<PAGE>

                                                               

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-Q

(Mark One)

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

                  For the quarterly period ended March 31, 1997

                                       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. 000-20139


                                  Diacrin, Inc.
             (Exact name of registrant as specified in its charter)


         Delaware                                            22-3016912
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                            Identification No.)


      Building 96 13th Street, Charlestown Navy Yard,Charlestown, MA 02129
          (Address of principal executive offices, including zip code)

                                 (617) 242-9100
              (Registrant's telephone number, including area code)

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

                           YES     X         NO______
                                   --
         Indicate  the  number of  shares  outstanding  of each of the  issuer's
      classes of common stock, as of the latest practicable date.

         As of April 30, 1997,  13,225,295  shares of the registrant's  Common
      Stock were outstanding.


<PAGE>
2
<TABLE>


                                  Diacrin, Inc.
                                      Index




<CAPTION>
                                                                            Page
PART I. -         FINANCIAL INFORMATION                                     ----

<S>              <C>                                                         <C>
Item 1.           Financial Statements

                   Balance Sheets as of
                   December 31, 1996 and March 31, 1997.....................  3

                   Statements of Operations for the Three Month
                   Periods Ended March 31, 1996 and 1997....................  4

                   Statements of Cash Flows for the Three Month Periods
                   Ended March 31, 1996 and 1997............................  5

                   Notes to Financial Statements............................  6

Item 2.           Management's Discussion and Analysis of Financial
                   Condition and Results of Operations......................  8

PART II. -        OTHER INFORMATION

Item 2.           Changes in Securities..................................... 10 

SIGNATURES.................................................................. 11

</TABLE>





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<PAGE>
3
<TABLE>
                                                              DIACRIN, INC.
                                                              BALANCE SHEETS
                                                               (UNAUDITED)

                                                                       December 31,                     March 31,
                                                                          1996                            1997
<S>                                                                     <C>                           <C>
ASSETS
Current assets:
     Cash and cash equivalents                                          $7,308,710                    $3,117,674
     Short-term investments                                              6,255,507                     7,729,132
     Prepaid expenses and other current assets                             316,107                       486,553
                                                                      ------------                  ------------
         Total current assets                                           13,880,324                    11,333,359
                                                                      ------------                  ------------
Property and equipment, at cost:
     Equipment under capital leases                                        675,262                       675,262
     Furniture and office equipment                                        224,920                       232,346
     Laboratory equipment                                                  101,738                       133,996
     Leasehold improvements                                                 51,424                        51,424
                                                                      ------------                  ------------
                                                                         1,053,344                     1,093,028
     Less- Accumulated depreciation
                    and amortization                                       576,725                       630,262
                                                                      ------------                  ------------
                                                                           476,619                       462,766
                                                                      ------------                  ------------

Long-term investments                                                    9,917,875                    11,970,517
                                                                      ------------                  ------------
                                                                       $24,274,818                   $23,766,642
                                                                      ============                  ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                                     $162,058                      $234,469
     Accrued expenses                                                      506,949                       623,884
     Deferred revenue                                                      618,844                       470,107
     Current obligations under capital leases                              179,452                       186,013
                                                                      ------------                  ------------
         Total current liabilities                                       1,467,303                     1,514,473
                                                                      ------------                  ------------

Long-term obligation under capital leases                                  370,431                       321,393
                                                                      ------------                  ------------

Stockholders' equity:
     Preferred stock, $.01 par value, Authorized--
         5,000,000 shares at December 31, 1996 and
         at March 31, 1997; none issued and outstanding                     -                             -
     Common stock, $.01 par value; Authorized-- 30,000,000
         shares; issued and outstanding -- 13,189,559 shares
         and 13,198,670 shares at December 31, 1996
         and March 31, 1997, respectively                                  131,896                       131,987
     Additional paid-in capital                                         54,613,512                    54,625,986
     Accumulated deficit                                               (32,308,324)                  (32,827,197)
                                                                      ------------                  ------------
              Total stockholders' equity                                22,437,084                    21,930,776
                                                                      ------------                  ------------
                                                                       $24,274,818                   $23,766,642
                                                                      ============                  ============

</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


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<PAGE>
4

                                                             DIACRIN, INC.
                                                        STATEMENTS OF OPERATIONS
                                                              (UNAUDITED)


<TABLE>
<CAPTION>


                                                          Three Months
                                                         Ended March 31,
                                                      1996             1997
                                                      ----             ----
<S>                                               <C>              <C>
REVENUES:
   Research and development                 $          -          $  1,191,326
   Interest income                                    163,370          331,396
                                                   ----------       ----------
       Total revenues                                 163,370        1,522,722
                                                   ----------       ----------

OPERATING EXPENSES:
    Research and development                        1,224,379        1,611,269
    General and administrative                        326,809          411,480
   Interest expense                                    92,732           18,846
                                                   ----------       ----------
       Total operating expenses                     1,643,920        2,041,595
                                                   ----------       ----------

NET LOSS                                          $(1,480,550)      $ (518,873)
                                                   ===========      ===========

    NET LOSS PER COMMON SHARE                      $     (.13)      $     (.04)
                                                   ===========      ===========
SHARES USED IN COMPUTING
    NET LOSS PER COMMON SHARE                      11,411,472       13,192,471
                                                   ==========       ==========

</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


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<PAGE>
5
<TABLE>



                                                              DIACRIN, INC.
                                                         STATEMENTS OF CASH FLOWS
                                                               (UNAUDITED)
<CAPTION>

                                                                                 Three Months
                                                                                Ended March 31,
                                                                            1996               1997
                                                                            ----               ----
<S>                                                                    <C>                  <C>    
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                          $ (1,480,550)    $     (518,873)
    Adjustments to reconcile net loss to net
       cash used in operating activities-
          Depreciation and amortization                                     56,243             53,537
    Changes in assets and liabilities-
       Prepaid expenses and other current assets                          (106,124)          (170,446)
       Accounts payable                                                    (47,585)            72,411
       Accrued expenses                                                    (46,278)           116,935
       Deferred revenue                                                      -               (148,737)
                                                                       -----------        -----------

              Net cash used in operating activities                     (1,624,294)          (595,173)

CASH FLOWS FROM INVESTING ACTIVITIES:
    Increase in short-term investments                                      -              (1,473,625)
    Purchases of property and equipment, net                                (5,873)           (39,684)
    Increase in long-term investments                                       -              (2,052,642)
                                                                       -----------        -----------

              Net cash used in investing activities                         (5,873)        (3,565,951)
                                                                       -----------        -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Net proceeds from sale of common stock and warrants                 20,914,301             12,565
    Principal payments under capital leases                                (37,799)           (42,477)
    Decrease in deferred financing costs                                   215,684             -
                                                                       -----------        -----------

              Net cash provided by (used in) financing activities       21,092,186            (29,912)
                                                                       -----------        -----------
NET INCREASE (DECREASE) IN CASH
    AND CASH EQUIVALENTS                                                19,462,019         (4,191,036)

CASH AND CASH EQUIVALENTS, beginning of period                           4,114,820          7,308,710
                                                                       -----------        -----------

CASH AND CASH EQUIVALENTS, end of period                               $23,576,839        $ 3,117,674
                                                                       ===========        ===========

SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
    Conversion of notes and accrued interest
       into common stock, net of financing costs                       $ 7,296,308        $     -
                                                                       ===========        ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Interest paid during the period                                    $    24,034        $    18,846
                                                                       ===========        ===========

</TABLE>


                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


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6

                                  DIACRIN, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.       Operations And Basis Of Presentation
---------------------------------------------

         Diacrin, Inc. (the Company) was incorporated on October 10, 1989 and is
developing  transplantable  cells for the treatment of human  diseases which are
characterized by cell dysfunction or cell death and for which current  therapies
are either inadequate or nonexistent.

     The unaudited  financial  statements  included herein have been prepared by
the  Company,  without  audit,  pursuant  to the  rules and  regulations  of the
Securities and Exchange  Commission  and include,  in the opinion of management,
all adjustments,  consisting of normal,  recurring adjustments,  necessary for a
fair  presentation of interim period results.  Certain  information and footnote
disclosures  normally  included in financial  statements  prepared in accordance
with generally  accepted  accounting  principles  have been condensed or omitted
pursuant to such rules and regulations.  The Company believes, however, that its
disclosures are adequate to make the information  presented not misleading.  The
results for the interim  periods  presented  are not  necessarily  indicative of
results to be expected  for the full fiscal  year.  These  financial  statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto  included in the  Company's  latest Annual Report on Form 10-K
filed with the Securities and Exchange Commission.

2.       Summary of Significant Accounting Policies
---------------------------------------------------

         (a)      Net Loss per Common Share

     Net loss per common share is based on the weighted average number of common
shares  outstanding.  For 1996,  the weighted  average  number of common  shares
outstanding assumed the automatic conversion of all outstanding shares of Series
A, B and C convertible preferred stock into 6,693,121 shares of common stock and
the automatic conversion of the outstanding $7,000,000 convertible notes payable
into 2,799,999  shares of common stock,  both of which occurred upon the closing
of the  Company's  initial  public  offering on February 16, 1996.  Common stock
issued  after  December  1, 1994 and common  stock  issuable  pursuant  to stock
options or  warrants  granted  after  December  1, 1994 have been  reflected  as
outstanding  for the period from January 1, 1996 through the  effective  date of
the  Company's  initial  public  offering  using the  treasury  stock  method as
required  by the  Securities  and  Exchange  Commission.  Other  shares of stock
issuable  pursuant to stock options and warrants have not been included as their
effect would be antidilutive.

3.       New Accounting Standard
--------------------------------

     In March 1997, the Financial  Accounting  Standards Board issued  Statement
No. 128, "Earnings Per Share",  ("SFAS 128"). SFAS 128 establishes standards for
computing  and  presenting  earnings  per share and  applies  to  entities  with
publicly  held  common  stock or  potential  common  stock.  This  statement  is
effective for fiscal years ending after  December 15, 1997 and early adoption is
not permitted.  When adopted,  this statement will require  restatement of prior
years' earnings per share.  The Company will adopt this statement for its fiscal
year ended  December  31,  1997.  In  addition,  the Company  believes  that the
adoption  of  SFAS  128  will  not  have a  material  effect  on  its  financial
statements.

 

                                     - 6 -

<PAGE>
7

                                  DIACRIN, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

4.       Cash Equivalents and Investments
-----------------------------------------

         The  Company's  cash  equivalents  and  investments  are  classified as
held-to-maturity  and are carried at amortized cost, which  approximates  market
value. Cash equivalents,  short-term  investments and long-term investments have
maturities  of less than three  months,  less than one year and greater than one
year,  respectively.  Cash  and cash  equivalents,  short-term  investments  and
long-term  investments  at December 31, 1996 and March 31, 1997 consisted of the
following:
<TABLE>
<CAPTION>

                                                                     December 31,  March 31,
                                                                         1996        1997
                                                                     ----------   -----------
<S>                                                                 <C>          <C>

Cash and cash equivalents-
   Cash ..........................................................   $      421   $      463
   Money market mutual fund ......................................    1,898,920    2,642,211
   Commercial paper ..............................................    2,292,335      475,000
   Corporate notes ...............................................    3,117,034         --
                                                                     ----------   ----------
                                                                     $7,308,710   $3,117,674
                                                                     ==========   ==========

Short-term investments-
   Commercial paper (wtd. avg. maturity of 4 months) .............   $  984,710      998,135
   Corporate notes (wtd. avg. mat. of 8 and 10 mos., respectively)    5,270,797    6,730,997
                                                                     ----------   ----------
                                                                     $6,255,507   $7,729,132
                                                                     ----------   ----------


Long-term investments-
   Corporate notes (wtd. avg. maturity of 14 months) ............... $9,917,875   $11,970,517
                                                                     ==========   ===========


</TABLE>


                                     - 7 -

<PAGE>
8

                                  DIACRIN, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW
--------

     Since its inception,  the Company has  principally  focused its efforts and
resources on research and development of cell transplantation  products to treat
neurodegenerative  and other human  diseases.  The Company's  primary  source of
working  capital  to fund such  activities  has been  proceeds  from the sale of
equity and debt securities. In addition, commencing October 1, 1996, the Company
has received funding from its Joint Venture with Genzyme  Corporation in support
of the NeuroCell(TM)-PD  and NeuroCell(TM)-HD  product development programs (the
"Joint  Venture").  The Company has not received  any revenues  from the sale of
products to date and does not expect to generate  product  revenues for at least
the next several years. The Company has experienced fluctuating operating losses
since its  inception  and expects  that the  additional  activities  required to
develop  and  commercialize  the  Company's  products  will  result  in  further
fluctuating  operating  losses for at least the next several years. At March 31,
1997, the Company had an accumulated deficit of $32.8 million.

RESULTS OF OPERATIONS
---------------------

THREE MONTHS ENDED MARCH 31, 1997 VERSUS THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------------------------------------------

     Research and development  revenues were  approximately $1.2 million for the
three  months  ended  March 31,  1997.  There were no research  and  development
revenues  earned  during the three  months  ended March 31,  1996.  The revenues
recognized  during  the  three  months  ended  March  31,  1997  were  earned in
connection with the Joint Venture.

     Interest  income was  $331,000  for the three  months  ended March 31, 1997
versus  $163,000 for the three  months  ended March 31,  1996.  The increase was
primarily due to additional  interest  income realized on  substantially  higher
cash  balances  available for  investment  as a result of the Company's  initial
public offering in February 1996.

     Research and  development  expenses  were $1.6 million for the three months
ended  March  31,  1997,  which  includes  expenses  incurred  on  behalf of and
reimbursed by the Joint Venture,  versus $1.2 million for the three months ended
March 31,  1996.  The 32%  increase  was  primarily  due to an  increase  in the
external costs of ongoing Phase 1 human clinical  trials of the Joint  Venture's
NeuroCell(TM)-PD  and  NeuroCell(TM)-HD  product  candidates  and the additional
clinical affairs staffing necessary to support these trials.

     General and  administrative  expenses  were  $411,000  for the three months
ended March 31, 1997 versus  $327,000 for the three months ended March 31, 1996.
The 26% increase was primarily due to increased  professional fees and insurance
expense since the Company  completed its initial public offering and an increase
in administrative personnel.

         Interest  expense was $19,000 for the three months ended March 31, 1997
versus  $93,000 for the three  months  ended March 31,  1996.  The  decrease was
primarily  attributable to the recognition of interest  expense during the three
months ended March 31, 1996 on the Company's $7.0 million of  Convertible  Notes
which were issued in May 1995 and  converted to common stock upon the closing of
the Company's initial public offering.

         The Company incurred a net loss of approximately $519,000 for the three
months ended  March 31, 1997 versus  approximately  $1.5  million for the three
months ended March 31, 1996.



                                     - 8 -

<PAGE>
9

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

     The Company has financed  its  activities  primarily  with the net proceeds
from  private  sales of preferred  stock,  which in the  aggregate  have totaled
approximately  $22.6  million;  with the issuance of $7.0 million of convertible
notes payable; with the net proceeds of $20.9 million from the Company's initial
public offering;  with the net proceeds of  approximately  $3.1 million from the
exercise of warrants originally issued in 1991 in connection with a private sale
of preferred stock; and with interest earned thereon.  In addition,  the Company
has recorded  approximately $2.2 million in revenue from its Joint Venture since
it commenced  October 1, 1996. At March 31, 1997,  the Company had cash and cash
equivalents,   short-term  investments  and  long-term  investments  aggregating
approximately $22.8 million.

     The  Company  purchased  approximately  $1.5  million of capital  equipment
through  March 31, 1997.  In December  1994,  approximately  $805,000 of capital
equipment was sold for proceeds of $600,000 and subsequently  leased back over a
four-year  term. In addition,  approximately  $227,000 of capital  equipment was
sold in 1995 for its original cost and subsequently leased back over a four-year
term. The Company had no material  commitments  for capital  expenditures  as of
March 31, 1997.

     Under the joint  venture  agreement  with  Genzyme,  the Company's two lead
product development programs,  NeuroCell(TM)-PD for the treatment of Parkinson's
disease and  NeuroCell(TM)-HD  for the treatment of  Huntington's  disease,  are
being funded by the Joint Venture.  Both Genzyme and Diacrin are responsible for
funding the Joint Venture.  Genzyme is responsible for funding 100% of the first
$10 million,  75% of the next $40 million and 50% of all  remaining  development
and commercialization  costs in excess of $50 million from October 1, 1996 until
such  products  achieve  commercialization.  After  Genzyme  funds the first $10
million,  the Company is responsible for funding 25% of the next $40 million and
50% of all development and commercialization costs in excess of $50 million. The
Company  believes that its  obligation to fund 25% of the program costs will not
commence until late 1997.

     The Company  believes  that its existing  funds,  together  with  projected
future funding from  the Joint Venture, will be sufficient to fund its operating
expenses and capital  requirements  as currently  planned through at least early
1999.  However,  the Company's cash  requirements may vary materially from those
now  planned  because of  results of  research  and  development,  the scope and
results of  preclinical  and  clinical  testing,  any  termination  of the Joint
Venture,  relationships  with  strategic  partners,  changes  in the  focus  and
direction of the Company's  research and development  programs,  competitive and
technological  advances,  the FDA's regulatory process, the market acceptance of
any approved Company products and other factors.  For a more detailed discussion
of these and other  factors  that may  affect  the  Company's  future  operating
results,  see the  Company's  Annual  Report  on Form  10-K for the  year  ended
December 31, 1996 as filed with the Securities and Exchange Commission.

         The Company expects to incur substantial  additional  costs,  including
costs  related to  ongoing  research  and  development  activities,  preclinical
studies,  clinical  trials,  establishing  pig production  capabilities  and the
expansion of its laboratory and administrative  activities.  Therefore, in order
to achieve  commercialization  of its potential products,  the Company will need
substantial additional funds. There can be no assurance that the Company will be
able to obtain the additional  funding that it will require on acceptable terms,
if at all.


                                     - 9 -

<PAGE>
10
                           PART II. OTHER INFORMATION


Item 2.   Changes in Securities

     During the quarter ended March 31, 1997,  the Company  issued 375 shares of
Common  Stock for an aggregate  consideration  of $468.75 to one person upon the
exercise of a stock option in reliance upon the exemption from  registration set
forth in Section 4(2) of the  Securities  Act. No  underwriters  were engaged in
connection  with  such  issuance.  The  Company  did not sell any  other  equity
securities  during the quarter  ended  March 31,  1997 that were not  registered
under the Securities Act.








                                     - 10 -


<PAGE>
11

                                   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.


                                            DIACRIN, INC.



May 14, 1997                                /s/ Thomas H. Fraser
                                            --------------------  
                                            Thomas H. Fraser
                                            President and Chief
                                            Executive Officer



                                            /s/ Mark J. Fitzpatrick
                                            -----------------------
                                            Mark J. Fitzpatrick
                                            Vice President of Finance and
                                            Administration; CFO & Treasurer


                                     - 11 -