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 September 30, 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. 000-20139

                                  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 October 31, 1998,  14,322,925  shares of the registrant's  Common
      Stock were outstanding.


<PAGE>


                                  Diacrin, Inc.
                                      Index




                                                                        Page
PART I. - FINANCIAL INFORMATION

Item 1.   Financial Statements

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

           Statements of Operations for the Three and Nine Month
           Periods Ended September 30, 1997 and 1998......................4

           Statements of Cash Flows for the Nine Month Periods
           Ended September 30, 1997 and 1998..............................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 and Use of Proceeds......................12


SIGNATURES................................................................13


                                     - 2 -

<PAGE>


                                  Diacrin, Inc.
                                 Balance Sheets
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                         December 31,               September 30,
                                                                             1997                        1998
<S>                                                                   <C>                        <C>  

ASSETS
Current assets:
     Cash and cash equivalents                                        $    5,015,777             $     5,082,577
     Short-term investments                                                6,000,098                  16,808,376
     Interest receivable and other current assets                            438,756                     536,682
                                                                  ------------------          ------------------

         Total current assets                                             11,454,631                  22,427,635
                                                                    ----------------             ---------------

Property and equipment, at cost:
     Laboratory and manufacturing equipment                                  839,856                     872,774   
     Equipment under capital lease                                           675,262                     675,262
     Furniture and office equipment                                          277,109                     288,711
     Leasehold improvements                                                   55,557                      76,827
                                                                 -------------------         -------------------
                                                                           1,847,784                   1,913,574
     Less- Accumulated depreciation and amortization                         853,911                   1,115,741
                                                                   -----------------           -----------------
                                                                             993,873                     797,833
                                                                   -----------------          ------------------

Long-term investments                                                     10,331,289                   5,418,129
Investment in joint venture                                                     -                         79,212
                                                                        ------------          ------------------
                                                                          10,331,289                   5,497,341
                                                                     ---------------            ----------------

                                                                     $    22,779,793             $    28,722,809
                                                                     ===============             ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                              $         185,306            $        174,072
     Accrued expenses                                                        994,166                   1,234,690
     Deferred revenue                                                        387,056                     242,617
     Current portion of long-term debt                                       337,171                     318,511
                                                                   -----------------          ------------------
         Total current liabilities                                         1,903,699                   1,969,890
                                                                   -----------------           -----------------

Long-term debt                                                               672,426                     441,030
                                                                   -----------------          ------------------

Stockholders' equity:
     Preferred stock, $.01 par value, Authorized--
         5,000,000 shares; none issued and outstanding                        -                           -
     Common stock, $.01 par value; Authorized-- 30,000,000
         shares; issued and outstanding-- 13,268,256 shares
         and 14,322,925 shares at December 31, 1997
         and September 30, 1998, respectively                                132,683                     143,229
     Additional paid-in capital                                           54,730,773                  64,189,539
     Accumulated deficit                                                 (34,659,788)                (38,020,879)
                                                                    ----------------            ----------------
              Total stockholders' equity                                  20,203,668                  26,311,889
                                                                    ----------------            ----------------

                                                                    $     22,779,793             $    28,722,809
                                                                    ================             ===============


                                              See Accompanying Notes to Financial Statements

</TABLE>

                                     - 3 -

<PAGE>


                                  Diacrin, Inc.
                            Statements of Operations
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                         Three Months                          Nine Months
                                                      Ended September 30,                   Ended September 30,
                                                      -------------------                   -------------------
                                                    1997                1998               1997             1998
                                                 ----------           ---------          -------           ------
<S>                                              <C>              <C>               <C>                <C>  

REVENUES:
   Research and development                      $  1,150,402      $   790,867       $  3,597,488       $ 2,840,585
   Interest income                                    322,535          408,299            984,192         1,188,639
                                                   ----------       ----------          ---------         ---------
       Total revenues                               1,472,937        1,199,166          4,581,680         4,029,224
                                                   ----------       ----------          ---------         ---------

OPERATING EXPENSES:
    Research and development                        1,706,813        1,812,228          5,010,305         5,572,793
    General and administrative                        353,579          377,855          1,159,946         1,151,417
    Interest expense                                   24,270           20,951             60,389            71,208
                                                   ----------       ----------          ---------        ----------
       Total operating expenses                     2,084,662        2,211,034          6,230,640         6,795,418
                                                   ----------       ----------          ---------        ----------

EQUITY IN OPERATIONS
    OF JOINT VENTURE                                    -             (290,658)            -               (594,897)
                                                   ----------       ----------          ---------        ----------

NET LOSS                                        $    (611,725)    $ (1,302,526)      $ (1,648,960)     $ (3,361,091)
                                                ==============    =============      =============     =============

BASIC AND DILUTED
    NET LOSS PER COMMON SHARE                   $        (.05)    $        (.09)     $       (.12)     $        (.24)
                                                ==============    ===============    =============     =============

SHARES USED IN COMPUTING
    BASIC AND DILUTED NET LOSS
    PER COMMON SHARE                               13,253,465       14,322,066        13,226,621         14,099,970
                                                   ==========       ==========        ==========         ==========








                                                See Accompanying Notes to Financial Statements

</TABLE>

                                     - 4 -



<PAGE>


                                  Diacrin, Inc.
                            Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                      Nine Months
                                                                                   Ended September 30,
                                                                                  1997              1998
                                                                                --------          --------
<S>                                                                        <C>                <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                                $ (1,648,960)     $ (3,361,091)
    Adjustments to reconcile net loss to net
       cash used in operating activities-
          Depreciation and amortization                                          186,101           261,830
          Equity in operations of joint venture                                   -                594,897
    Changes in assets and liabilities-
       Interest receivable and other current assets                              (84,824)          (97,926)
       Accounts payable                                                           65,065           (11,234)
       Accrued expenses                                                        1,038,579           119,033
       Deferred revenue                                                         (185,916)         (144,439)
                                                                             -----------       -----------

              Net cash used in operating activities                             (629,955)       (2,638,930)
                                                                             -----------       -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Increase in short-term investments                                        (1,762,097)      (10,808,278)
    Purchases of property and equipment, net                                    (786,177)          (65,790)
    Decrease in long-term investments                                            532,245         4,913,160
    Investment in joint venture                                                    -            (1,204,572)
    Return of capital for services provided on behalf of joint venture             -               651,954
                                                                             -----------       -----------

              Net cash used in investing activities                           (2,016,029)       (6,513,526)
                                                                             -----------       -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Net proceeds from sale of common stock                                        90,239         9,469,312
    Principal payments on long-term debt                                        (132,145)         (250,056)
                                                                             -----------       -----------

              Net cash (used in) provided by financing activities                (41,906)        9,219,256
                                                                             -----------       -----------
NET (DECREASE) INCREASE IN CASH
    AND CASH EQUIVALENTS                                                      (2,687,890)           66,800

CASH AND CASH EQUIVALENTS, beginning of period                                 7,308,710         5,015,777
                                                                             -----------       -----------

CASH AND CASH EQUIVALENTS, end of period                                    $  4,620,820     $   5,082,577
                                                                            ============     =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Interest paid during the period                                        $      51,764    $       71,208
                                                                           =============    ==============

                 See Accompanying Notes to Financial Statements

</TABLE>

                                     - 5 -

<PAGE>



                                  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)      Research and Development

         In  September  1996,  the Company and Genzyme  Corporation  ("Genzyme")
formed a joint  venture  (the  "Joint  Venture")  to develop  and  commercialize
NeuroCell(TM)-PD  for Parkinson's disease and  NeuroCell(TM)-HD for Huntington's
disease (the "Joint Venture  Products").  The Joint Venture is funded by Genzyme
and the Company in  accordance  with the terms of the joint  venture  agreement.
Collaborative  revenue  under  the  joint  venture  agreement  with  Genzyme  is
recognized as revenue to the extent that the Company's  research and development
costs are funded by Genzyme  through the Joint  Venture.  The  Company  receives
non-refundable  monthly  advances  from  the  Joint  Venture.  Deferred  revenue
represents  amounts  received  prior to  recognition  of revenue.  Research  and
development costs are expensed as incurred.

         (b)      Net Loss per Common Share

          In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." Basic
net loss per  common  share is based on the  weighted  average  number of common
shares  outstanding.  Diluted net loss per common share is the same as basic net
loss  per  common  share as the  inclusion  of other  shares  of stock  issuable
pursuant to stock options and warrants would be antidilutive.

                                     - 6 -

<PAGE>


                                  Diacrin, Inc.
                          Notes to Financial Statements
                                   (Unaudited)

3.       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, 1997 and September 30, 1998 consisted of
the following:

<TABLE>
<CAPTION>

                                                                                  December 31,        September 30,
                                                                                      1997                1998
                                                                                  ------------         -----------
<S>                                                                             <C>                 <C>

Cash and cash equivalents-
   Cash                                                                         $          381       $          576
   Money market mutual fund                                                          2,513,759            4,081,862
   Commercial paper                                                                  2,501,637              -
   Corporate note (remaining mat. of 1 month)                                                             1,000,139
                                                                                   -----------          -----------
                                                                                $    5,015,777       $    5,082,577
                                                                                ==============       ==============

Short-term investments-
   Corporate notes (rem. avg. mat. of 7 and 6 mos., respectively)               $    3,000,429        $  16,808,376
   Certificate of deposit                                                              999,669             -
   U.S. government agency obligation                                                 2,000,000             -
                                                                                   -----------          -----------
                                                                                $    6,000,098        $  16,808,376
                                                                                ==============         =============


Long-term investments-
 Corporate notes (rem. avg. mat. of 15 and 13 mos., respectively)               $  10,331,289         $    5,418,129
                                                                                =============         ==============

</TABLE>


4. Private Placement of Common Stock

     In February  1998, the Company  completed a private  placement of 1,027,027
shares  of  its  common  stock  for  $9.25  per  share,   for  net  proceeds  of
approximately $9.45 million.


                                     - 7 -

<PAGE>


                                  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 the Joint Venture with Genzyme in support
of the NeuroCell(TM)-PD and NeuroCell(TM)-HD  product development programs.  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 increasing  operating losses for at least the
next several  years.  At  September  30,  1998,  the Company had an  accumulated
deficit of $38.0 million.

                  In September  1996,  the Company and Genzyme  formed the Joint
Venture to develop and commercialize  NeuroCell(TM)-PD and NeuroCell(TM)-HD.  In
connection  with the  formation  of the Joint  Venture,  the Company  granted an
exclusive right and license to the patent rights and technology  relating to the
Joint  Venture  Products.  This  right  and  license  was  considered  to be the
Company's initial capital  contribution to the Joint Venture.  The Company has a
50% ownership  interest in the Joint  Venture.  Under the terms,  and subject to
certain conditions, of the joint venture agreement,  which was effective October
1, 1996,  Genzyme has agreed to provide 100% of the first $10 million in funding
and  75% of the  following  $40  million  in  funding  for the  development  and
commercialization  of the Joint Venture Products.  The Company agreed to provide
the remaining 25% of the following $40 million in funding. All costs incurred in
excess of $50 million are to be shared equally  between  Genzyme and the Company
in  accordance  with the terms of the  agreement.  The Joint  Venture plans that
Diacrin  and  Genzyme  will  perform,  on  behalf  of  the  Joint  Venture,  the
development  activities in connection  with the Joint Venture  Products and that
Genzyme will market and sell the Joint Venture Products on a cost  reimbursement
basis on behalf of the Joint Venture.

                  For 1996 and 1997,  the  Company  expensed  all  research  and
development costs related to the Joint Venture Products incurred by it on behalf
of the Joint Venture and recognized an equal amount of research and  development
revenue due to the fact that costs  incurred  were  funded by the Joint  Venture
exclusively out of  contributions  made to it by Genzyme.  Through  December 31,
1997,  Genzyme made 100% of the total cash contributions to the Joint Venture on
a monthly  basis,  in  advance.  During  the first  quarter  of 1998,  the Joint
Venture's  cumulative  funding  requirements  since its  inception  exceeded $10
million. As such, the Company, as required by the joint venture agreement, began
making  cash  contributions  to the  Joint  Venture  equal  to 25% of the  Joint
Venture's monthly funding requirements. The Joint Venture's funding requirements
are  determined  on a monthly  basis by the  Company  and Genzyme and are met by
monthly  contributions from both parties in percentages  prescribed by the terms
of the joint venture  agreement.  To the extent the Company's  contributed funds
are used to fund  expenses  incurred by Genzyme on behalf of the Joint  Venture,
the Company  recognizes  an expense in its  statement  of  operations  captioned
"equity in  operations  of the Joint  Venture."  Furthermore,  to the extent the
Company's contributed funds are used to fund expenses incurred by the Company on
behalf of the Joint Venture,  the Company  reduces the research and  development
revenue  recognized  by it from the  Joint  Venture  by an  amount  equal to the
Company-funded portion of such expenses.

         Any profits of the Joint  Venture  are to be shared  equally by Genzyme
and the  Company.  Losses of the Joint  Venture are  allocated  to each party in
proportion to the funding provided by each party.

                                     - 8 -

<PAGE>


Results of Operations

Three Months Ended September 30, 1998 Versus Three Months Ended 
September 30, 1997

         Research and  development  revenues  were $791,000 for the three months
ended  September  30,  1998  versus  $1.2  million  for the three  months  ended
September  30, 1997 and were derived  exclusively  from the Joint  Venture.  The
current period research and development  revenues were reduced by  approximately
$264,000 representing funding received by the Company from the Joint Venture out
of Company-funded contributions to the Joint Venture.

         Interest  income was $408,000 and $323,000 for the three month  periods
ended  September 30, 1998 and 1997,  respectively.  The 27% increase in interest
income was due to higher cash  balances  available  for  investment  in the 1998
period  as a result  of the  Company's  private  placement  of  common  stock in
February 1998.

         Research  and  development  expenses  were $1.8  million  for the three
months ended  September  30, 1998 versus $1.7 million for the three months ended
September 30, 1997. The 6% increase was primarily due to increased costs related
to the operation of clinical production facilities.

         General and  administrative  expenses of $378,000  and $354,000 for the
three months ended  September 30, 1998 and 1997,  respectively,  were relatively
unchanged between periods.

         Interest  expense of $21,000  and $24,000  for the three  months  ended
September 30, 1998 and 1997,  respectively,  was  relatively  unchanged  between
periods.

         For the three months ended  September  30, 1998,  the Company  recorded
$291,000 related to its equity in operations of the joint venture.  This expense
is due to funds  contributed  by the Company to the Joint Venture that were used
to fund  expenses  incurred  by  Genzyme  on behalf of the Joint  Venture.  This
expense did not occur in the prior year as the Company was not  required to make
contributions to the Joint Venture until the quarter ended March 31, 1998.

         The Company incurred a net loss of  approximately  $1.3 million for the
three  months ended  September  30, 1998 versus  approximately  $612,000 for the
three months ended September 30, 1997.

Nine Months Ended September 30, 1998 Versus Nine Months Ended September 30, 1997

         Research and development  revenues were  approximately $2.8 million for
the nine months ended September 30, 1998 versus $3.6 million for the nine months
ended  September 30, 1997 and were derived  exclusively  from the Joint Venture.
The  current  period   research  and   development   revenues  were  reduced  by
approximately  $652,000  representing  funding  received by the Company from the
Joint Venture out of Company-funded contributions to the Joint Venture.

                                     - 9 -

<PAGE>

         Interest  income  was $1.2  million  and  $984,000  for the nine  month
periods  ended  September 30, 1998 and 1997,  respectively.  The 21% increase in
interest income was due to higher cash balances  available for investment in the
1998 period as a result of the  Company's  private  placement of common stock in
February 1998.

         Research and development expenses were $5.6 million for the nine months
ended September 30, 1998 versus $5.0 million for the nine months ended September
30, 1997. The 11% increase was primarily due to the production costs of clinical
grade antibody produced during the current year period for use in certain of the
Joint  Venture's  planned  phase 2/3 clinical  trials of  NeuroCell(TM)-PD.  The
increase  was,  to a  lessor  extent,  due to  increased  costs  related  to the
operation  of clinical  production  facilities  completed  in the second half of
1997.

         General and  administrative  expenses  of $1.2  million for each of the
nine month periods ended September 30, 1998 and 1997 were relatively unchanged.

         Interest  expense was  $71,000  and $60,000 for the nine month  periods
ended  September  30,  1998 and 1997,  respectively.  The  increase  in interest
expense is due to the  $650,000  term loan  obtained  by the Company in November
1997 to finance the purchase of production equipment.

         For the nine months  ended  September  30, 1998,  the Company  recorded
$595,000 related to its equity in operations of the joint venture.  This expense
is due to funds  contributed  by the Company to the Joint Venture that were used
to fund  expenses  incurred  by  Genzyme  on behalf of the Joint  Venture.  This
expense did not occur in the prior year as the Company was not  required to make
contributions to the Joint Venture until the quarter ended March 31, 1998.

         The Company incurred a net loss of  approximately  $3.4 million for the
nine months ended  September  30, 1998 versus a net loss of  approximately  $1.6
million for the nine months ended September 30, 1997.

Liquidity and Capital Resources

         The Company has financed its activities primarily with the net proceeds
from its pre-1998  equity  offerings  aggregating  $53.6  million;  with the net
proceeds of approximately  $9.45 million from the Company's private placement of
common stock completed in February 1998; and with interest  earned  thereon.  In
addition,  the Company has recorded  approximately  $8.6 million in revenue from
the Joint Venture since it commenced October 1, 1996. At September 30, 1998, the
Company had cash and cash  equivalents,  short-term  investments  and  long-term
investments aggregating approximately $27.3 million.

         In November 1997, the Company borrowed $650,000 at the Prime Rate + .5%
under  an  unsecured  five-year  term  loan  with a bank to  finance  production
equipment  acquired  during 1997. As of September  30, 1998,  the Company had an
aggregate of  approximately  $760,000  outstanding  under the term loan with the
bank and under a master lease agreement for capital  equipment.  The Company had
no material commitments for capital expenditures as of September 30, 1998.

         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  developed by the Joint Venture.  Both Genzyme and Diacrin are responsible
for funding the Joint Venture in accordance  with the terms,  and subject to the
conditions,  of the joint venture agreement.  Genzyme agreed to fund 100% of the
first $10 million of  development  and  commercialization  costs  incurred after
October  1,  1996,  75%  of the  next  $40  million  and  50%  of all  remaining
development and commercialization  costs in excess of $50 million. 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. As of September 30, 1998, approximately $13.6 million and
$1.2 million has been  contributed  to the Joint Venture by Genzyme and Diacrin,
respectively.  The  Company's  obligation  to  fund  25%  of the  program  costs
commenced  in the first  quarter of 1998.  The  Company  expects  that the Joint
Venture's product development plans together with the Company's  commencement of
funding of the Joint Venture will significantly  increase the Company's net loss
and cash and  investments  used in the  fourth  quarter  of 1998 and in the year
ended December 31, 1999 as compared to the same prior year periods.

                                     - 10 -

<PAGE>

         The Company  believes that its existing  funds,  together with expected
future  funding  under  the  joint  venture  agreement  with  Genzyme,  will  be
sufficient to fund its operating expenses and capital  requirements as currently
planned through at least mid-2000.  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, 1997,  as amended,  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.

Impact of the Year 2000 Issue

         The Company is in the process of completing its assessment of Year 2000
issues and their  potential  impact on its  information  systems  and  business.
Generally,  the  Company has  potential  Year 2000  exposure in four areas:  (i)
financial and management operating computer systems used to manage the Company's
business,  (ii) operating  computer  systems used in the Company's  research and
product  development  laboratories,  (iii)  microprocessors and other electronic
equipment used by the Company  ("embedded chips") and (iv) computer systems used
by third  parties,  in particular  financial  institutions  and suppliers of the
Company.

         At September 30, 1998,  the Company had completed its assessment of its
financial and management  operating computer systems and has identified software
that is not Year 2000 compliant.  The Company  estimates the cost to update this
software through the purchase of an  off-the-shelf  software  package,  together
with hardware and network  server  software will be  approximately  $15,000.  At
September 30, 1998, the Company had already spent  approximately  $2,000 in this
effort. The Company expects to substantially  complete the update of the systems
that are not Year 2000 compliant by January 1, 1999.

         At September 30, 1998, the Company had also completed its assessment of
its Year 2000  exposure to  operating  computer  systems  used in the  Company's
research and  development  laboratories  and embedded chips in its facilities or
equipment  used  in  its   facilities.   The  Company  has  not  identified  any
non-compliant  systems that play a significant  role in the Company's  research,
product development or facilities management.

         The Company continues to interview  financial  institutions and vendors
to determine  their exposure to Year 2000 issues,  their  anticipated  risks and
responses to those  risks.  To date,  the Company has not  obtained  information
suggesting any critical  vendors or financial  institutions  will not be able to
fully service or supply the Company on or after January 1, 2000.

         If  the  Company  is   unsuccessful   in  completing   remediation   of
non-compliant  systems,  additional costs may be incurred to develop alternative
methods of managing the effected  aspects of its  business.  The Company has not
yet established  any contingency  plans and does not expect to do so until 1999.
Year 2000 issues are not expected to have a significant  impact on the Company's
ongoing results of operations.

                                     - 11 -

<PAGE>



                           PART II. OTHER INFORMATION

Item 2.           Changes in Securities and Use of Proceeds

         (c) The Company did not sell any equity  securities  during the quarter
ended September 30, 1998 that were not registered under the Securities Act.

         (d) The following  information  updates and supplements the information
regarding use of proceeds  originally filed by Diacrin on Form SR for the period
ended May 12,  1996,  as amended to date and relates to  securities  sold by the
Company pursuant to the  Registration  Statement on Form S-2  (Registration  No:
33-80773) which was declared  effective on February 12, 1996:  Through September
30,  1998,  the  Company  has used  approximately  $6,643,000  of the  total net
proceeds from its initial  public  offering of  $20,911,755.  Of the  $6,643,000
used,  approximately  $255,000  was  used  for the  purchase  of  machinery  and
equipment;  approximately  $495,000 was used for repayment of indebtedness;  and
approximately  $5,893,000 was used for working  capital.  The unused proceeds of
approximately  $14,269,000 are in temporary investments  consisting of corporate
notes and a money market mutual fund.  All proceeds used or invested were direct
or indirect payments to others.



                                     - 12 -

<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.


                                                              Diacrin, Inc.

<TABLE>


<S>                                                           <C>

November 13,  1998                                               /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



                                     - 13 -
</TABLE>