------------  -------------
Weighted average common shares outstanding--
  basic and diluted..............................      5,582,055      8,568,709      8,578,941
                                                   -------------  -------------  -------------
                                                   -------------  -------------  -------------
Basic and diluted net loss per common share......  $       (1.08) $        (.37) $       (1.07)
                                                   -------------  -------------  -------------
                                                   -------------  -------------  -------------
Antidilutive securities not included--
  Common stock options...........................        191,309        164,270         48,266
                                                   -------------  -------------  -------------
                                                   -------------  -------------  -------------
  Common stock warrants..........................        224,644        216,338        133,007
                                                   -------------  -------------  -------------
                                                   -------------  -------------  -------------
</TABLE>
 
(3) CAPITAL LEASES
 
    The Company has capital lease commitments related to certain property and
equipment. In conjunction with these leases, the Company has issued warrants to
purchase common and preferred stock (see Note 8).
 
    The Company has future minimum payments under these capital lease agreements
of $10,755. Equipment under capital leases collateralize these lease
obligations.
 
(4) TERM NOTE
 
    In September 1997, the Company entered into a term note with a bank, whereby
the Company may borrow up to $500,000 for certain equipment and fixtures during
a specified drawdown period, after which time the outstanding balance will
become payable in 36 equal monthly principal installments plus interest.
Borrowings under the term note bear annual floating interest at the bank's Prime
Rate (7.75% at December 31, 1998) during the drawdown period with an option to
convert during the repayment period to an annual fixed rate at the three-month
London Interbank Offered Rate ("LIBOR") (5.07% at December 31, 1998) plus 2.25%.
Borrowings under the term note are secured by equipment and fixtures purchased
using the proceeds of the note. The Company did not borrow against this term
note during the drawdown period, which expired during 1998, and is now in the
process of extending the drawdown period and increasing its availability to $1.0
million under the same conditions of this term note. There were no borrowings
outstanding under this term note at December 31, 1998.
 
                                       40
<PAGE>
                   BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
 
                         (A DEVELOPMENT STAGE COMPANY)
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(5) ACCRUED EXPENSES
 
    Accrued expenses consist of the following at December 31, 1997 and 1998:
 
<TABLE>
<CAPTION>
                                                                        1997          1998
                                                                    ------------  ------------
<S>                                                                 <C>           <C>
Consulting and contract research..................................  $    723,254  $    947,331
Payroll and payroll related.......................................       392,930        52,284
Professional fees.................................................       374,070       484,078
Other.............................................................       691,962       628,965
                                                                    ------------  ------------
                                                                    $  2,182,216  $  2,112,658
                                                                    ------------  ------------
                                                                    ------------  ------------
</TABLE>
 
(6) REDEEMABLE CONVERTIBLE PREFERRED STOCK
 
    Upon the closing of the Company's initial public offering in 1996, all of
the then outstanding shares of redeemable convertible preferred stock converted
into 4,770,430 shares of common stock. In addition, the Company issued an
additional 431,724 shares of common stock to Novartis Pharma AG ("Novartis")
upon the Company's initial public offering as a result of antidilution rights.
 
(7) COMMON STOCK
 
    As of December 31, 1997 and 1998, the Company has reserved the following
shares of common stock for issuance:
 
<TABLE>
<CAPTION>
                                                                             1997        1998
                                                                          ----------  ----------
<S>                                                                       <C>         <C>
1991 Stock Option Plan..................................................     702,459     696,386
1994 Directors' Equity Plan.............................................      49,375      49,375
1997 Stock Option Plan..................................................     750,000     750,000
Outstanding warrants....................................................     377,135     367,191
                                                                          ----------  ----------
                                                                           1,878,969   1,862,952
                                                                          ----------  ----------
                                                                          ----------  ----------
</TABLE>
 
(8) OPTIONS AND WARRANTS
 
    (A) COMMON STOCK PLANS
 
    In May 1997, the stockholders approved the 1997 Stock Incentive Plan (the
"1997 Plan") which was intended to replace the Company's Amended 1991 Stock
Incentive Plan (the "1991 Plan"), under which it may grant incentive stock
options, nonqualified stock options and stock appreciation rights. The Company
has reserved 750,000 shares of common stock for issuance under the 1997 Plan.
These options generally vest ratably over a four- to five-year period.
 
    In May 1997, the stockholders approved an amendment to the Company's 1994
Directors' Equity Plan (the "Directors' Plan"). The amendment increased from
15,000 to 50,000 the number of shares of common stock reserved for issuance
under the Directors' Plan. The Directors' Plan automatically grants an option to
each eligible outside director of the Company for the purchase of 3,125 shares
of common stock at the then fair market value upon such eligible outside
directors' election to the Board of Directors. In addition, each eligible
outside director concurrently receives an award to purchase 625 shares of
restricted common stock at $.04 per share. Under the Director's Plan, common
stock options and restricted common stock
 
                                       41
<PAGE>
                   BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
 
                         (A DEVELOPMENT STAGE COMPANY)
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(8) OPTIONS AND WARRANTS (CONTINUED)
awards vest ratably over five-and four-year periods, respectively. At December
31, 1998, 938 restricted common shares were unvested.
 
    The following table summarizes the employee and director stock option
activity under the plans discussed above:
 
<TABLE>
<CAPTION>
                                                                   NUMBER    WEIGHTED AVERAGE
                                                                 OF OPTIONS   EXERCISE PRICE
                                                                 ----------  -----------------
<S>                                                              <C>         <C>
Outstanding, December 31, 1995.................................     323,575      $    3.26
  Granted......................................................     396,648           6.39
  Exercised....................................................     (10,154)          2.82
  Canceled.....................................................     (41,767)          4.87
                                                                 ----------          -----
Outstanding, December 31, 1996.................................     668,302           5.02
  Granted......................................................     404,964           6.63
  Exercised....................................................     (15,238)          2.46
  Canceled.....................................................     (43,603)          6.36
                                                                 ----------          -----
Outstanding, December 31, 1997.................................   1,014,425      $    5.65
  Granted......................................................     493,290           2.79
  Exercised....................................................      (6,073)          2.43
  Canceled.....................................................    (129,188)          6.98
                                                                 ----------          -----
Outstanding, December 31, 1998.................................   1,372,454      $    4.51
                                                                 ----------          -----
                                                                 ----------          -----
Exercisable, December 31, 1996.................................     190,831      $    2.94
                                                                 ----------          -----
                                                                 ----------          -----
Exercisable, December 31, 1997.................................     311,338      $    4.06
                                                                 ----------          -----
                                                                 ----------          -----
Exercisable, December 31, 1998.................................     472,608      $    4.70
                                                                 ----------          -----
                                                                 ----------          -----
</TABLE>
 
    The following tables summarize certain information about options outstanding
at December 31, 1998:
 
<TABLE>
<CAPTION>
   RANGE OF                      WEIGHTED AVERAGE           WEIGHTED
   EXERCISE       OPTIONS      REMAINING CONTRACTUAL         AVERAGE
    PRICES      OUTSTANDING        LIFE IN YEARS         EXERCISE PRICE
--------------  -----------  -------------------------  -----------------
<S>             <C>          <C>                        <C>
$  0.04-- 3.13     519,418                8.21              $    2.34
   3.19-- 6.50     569,646                7.64                   5.34
   6.63--10.50     283,390                8.49                   6.81
--------------  -----------                ---                  -----
$  0.04--10.50   1,372,454                8.03              $    4.51
--------------  -----------                ---                  -----
--------------  -----------                ---                  -----
</TABLE>
 
                                       42
<PAGE>
                   BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
 
                         (A DEVELOPMENT STAGE COMPANY)
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(8) OPTIONS AND WARRANTS (CONTINUED)
    The following tables summarize certain information about options exercisable
at December 31, 1998:
 
<TABLE>
<CAPTION>
   RANGE OF                      WEIGHTED
   EXERCISE       OPTIONS         AVERAGE
    PRICES      EXERCISABLE   EXERCISE PRICE
--------------  -----------  -----------------
<S>             <C>          <C>
$  0.04-- 3.13     143,988       $    2.70
   3.19-- 6.50     251,866            5.19
   6.63--10.50      76,754            6.86
--------------  -----------          -----
$  0.04--10.50     472,608       $    4.70
--------------  -----------          -----
--------------  -----------          -----
</TABLE>
 
    Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123") requires the measurement of the fair value
of stock options or warrants granted to employees be included in the statement
of operations or disclosed in the notes to financial statements. The Company has
determined that it will continue to account for stock-based compensation for
employees under Accounting Principles Board Opinion No. 25 and elect the
disclosure-only alternative under FAS 123. The Company has computed the pro
forma disclosures required under FAS 123 for options granted in 1996, 1997 and
1998 using the Black-Scholes option pricing model prescribed by FAS 123. The
assumptions used for the years ended December 31, 1996, 1997 and 1998 are as
follows: risk-free interest rates of 6.32%, 5.53% and 4.73%; expected common
stock volatility factors of 65%, 68% and 85%; and a weighted-average expected
life of the stock options of seven years. The Company does not currently pay any
dividends, and it does not expect to pay cash dividends in the foreseeable
future; therefore; dividend yields for 1996, 1997 and 1998 are assumed to be 0%.
The weighted average fair value of options granted in 1996, 1997 and 1998 was
$4.40, $4.61 and $2.18, respectively.
 
    The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of highly
subjective assumptions including expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
 
    The total fair value of the options granted during the years ended December
31, 1996, 1997 and 1998 was computed as approximately $1,747,000, $1,867,000 and
$1,074,000, respectively. Of these amounts, approximately $235,000, $642,000 and
$913,000 would be charged to operations for the years ended December 31, 1996,
1997 and 1998, respectively. The remaining amount would be amortized over the
related vesting periods. The resulting pro forma compensation expense may not be
representative of the amount to be expected in future years, as pro forma
compensation expense may vary, based upon the number of options granted and the
assumptions used in valuing these options.
 
    The pro forma net loss and pro forma net loss per common share presented
below have been computed assuming no tax benefit. The effect of a tax benefit
has not been considered since a substantial
portion of the stock options granted are incentive stock options and the Company
does not anticipate a
 
                                       43
<PAGE>
                   BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
 
                         (A DEVELOPMENT STAGE COMPANY)
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(8) OPTIONS AND WARRANTS (CONTINUED)
future deduction associated with the exercise of these stock options. The pro
forma effect of FAS 123 for the years ended December 31, 1996, 1997 and 1998 is
as follows:
 
<TABLE>
<CAPTION>
                                                                         1996           1997            1998
                                                                     -------------  -------------  --------------
<S>                                            <C>                   <C>            <C>            <C>
Net loss.....................................  As reported.........  $  (6,037,108) $  (3,153,254) $   (9,210,607)
                                               Pro forma...........     (6,271,780)    (3,795,662)    (10,123,353)
 
Basic and diluted net loss
  per common share...........................  As reported.........  $       (1.08) $        (.37) $        (1.07)
                                               Pro forma...........          (1.12)          (.44)          (1.18)
</TABLE>
 
    (B) WARRANTS
 
    In connection with certain financing and facility leasing transactions that
occurred in 1993, 1994 and 1995, the Company issued warrants to purchase 369,944
shares of common stock at prices ranging from $.04 to $49.80. At December 31,
1998, 8,297 warrants were unvested. The following table summarizes certain
information about warrants outstanding at December 31, 1998:
 
<TABLE>
<CAPTION>
                                  WEIGHTED AVERAGE
   RANGE OF       WARRANTS      REMAINING CONTRACTUAL    WEIGHTED AVERAGE
EXERCISE PRICES  OUTSTANDING        LIFE IN YEARS         EXERCISE PRICE
---------------  -----------  -------------------------  -----------------
<S>              <C>          <C>                        <C>
$   0.04-- 4.00     341,475                5.33              $    2.37
   10.80--49.80      18,525                0.74                  11.75
---------------  -----------                ---                 ------
$   0.04--49.80     360,000                5.09              $    2.85
---------------  -----------                ---                 ------
---------------  -----------                ---                 ------
</TABLE>
 
(9) COLLABORATIVE RESEARCH AGREEMENTS
 
    (A) NOVARTIS
 
    In April 1993, as amended and restated in September 1995, the Company
entered into a five-year collaboration agreement with Novartis to develop and
commercialize xenotransplantation technology utilizing gene transduction.
Pursuant to this agreement, all committed research funding of $20.0 million and
all committed license fees of $10.0 million had been received as of December 31,
1997. In October 1997, the Company and Novartis expanded their relationship in
xenotransplantation by entering into a collaboration and license agreement for
the development and commercialization of xenotransplantation products utilizing
the Company's proprietary mixed bone marrow chimerism technology. Under this
agreement, Novartis has committed up to $36.0 million in research funding,
license fees and milestone payments, assuming the agreement continues for its
full term. As of December 31, 1998, $8.0 million of research funding and $3.0
million of license fees had been received. Pursuant to the terms of these
agreements, Novartis is obligated 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, under
certain circumstances, to co-promote such products. The Company has the right to
co-promote 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 xenotransplantation 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.
 
                                       44
<PAGE>
                   BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
 
                         (A DEVELOPMENT STAGE COMPANY)
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(9) COLLABORATIVE RESEARCH AGREEMENTS (CONTINUED)
    As of December 31, 1998, the Company had deferred revenue of $3,375,000
pursuant to the Novartis agreements, which represents annual research and
development payments received prior to the related expenses being incurred.
 
    In addition to these agreements, Novartis purchased $5.0 million of the
Company's Series B convertible preferred stock in 1992, which converted into
532,125 shares of common stock upon the Company's initial public offering.
 
    (B) MEDIMMUNE, INC.
 
    In October 1995, the Company and MedImmune, Inc. ("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-500 and future
generations of products derived from these two molecules (including MEDI-507,
the humanized version of BTI-322). Pursuant to the collaboration, the Company
granted MedImmune an exclusive worldwide license to develop and commercialize
BTI-322 and any products based on BTI-322, other than the use of BTI-322 in kits
or systems for xenotransplantation or allotransplantation. MedImmune paid the
Company 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. As of December 31, 1998,
MedImmune has provided $2.0 million in non-refundable research support and has
agreed to make milestone payments that could total up to an additional $11.0
million, all of which is repayable from royalties on BTI-322/MEDI-507 or
MEDI-500, as well as pay royalties on any sales of BTI-322/MEDI-507, MEDI-500
and future generations of products, if any. The Company has not received any
milestone payments to date. MedImmune is entitled to a credit against royalty
payments for certain milestone payments that it makes.
 
(10) INCOME TAXES
 
    The Company accounts for income taxes in accordance with Financial
Accounting Standards Board Statement No. 109, "Accounting for Income Taxes". At
December 31, 1998, the Company had net operating loss carryforwards for income
tax purposes of approximately $43,980,000. The Company also has available tax
credit carryforwards of $2,000,000 at December 31, 1998 to reduce future federal
income taxes, if any. The net operating loss carryforwards and tax credit
carryforwards expire commencing in the year 2006, and are subject to review and
possible adjustment by the Internal Revenue Service. Net operating loss
carryforwards and tax credit carryforwards may be limited in the event of
certain changes in the ownership interests of significant stockholders.
 
                                       45
<PAGE>
                   BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
 
                         (A DEVELOPMENT STAGE COMPANY)
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(10) INCOME TAXES (CONTINUED)
    The components of the deferred tax asset as of December 31, 1997 and 1998
are approximately as follows:
 
<TABLE>
<CAPTION>
                                                                     1997           1998
                                                                 -------------  -------------
<S>                                                              <C>            <C>
Operating loss carryforwards...................................  $  14,145,000  $  17,592,000
Tax credit carryforwards.......................................      1,592,000      2,000,000
Start-up costs.................................................         50,000         50,000
Other temporary differences....................................      1,338,000      1,681,000
                                                                 -------------  -------------
                                                                    17,125,000     21,323,000
Less--Valuation allowance......................................     17,125,000     21,323,000
                                                                 -------------  -------------
                                                                 $          --  $          --
                                                                 -------------  -------------
                                                                 -------------  -------------
</TABLE>
 
    Because of the history of operating losses, a valuation allowance has been
provided for the entire deferred tax asset since it is uncertain if the Company
will realize the benefit of the deferred tax asset.
 
(11) COMMITMENTS
 
    (A) RESEARCH AND LICENSE AGREEMENTS
 
    The Company has entered into several research and license agreements with a
hospital whereby the Company obtained the rights to the hospital's research
pertaining to the transplantation of organs and tissues and other related
technologies. The Company also obtained an exclusive license to commercially
develop, manufacture, use and distribute worldwide any products developed
pursuant to the agreements, in exchange for research funding and royalties on
any future sales. These agreements have initial terms of one to ten years;
however, either party may terminate the agreements at various times, as defined,
with written notice.
 
    The Company has entered into research and license agreements with four
universities whereby the Company funded research and development. The Company
also obtained exclusive worldwide licenses for certain patents, patent rights
and research information and rights to develop, manufacture, use and sell any
product developed pursuant to the licensed technology in exchange for royalties
on any future sales, as defined.
 
    The Company has entered into a miniswine transfer and maintenance agreement
with a breeding laboratory and was granted exclusive, worldwide rights to the
miniswine. Pursuant to this agreement, the Company has agreed to pay specified
maintenance costs, as defined in the agreement.
 
                                       46
<PAGE>
                   BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
 
                         (A DEVELOPMENT STAGE COMPANY)
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(11) COMMITMENTS (CONTINUED)
    Commitments as of December 31, 1998, pursuant to these research and license
agreements are as follows:
 
<TABLE>
<CAPTION>
                                                                                     TOTAL
                                                                                  ------------
<S>                                                                               <C>
Year Ending December 31,
1999............................................................................  $  5,932,000
2000............................................................................       775,000
2001............................................................................       150,000
2002............................................................................       150,000
2003............................................................................            --
                                                                                  ------------
                                                                                  $  7,007,000
                                                                                  ------------
                                                                                  ------------
</TABLE>
 
    (B) OPERATING LEASE COMMITMENTS
 
    The Company leases its facility under an operating lease that expires in
2009. In addition, the Company is responsible for the real estate taxes and
operating expenses related to this facility. Minimum annual rental payments,
excluding taxes and operating costs, under this lease agreement are as follows:
 
<TABLE>
<S>                                                              <C>
1999...........................................................  $1,020,000
2000...........................................................   1,025,000
2001...........................................................   1,025,000
2002...........................................................   1,025,000
2003...........................................................   1,025,000
Thereafter.....................................................   6,150,000
                                                                 ----------
                                                                 $11,270,000
                                                                 ----------
                                                                 ----------
</TABLE>
 
    Rental expense, which includes facility lease, ground lease and real estate
tax costs, for the years ended December 31, 1996, 1997 and 1998 was
approximately $1,197,000, $1,196,000 and $1,219,000, respectively.
 
(12) INVESTMENT IN STEM CELL SCIENCES PTY. LTD.
 
    In April 1994, the Company entered into a shareholders' agreement and a
research and license agreement (the "Agreements") with Stem Cell Sciences Pty.
Ltd. ("Stem Cell"). Under the Agreements, the Company paid $1,000,000 for 30% of
the outstanding shares of Stem Cell, an exclusive license to certain technology
and other intellectual property and support of certain research in the field of
animal genetic engineering. The Company recorded the $1,000,000 payment as
research and development expense during the year ended December 31, 1994.
 
    The Company recorded $924,000 and $676,000 as research and development
expense during the years ended December 31, 1996 and 1997, respectively, to
maintain its pro rata ownership in Stem Cell.
 
    In December 1997, the Company paid $700,000 in research support to maintain
its pro rata ownership of Stem Cell for 1998, which was recorded as research and
development expense on a straight-line basis over the year ended December 31,
1998. During 1998, the Company exercised its final option to maintain
 
                                       47
<PAGE>
                   BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
 
                         (A DEVELOPMENT STAGE COMPANY)
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(12) INVESTMENT IN STEM CELL SCIENCES PTY. LTD. (CONTINUED)
its pro rata ownership in Stem Cell for an additional commitment of $700,000 in
research support which will be recorded as research and development expense on a
straight-line basis over the year ending December 31, 1999. The Company paid
$175,000 of this amount in December 1998 and will pay the remaining amount
during 1999.
 
(13) EMPLOYMENT RETIREMENT/SAVINGS PLAN
 
    The Company maintains an employee retirement/savings plan (the "Plan") which
permits participants to make tax deferred contributions by salary reduction
pursuant to section 401(k) of the Internal Revenue Code. All active employees,
21 years of age or older, who have completed a calendar quarter of service are
eligible to participate in the Plan. The Company pays all administrative costs
of the Plan and currently makes no matching contributions to the Plan.
 
(14) RECENT ACCOUNTING PRONOUNCEMENTS
 
    (A) COMPREHENSIVE INCOME
 
    In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. This statement is effective for fiscal years beginning
after December 15, 1997. The Company adopted this statement for the year ended
December 31, 1998 with no material impact on the Company's financial statements
as there are no material differences between the Company's reported income and
comprehensive income.
 
    (B) SEGMENT REPORTING
 
    In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131"). FAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that enterprises report selected information about
operating segments in interim financial reports issued to stockholders. The
Company adopted this statement for the year ended December 31, 1998. In
accordance with FAS 131, the Company believes that it operates in one operating
segment.
 
    (C) PENSIONS AND OTHER POSTRETIREMENT BENEFITS
 
    The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits." Statement No. 132 is effective for years
beginning after December 15, 1998. It is not expected that the adoption of this
statement will have a material impact on the Company's financial statements.
 
    (D) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 
    In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"). The statement is effective for the year ended December 31, 2000. FAS 133
establishes accounting and reporting standards for derivative instruments
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. The
Company does not expect adoption of this statement to have a material impact on
the Company's financial statements.
 
                                       48
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
    During the Company's two most recent fiscal years, there have been no
disagreements with the Company's independent accountants on accounting and
financial disclosure 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 1999 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."
 
PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
    (a) 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.
 
                            ------------------------
 
    The following trademarks are mentioned in this Annual Report on Form 10-K:
 
    BioTransplant-TM-
 
    AlloMune-TM-
 
    BTI-322-TM- antibody
 
    XenoMune-TM-
 
    ImmunoCognance-TM-
 
                                       49
<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 30th day of
March, 1999.
 
<TABLE>
<S>                             <C>  <C>
                                BIOTRANSPLANT INCORPORATED
 
                                By:          /s/ ELLIOT LEBOWITZ, PH.D.
                                     -----------------------------------------
                                               Elliot Lebowitz, Ph.D.
</TABLE>
 
    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.
 
<TABLE>
<CAPTION>
          SIGNATURE                       TITLE                    DATE
------------------------------  --------------------------  -------------------
<S>                             <C>                         <C>
                                President, Chief Executive
/s/ ELLIOT LEBOWITZ, PH.D.        Officer and Director
------------------------------    (Principal Executive        March 30, 1999
Elliot Lebowitz, Ph.D.            Officer)
 
                                Vice President, Finance
/s/ RICHARD V. CAPASSO            and Treasurer (Principal
------------------------------    Financial and Accounting    March 30, 1999
Richard V. Capasso                Officer)
 
/s/ DONALD R. CONKLIN
------------------------------  Director                      March 30, 1999
Donald R. Conklin
 
/s/ WILLIAM W. CROUSE
------------------------------  Director                      March 30, 1999
William W. Crouse
 
/s/ JAMES C. FOSTER
------------------------------  Director                      March 30, 1999
James C. Foster
 
/s/ DANIEL O. HAUSER, PH. D.
------------------------------  Director                      March 30, 1999
Daniel O. Hauser, Ph. D.
 
/s/ MICHAEL S. PERRY, D.V.M.,
PH.D.
------------------------------  Director                      March 30, 1999
Michael S. Perry, D.V.M.,
Ph.D.
 
/s/ ROBERT A. VUKOVICH, PH.
D.
------------------------------  Director                      March 30, 1999
Robert A. Vukovich, Ph. D.
</TABLE>
 
                                       50
<PAGE>
                                 EXHIBIT INDEX
 
    The following exhibits are filed as part of this Annual Report on Form 10-K.
 
<TABLE>
<CAPTION>
EXHIBIT NO.                                                DESCRIPTION
--------------  --------------------------------------------------------------------------------------------------
<C>             <S>
        **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.
        *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.
</TABLE>
 
                                       51
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.                                                DESCRIPTION
--------------  --------------------------------------------------------------------------------------------------
<C>             <S>
        *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.
        *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.
   *****+10.35  Miniswine Transfer and Maintenance Agreement dated January 1, 1998 by and between Charles River
                Laboratories, Inc., Wilmington Partners, L.P. and the Company.
         23     Consent of Arthur Andersen LLP.
         27.1   Financial Data Schedule--Year Ended December 31, 1998.
</TABLE>
 
------------------------
 
<TABLE>
<C>           <S>
       (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.
         *    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.
     *****    Incorporated herein by reference to the Company's Form 10-Q for the quarter
              ended June 30, 1998.
         +    Confidential treatment requested as to certain portions.
</TABLE>
 
                                       52