<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------

                                    FORM 10-Q

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

                    For the Quarter Ended September 30, 1998


                         Commission File Number 0-21481

                          TRANSKARYOTIC THERAPIES, INC.
             (Exact name of registrant as specified in its charter)

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

         Delaware                                         04-3027191
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                        Identification No.)

            195 Albany Street
        Cambridge, Massachusetts                            02139
(Address of principal executive offices)                 (Zip Code)

       Registrant's telephone number, including area code: (617) 349-0200

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


     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  / /


     At October 31, 1998, there were 19,121,899 shares of Common Stock, $.01 par
value, issued and outstanding. There were no issued and outstanding shares of
Preferred Stock.



<PAGE>


                          Transkaryotic Therapies, Inc.




                                      INDEX

<TABLE>
<CAPTION>

                                                                                                        Page Number
                                                                                                        -----------
<S>                                                                                                     <C>
PART  I.          FINANCIAL INFORMATION

Item  1.          Condensed Consolidated Financial Statements (unaudited)

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

                  Condensed Consolidated Statements of Operations for the Three and Nine
                  Months Ended September 30,1998 and 1997                                                         4

                  Condensed Consolidated Statements of Cash Flows for the Nine Months
                  Ended September 30, 1998 and 1997                                                               5

                  Notes to Condensed Consolidated Financial Statements                                        6 - 8

Item  2.          Management's Discussion and Analysis of Financial Condition and
                  Results of Operations                                                                      9 - 13


PART  II.         OTHER INFORMATION

Item 1.           Legal  Proceedings                                                                             14

Item 6.           Exhibits and Reports on Form 8-K                                                               14


                  SIGNATURES                                                                                     15

                  EXHIBIT INDEX                                                                                  16

</TABLE>



<PAGE>


Part 1- Item 1- Condensed Consolidated Financial Statements

                          Transkaryotic Therapies, Inc.
                      Condensed Consolidated Balance Sheets
                                   (unaudited)

<TABLE>
<CAPTION>


(in thousands, except par values)                             September 30,   December 31,
                                                                  1998            1997
                                                              -------------   ------------
<S>                                                           <C>             <C>      
Assets

Current assets:
   Cash and cash equivalents                                     $  32,463    $  23,922
   Marketable securities                                            85,635      105,632
   Prepaid expenses and other current assets                         3,029          551
                                                                 ---------    ---------
      Total current assets                                         121,127      130,105
Property and equipment, net                                          4,756        4,505
Other assets                                                           341          338
                                                                 ---------    ---------
                                                                 $ 126,224    $ 134,948
                                                                 ---------    ---------
                                                                 ---------    ---------
Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable                                              $   1,348    $   1,656
   Accrued expenses                                                  3,370        1,543
                                                                 ---------    ---------
      Total current liabilities                                      4,718        3,199

Stockholders' equity:
   Preferred stock, $1.00 par value, 10,000 shares authorized:
      no shares issued and outstanding
   Common stock, $.01 par value;  30,000 shares authorized;
      19,088 and 18,929 shares issued and outstanding at
      September 30, 1998 and December 31, 1997, respectively           191          189
   Additional paid-in capital                                      185,907      185,451
   Accumulated deficit                                             (61,872)     (49,987)
   Deferred compensation                                            (2,928)      (3,940)
   Accumulated other comprehensive income                              208           36
                                                                 ---------    ---------
      Total stockholders' equity                                   121,506      131,749
                                                                 ---------    ---------
                                                                 $ 126,224    $ 134,948
                                                                 ---------    ---------
                                                                 ---------    ---------

</TABLE>

     See accompanying Notes to Condensed Consolidated Financial Statements.

                                                                               3

<PAGE>




Part 1- Item 1- Condensed Consolidated Financial Statements
                                                                
                          Transkaryotic Therapies, Inc.
                 Condensed Consolidated Statements of Operations
                                   (unaudited)

<TABLE>
<CAPTION>

(in thousands, except per share amounts)             Three Months Ended       Nine Months Ended       
                                                         September 30,          September 30,   
                                                       1998        1997       1998         1997
                                                    --------    --------    --------    -------- 
<S>                                                 <C>         <C>         <C>         <C>     
License and research revenues                       $  4,750    $    300    $  5,325    $  5,513
Operating expenses:
   Research and development                            6,394       4,498      17,422      12,523
   General and administrative                          1,801       1,480       4,987       4,388
                                                    --------    --------    --------    -------- 
                                                       8,195       5,978      22,409      16,911
                                                    --------    --------    --------    -------- 
Loss from operations                                  (3,445)     (5,678)    (17,084)    (11,398)
Interest income                                        1,663       1,657       5,199       3,910
                                                    --------    --------    --------    -------- 
Net loss                                            ($ 1,782)   ($ 4,021)   ($11,885)   ($ 7,488)
                                                    --------    --------    --------    -------- 
                                                    --------    --------    --------    -------- 
Basic and diluted net loss per share                ($  0.09)   ($  0.23)   ($  0.62)   ($  0.44)
                                                    --------    --------    --------    -------- 
                                                    --------    --------    --------    -------- 
Shares used to compute basic and diluted net loss
    per share                                         19,074      17,838      19,032      17,050
                                                    --------    --------    --------    -------- 
                                                    --------    --------    --------    -------- 

</TABLE>


     See accompanying Notes to Condensed Consolidated Financial Statements.

                                                                               4

<PAGE>

Part 1- Item 1- Condensed Consolidated Financial Statements
                                        
                          Transkaryotic Therapies, Inc.
                 Condensed Consolidated Statements of Cash Flows
                                   (unaudited)

<TABLE>
<CAPTION>

(in thousands)                                              Nine Months Ended
                                                              September 30,
                                                           1998         1997    
                                                        ---------    --------- 
<S>                                                     <C>          <C>       
Operating activities:
Net loss                                                $ (11,885)   $  (7,488)
Adjustments to reconcile net loss to net
   cash provided by operating activities:
      Depreciation and amortization                         1,629        1,321
      Compensation expense related to
         equity issuances                                     847          868
Changes in operating assets and liabilities                  (959)       1,151
                                                        ---------    --------- 
Net cash used for operating activities                    (10,368)      (4,148)
                                                        ---------    --------- 
Investing activities:
Proceeds from sales of marketable securities               91,080       61,264
Purchases of marketable securities                        (70,911)    (108,634)
Purchase of property and equipment                         (1,849)      (1,609)
Changes in other assets and liabilities                       (34)        (184)
                                                        ---------    --------- 
Net cash provided by (used for)  investing activities      18,286      (49,163)
                                                        ---------    --------- 
Financing Activities:
Proceeds from sale of common stock and exercise
  of options and warrants, net of expenses                    623       53,106
                                                        ---------    --------- 
Net increase (decrease) in cash and cash equivalents        8,541         (205)
Cash and cash equivalents at January 1                     23,922       10,414
                                                        ---------    --------- 
Cash and cash equivalents at September 30               $  32,463    $  10,209
                                                        ---------    --------- 
                                                        ---------    --------- 
</TABLE>

     See accompanying Notes to Condensed Consolidated Financial Statements.

                                                                               5

<PAGE>

Part 1- Item 1- Condensed Consolidated Financial Statements


                          Transkaryotic Therapies, Inc.

        Notes to Condensed Consolidated Financial Statements (unaudited)
                           September 30, 1998 and 1997

1.   NATURE OF BUSINESS AND BASIS OF PRESENTATION

     Transkaryotic Therapies, Inc. ("TKT" or the "Company") is a
biopharmaceutical company engaged in the development and commercialization of
products based on its three proprietary product development platforms: Gene
Activation, gene therapy and Niche ProteinsTM.

     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying financial
statements include all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the financial condition, results of
operations and cash flows for the periods presented. The results of operations
for the interim period ended September 30, 1998 are not necessarily indicative
of the results to be expected for the year ending December 31, 1998.

     These financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.


2.   BASIC AND DILUTED NET LOSS PER SHARE

     In December 1997, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 128, "Earnings per Share". Under SFAS No. 128, primary
earnings per share computed in accordance with Opinion 15 has been replaced with
a simpler calculation called basic earnings per share. Basic earnings per share
is calculated by dividing income available to common stockholders by the
weighted average common shares outstanding. Fully dilutive earnings per share
did not change significantly but has been renamed diluted earnings per share.
Diluted earnings per share is calculated by dividing net income by the sum of
weighted average common shares outstanding during the period plus common stock
equivalents. Common stock equivalents are shares assumed to be issued if
outstanding stock options and warrants were exercised. The adoption of SFAS No.
128 had no effect on the financial statements for the three and nine months
September 30, 1998 and 1997 since common equivalent shares from stock options
and warrants have been excluded as their effect is antidilutive.


                                                                               6

<PAGE>


3.   COMPREHENSIVE INCOME

     As of January 1, 1998 the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components, including the requirement
that unrealized gains or losses on the Company's available-for-sale securities,
which prior to adoption were reported separately in stockholders' equity, be
included in other comprehensive income. The adoption of SFAS No. 130 had no
impact on the Company's net loss or stockholders' equity.

     The Company has a total comprehensive loss of $1,606,000 and $4,029,000 for
the three months ended September 30, 1998 and 1997, respectively. For the nine
months ended September 30, 1998 and 1997, total comprehensive loss was
$11,713,000 and $7,472,000, respectively.


4.   LEGAL PROCEEDINGS

     In April 1997, Amgen Inc. filed a civil action in the U.S. District Court
in Massachusetts against the Company and Hoechst Marion Roussel, Inc. ("HMRI"),
its collaborative partner. The complaint in the action alleged that Gene
Activated-TM- erythropoietin ("GA-EPO-TM-"), and processes for producing GA-EPO
infringe Amgen's U.S. Patent Numbers 5,547,933, 5,618,698, and 5,621,080 and
requested that TKT and HMRI be enjoined from making, using, or selling GA-EPO
and that the court award Amgen monetary damages. In November 1997, TKT and HMRI
filed a Motion for Summary Judgment. On the same date, Amgen filed a Motion for
Summary Judgment of Infringement. TKT and HMRI opposed that motion, stating that
there had been no infringement.

     In April 1998, the U.S. District Court granted TKT and HMRI's Motion for
Summary Judgment and denied Amgen's Motion for Summary Judgment on the ground
that all of TKT and HMRI's GA-EPO related activities to date had been solely for
uses reasonably related to the production of information for submission to the
U.S. Food and Drug Administration (the "FDA") for regulatory approval and,
under the Waxman-Hatch Act, do not constitute acts of patent infringement. The
Court ordered Amgen's remaining claim for declaratory judgment of future
infringement administratively closed, to be reopened upon motion of either party
for good cause shown. The Court also stated that issuance by the FDA of a
product license presumably would show good cause to reopen that claim. Finally,
the Court stated that, should the case be reopened and should Amgen seek
preliminary equitable relief, the Court will combine the hearing on a
preliminary injunction with trial on the merits. The Company expects that the
case will be reopened.

                                                                               7

<PAGE>

     Should the case be reopened, the Company can provide no assurance as to the
outcome of the litigation. A decision by the court in Amgen's favor, including
the issuance of an injunction against the making, use or sale of GA-EPO by the
Company and HMRI in the United States, or any other conclusion of such
litigation in a manner adverse to the Company and HMRI, would have a material
adverse effect on the Company's business, financial condition, and results of
operations.

     Pursuant to the Amended and Restated License Agreement, dated March 1995,
by and between HMRI and the Company, HMRI assumed the cost of defense of the
suit by Amgen. The Company will reimburse HMRI for its share of litigation
expenses, as defined, from future royalties, if any, received from the sale of
GA-EPO.

                                                                               8

<PAGE>



PART I - Financial Information

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

OVERVIEW

     Since its inception in 1988, Transkaryotic Therapies, Inc. ( "TKT" or the
"Company") has been primarily engaged in the development and commercialization
of products based on the Company's three product development platforms: Gene
Activation, gene therapy and Niche Proteins. No revenues have been derived from
the sale of any products, and the Company does not expect to receive revenues
from product sales until at least 2000. The Company expects that its research
and development expenditures will increase substantially in future years as
product development efforts accelerate. With the exception of 1995, the Company
has incurred substantial annual operating losses since inception and expects to
incur substantial operating losses in the future. At September 30, 1998, the
Company's accumulated deficit was $61,872,000. As a result, the Company is
dependent upon existing cash resources, interest income, external financing from
equity and debt offerings and/or collaborative research and development
arrangements with corporate sponsors to finance its operations.

     Results of operations may vary significantly from period to period
depending on, among other factors, the progress of the Company's research and
development efforts, the receipt, if any, of additional license fees and
milestone payments, the timing of certain expenses, and the establishment of
additional collaborative research agreements.

     The following discussion of the financial condition and results of
operation of the Company should be read in conjunction with the accompanying
condensed consolidated financial statements and the related footnotes thereto.

RESULTS OF OPERATIONS

For the Three Months Ended September 30, 1998 and 1997

     License and research revenues totaled $4,750,000 and $300,000 for the three
months ended September 30, 1998 and 1997, respectively. Revenues for 1998
included a $2,500,000 milestone payment relating to the initiation of the Phase
III clinical program for Gene Activated erythropoietin (GA-EPO) and a $2,000,000
payment received as part of an undisclosed corporate agreement.

     Research and development expenses totaled $6,394,000 in the third quarter
of 1998, as compared to $4,498,000 during the same period in 1997. The increase
in 1998 of $1,896,000, or 42%, was principally due to an increase in research
and development staff, manufacturing costs, outside services and supplies.

                                                                               9

<PAGE>

     General and administrative expenses were $1,801,000 in the quarter ended
September 30, 1998, compared with $1,480,000 during the same period in 1997. The
increase in 1998 of $321,000, or 22%, is principally due to increases in
administrative employee costs.

     Interest income was $1,663,000 and $1,657,000 for the three months ended
September 30, 1998 and 1997, respectively. The average cash and marketable
securities balances were $119,135,000 and $108,875,000 in 1998 and 1997,
respectively. The increase in interest income of $6,000 resulted from higher
average balances in 1998 offset by a decline in interest rates. In the current
interest rate environment, the Company anticipates yields from cash and
marketable securities will decline significantly from amounts earned in 1998 and
1997.

     The Company had a net loss of $1,782,000 and $4,021,000 for the three
months ended September 30, 1998 and 1997, respectively. Basic net loss per share
was $0.09 for the three months ended September 30, 1998 compared to a basic net
loss per share of $0.23 for the same period in 1997.

For the Nine Months Ended September 30, 1998 and 1997

     License and research revenues totaled $5,325,000 and $5,513,000 for the
nine months ended September 30, 1998 and 1997, respectively. Revenues for 1998
included a $2,500,000 milestone payment relating to the initiation of the Phase
III clinical program for Gene Activated erythropoietin (GA-EPO) and a $2,000,000
payment received as part of an undisclosed corporate agreement. Revenues in 1997
included milestone payments of $4,500,000 from HMRI, relating to the achievement
of development milestones in the Company's two collaborative programs with HMRI.

     Research and development expenses totaled $17,422,000 in the first nine
months of 1998, as compared to $12,523,000 during the same period in 1997. The
increase in 1998 of $4,899,000, or 39%, was principally due to an increase in
research and development staff and related supplies, manufacturing costs,
outside services, as well as an increase in depreciation of equipment.

     General and administrative expenses were $4,987,000 in the nine months
ended September 30, 1998, compared with $4,388,000 during the same period in
1997. The increase in 1998 of $599,000, or 14%, is principally due to increases
in administrative employee costs.

     Interest income was $5,199,000 and $3,910,000 for the nine months ended
September 30, 1998 and 1997, respectively. The average cash and marketable
securities balances were $122,844,000 and $96,762,000 in 1998 and 1997,
respectively. The increase in interest income of $1,289,000, was primarily
attributable to higher average balances in the respective nine month periods.

                                                                              10

<PAGE>


     The Company had a net loss of $11,885,000 and $7,488,000 for the nine
months ended September 30, 1998 and 1997, respectively. Basic net loss per share
was $0.62 for the nine months ended September 30, 1998, as compared to a basic
net loss per share of $0.44 for the corresponding period in 1997.

YEAR 2000

     The Year 2000 issue results from computer programs and systems that were
created to accept only two digit dates. As a result, computer programs are
unable to differentiate between the year 1900 and the year 2000. This could
result in miscalculations and system failures.

     The Company has established a multidisciplanary Year 2000 project
committee. The committee has assessed the Company's software, hardware,
communications systems, applications and networks, as well as other date
sensitive equipment. Mission critical systems such as the accounting system have
been found compliant or are in the process of being upgraded. The remaining
systems are currently being tested to identify those systems which would be
affected by Year 2000 non-compliance. The Company believes its internal systems
will not pose significant operating issues for the Company as a result of the
Year 2000.

     In addition to the Company's internal risks, the Company is dependent upon
a number of third parties that provide information, goods and services to the
Company. These include financial institutions, suppliers, service providers and
research partners. If these third parties experience failures in their computer
systems or equipment due to Year 2000 non-compliance, it could seriously affect
the Company's business operations. The Company is in the process of contacting
its significant external business partners to determine the extent to which the
Company is vulnerable to their failure.

     If third party providers are not able to supply the Company, the Company
could experience delays in its research and development including delays in
clinical trial development or the submission of products for regulatory
approval. As a contingency plan, the Company expects to identify, if available,
a secondary source for critical third party providers. The Company has not yet
incurred significant cost to address the Year 2000 issue. While the total cost
of obtaining Year 2000 compliance is not known at this time, the Company
believes the cost will not be material.


LIQUIDITY AND SOURCES OF CAPITAL

     Since its inception, the Company has financed its operations through the
sale of Common and Preferred Stock, revenues from collaborative agreements and
interest income.

     The Company had unrestricted cash, cash equivalents and marketable
securities totaling $118,098,000 at September 30, 1998. Cash equivalents and
marketable securities are invested in U.S. Treasury notes, agencies of the U.S.
government and money market funds.

                                                                              11

<PAGE>


     The Company expects to lease new facilities in the fourth quarter of 1998
which will be used for research and development. Equipment and improvements to
the space are estimated to cost approximately $13,000,000, for which the Company
intends to seek bank financing. There can be no guarantee that financing will be
available at favorable terms, if at all. Even after lease of the new space, the
Company's facilities may not be adequate to accommodate the Company's needs
beyond 2000. The Company currently expects to meet any additional facilities
requirements through development of a new facility or conversion of an existing
building. The Company intends to seek financing for all or a significant portion
of the cost of any additional facilities.

     Substantial additional funds will be required to support the Company's
research and development programs, for acquisition of technologies, for
preclinical and clinical testing of its products, pursuit of regulatory
approvals, acquisition of capital equipment, expansion of laboratory and office
facilities, establishment of production capabilities and for general and
administrative expenses. Until such time, if any, as the Company's operations
generate significant revenues from product sales, cash resources and proceeds
from equity and debt offerings and funding from collaborative arrangements will
be required to fund operations.

     The Company expects to pursue opportunities to obtain additional financing
in the future through equity and debt financings, lease arrangements related to
facilities and capital equipment and collaborative research agreements. The
source, timing and availability of any future financing will depend principally
upon equity market conditions, interest rates and, more specifically, on the
Company's continued progress in its exploratory, preclinical and clinical
development programs. There can be no assurance that such funds will be
available on favorable terms, if at all.

     The Company expects that its existing capital resources, together with
revenues from collaborative agreements and interest income, will be sufficient
to fund its operations into 2001. The Company's cash requirements may vary,
however, depending on numerous factors. Lack of necessary funds may require the
Company to delay, scale back or eliminate some or all of its research and
product development programs or to license its potential products or
technologies to third parties.

     The Company is engaged in litigation with Amgen Inc. with respect to the
development of GA-EPO. See Note 4 to Notes to Condensed Consolidated Financial
Statements.

FORWARD LOOKING STATEMENTS

     Statements that are not historical facts, including statements about the
Company's confidence and strategies and its expectations about future products,
technologies and opportunities, market demand or acceptance of future products
are forward-looking statements. Without limiting the foregoing, the words
"believes", "anticipates", "plans", "expects", "intends" and similar expressions
are intended to identify forward-looking statements. There are a number 

                                                                              12

<PAGE>


of important factors that could cause the Company's actual results to differ
materially from those indicated by such forward-looking statements, including,
without limitation, whether any of the Company's Gene Activation, gene therapy,
or Niche Protein product candidates will advance in the clinical trial process,
the timing of such clinical trials, whether the clinical trial results will
warrant continued product development, the timing of making required regulatory
filings such as Investigational New Drug applications, and other risks set forth
(i) in the Company's Annual Report on Form 10-K under the caption "Certain
Factors That May Affect Future Results" which are incorporated herein by
reference and filed herewith as Exhibit 99.1, with the exception of the factor
titled "Patent Litigation" which is superseded by Exhibit 99.2 and (ii) in the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,1998
under the caption "Forward Looking Statements -- Patent Litigation", which is
incorporated herein by reference and filed herewith as Exhibit 99.2.


                                                                              13

<PAGE>


PART II - Other Information

Item 1.  Legal Proceedings

         Previously reported.


Item 6.  Exhibits and Reports on Form 8-K

          (a)  Exhibits

               The Exhibits filed as part of this Form 10-Q are listed on the 
          Exhibit Index immediately preceding such Exhibits, which Exhibit Index
          is incorporated herein by reference.

          (b)  Reports on Form 8-K

               No reports were filed on Form 8-K for the three months ended 
          September 30, 1998.


                                                                              14

<PAGE>




                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                   TRANSKARYOTIC THERAPIES, INC.



Date:      November 13, 1998       By: /s/  Daniel E. Geffken
                                       ----------------------
                                       Daniel E. Geffken
                                       Vice President, Finance and
                                       Chief Financial Officer (Principal
                                       Financial and Accounting Officer)


                                                                              15

<PAGE>


                          Transkaryotic Therapies, Inc.




                                  EXHIBIT INDEX

Exhibit No.             Description


      27            Financial Data Schedule (for EDGAR filing
                    purposes only)

    99.1            Certain Factors That May Affect Future Results
                    (as filed with the Company's Annual Report on Form 10-K,
                    except for the factor titled "Patent Litigation" which is
                    superseded by the section of the same title, appearing under
                    the caption "Forward Looking Statements" in the Company's
                    Quarterly Report on Form 10-Q for the quarter ended March
                    31,1998, filed as Exhibit 99.2 hereto).


    99.2            Risks Related to Patent Litigation (as filed with the
                    Company's Quarterly Report on Form 10-Q for the quarter
                    ended March 31, 1998).



                                                                              16