10-K

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

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

                                    FORM 10-K

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

                  For the fiscal year ended December 31, 1999
                                       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 number: 0-19910

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


                           CREATIVE BIOMOLECULES, INC.
             (Exact name of registrant as specified in its charter)

             Delaware                                     94-2786743
 (State or other jurisdiction                           (I.R.S. Employer
 of incorporation or organization)                     Identification No.)

    45 South Street, Hopkinton, MA                            01748
 (Address of principal executive offices)                   (Zip Code)


       Registrant's telephone number, including area code: (508) 782-1100

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

           Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, $.01 par value per share
                                (Title of Class)

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

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

Yes [X]   No [_]

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

The aggregate market value of the registrant's voting stock held by non-
affiliates of the registrant (without admitting that any person whose shares are
not included in such calculation is an affiliate) on March 10, 2000, was
approximately $621 million, based on the last sale price as reported on The
Nasdaq Stock Market.

As of March 10, 2000, the registrant had 38,231,502 shares of Common Stock
outstanding.

Documents incorporated by reference:  None


PART I

Item 1. BUSINESS

SUMMARY

We are a biopharmaceutical company focused on the development of products for
human tissue regeneration and repair.  Our core technologies are based on
understanding the role that morphogenic proteins play in human biology.  These
proteins are involved in the initiation and regulation of the cellular events
responsible for the formation of human tissues and organs.

Our goal is to apply certain aspects of genetic engineering and our
understanding of cellular biology to the development and commercialization of
morphogenic proteins and related compounds to treat a wide array of medical
conditions.  We have product candidates in development for several applications
including orthopaedic and dental reconstruction, treatment of kidney disease,
and treatment of stroke and other neurological disorders.  Through our efforts
to patent and license our technology, we have a strong intellectual property
position covering morphogenic proteins as therapies.  Our lead product
candidate, the OP-1 bone graft device, is in the final stages of development and
commercialization by Stryker Corporation.

On February 15, 2000, we announced that we will merge with Ontogeny, Inc., and
Reprogenesis, Inc., to form a public company named Curis, Inc.  Under the terms
of the merger, which is subject to stockholder approval, our stockholders will
receive three Curis shares for every ten shares of our Common Stock. Following
completion of the transaction, our stockholders will hold approximately 43%,
Ontogeny's stockholders will hold approximately 38% and Reprogenesis'
stockholders will hold approximately 19% of Curis. For accounting purposes,
Curis, our successor, will record the merger as a purchase of Reprogenesis and
Ontogeny. The merger is expected to close in June 2000.

Orthopaedic Reconstruction and Dental Therapeutics.  We have had a long-term
collaboration with Stryker Corporation, a leading surgical and medical products
company, to develop Osteogenic Protein-1, or OP-1, for use in the repair or
replacement of bone and joint tissue, orthopaedic reconstruction, and dental
therapeutics.  Prior to November 1998, we were responsible for manufacturing OP-
1 products for Stryker and conducting research for Stryker in the orthopaedic
reconstruction and dental fields.  Stryker was responsible for clinical and
regulatory development and sales and marketing of OP-1 products in these fields.
We restructured our agreement with Stryker in November 1998 to provide Stryker
with the exclusive rights to manufacture OP-1 products in these fields.  At that
time Stryker acquired our commercial manufacturing operations.  As a result,
Stryker has the exclusive right to develop, market, manufacture, and sell
products based on OP-1 proteins for use in orthopaedic reconstruction and dental
therapeutics.  In return, we agreed with Stryker to increase the royalty rate
under our agreement.

Stryker has completed a pivotal study of an OP-1 bone graft device designed to
induce new bone formation.  This trial was conducted in 122 patients with non-
union fractures of the tibia, the major bone of the lower leg.  The objective of
this trial was to demonstrate that treatment with the OP-1 device could repair
non-union fractures of the tibia as well as treatment with the currently most
widely used treatment, autograft.  Autograft is a procedure which involves
removal of bone from the hip and implanting that bone at the fracture site to
induce healing. The results of the trial, as presented in March 1998,
demonstrated that the group of patents treated with the OP-1 bone graft device
had comparable clinical success to the autograft group without the need for a
second invasive procedure to harvest autograft bone.  In June 1999, Stryker
announced that it had submitted a Pre-Market Approval application to the U.S.
Food and Drug Administration and a Marketing Authorization Application in Europe
to the European Medicines Evaluation Agency. The FDA accepted Stryker's
application for filing in July 1999.  In December 1999, Stryker also filed for
regulatory approval in Australia.  The applications are Stryker's formal
requests to the various regulatory authorities for approval to market the OP-1
device.

                                       1


In addition to the pivotal trial in non-union fractures, Stryker has reported
initiating clinical studies in other bone graft indications. These studies
include a 200 patient clinical trial in Canada to evaluate use of the OP-1
device to treat fresh fractures, a U.S. clinical trial to evaluate the use of
the OP-1 device in spinal fusion, a study in Australia to treat patients with
difficult to heal orthopaedic indications, and several pilot studies in Europe.

Stryker is also developing an OP-1 device for the treatment of periodontal
disease.  Completed preclinical studies indicate that an OP-1 device may restore
the periodontal tissues necessary to maintain tooth attachment when used in
conjunction with standard surgical treatments of periodontal disease.  Stryker
is conducting a clinical trial in the United States to test an OP-1 device in
the treatment of periodontal disease.

Neurological Disorders.  We are developing morphogenic protein therapies for
neurological disorders, including stroke and Parkinson's disease.  In-vitro
studies have shown that OP-1 enhances the survival of neurons and may promote
the establishment of new neuronal connections.  In several preclinical studies,
OP-1 improved the rate and extent of motor function recovery in animal models of
stroke.  Such positive results in preclinical studies of stroke have been
observed even if treatment with OP-1 is initiated up to three days after the
stroke.  Additional preclinical studies are currently underway in preparation of
a stroke therapy IND and to evaluate the effectiveness of our proprietary
proteins in treating other neurological disorders, including traumatic brain
injury, spinal cord injury and Parkinson's disease.

Kidney Disorders.  We are developing an OP-1 based therapy for chronic renal
failure, a condition characterized by the slow progressive loss of kidney
function ultimately resulting in the need for kidney transplantation or
dialysis.  Chronic renal failure represents a substantial unmet medical need.
Preclinical studies indicate that OP-1 administration improves kidney function
in animal models of both acute and chronic renal failure.  Through December
1999, we had a development agreement with Biogen under which Biogen provided
funding for and retained an option to OP-1 based therapies for chronic renal
failure.  As of December 31, 1999, Biogen did not exercise its option, and we
have assumed all rights to OP-1 renal therapies.

Other Programs.  In addition to our work with OP-1, we are conducting research
directed toward the development of new therapeutic applications for other
related morphogenic proteins in our proprietary portfolio.  We also have a
program underway to develop and identify orally-active drug compounds that
either promote morphogenic protein expression or mimic the biological activities
of morphogenic proteins.

Creative BioMolecules is a Delaware corporation with principal offices at 45
South Street, Hopkinton, Massachusetts, USA, 01748.  Our telephone number is
(508) 782-1100.

RISK FACTORS

Reliance on the closing of the announced merger between Creative BioMolecules,
Inc., Ontogeny, Inc. and Reprogenesis, Inc. to form Curis, Inc.  Our merger with
Ontogeny and Reprogenesis to form Curis is subject to approval by our
stockholders.  If the merger is not completed as a result of the failure of our
stockholders to approve the merger, we may be required to pay a termination fee
of $1,500,000 to Reprogenesis.  The market price of our common stock reflects a
market assumption that the merger will be completed.  If the merger is
terminated and we seek another merger or business combination, we may not be
able to find a partner willing to pay an equivalent or more attractive price
than the price to be received by the stockholders in this merger.  The number of
shares of our common stock to be exchanged for the shares of common stock of
Curis was determined by negotiations among us, Ontogeny and Reprogenesis may not
be indicative of prices that will prevail in the trading market. We will face
challenges in integrating with Ontogeny and Reprogenesis and, as a result, may
not realize the expected benefits of the anticipated merger.  Integrating the
operations and personnel of all three companies will be a complex process, and
we are uncertain that the integration will be completed rapidly or will achieve
the anticipated benefits of the merger.  The diversion of the attention of our
management and any difficulties encountered in the process of combining the
companies could cause the disruption of, or a loss of momentum in, the
activities of our business.  Further, the process of combining the

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three companies could negatively affect employee morale and our ability to
retain some of our key employees after the merger. If we do not successfully
integrate with Ontogeny and Reprogenesis, or the merger's benefits do not meet
the expectations of financial or industry analysts, the market price of our
common stock may decline.

Reliance on collaborative partners for funding and commercialization of our
products.  Our success is highly dependent on whether our collaborative partners
are successful in meeting their obligations under our agreements with them.  If
any such collaborative partners are unsuccessful, the negative impact on us may
be significant.  For example, our partner, Stryker Corporation, through the
efforts of their wholly-owned subsidiary, Stryker Biotech, is responsible for
pursuing clinical trials, obtaining all regulatory and marketing approvals,
manufacturing on a commercial scale and taking all steps necessary to market and
sell OP-1 products for orthopaedic reconstruction and dental therapies.
Stryker's failure to pursue clinical trials vigorously, obtain regulatory
approvals, manufacture an adequate supply of material, or effectively market and
sell OP-1 products could have a material adverse effect on our financial
condition.

We expect to pursue discussions with other potential collaborative partners for
our other major programs, including neurological disorders, chronic kidney
failure, and other applications of morphogenic and other proteins.  If executed,
we expect that these collaborations will also impose obligations on the
collaborative partner to provide research and development funding, pursue
clinical development and manufacturing, seek regulatory approval and pursue
marketing and sales.  Although we will seek to include legally enforceable
diligence obligations and penalties in all collaborative agreements, we cannot
assure you that we will be able to establish any collaborations or that any
collaborations will be on terms acceptable to us.  If our collaborators fail to
meet their obligations under our agreements with them, our research programs
could be delayed and our business would be adversely affected.

We have not successfully commercialized any products to date, and if we do not
successfully commercialize any products we will not be profitable.  We have not
yet successfully developed or received regulatory approval to market any
products.  The products that we are developing will require additional research
and development, clinical trials and regulatory approval prior to any commercial
sale.  These products may not be effective in treating any of our targeted
disorders or may prove to have undesirable or unintended side effects,
toxicities or other characteristics that may prevent or limit their commercial
use.  Moreover, there can be no assurance that government health administration
authorities, private health care providers or other third party payors will
accept our products, even if our products prove to be safe and effective and are
approved for marketing by the FDA and other regulatory authorities.  We
currently have no products for sale by us or our collaborative partners and do
not expect to have any products available for sale for at least one year.  If we
or our collaborative partners are not successful in developing and
commercializing any products, we will never become profitable.

Reliance on our lead product candidate, OP-1.  Our lead product for orthopaedic
reconstruction and dental therapy utilizes the OP-1 protein.  In addition, our
chronic renal failure program and our neurological program focusing on stroke
recovery are based on various forms of the OP-1 protein.  Although we are
actively manufacturing preclinical quantities of other proprietary proteins in
order to develop them for therapeutic uses, we are heavily dependent on our lead
molecule.  Because of this dependence, a failure in any one of these programs
involving the OP-1 protein may have an adverse effect on the other programs.

Reliance on preclinical programs.  Our chronic renal failure program and
neurological program are in various stages of preclinical development.  We are
conducting research, both independently and through our collaborators, focusing
on the use of morphogenic proteins in other therapeutic applications as well as
orally-active compounds that mimic or regulate morphogenic protein activity.
Such research, however, is at an early stage.  We believe that the scientific
data in all of these programs are promising and warrants our continued
investment and development.  Other than the use of the OP-1 protein for
orthopaedic reconstruction and dental therapeutics, we do not currently have any
products that are or have been clinically tested in humans.  It is possible that
the preclinical efficacy demonstrated in the laboratory for these other
applications will not be

                                       3


repeated in humans. It is also possible that there may be a significant period
of time during which we do not have a product in clinical stage development. If
we fail to have our products progress to the clinical stage of development, our
revenues and results of operations could be adversely affected.

We have no sales and marketing experience or infrastructure.  We have no sales,
marketing and distribution experience or infrastructure.  We plan to rely
significantly on sales, marketing and distribution arrangements with third
parties for the products that we are developing until we are able to develop
internal sales, marketing and distribution capability.  We may have limited or
no control over the sales, marketing and distribution activities of our present
or any future collaborative partners.  Our future revenues will be materially
dependent upon the success of the efforts of these third parties.  If in the
future we determine to perform sales, marketing and distribution functions
ourselves, we would face a number of additional risks, including:

 .    we may not be able to attract and build a significant marketing staff or
     sales force;

 .    the cost of establishing a marketing staff or sales force may not be
     justifiable in light of any product revenues; and

 .    our direct sales and marketing efforts may not be successful.

Reliance on key management personnel.  Our current senior management team is
comprised of five officers, including Michael Tarnow, President and CEO, Charles
Cohen, PhD, Chief Scientific Officer, Carl M. Cohen, PhD, Vice President,
Research and Development, Cheryl Lawton, General Counsel and Vice President,
Administration, and Steven Basta, Vice President, Finance and Business
Development.  All of these officers have employment contracts which renew
annually unless notice is given to the contrary.  The departure of one or more
of these individuals may have a material adverse effect on our management and
strategic direction.

Competition relating to the research and development of morphogenic proteins and
other therapies.  There is intense competition among companies, individuals and
academic and research institutions who are actively pursuing research in and the
development of morphogenic proteins and other therapies currently under
development by us.  For example, we are aware that Genetics Institute, or GI,
which was acquired by American Home Products Corporation in 1996, and GI's
collaborative partners are pursuing the development of bone morphogenetic
proteins and have initiated human clinical trials using a product similar to the
OP-1 bone graft device being commercialized by Stryker.  In addition, bone
regeneration products based on non-protein technologies, such as autograft,
allograft and electrical stimulation devices, could compete effectively with the
OP-1 product.  There are a number of biotechnology and pharmaceutical companies
pursuing the development of recombinant protein based products, as well as
traditional drug therapies for the treatment of renal and neurological
disorders.  Although we have broad patent protection and significant expertise
and technical know-how in the field of morphogenic proteins, other entities and
competitive products may materially affect the revenue we derive from the sale
of our products as well as our fiscal condition.

Year 2000: Information technology use. We did not experience any difficulties
related to the Year 2000 problem on December 31, 1999 and we are not aware of
any such difficulties since that date. Our operations have not, to date, been
adversely affected by any difficulties experienced by any of our suppliers or
customers in connection with the Year 2000 problem. Our Year 2000 Compliance
Plan also addressed issues related to the date February 29, 2000 and management
will continue to monitor our systems for potential difficulties through that
date and the remainder of calendar year 2000.

Conditions affecting the biotechnology industry.  The continuation of several
negative market conditions could continue to make it difficult for small
biotechnology companies to obtain access to private and/or public funding.
These negative market conditions include the recent highly publicized failure of
several biotech products to show efficacy in human clinical testing and the lack
of investor confidence in the overall performance of the biotech industry.  Lack
of significant analyst coverage for small cap companies in the biotechnology
field may limit the general availability of third party information about small
biotechnology companies like us.  This could, in turn, limit the amount of
funding available from investors.  In addition, we do not yet know the extent to
which government will regulate the biotechnology field.  These general

                                       4


economic and market conditions could materially affect our ability to fund our
programs and expand our technology platform.

Uncertainty as to whether we will be reimbursed for our products from
government, private health insurers and other organizations.  The availability
of reimbursement by governmental and other third party payors affects the market
for our pharmaceutical products.  These third party payors continually attempt
to contain or reduce the costs of healthcare.  In the United States and in
certain foreign jurisdictions there have been a number of legislative and
regulatory proposals to change the healthcare system, and further proposals are
likely.  We could experience pricing pressure on our current and future products
due to the trend toward managed health care, the increasing influence of health
maintenance organizations, and additional legislative proposals.  We may not be
able to sell our products profitably if reimbursement is unavailable or limited
in scope.  In addition, we may not be able to market any products that we
develop ourselves or in conjunction with a partner at acceptable prices or
receive commercial acceptance in the markets that we expect to target.

OUR TECHNOLOGY

We have played a significant role in advancing the scientific understanding of
the process of tissue repair and regeneration.  We have established a technology
platform based on the molecular and cellular events responsible for tissue and
organ development.  We were the first to identify and characterize certain
morphogenic proteins that are key regulators of tissue and organ formation in
humans.  These morphogenic proteins, and our understanding of the biology
related to the activity of these proteins, provide the basis for the development
of our proprietary therapeutic products.

The role of morphogenic proteins in the formation, maintenance and repair of
many tissues has led us to believe that morphogenic proteins may provide
therapies to treat several types of acute injury or chronic disease.  Our
research and that of our collaborators has indicated that morphogenic proteins
are significant in the formation of many tissues including bone, cartilage,
kidney, dental and brain tissues.  OP-1, a morphogenic protein, has been
developed in a formulation with a collagen matrix to induce bone formation.  In
human trials, this OP-1 and collagen device has demonstrated the ability to
repair bone defects in several hard-to-heal orthopaedic indications.  Additional
clinical trials are currently underway to evaluate this device in other
indications, including the treatment of periodontal disease, fresh fractures and
spinal fusion. Together with our collaborators, we are exploring the role of
several other morphogenic proteins in the development of tissues throughout the
body.  We have determined that several of these proteins are important in
neurological development and appear to interact with neurons to promote certain
biological functions of these neurons.  These findings form the basis of the
therapies we are developing for stroke and other neurological diseases.  We have
also determined that OP-1 is critical to the normal development of the kidney
and plays an important role in kidney function.  This knowledge may assist us in
developing a chronic renal failure therapy based on OP-1.  We are similarly
exploring the role of several of the morphogenic proteins in tissues throughout
the body to identify new product opportunities for therapies based on these
proteins.

In addition to identifying and characterizing several morphogenic proteins,
including OP-1, we have identified with our collaborators the DNA sequences
which regulate the expression of OP-1. We have also discovered the cellular
receptors to which OP-1 and other morphogenic proteins bind and through which
they act as well as the three-dimensional structure of OP-1.  These discoveries
have enabled us to initiate a small molecule program, the goal of which is to
identify second generation, orally-active drug compounds that either promote
morphogenic protein expression or mimic the biological activities of morphogenic
proteins.

BUSINESS STRATEGY

Our objective is to be the leader in the discovery and development of
therapeutics for tissue repair and regeneration based on the biology of
morphogenic proteins.  Key elements of our continuing business strategy include:

                                       5


Receiving Royalties from the Sale of OP-1 Orthopaedic and Dental Products by
Stryker.  We have had a long-term research and development agreement with
Stryker that we restructured in November 1998.  Under our agreement with
Stryker, we receive royalties on sales of Stryker's OP-1 products.  Stryker is
seeking approval from regulatory authorities to market and sell the OP-1 bone
graft device in the United States and foreign markets.  If approved, Stryker
will be responsible for worldwide commercialization of the OP-1 bone graft
device and we will receive royalties on such sales.  We cannot assure you that
Stryker can obtain such regulatory approvals or successfully commercialize its
OP-1 products.  If Stryker does not commercialize its OP-1 products, we may
never receive significant royalties on its OP-1 products.

Developing Morphogenic Protein Therapies for Stroke and Other Neurological
Disorders.  Preclinical studies have demonstrated that the administration of OP-
1 following stroke can improve the rate and extent of motor skills recovery.  We
are currently conducting additional preclinical studies which are intended to
support the filing of an Investigational New Drug, or IND, application with the
FDA in order to enable us to initiate clinical trials for a new stroke therapy.
We are also evaluating morphogenic protein therapies designed to treat other
neurological disorders.

Developing OP-1 as a Therapy for Renal Disease.  Preclinical results have
demonstrated that OP-1 may be beneficial in protecting against kidney damage in
acute conditions and in slowing kidney function decline in chronic disease.  We
are currently conducting additional preclinical studies which are intended to
support the filing of an IND application with the FDA in order to enable us to
initiate clinical trials for a therapy to treat chronic renal failure.

Creating New Morphogenic Protein Therapies.  We have proprietary rights covering
several morphogenic proteins that may be involved in the formation and repair of
several tissues and organs.  We are investigating the role of these proteins in
several new therapeutic indications.

Developing Molecular Therapeutics Based on Morphogen Biology.  We believe that
certain small compounds may be able to stimulate important biological responses
involved in the activity of morphogenic proteins.  We further believe that since
such small compounds are more likely to lead to orally available therapies, they
could be attractive candidates for commercial development.  We are developing
biochemical and cell-based screens based on the biology of morphogenic proteins
and have a collaboration with Neogenesis, Inc. to screen chemistry libraries and
identify small molecule therapeutic candidates.

Establishing Corporate Collaborations.  We may elect to establish corporate
collaborations to achieve several purposes.  We hope that such collaborations
would allow us to strengthen our financial resources, broaden our pipeline of
programs, access complementary technologies, and gain development, manufacturing
and commercialization expertise.

Establishing Academic Collaborations.  We utilize a large network of academic
collaborators to extend our expertise and knowledge about tissue formation and
morphogenic protein biology, to identify additional therapeutic uses for
morphogenic proteins, and to conduct preclinical studies of our therapies.

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PRODUCT DEVELOPMENT AND RESEARCH PROGRAMS

We or our collaborators are developing several therapeutic products. The
following table sets forth our product development programs:





Potential Application                      Commercial Rights         Development Status(1)
- ---------------------                      -----------------         ---------------------
                                                               
Orthopaedic Reconstruction and
Dental Applications
 Non-Union Fractures, Tibia                 Stryker                  U.S. Pivotal Trial Completed
                                                                     Regulatory review underway in
                                                                     the United States, Europe and
                                                                     Australia
 Non-Union Fractures, All Long Bones        Stryker                  U.S. Treatment Study
 Fresh Fractures                            Stryker                  Canadian Clinical Study
 Spinal Fusion                              Stryker                  U.S. Clinical Study
 Other Bone Graft Indications(2)            Stryker                  International Clinical Studies
 Periodontal Disease                        Stryker                  U.S. Clinical Study
 Cartilage Regeneration                     Stryker                  Preclinical

Kidney Disorders
 Acute Renal Failure                        Creative BioMolecules    Preclinical
 Chronic Renal Failure                      Creative BioMolecules    Preclinical

Neurological Disorders
 Stroke                                     Creative BioMolecules    Preclinical
 Other Neurological Disorders               Creative BioMolecules    Preclinical

__________

(1)  "Pivotal Clinical Trials" are investigations conducted under an
     Investigational Device Exemption, IDE, intended to be used as the primary
     supporting documentation for regulatory approval of a new medical device.
     "Treatment Study" denotes an open label study pursuant to a supplement to
     an IDE. "Clinical Studies" vary in scope from a Canadian Clinical Trial in
     200 patients with fresh fractures to several physician sponsored
     feasibility investigations conducted among a small number of patients.
     "Preclinical" denotes the collection and analysis of data from multiple
     studies in animals relating to toxicity and/or efficacy in preparation for
     an Investigational New Drug, IND, or IDE application filing. See
     "-Regulatory Issues." In any case where more than one product formulation
     or composition may be developed, the status stated relates to the most
     advanced product in that field.

(2)  Stryker has announced that it has initiated clinical studies for several
     orthopaedic reconstruction applications of OP-1.  Preliminary data has been
     reported from some of the ongoing studies.



Orthopaedic Reconstruction and Dental Applications - Stryker Products in
Development

We have collaborated with Stryker, a leading specialty surgical and medical
products company, to develop and commercialize orthopaedic reconstruction and
dental therapy products.  Under our collaboration agreement with Stryker, we
granted Stryker exclusive rights to develop, manufacture and commercialize OP-1
products

                                       7


in orthopaedic reconstruction and dental applications, for which we will receive
royalties on commercial sales of OP-1 products in this field. See "-
Collaborative and Licensing Agreements - Stryker Corporation."

Orthopaedic Reconstruction.  We believe there is a significant commercial
opportunity for the use of OP-1 products to regenerate bone and cartilage tissue
in orthopaedic reconstruction.  We believe that in 1995 there were more than 1.6
million procedures in the United States that may have benefited from an OP-1
bone graft device, if it were available.  These procedures included repair of
non-healing fractures (170,000), open fracture reductions (440,000), spinal
fusions (200,000), maxillofacial reconstructions (220,000), prosthetic fixations
(540,000), and gap fillings (30,000).  In addition, in 1995 there were 570,000
cartilage-related injuries in the United States.

Through our collaboration with Stryker, we have generated substantial evidence
that OP-1 is a potent stimulator of bone and cartilage formation.  Numerous
studies in six different animal species have demonstrated that OP-1 is capable
of inducing bone regeneration at a wide array of sites within the body in which
bone is normally present.  Bone formed in response to OP-1 has been shown to be
biochemically and biomechanically identical to normal bone.

The most widely employed reconstruction procedure for the replacement of lost or
damaged bone is bone grafting.  Grafting involves surgical transplantation of
bone or bone chips to the site of the defect to facilitate new bone formation.
Autograft, the currently preferred grafting approach, involves two surgical
steps: a first step to harvest the graft, and a second step to implant the graft
at the site of the defect or injury.  In addition to the pain and cost
associated with this two-step procedure, many patients experience complications
resulting from the graft harvesting step.  A second approach involving allograft
procedures utilizes bone grafts or demineralized bone taken from cadavers.  We
believe that the OP-1 bone graft device applied locally to the site of the
defect could be used as an alternative to many bone graft procedures, and may
provide reliable healing without the need for graft harvesting with its
associated complications.

Stryker has reported completing a pivotal clinical trial under an IDE to
evaluate the use of an OP-1 bone graft device as a bone graft substitute.  The
randomized prospective study included 122 patients at 18 different centers
throughout the United States.  Patients included in the study had tibial non-
union fractures for at least nine months following initial injury without
demonstrating progress toward union for the previous three months.  Such non-
union fractures are often caused by high-energy trauma, do not usually heal
well, and generally require repeated surgical interventions.  The study was
designed to evaluate whether treatment with the OP-1 bone graft device is
equivalent to autograft, the current standard of treatment.  The OP-1 bone graft
device used in this study consisted of a paste-like formulation that was applied
locally at the fracture site.

The results of the trial, presented in March 1998 at the American Academy of
Orthopaedic Surgeons, demonstrated that the OP-1 bone graft device had
comparable clinical success to autograft without the need for a second invasive
procedure to harvest autograft bone from the hip.  The analysis of the data in
this trial showed statistical equivalence between OP-1 and autograft with
respect to the clinically important areas of weight-bearing and pain.  In
addition, the data confirmed that there were comparable rates of re-operation
for the two groups of patients.  Specifically, eleven of the 61 autograft
patients and ten of the 61 OP-1 patients have required re-operation to date.
Finally, the data showed a significant reduction in blood loss for the OP-1
patients as compared to the autograft patients and the elimination of certain
other complications associated with the harvest of autograft.  Radiographic
evidence of healing did not meet the predicted target for either group and was
approximately 10% higher for the autograft group during the long-term follow-up
period.

In October 1995, the FDA approved a supplemental treatment arm, or an Open-Label
Trial, of the pivotal trial, allowing Stryker to expand the study to test the
OP-1 bone graft device for the treatment of all long bone non-union fractures.
Stryker has completed the selection of patients in this Open-Label Trial.

Data presented at a scientific conference in November 1998 from an Australian
clinical experience involving 80 patients indicated good clinical and
radiological success with use of an OP-1 device to treat patients with

                                       8


hard-to-heal orthopaedic indications. The presenting clinician reported that,
41 (93%) of the 44 patients who had completed five months of follow-up showed
clinical or radiological improvement following OP-1 device treatment. Patients
enrolled in this study had a variety of orthopaedic indications including
non-union fractures, spinal fusions, revision arthroplasty, peri-prosthetic
fractures, bone defects, and arthrodeses. Since the data were presented, Stryker
has continued enrollment of additional patients in this study.

Stryker has initiated a 200 patient clinical study in Canada to evaluate the use
of the OP-1 bone graft device for the treatment of fresh fractures and a U.S.
clinical study to evaluate the OP-1 device in spinal fusion.  Stryker has also
initiated clinical studies in several European countries.  Stryker may initiate
additional clinical trials to demonstrate the utility of OP-1 based products in
additional orthopaedic indications. We and Stryker have also conducted
preclinical studies indicating the potential utility of OP-1 in the treatment of
cartilage defects.  We believe that Stryker's goal is to market OP-1 products
for a number of orthopaedic reconstruction indications in major markets around
the world.

Based on the results of the U.S. pivotal trial, other clinical and preclinical
data, and our development of a commercial scale manufacturing process and
facility, Stryker submitted a Pre-Market Approval application to the U.S. Food
and Drug Administration and a Marketing Authorization Application in Europe to
the European Medicines Evaluation Agency in June 1999. In December 1999, Stryker
also filed for regulatory approval in Australia.  The applications are pending.

Periodontal Tissue Repair.   Periodontal disease is a bacterially induced
inflammatory disorder that results in the progressive destruction of the
periodontal tissues that hold teeth in place.  Reliable and effective
restoration of periodontal tissue damaged or lost as a result of periodontal
disease is not possible with current therapies.  Based on data from the most
recent American Dental Association Survey of Services Rendered, or ADA Survey,
in 1995 approximately four million patients underwent periodontal surgery in the
United States for severe periodontal disease. We believe that many of these
procedures would have been candidates for treatment with an OP-1 periodontal
product.

Stryker is conducting a clinical trial in the United States to test an OP-1
device in the treatment of periodontal disease. This trial follows preclinical
studies which demonstrated that an OP-1 device was capable of regenerating the
normal tissue structures surrounding the tooth root.

Kidney Disorders

Kidney disorders, particularly various types of renal failure, are a large and
growing health care problem.  Billions of dollars are spent annually in the
United States on the treatment of renal failure patients.  Despite these
expenditures, mortality rates remain high and quality of life low.  Studies
conducted by our scientists and academic collaborators have shown that OP-1 is a
key morphogenic signal that initiates kidney formation at the earliest stages of
kidney development.

Chronic Renal Failure.  Chronic renal failure is characterized by a gradual and
progressive loss of kidney function.  The most common conditions associated with
onset of chronic renal failure are diabetes and high blood pressure.  Chronic
renal failure eventually results in end stage renal disease, a condition that
requires dialysis or kidney transplantation.  Aside from the substantial
economic costs associated with dialysis, quality of life is significantly
impacted, and the average life expectancy of patients on dialysis is
substantially diminished.  Based on reports from the United States Renal Data
System and epidemiology studies, there were more than 360,000 patients suffered
from end-stage renal disease in 1997.  Seventy-nine thousand new patients with
chronic renal failure begin dialysis therapy in the United States every year.
We believe that there is a significant commercial opportunity for a therapy that
could reduce, delay or prevent the need for dialysis or that could halt the
progression of chronic renal failure.

Under the terms of our partnership in renal therapy with Biogen, Inc., or
Biogen, a leading protein therapeutics company, we received financial support
from Biogen through 1999 to develop an OP-1-based therapy to

                                       9


moderate or halt the progression of chronic renal failure. As of January 1,
2000, we have reacquired all rights to the renal therapy program. See "-
Collaborative and Licensing Agreements - Biogen, Inc." We have initiated a
series of studies to investigate the potential of OP-1 to moderate the
progression of chronic renal failure. Results indicate that systemic
administration of OP-1 can retard the progressive loss of kidney function in an
animal model of chronic renal failure. Additional preclinical studies are
currently underway. We hope to initiate human clinical investigation of an OP-1
product for the treatment of chronic renal failure once preclinical studies are
completed.

Acute Renal Failure.  Acute renal failure is the rapid and sudden loss of the
kidneys' ability to perform their essential functions and is often associated
with multiple organ failure and a high mortality rate.  The primary causes of
acute renal failure are interruptions of blood flow (often as a result of
certain surgical procedures or cardiac arrest), trauma and certain medications
with toxic side effects to the kidneys.  Based on data from the National Center
for Health Statistics and other sources there were 250,000 diagnosed cases of
acute renal failure in the United States in 1995.  Currently, therapies that
prevent, improve recovery or reduce the extent of kidney injury from acute renal
failure are limited.

Animal studies have been conducted by our scientists and collaborators to
determine if acute renal failure can be treated with systemic administration of
OP-1.  Results of these studies indicate that an OP-1 product can reduce the
extent of injury to the kidneys and promote more rapid recovery of kidney
function in animal models of acute renal failure.  Although clinical trials are
difficult to design in this indication, we are currently exploring potential
avenues for a therapy in acute renal failure.

Neurological Disorders

A number of neurological disorders, including stroke, Parkinson's disease, brain
trauma, Alzheimer's Disease, and Amyotrophic Lateral Sclerosis (Lou Gehrig's
Disease), are characterized by the acute or progressive death of neurons or the
loss of neuronal function. We have completed a number of cell-based studies
which indicate that OP-1 can promote neuron survival and can induce the
formation or development of dendrites, the structures on neurons which pick up
signals from other neurons. This dendrite formation effect of OP-1 may be an
important factor in maintaining or recovering function following neurological
injury or disease. Based on these findings, we have initiated a preclinical
investigation to study the use of OP-1 as a treatment for certain neurological
disorders. In addition to our research activities with OP-1, we are
investigating the effect of other proprietary proteins in the treatment of
disease and injury affecting the central nervous system. To complement our in-
house proteins, we have licensed exclusive rights to GDF-1, a growth factor with
potential in the treatment of a number of nervous system disorders.

Stroke.  Strokes occur when blood flow to the brain is interrupted by a clogged
or burst artery.  The interruption deprives the brain of oxygen and nutrients,
and causes neurons to die.  Stroke is the third leading cause of death in the
United States and the number one cause of adult disability.  The National Stroke
Association has estimated that approximately 730,000 Americans suffer strokes
every year and that four million Americans are permanently disabled because of
stroke.  Therapeutics currently available to aid the recovery from stroke are
limited.  We believe that there is a substantial commercial opportunity for a
protein-based therapy that could promote enhanced recovery from stroke.

Research by our academic collaborators has indicated that OP-1 can promote the
development of dendrites on neurons and thereby enhance the ability of neurons
to establish connections with adjacent neurons.  This activity may enable the
brain to form new neuronal connections and may aid recovery following stroke.
In preclinical studies conducted by our collaborators at Massachusetts General
Hospital, the OP-1 group showed a statistically significant improvement in the
rate and extent of motor skills recovery compared to the control group with
administration a full three days following the stroke.  We are continuing these
studies with the goal of initiating human clinical investigation of OP-1 as a
treatment to enhance recovery from stroke.

                                      10


We believe that OP-1 represents a potential significant advance in stroke
therapy.  Most therapies in development or on the market for stroke are designed
to limit the damage caused to the brain tissue and must therefore be
administered within hours of the stroke's onset.  In contrast, OP-1 appears to
enhance the body's natural regenerative processes to help the brain compensate
for areas damaged by the stroke.  The ability to administer this agent three
days after a stroke may also provide a clinical advantage in design of trials
and in the care of patients.  All of the data generated in our stroke therapy
research is derived from preclinical studies. The therapy has not yet been
tested in human clinical trials.

Research Programs

New Applications of Morphogenic Proteins.  The morphogenic proteins to which we
have proprietary rights are involved in the development of several tissues and
mediate the activity of many cell types.  We are exploring the biology and
activity of these proteins to identify new therapeutic applications of our
proteins.  Among these potential applications in early research are the
treatment of inflammatory bowel disease, treatment of certain vision impairments
and other new product opportunities.  These programs are in an early stage of
research and require significant development work to determine the therapeutic
potential of such possible future products.

Molecular Therapeutics.  In addition to identifying and characterizing OP-1 and
other morphogenic proteins, we have identified the DNA sequences which regulate
the expression of OP-1, identified the cellular receptors to which morphogenic
proteins bind and through which they act, and determined the three-dimensional
structure of OP-1.  We are currently seeking to use this knowledge to format
assays for screening to identify orally-active drug compounds that either
promote endogenous morphogenic protein expression or mimic morphogenic protein
biological activities.  In addition, the information that relates to the three-
dimensional structure of OP-1 can be used to aid the rational design or
modification of small molecule drug candidates.  These assays and information
have enabled us to develop a molecular therapeutics program that seeks to
identify the next generation of drug development candidates based on morphogenic
protein biology.

COLLABORATIVE AND LICENSING AGREEMENTS

Stryker Corporation.  We have had a collaboration agreement with Stryker to
identify and develop bone-inducing proteins and to develop dental therapeutics.
OP-1 was first isolated and characterized by our scientists under this
collaboration.  Under such agreement, in exchange for research funding, future
royalties and revenue from commercial manufacturing, we developed OP-1 as a
therapy for orthopaedic reconstruction and cartilage regeneration, and supplied
Stryker material for use in clinical trials.  We devoted significant time and
resources to developing and implementing the commercial scale process for
manufacturing the OP-1 bone graft device. We restructured our agreement with
Stryker in November 1998 to provide Stryker with the exclusive rights to
manufacture OP-1 products in these fields. At that time Stryker acquired our
commercial manufacturing operations. As a result, Stryker has the exclusive
right to develop, market, manufacture, and sell products based on OP-1 proteins
for use in orthopaedic reconstruction and dental therapies. In June 1999,
Stryker announced that they had submitted a Pre-Market Approval application to
the U.S. Food and Drug Administration and a Marketing Authorization Application
in Europe to the European Medicines Evaluation Agency. The FDA accepted
Stryker's application for filing in July 1999. In December 1999, Stryker also
filed for regulatory approval in Australia. The applications are Stryker's
formal requests to the various regulatory authorities for approval to market the
product.

Under our agreement with Stryker, as amended, Stryker has exclusive rights to
develop, market and sell products incorporating bone and cartilage-inducing
proteins developed under the research program, including OP-1, for use in the
field of orthopaedic reconstruction and dental therapeutics. Subject to certain
exceptions in connection with the acquisition or merger of our company, we have
also agreed not to undertake any research, development or commercialization of
any products in the fields of orthopaedic reconstruction and dental
therapeutics, on our own behalf or for third parties, for the term of certain
patents. We have the exclusive and irrevocable right to develop, market and sell
products incorporating morphogenic proteins

                                      11


developed under the research program, including OP-1, for all uses and
applications other than orthopaedic and dental reconstruction such as renal
failure, neurological diseases, osteoporosis, and others. Subject to certain
exceptions in connection with the acquisition or merger of Stryker, Stryker has
agreed not to undertake any research, development or commercialization of any
products in our field, on their own behalf or for third parties, for the term of
those patents. Each of our companies has the right to grant licenses to third
parties in its respective field, and each is obligated to pay royalties to the
other on its sales of such products and to share royalties received from
licensees.

We maintain an exclusive license in our field (applications other than
orthopaedic reconstruction and dental therapies) under certain patents and
claims that we assigned to Stryker in November 1998, as part of the sale of
certain manufacturing rights and assets to Stryker. In addition, we granted
Stryker an exclusive license under patents in our morphogen portfolio for use in
the fields of orthopaedic reconstruction and dental therapeutics.

Biogen, Inc. We are developing an OP-1 based therapy for chronic renal failure,
a condition characterized by the slow progressive loss of kidney function
ultimately resulting in the need for kidney transplantation or dialysis.
Chronic renal failure represents a substantial unmet medical need. Preclinical
studies indicate that OP-1 administration improves kidney function in animal
models of both acute and chronic renal failure. Through December 1999, we had a
development agreement with Biogen under which Biogen provided funding for and
retained an option to OP-1 based therapies for chronic renal failure.  Biogen
did not exercise its option, and we have assumed all rights to OP-1 renal
therapies.

Genetics Institute. We have a cross-license agreement with Stryker and Genetics
Institute, Inc., a wholly-owned subsidiary of American Home Products
Corporation. Each party to the agreement has cross-licensed its worldwide patent
rights to each of the other parties, royalty-free, in the bone morphogenetic/
osteogenic protein family. The agreement allows the companies to commercialize
their respective lead compounds, which are now in clinical trials for bone
repair and regeneration, free of the risk of patent litigation among the
parties. Under the agreement, which covers both then issued patents and pending
patent applications, we and Stryker have exclusive rights to OP-1, under both
our own and Genetics Institute's patents. Genetics Institute and Yamanouchi
Pharmaceutical Company, Ltd., its collaborative partner in the worldwide
development of certain bone growth factors, have exclusive rights to BMP-2,
their lead compound, under both their own and each of Creative BioMolecules' and
Stryker's patents. In addition, the companies have granted each other royalty-
free, non-exclusive cross-licenses to patents and patent applications covering
certain other related morphogenic proteins.

Academic Collaborations.  We have relationships with a number of academic
investigators who are focused on testing morphogenic proteins in tissue
regeneration and restoration applications.  In our collaborations, we seek to
expand the scientific knowledge concerning tissue formation as well as the
activities and characteristics of various proteins under development by our
scientists.  The academic collaborators are not our employees.  Hence, we have
limited control over their activities and limited amounts of their time are
dedicated to our projects.  From time to time, we have relationships with other
commercial entities, some of which may be our competitors.  Although the precise
nature of each relationship varies, the collaborators and their primary
affiliated institutions generally sign agreements that provide for
confidentiality of our proprietary technology and results of studies.  We seek
to obtain exclusive rights to license developments that may result from these
studies; however, we cannot assure you that we will obtain them.

Enzon Cross-Licensing Agreement. We own a number of issued U.S. and foreign
patents with broad claims on the composition of BABS(TM) (Biosynthetic Antibody
Binding Sites) proteins and their interdomain linkers. BABS(TM) is a separate
technology developed by us, and to which we have retained rights, but which is
not currently being utilized in our morphogen development programs. Some of our
BABS(TM) technology is also covered by patents held by Enzon Corporation, or
Enzon. In December 1993, we signed cross-licensing and collaboration agreements
with Enzon which consolidate the two companies' intellectual property rights and
know-how covering BABS(TM) proteins. The parties have agreed to outlicense the
combined technology to third parties on a non-exclusive basis in exchange for
license, milestone and royalty payments. We believe that

                                      12


consolidation of the companies' respective positions relating to BABS(TM)
proteins has created a strong proprietary position in the use and manufacture of
these novel proteins.


MANUFACTURING

We developed significant manufacturing experience in the scale-up and production
of recombinant proteins, including OP-1.  This manufacturing experience prepares
us to move forward with our morphogenic proteins programs.  We have produced a
number of protein candidates by bacterial fermentation as well as by mammalian
cell culture techniques in the laboratory, scaled-up both of these production
processes, and produced clinical grade recombinant proteins. Our protein
formulation and analytical science capabilities support the development and
preparation of clinical grade-materials incorporating BMPs.  In addition, we
currently maintain inventories of GMP-grade OP-1 suitable for clinical
evaluation and research-grade material of other BMPs for research and
preclinical evaluation.  In November 1998, as part of our agreement with
Stryker, we sold our commercial manufacturing operations to Stryker.


COMPETITION

The therapeutic products that we are developing will compete with existing and
new products being developed by others for treatment of the same indications.
Competition in the development of human therapeutics is particularly intense and
includes many large pharmaceutical and biopharmaceutical companies, specialized
biotechnology firms, universities and other research institutions.  Many of
these companies have extensive financial, marketing and human resources which
may result in significant competition.  Others have extensive experience in
undertaking clinical trials, in obtaining regulatory approval to market products
and in manufacturing on a large scale which may enhance their competitive
position.

The technology underlying the development of human therapeutic products is
expected to continue to undergo rapid and significant advancement and change.
In the future, our technological and commercial success will be based on our
ability to develop proprietary positions in key scientific areas and efficiently
evaluate potential product opportunities.

We are aware of a number of companies that are engaged in the research and
development of morphogenic proteins for the repair of bone and cartilage.  We
are aware that Genetics Institute, acquired in 1996 by American Home Products
Corporation, and its collaborative partners are pursuing the development of bone
morphogenetic proteins and have initiated human clinical trials of a recombinant
bone morphogenetic protein for the repair of orthopaedic and other skeletal
defects.  Genetics Institute has entered into relationships with Yamanouchi
Pharmaceuticals Co., Ltd. and Medtronic Sofamor Danek, Inc. covering development
and marketing of bone morphogenetic proteins.  Other companies may attempt to
develop products incorporating proteins purified from bone, which may include
bone morphogenetic proteins, for orthopaedic applications.  In addition, we
believe that a number of biopharmaceutical companies are developing other
recombinant human proteins, primarily growth factors, for use in the repair of
bone and cartilage defects and in other indications.  A number of other
companies are pursuing traditional therapies, including autografts, allografts
and electrical stimulation devices, as well as cell and gene therapies for the
repair of bone and cartilage defects that may compete with our products.

We believe that potential dental or periodontal products that Stryker may
develop, will compete primarily with traditional therapies and therapies
incorporating other morphogenic proteins or growth factors. Genetics Institute
is also pursuing the development of bone morphogenetic proteins for the repair
of dental and periodontal tissue.

Several biotechnology and pharmaceutical companies are developing recombinant
protein based products for the treatment of renal and neurological disorders.
In the field of renal failure, companies are evaluating several

                                      13


different products in human clinical studies for acute renal failure, some of
which may also be under review preclinically for chronic renal failure. We are
not aware of any companies developing morphogenic protein based products for
either acute or chronic renal failure. In the field of neurological disorders,
particularly in the area of stroke therapy, there are several companies engaged
in preclinical and clinical studies with recombinant protein based and more
traditional small molecule products.

A number of biotechnology and pharmaceutical companies are pursuing the
development of other recombinant growth factors and hormones for the treatment
of osteoporosis.  We believe that only a limited number of companies are seeking
to develop morphogenic proteins for the treatment of osteoporosis.  However,
many major pharmaceutical companies are pursuing the development of traditional
drug therapies for the treatment of osteoporosis.  Certain therapies approved or
in development for osteoporosis have demonstrated efficacy at slowing the loss
of bone mineral density and improving clinical outcomes for patients.  Such
therapies provide alternatives to the treatment of osteoporosis that would
compete with any osteoporosis products developed by us.

In addition to competing with pharmaceutical and biotechnology companies, our
products and technologies will also compete with those developed by academic
institutions, government agencies and other public organizations conducting
research.  Any of these organizations may discover new therapies, seek patent
protection or establish collaborative arrangements for product research which
are competitive with our products and technologies.

In addition to a product's patent position, efficacy and price, the timing of a
product's introduction may be a major factor in determining eventual commercial
success and profitability.  Early entry may have important advantages in gaining
product acceptance and market share.  Accordingly, the relative speed with which
we or our collaborative partners can complete preclinical and clinical testing,
obtain regulatory approvals, and supply commercial quantities of the product is
expected to have an important impact on our competitive position, both in the
United States and abroad.  Other companies may succeed in developing similar
products that are introduced earlier, are more effective, or are produced and
marketed more effectively.  If any research and development by others renders
any of our products obsolete or noncompetitive, then our potential for success
and profitability may be limited.


PATENTS AND PROPRIETARY RIGHTS

We pursue a policy of obtaining broad patent protection for patentable subject
matter relating to our proprietary technology platform in tissue repair and
regeneration.  As of March 2, 2000, we owned or had rights to 79 issued patents
and 72 pending patent applications in the United States, and owned or had rights
to 58 issued foreign patents and 164 foreign patent applications.  These patents
and patent applications cover compositions of matter, fields of uses, screening,
and methods of production as well as patents relating to our morphogenic protein
technology, BABS(TM), and interdomaine linker technology.

Certain patents and patent applications relating to morphogenic proteins,
including OP-1, are owned by Stryker and have been licensed exclusively to us
for use in all indications other than orthopaedic reconstruction and dental
therapeutics.  See "- Collaborative and Licensing Agreements - Stryker
Corporation."  Certain other patents and patent applications are owned jointly
with other collaborators.  There can be no assurance, however, that any such
patent applications will issue as patents, or that any patent now issued, or to
be issued, will provide a preferred position with respect to the technology or
products it covers.

Within our patent estate covering morphogenic protein technology, we own or have
rights to 52 issued and 69 pending applications in the United States, and 44
issued and 145 pending counterpart foreign applications, which contain claims to
novel therapies and processes, as well as numerous tissue applications,
including renal, neural, bone, liver, periodontal, dentin, gastrointestinal
tract and immune cell-mediated tissue applications.

                                      14


We have entered into a cross-license agreement with Stryker and Genetics
Institute in which the parties granted worldwide, royalty-free, cross licenses
to each other in the bone morphogenetic/osteogenetic protein family.  This
agreement reduces the threat of potential litigation to our development programs
and with Stryker's efforts to commercialize OP-1.

We have also entered into a cross-license agreement with Stryker under which we
assigned ownership of certain manufacturing and other patents and patent
applications to Stryker relating primarily to the OP-1 bone regeneration and
dental therapeutics products. We retained an irrevocable, exclusive license to
these patents for all uses outside the fields of orthopaedic reconstruction and
dental therapeutics. We also granted to Stryker a license to certain patents and
patent applications in our morphogen portfolio for use exclusively in the fields
of orthopaedic reconstruction and dental therapeutics.

Our success will depend in part on our ability to obtain marketing exclusivity
for our products for a period of time sufficient to establish a market position
and achieve an adequate return on our investment in product development.  We
believe that protection of our products and technology under United States and
international patent laws and other intellectual property laws is an important
factor in securing such market exclusivity.  U.S. patents issued from
applications filed prior to June 8, 1995 have a term of the longer of 17 years
from patent grant or 20 years from the earliest filing date.  U.S. patents
issued from applications filed on or after June 8, 1995, have a term of 20 years
from the earliest filing date.  Patents in most foreign countries have a term of
20 years from the date of the filing of the patent application.  In the United
States and certain foreign countries, the exclusivity period provided by patents
covering pharmaceutical products may be extended by a portion of the time
required to obtain regulatory approval for a product.  Certain patents relating
to OP-1 owned by Stryker and licensed to us will begin expiring in 2005.

Although we pursue patent protection for our technology, significant legal
issues remain as to the extent to which patent protection may be afforded in the
field of biotechnology, in both the United States and foreign countries.
Furthermore, the scope of protection has not yet been broadly tested.
Therefore, we also rely upon trade secrets, know-how and continuing
technological advancement to develop and maintain our competitive position.
Disclosure of our know-how is generally protected under confidentiality
agreements.  We do not know, however, whether all our confidentiality agreements
will be honored, that third parties will not develop equivalent technology
independently, that disputes will not arise as to the ownership of technical
information or that wrongful disclosure of our trade secrets will not occur.

Certain products and processes important to us may be subject in the future to
patent protection obtained by others.  The field of biotechnology is developing
rapidly.  Because many patent applications have been filed in this field in
recent years, we cannot predict the scope that courts will give to the claims of
patents issued from such applications and the nature of these claims.  Several
patent applications based on work done years ago have been issued to others with
broad claims directed to the use of basic recombinant DNA technology.  We
believe that it is premature to predict what general trend, if any, will emerge
as to the breadth of allowed claims for biotechnology products and related uses.
The allowance of broader claims may increase the incidence and cost of
interference proceedings at the United States Patent and Trademark Office and
the risk of infringement litigation.  A policy of allowing narrower claims,
conversely, could limit the value of our proprietary rights under our patents.
It is possible that Patent and Trademark Office interference proceedings will
occur with respect to a number of our patent applications or issued patents.  It
is also likely that subject matter patented by others will be required by us to
research, develop, or commercialize at least some of our products.  If we are
unable to obtain licenses under any such patent rights of others on acceptable
terms then we may have to limit or terminate the development of some or all of
our products.

REGULATORY ISSUES

Regulation by governmental agencies in the United States and other countries is
a significant factor in the clinical evaluation and licensing of our potential
products as well as in the development and research of new

                                      15


products. All of our products currently under development will require
regulatory approval by the FDA under the Food, Drug, and Cosmetic Act, or FD&C
Act, as a drug or device, or under the Public Health Service Act as a
biological, to be marketed in the United States. Regardless of the
classification assigned to our products, all human diagnostic and therapeutic
products are subject to rigorous testing. Generally, considerable time and
expense are required to clinically evaluate the safety and efficacy of a new
product. Moreover, even after extensive preclinical testing, unanticipated side
effects can arise during clinical trials that can halt or delay the regulatory
process at any point. Seeking and obtaining regulatory approval for a new
therapeutic or diagnostic product is likely to take several years and will
require the expenditure of substantial resources.

Products developed through genetic engineering, such as ours, are relatively
new, and state and local regulation may increase as genetically engineered
products become more common.  The federal government oversees certain
recombinant DNA research activity through the National Institutes of Health
Guidelines for Research Involving Recombinant DNA Molecules, or the NIH
Guidelines.  We believe that our activities comply with the NIH Guidelines,
which prohibit or restrict certain recombinant experiments, set forth levels of
biological and physical containment of recombinant DNA molecules to be met for
various types of research, and require that institutional biosafety committees
approve certain experiments before they are initiated.  Compliance with the NIH
Guidelines has not had, and we do not foresee that it will have, a material
effect on our competitive position or cash flow.  Discussions have been underway
since 1996 between NIH and FDA regarding alternative models for regulation of
recombinant DNA research and the products resulting from such research, and the
appropriateness of any continued NIH role.  It is not possible to predict the
effect of such potential regulatory changes on us or our potential competitors.

On November 21, 1997, the FDA Modernization Act of 1997, or FDAMA, was enacted
into law.  In addition to reauthorizing the collection of user fees for
prescription drugs, FDAMA changed the FD&C Act in numerous ways.  Because some
provisions of FDAMA require the FDA to develop further regulations, or are
unclear, it is not possible for us to predict the overall effect of FDAMA on us
or our potential competitors.

Pharmaceutical and Biological Products.  We expect that certain of our potential
products will be regulated by the FDA as pharmaceuticals or biologicals.  The
regulatory approval of pharmaceutical and biological products in the United
States intended for therapeutic use in humans involves many steps.  The initial
phase of the FDA approval process involves preclinical testing to demonstrate
that the product would not be an unreasonable hazard in clinical studies with
human subjects.  Preclinical tests must typically meet the FDA's good laboratory
practices regulations if they are to be used for the purpose of an application
to the agency. Upon completion of preclinical testing, an IND application must
be filed with the FDA.  The application must include the following distinct sets
of information:

1)   Information on the composition of the product including pharmacology and
     toxicology;
2)   Chemistry, manufacturing, and control information;
3)   Results of all the preclinical safety and efficacy investigations including
     in vivo and in vitro studies;
4)   Information on any previous human experience with the product;
5)   A clinical development plan and protocol;
6)   Information on the investigators;
7)   The necessary agreements among parties involved in the testing; and,
8)   Approval of an Institutional Review Board at the center(s) conducting the
     study or studies.

If the application has not been denied or if additional information has not been
requested by the FDA within 30 days of filing, the applicant may then begin
clinical studies.

Clinical testing usually occurs in three phases to demonstrate safety and
efficacy of the product.

1)   Phase I clinical trials consist of testing for the safety and tolerance of
     the product with a small group of subjects and may also yield preliminary
     information about the efficacy and dosage levels of the product.

                                      16


2)   Phase II clinical trials involve testing for efficacy, determination of
     optimal dosage and identification of possible side effects in a larger
     patient group.

3)   Phase III clinical trials consist of additional testing for efficacy and
     safety with an expanded patient group.

Currently, FDA requires the filing of new information for each distinct clinical
study.  After product approval, FDA may request or require an additional phase
(Phase IV) of clinical studies to provide additional information on safety and
efficacy.

Upon successful completion of Phase III testing, either a New Drug Application,
or NDA or Biologics License Application, or BLA must be filed, depending upon
whether the product is designated as a drug or a biological, respectively.  The
FDA generally requires at least two adequate and well-controlled clinical trials
for product approval.  All approvals require a detailed review of all data
collected from clinical studies, the composition of the drug or biological, non-
clinical pharmacology and toxicology data, environmental impact data, human
pharmacokinetics and bioavailability data, patient information, certain case
report data and forms, the labeling that will be used, information on chemistry,
manufacturing, and controls, and samples of the product.  After the FDA
completes its review of the application, the product is typically reviewed by a
panel of independent medical experts, and the applicant is required to answer
questions on its safety and efficacy.  The FDA considers the recommendation of
the panel, and may at its own discretion approve an NDA or BLA.  If so approved,
the product may then be marketed.

Devices.  We expect that certain of our potential products will be regulated by
the FDA as Class III devices.  Preclinical evaluations of Class III devices are
similar to those of pharmaceuticals and biologicals, with additional emphasis on
implant persistence, implant sensitization, and carrier characterization and
specifications.  Upon completion of preclinical testing, an IDE application is
filed with the Center for Devices and Radiological Health in the FDA.  This
application consists of the following distinct sets of information:

1)   Identifying information on the sponsor;
2)   Complete reports of prior investigations of the device;
3)   Summary of the investigational plan (or the complete plan);
4)   Description of the methods, facilities, and controls used for
     manufacturing, processing, packing, storage, and installation of the
     device;
5)   Example investigator agreements;
6)   List of investigators;
7)   Certifications concerning investigators and Investigational Review Boards;
8)   Copies of labeling; and,
9)   Materials relating to environmental impact and informed consent.

If the application has not been denied by the FDA within 30 days of filing, the
applicant may then begin clinical studies.  The FDA may notify the applicant of
approval before the end of the 30 day period, in which case the applicant may
begin clinical studies immediately.

The clinical testing of a device may consist of a preliminary feasibility study
leading to a much larger pivotal safety and effectiveness study, or it may
consist of only one or more larger pivotal safety and effectiveness studies.
Upon successful completion of the clinical testing and compilation of the data,
a PMA application can be filed.  This application consists of the following:

1)   Indications for use;
2)   Product description;
3)   Discussion of alternatives to use of the device;
4)   Marketing history (worldwide);
5)   Review of clinical studies and results;
6)   Methods, facilities and controls (as in an IDE);
7)   Non-clinical data;

                                      17


8)   If only one clinical study is used, a justification of that approach;
9)   Identification and bibliography of any information relevant to the safety
     and effectiveness of the device;
10)  Product samples;
11)  Product labeling; and,
12)  Certain environmental information.

The FDA is required to respond to the PMA submission within 180 days, although
the FDA may not adhere to this schedule and further review may take additional
time.  After the FDA completes its review of the application, the product is
typically reviewed by a panel of medical experts, and the applicant is required
to answer questions on its safety and effectiveness.  At the recommendation of
the panel, a PMA may be granted, and the product may then be marketed.

Treatment IND Status. Before the completion of clinical trials for a specific
product, a company may file for Treatment IND status under provisions of the IND
regulations. These regulations apply to products for patients with serious or
life-threatening diseases and are intended to facilitate the availability of new
products to desperately ill patients after clinical trials have shown convincing
evidence of efficacy, but before general marketing approval has been granted by
the FDA. Under these regulations, it may be possible for us to recover some of
the costs of research, development and manufacture of qualified products before
commercial marketing begins. We may seek Treatment IND status for qualified
products, although the decision whether to grant such status lies with the FDA.

FDAMA codifies many of the FDA's previous treatment IND regulations.  In
addition, it creates new authority for expanded access to investigational
therapies for serious diseases, if the request is performed through a physician,
the product shows sufficient evidence of safety and efficacy, and provision of
the product would not interfere with ongoing clinical research.

The FDA has also adopted regulations intending to accelerate the approval of
therapeutic products for serious and life threatening diseases under certain
circumstances.  We may seek to utilize these regulations for qualified products.
Approvals under these regulations may be conditioned on further studies, may
include restrictions on marketing, may require prior submission of promotional
materials, and may be subject to expedited withdrawal of approval.

In addition to existing FDA regulations, FDAMA added new "fast track" authority
allowing FDA to expedite the approval of drugs for serious or life-threatening
conditions. Requirements for fast track drugs are similar to those for
accelerated approval, including FDA authority to require post- approval clinical
studies, presubmission of promotional materials, and enhanced NDA withdrawal
authority.

User Fees.  FDAMA amended existing laws to continue FDA authorization to charge
user fees for prescription drug products.  The purpose of the user fee
provisions of FDAMA is to reduce the time that FDA takes to act on completed
applications.  Under an informal letter arrangement, FDA has committed to act on
priority applications within 6 months, regular applications within 12 months
(reducing to 10 months over the next 5 years), manufacturing supplements within
6 months (reducing to 4 months over the next 5 years), and resubmissions with
relatively minor new information within 6 months (reducing to 2 months over the
next 5 years).  The user fee provisions of FDAMA contemplate that the fees will
be used to fund additional resources at FDA to enable it to meet these informal
review deadlines.  However, the law itself does not impose an affirmative
obligation on FDA to meet these deadlines or any overall approval goals.  Some
companies may receive an exemption from user fees, either because they qualify
as small businesses, because their products are used for rare diseases or
conditions, or because they meet other technical exceptions contained in the
law.  FDAMA continues FDA authority to grant waivers to protect the public
health, if fees would exceed costs, on equitable grounds, or for small
businesses.  Because FDAMA changed the existing waiver provisions of the
previous user fee law, it is not clear whether existing FDA draft guidances on
waiver criteria apply or will have to be redrafted.  We may seek exceptions or
waivers for our products as appropriate, although given the

                                      18


current uncertainty of the law, we can not predict whether such exceptions or
waivers will be granted. The user fee provisions of the FD&C Act, as modified by
FDAMA, do not currently apply to medical devices.

Facilities Inspection.  In addition to product approval prior to marketing, we
must also obtain FDA approval of the facility in which our products will be
manufactured.  In the case of a pharmaceutical, biological or a device, we must
be in compliance with cGMP requirements.  The FDA may inspect our facilities to
determine such compliance as part of the overall NDA, BLA, or PMA approval.
Since any NDA, BLA or PMA approved by the FDA is both site and process specific,
any material change in our manufacturing process, equipment or location would
necessitate additional FDA review and approval process.  Recently, the FDA
promulgated new regulations concerning cGMPs for medical devices.  These new
regulations include elements drawn from existing international standards and a
new emphasis on design control of medical devices (in addition to the existing
focus on manufacturing).  Until these new regulations are better understood by
industry, compliance with medical device cGMPs may prove more difficult than in
the past, and may require the use of additional resources or even the redesign
of some existing devices or facilities.

Foreign Regulations.  Regulations concerning the marketing of human therapeutic
and diagnostic products are generally imposed by foreign governments and may
have an impact on our anticipated operations.  The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement levels
vary widely from country to country.  We attempt to conduct our development
activities in a manner that would also support regulatory filings in selected
foreign countries.

Other.  Amendments to the federal laws have loosened export restrictions on
therapeutic products, including amendments permitting the export of products not
yet approved in the United States but approved in certain foreign countries.  We
may choose to conduct such exports of our products prior to obtaining FDA
marketing approval in the United States.

In addition, we are subject to regulation under the Occupational Safety and
Health Act, the Environmental Protection Act, the Toxic Substances Control Act,
the Research Conservation and Recovery Act, regulations administered by the
Nuclear Regulatory Commission, national restrictions on technology transfer,
import, export and customs regulations and certain other local, state or federal
regulation. From time to time, other federal agencies and congressional
committees have indicated an interest in implementing further regulation of
biotechnology applications. We are not able to predict whether any such
regulations will be adopted or whether, if adopted, such regulations will
adversely affect our business.

EMPLOYEES

In October 1999, we refocused our operational and financial resources on the
development of our morphogenic protein-based clinical candidates for the
treatment of stroke and renal disease. This redirected effort resulted in a
reduction of our employee headcount.  Currently, we have approximately 40 full-
time employees, 20 of whom hold Ph.D. degrees.  We consider our relations with
our employees to be good and, apart from the recent restructuring, have
experienced a low rate of employee turnover.  None of our employees are parties
to a collective bargaining agreement.  We have entered into confidentiality
agreements with all of our employees.

RECENT UPDATE

On February 15, 2000, we announced that we will merge with Ontogeny, Inc., and
Reprogenesis, Inc., to form a public company named Curis, Inc.  Under the terms
of the merger, which is subject to stockholder approval, our stockholders will
receive three Curis shares for every ten shares of our Common Stock. Following
completion of the transaction, our stockholders will hold approximately 43%,
Ontogeny's stockholders will hold approximately 38% and Reprogenesis'
stockholders will hold approximately 19% of Curis. For accounting purposes,
Curis, our successor, will record the merger as a purchase of Reprogenesis and
Ontogeny. The merger is expected to close in June 2000.

                                      19


Item 2.  DESCRIPTION OF PROPERTY

We currently lease an aggregate of 35,400 square feet in two adjacent facilities
in Hopkinton, Massachusetts.  The location of the facilities is approximately 30
miles west of Cambridge and Boston and 20 miles east of Worcester, all of which
are major research centers in health care and biotechnology in Massachusetts.
Our Hopkinton facilities house research and development laboratories, small
scale production suites, and corporate offices.  Both leases expire in 2001.  In
addition, we currently lease 10,500 square feet of office space in Boston,
Massachusetts for administrative offices.  The office lease expires in 2002.

We believe that our existing facilities are adequate for our near term needs.
We expect that additional facilities may be required to meet future needs;
however, we cannot assure you that we will be able to lease or acquire
additional facilities.

                                      20


Item 3.  LEGAL PROCEEDINGS

There are no material pending legal proceedings to which we are a party or of
which any of our property is the subject.

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

No matters were submitted during the fourth quarter of the year ended December
31, 1999, to a vote of our security holders.

                                      21


PART II

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

Market Information

Our Common Stock is traded on The Nasdaq Stock Market under the symbol CBMI.
The following table presents quarterly information on the price range of our
Common Stock, indicating the high and low sale prices reported by The Nasdaq
Stock Market.


                                                      High         Low
                                                      ----         ---
1999
- ----
    4th Quarter    ..............................    $5.00        $2.19
    3rd Quarter    ..............................     6.38         3.13
    2nd Quarter    ..............................     4.44         2.13
    1st Quarter    ..............................     3.69         2.00

1998
- ----
    4th Quarter    ..............................    $3.81        $1.75
    3rd Quarter    ..............................     5.00         2.31
    2nd Quarter    ..............................     8.75         4.13
    1st Quarter    ..............................    11.00         7.63

Stockholders

As of February 25, 2000 we had approximately 332 stockholders of record of our
Common Stock.

Dividends

We have never paid any dividends on our Common Stock and we do not intend to pay
any dividends on our Common Stock in the foreseeable future.  We intend to
retain earnings, if any, for the development of our business.

Recent Sales of Unregistered Securities

During 1999, we issued a total of 1,311,395 shares of Common Stock in connection
with the conversion of 2,928 shares of Series 1998/A Preferred Stock by the
holders of such stock at conversion prices ranging from $2.16 to $2.52 per
share. The aggregate conversion price was $3,055,762. We issued the shares of
Common Stock without registration under Section 4(2) of the Securities Act of
1933, as amended. We did not use any underwriters in the transaction. On May 7,
1999, the Company repurchased the remaining shares of Series 1998/A Preferred
Stock.

                                      22


Item 6.  SELECTED CONSOLIDATED FINANCIAL DATA

We derived the selected consolidated financial data set forth below with respect
to the consolidated statements of operations for the years ended December 31,
1999, 1998 and 1997, and with respect to the consolidated balance sheets as of
December 31, 1999 and 1998, from the consolidated financial statements that have
been audited by Deloitte & Touche LLP, independent auditors. The consolidated
financial statements are included elsewhere in this Form 10-K. We derived the
consolidated statements of operations data for the year ended December 31, 1996,
for the three months ended December 31, 1995 and the year ended September 30,
1995, and the consolidated balance sheet data as of December 31, 1997, 1996 and
1995 from audited consolidated financial statements not included in this Form
10-K. You should read the data set forth below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related Notes included in this Form
10-K.





                                                                                               Three
                                                                Years Ended                    Months          Year
                                                                December 31,                   Ended          Ended
                                              ---------------------------------------------   December      September
Consolidated Statement of Operations Data:         1999        1998       1997       1996    31, 1995(1)    31, 1995(1)
    (In thousands, except per share amounts)       ----        ----       ----       ----    -----------    -----------
                                                                                          
Revenues:
  Research and development contracts            $   3,160   $  10,419   $ 12,693   $ 5 ,548   $     971     $   5,824
  Manufacturing contracts                               -           -        394      4,486         770         6,159
  License fees and royalties                           52          10          -     11,122           2           544
  Interest                                          1,924       2,184      2,331      1,174         261           649
  Other                                                 2          12         15         22           -            53
                                                ---------   ---------   --------   --------   ---------     ---------
    Total revenues                                  5,138      12,625     15,433     22,352       2,004        13,229
                                                ---------   ---------   --------   --------   ---------     ---------
Costs and expenses:
  Research and development                         10,435      24,856     25,122     15,651       3,194        11,688
  Cost of manufacturing contracts                       -           -        274      3,823         715         5,330
  General and administrative                        6,396       7,475      6,473      4,901       1,254         3,604
  1999 reorganization and 1998 sale of
   manufacturing operations                           256       1,362          -          -           -             -
  Interest                                            161         327        216        217          61           229
                                                ---------   ---------   --------   --------   ---------     ---------
    Total costs and expenses                       17,248      34,020     32,085     24,592       5,224        20,851
                                                ---------   ---------   --------   --------   ---------     ---------
Net loss                                          (12,110)    (21,395)   (16,652)    (2,240)     (3,220)       (7,622)
Accretion and repurchase costs on Series
 1998/A Preferred Stock                            (2,395)       (987)         -          -           -             -
                                                ---------   ---------   --------   --------   ---------     ---------
Net loss applicable to common stockholders      $ (14,505)  $ (22,382)  $(16,652)  $ (2,240)  $  (3,220)    $  (7,622)
                                                =========   =========   ========   ========   =========     =========
Basic and diluted loss per common share(2)         $(0.40)     $(0.66)    $(0.50)    $(0.07)     $(0.11)       $(0.37)
                                                =========   =========   ========   ========   =========     =========
Common shares for basic and diluted loss
 computation(2)                                    36,665      33,672     33,078     30,062      28,120        20,431
                                                =========   =========   ========   ========   =========     =========


                                                                     December 31,
                                              ---------------------------------------------------------
                                                  1999        1998       1997       1996        1995
                                                  ----        ----       ----       ----        ----
Consolidated Balance Sheet Data:                                   (In thousands)
                                                                               
Cash, cash equivalents and
 marketable securities                          $  21,371   $  57,935   $ 30,598   $ 50,075   $  20,002
Working capital                                    17,116      49,613     32,381     48,174      21,743
Total assets                                       28,892      66,164     59,038     73,819      41,341
Capital lease obligations, less current             1,009         713      2,005      1,651       1,711
 portion
Accumulated deficit                              (124,977)   (110,472)   (88,090)   (71,438)    (69,198)
Total stockholder's equity                         23,422      33,105     52,709     67,261      37,829


- ----------
(1)  In January 1996, we changed our fiscal year end from September 30 to
     December 31, effective with the three month period ended December 31, 1995.

(2)  See Note 1 of Notes to Consolidated Financial Statements for an explanation
     of the computation of basic and diluted loss per common share.

                                      23


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

General

To date, we have derived most of our revenues from research and development
payments and license fees under agreements with collaborative partners.  We
anticipate that over the next several years we will derive most of our revenues
from agreements with collaborative partners, including possible royalty revenues
from Stryker.  We have never been profitable and expect to incur additional
operating losses in 2000.  Results beyond 2000 will depend largely on the timing
and magnitude of royalty payments from Stryker if the OP-1 Device, currently
under regulatory review with the Food and Drug Administration, or FDA, is
approved for commercial sale and is sold.   There can be no assurance we will
receive substantial royalties from Stryker or, if we do, when those royalties
will be received.  We may incur continued losses in future years.

Our research agreements with collaborative partners have typically obligated
such collaborative partners to provide for the partial or complete funding of
research and development for specified projects and pay royalties to us in
exchange for licenses to market the resulting products.  We have been a party to
research collaborations with Stryker to develop products for orthopaedic
reconstruction and dental therapeutics and with Biogen to develop products for
the treatment of renal disorders.  Each of these research collaborations was
restructured in 1998.

Under the research portion of our collaboration with Stryker, prior to its
restructuring in November 1998, we supplied OP-1 products to Stryker for
clinical trials and other uses, provided manufacturing regulatory support and
performed research work pursuant to work plans we both established periodically.
In November 1998, we sold certain of our OP-1 manufacturing rights and
facilities to Stryker.  In fiscal 1999, we have focused internal research
efforts on developing new tissue regeneration therapies in non-bone applications
and do not anticipate significant revenue from Stryker in 2000.

We are developing an OP-1 based therapy for chronic renal failure, a condition
characterized by the slow progressive loss of kidney function ultimately
resulting in the need for kidney transplantation or dialysis. Chronic renal
failure represents a substantial unmet medical need. Preclinical studies
indicate that OP-1 administration improves kidney function in animal models of
both acute and chronic renal failure. In 1998, we modified our partnership in
renal therapy with Biogen, Inc., or Biogen, a leading protein therapeutics
company. Biogen provided research funding to us through December 1999 pursuant
to an option to resume responsibility for development of OP-1 as a therapy for
chronic renal failure. As of December 31, 1999, Biogen did not exercise its
option, and we have assumed all rights to OP-1 renal therapies. In October 1999,
we reorganized and the Board approved a plan to focus our operations and
financial resources on the development of morphogenic protein- based clinical
candidates for the treatment of stroke and renal disease. In connection with
this reorganization, we reduced our headcount from 70 to 43 employees. We
recorded approximately $511,000 in operating expenses for salary termination
costs.

Although we are seeking and in the future may seek to enter into collaborative
arrangements with respect to certain other projects, there can be no assurance
that we will be able to obtain such agreements on acceptable terms or that the
costs required to complete the projects will not exceed the funding available
for such projects from the collaborative partners.

We earn and recognize revenue based upon work performed, upon the sale or
licensing of product rights, upon shipment of product for use in preclinical and
clinical testing or upon attainment of benchmarks specified in collaborative
agreements.  Our results of operations vary significantly from year to year and
quarter to quarter and depend on, among other factors, the timing of payments
made by collaborative partners and the timing of contract manufacturing
activities.  The timing of our contract revenues may not match the timing of our
associated product development expenses.  As a result, research and development
expenses may exceed contract revenues in any particular period.  Furthermore,
aggregate research and development contract revenues for any product may not
offset all of our development expenses for such product.

Results of Operations

                                      24


Years Ended December 31, 1999 and 1998

Our total revenues in the year ended December 31, 1999 were $5,138,000.  Our
total revenues in the year ended December 31, 1998 were $12,625,000.  Research
and development contract revenues decreased 70% to $3,160,000 in 1999 from
$10,419,000 in 1998.  The decrease in research and development contract revenues
from 1998 to 1999 was primarily the result of a decrease in our research and
development contract revenues from Stryker because we are no longer providing
research services or supplying OP-1 to Stryker.  We anticipate that research and
development contract revenues in the year ended December 31, 2000 will be
substantially less than the comparable period in 1999.

License fees and royalties revenues increased by $42,000 to $52,000 in 1999 from
$10,000 in 1998.  The increase in license fees and royalties revenue is
partially due to royalties from Stryker and partially due to an increase in
revenue from licensing patent rights and know-how associated with certain
protein technology which is not central to our business.  We expect that royalty
revenues in the year ended December 31, 2000 will depend largely on the timing
and magnitude of royalty payments from Stryker if the OP-1 Device, currently
under regulatory review with the FDA, is approved for commercial sale.

Interest revenues decreased 12% to $1,924,000 in 1999 from $2,184,000 in 1998 in
part because we had lower average balances of cash and marketable securities and
in part because of lower interest rates in 1999, as compared to 1998.  In May
1998, we sold 25,000 shares of Series 1998/A Preferred Stock.  Net proceeds to
us, after deducting fees and other expenses of the offering, were approximately
$23,618,000.  In addition, we received approximately $19,530,000 in the fourth
quarter of 1998 from the sale of our OP-1 manufacturing-related assets to
Stryker.  As discussed further below, in May 1999 we repurchased all of the
outstanding Series 1998/A Preferred Stock for approximately $22,470,000 in cash.

Our total costs and expenses decreased 49% to $17,248,000 in 1999 from
$34,020,000 in 1998.  Research and development expenses decreased 58% to
$10,435,000 in 1999 from approximately $24,856,000 in 1998. The decrease in
research and development expenses was primarily due to the sale of certain of
our OP-1 manufacturing rights and facilities to Stryker in November 1998 and the
elimination of manufacturing and facility-related expenses with respect thereto.
We had previously reported the costs associated with such production of OP-1 as
research and development expenses.  During 1999, our research and development
expenses included research relating to the following:  (i) a renal disease
therapy as part of the Biogen collaboration, (ii) neurological disease therapies
and (iii) other indications proprietary to us.

Stryker initiated a modular PMA filing for the bone graft substitute product in
1998.  In June 1999, Stryker stated that it had completed submission of the
modular PMA to the FDA, and in July 1999 stated that the FDA had accepted the
PMA for filing.  Stryker has also submitted for European and Australian
regulatory review the OP-1 bone graft substitute product.

General and administrative expenses decreased 14% to $6,396,000 in 1999 from
$7,474,000 in 1998.  The decrease was primarily due to a reduction in external
legal and other consulting costs and a reduction in personnel-related costs.

In October 1999, we reorganized and the Board approved a plan to focus our
operations and financial resources on the development of morphogenic protein-
based clinical candidates for the treatment of stroke and renal disease. In
connection with this reorganization, we reduced our headcount from 70 to 43
employees. We recorded approximately $511,000 in operating expenses for salary
termination costs.  In addition, related to the 1998 sale of manufacturing
operations, in the fourth quarter of 1999, we determined that health insurance
claims were less than originally estimated.  This resulted in a reduction in the
loss on sale of manufacturing operations of approximately $255,000 in 1999.

                                      25


The following table summarizes the effect to the income statement of the 1999
reorganization charges and 1998 sale of manufacturing operations during 1999:

     1999 salaries and termination benefits                 $511,000
     1998 salaries and termination benefits settled for
      amounts less than anticipated                         (255,000)
                                                            --------

               Total Net                                    $256,000
                                                            ========

Interest expense decreased approximately 51% to $161,000 in 1999 from $327,000
in 1998.  The decrease in interest expense was due to a decrease in our
obligations under capital leases.  As part of the sale to Stryker of certain of
our manufacturing-related assets in November 1998, Stryker assumed $710,000 of
our obligations under equipment lease agreements and $1,727,000 of our
obligations under a facility capital lease.

As a result of the foregoing, we incurred a net loss of $12,110,000 in 1999
compared to a net loss of $21,395,000 in 1998.

Accretion and repurchase costs on Series 1998/A Preferred Stock was $2,395,000
for the year ended December 31, 1999, and included the following:  $385,000
calculated at the rate of 5% per annum of the stated value of the outstanding
Series 1998/A Preferred Stock; $144,000 of accretion of issuance costs related
to the sale of Series 1998/A Preferred Stock; and as a result of the repurchase
of the Series 1998/A Preferred Stock on May 7, 1999 (see discussion in
"Liquidity and Capital Resources" below), a one-time charge of approximately
$1,867,000 recorded in the second quarter of 1999 which represents accretion of
the Series 1998/A Preferred Stock up to its repurchase amount and accretion of
all remaining issuance costs.  Accretion on Series 1998/A Preferred Stock for
the year ended December 31, 1998 was $987,000 and includes $733,000, calculated
at the rate of 5% per annum of the stated value of the outstanding Series 1998/A
Preferred Stock from May 27, 1998 and $254,000 of accretion of issuance costs
related to the sale of Series 1998/A Preferred Stock.  As a result of the
repurchase of the Series 1998/A Preferred Stock, there will be no further
charges relating to the Series 1998/A Preferred Stock.

In computing the net loss applicable to common stockholders for the years ended
December 31, 1999 and 1998, the above mentioned accretion and repurchase costs
of the Series 1998/A Preferred Stock is included.

Years Ended December 31, 1998 and 1997

Our revenues in the year ended December 31, 1998 were $12,625,000.  Our revenues
in the year ended December 31, 1997 were $15,433,000.  Research and development
contract revenues decreased 18% from $12,693,000 in 1997 to $10,419,000 in 1998.
The decrease in research and development contract revenues from 1997 to 1998
primarily is a result of a decrease in our research activity under the research
collaboration with Biogen, partially offset by an increase in research and
development contract revenues from the supply of OP-1 to Stryker.

License fees and royalties revenues in the year ended December 31, 1998 included
$10,000 in revenue from licensing patent rights and know-how associated with
certain protein technology which is not central to our business.

Interest revenues decreased 6% from $2,331,000 in 1997 to $2,184,000 in 1998
because we had higher average balances in cash and marketable securities in 1997
than we had in 1998.  In December 1996, under the Biogen Research Agreement and
a Restricted Stock Purchase Agreement, Biogen paid to us a $10,000,000 license
fee and made an $18,000,000 equity investment in our Common Stock.  In May 1998,
we sold 25,000 shares of Series 1998/A Preferred Stock.  Net proceeds to us,
after deducting fees and other expenses of the offering, were approximately
$23,618,000.  In addition, we received approximately $20,000,000 in the fourth
quarter of 1998 from the sale of our OP-1 manufacturing related assets to
Stryker.

Our total costs and expenses, consisting primarily of research and development
expenses, increased approximately 6% from $32,085,000 in the year ended December
31, 1997, to $34,020,000 in the year ended December 31,1998.  Research and
development expenses decreased 1% from $25,122,000 in 1997 to $24,856,000 in
1998.  Our research and development expenses for 1998 were slightly less than
1997 due to the sale of our OP-1 manufacturing rights and facilities to Stryker
in November 1998 and the elimination of manufacturing and facility-related
expenses.

                                      26


General and administrative expenses increased 15% from $6,473,000 in 1997 to
$7,475,000 in 1998.  The increase primarily is due to approximately $600,000 in
increased costs associated with additions to our legal and administrative staff
and from increases in external legal and other consulting costs and from costs
associated with our administrative office.

In November 1998, we sold certain of our OP-1 manufacturing rights and
facilities to Stryker.  We expect that the sale will provide us with increased
royalties on Stryker products, if approved for commercial sale, in lieu of the
manufacturing revenue anticipated under the prior agreement.  Proceeds and
expenses associated with this transaction included the following:


Total proceeds                                                   $19,530,000
Less:
  Net book value of manufacturing related assets                  18,929,000
  Employee termination costs                                       1,438,000
  Legal, accounting and consulting costs                             525,000
                                                                --------------
Loss on sale of manufacturing operations                         $(1,362,000)
                                                                ==============


We recorded a charge of $1,362,000 in the quarter ended December 31, 1998, in
connection with this transaction.

Interest expense increased 51% from $216,000 in 1997 to $327,000 in 1998.  The
increase in interest expense is due to an increase in our obligations under an
equipment lease agreement.  As part of the sale to Stryker of the manufacturing
related assets, Stryker assumed $710,000 of our obligations under equipment
lease agreements and $1,727,000 of our obligations under a facility capital
lease.

As a result of the foregoing, we incurred a net loss of $21,395,000 in the year
ended December 31, 1998, compared to a net loss of $16,652,000 in the year ended
December 31, 1997.

Accretion on Series 1998/A Preferred Stock for the year ended December 31, 1998,
includes $733,000, calculated at the rate of 5% per annum of the stated value of
the outstanding Series 1998/A Preferred Stock from May 27, 1998 and $254,000 of
accretion of issuance costs related to the sale of Series 1998/A Preferred
Stock.  We are accreting the Series 1998/A Preferred Stock up to its conversion
value.

In computing the net loss applicable to common stockholders for the year ended
December 31, 1998, accretion of the Series 1998/A Preferred Stock mentioned
above is included.

Liquidity and Capital Resources

At December 31, 1999, our principal sources of liquidity consisted of cash, cash
equivalents and marketable securities of $21,371,000.  We have financed our
operations primarily through placements of equity securities, revenues received
under agreements with collaborative partners, manufacturing contracts and the
sale of certain of our OP-1 manufacturing rights and facilities to Stryker.

We increased our investment in property, plant and equipment to $8,625,000 at
December 31, 1999 from $7,702,000 at December 31, 1998.  We currently plan to
spend approximately $260,000 in the year ending December 31, 2000 in leasehold
improvements and equipment purchases to upgrade our research and development
capabilities.  In May 1999, we extended a master lease agreement, which was
originally entered into in October 1997, that provides for the sale and
leaseback or lease of up to $750,000 of laboratory and office equipment.  This
lease commitment expired on December 31, 1999.

On May 27, 1998, we completed a private placement with three institutional
investors for the sale of 25,000 shares of Series 1998/A Preferred Stock, with a
stated value of $1,000 per share resulting in net proceeds of approximately
$23,618,000 after expenses.  Since issuance of the Series 1998/A Preferred
Stock, the holders converted a total of 4,514 shares of Series 1998/A Preferred
Stock into 2,043,765 shares of Common Stock through May 7, 1999.  On May 7,
1999, we repurchased 20,486 shares which represented all of the outstanding
Series 1998/A Preferred Stock following final conversions, for approximately
$22,470,000 in

                                      27


cash. As a result of this transaction, the Series 1998/A Preferred Stock has
been retired and there will be no subsequent conversions into Common Stock.

In November 1998, we sold certain of our OP-1 manufacturing rights and
facilities to Stryker for total proceeds of approximately $19,530,000.  In
addition, we expect that the sale will provide us with increased royalties on
Stryker products, if approved for commercial sale, in lieu of the manufacturing
revenues anticipated under the prior agreement.  We paid approximately $647,000
of accrued costs related to the sale of the manufacturing operation, principally
for employee termination costs, in the year ended December 31, 1999.  In prior
years, we received significant revenue from Stryker for research support and the
supply of   OP-1.  As a result of the sale of these OP-1 manufacturing rights
and facilities to Stryker, we received significantly reduced research funding in
the year ended December 31, 1999 and anticipate the same in the year ending
December 31, 2000.

In December 1998, we signed the Biogen Amendment Agreement. Under the Biogen
Amendment, Biogen paid $3,000,000 to fund our research in 1999 for development
of OP-1 as a therapy for chronic renal failure. Biogen retained an option
through December 1999 to resume responsibility for development of OP-1 as a
therapy for chronic renal failure. Biogen did not exercise its option by
December 31, 1999 and has no further obligation to provide funds to us. We have
assumed all rights and responsibilities, independent of Biogen, for the
development of renal failure therapies.

We anticipate that our existing capital resources should enable us to maintain
our current and planned operations through approximately March 31, 2001.  We
expect to incur substantial additional research and development and other costs,
including costs related to preclinical studies and clinical trials.  Our ability
to continue funding planned operations is dependent upon our ability to generate
sufficient cash flow from royalties on Stryker products, if approved for
commercial sale, from collaborative arrangements and from additional funds
through equity or debt financings, or from other sources of financing, as may be
required.  We are seeking additional collaborative arrangements and also expect
to raise funds through one or more financing transactions, if conditions permit.
Over the longer term, because of our significant long-term capital requirements,
we intend to raise funds when conditions are favorable, even if we do not have
an immediate need for additional capital at such time.  If Stryker products are
not approved for commercial sale, or are approved but do not result in our
receiving significant royalty payments from Stryker, and substantial additional
funding is not available, our business will be materially and adversely
affected.

New Accounting Standards

In June 1998, the Financial Accounting Standards Board, or FASB, released
Statement of Financial Accounting Standards, or SFAS, No. 133, "Accounting for
Derivative Instruments and Hedging Activities," or SFAS No. 133, which we will
be required to adopt effective January 1, 2001.  SFAS No. 133 establishes
standards for reporting and accounting for derivative instruments, and conforms
the requirements for treatment of hedging activities across the different types
of exposures hedged.  We have not yet completed our evaluation of SFAS No. 133,
and are therefore unable to disclose the impact adoption will have on our
consolidated financial position or results of operations.

Year 2000 Compliance

We did not experience any difficulties related to the Year 2000 problem on
December 31, 1999 and are not aware of any such difficulties since that date.
Our operations have not, to date, been adversely affected by any difficulties
experienced by any of our suppliers or customers in connection with the Year
2000 problem.  The Company's Year 2000 Compliance Plan also addressed issues
related to the date February 29, 2000 and management will continue to monitor
our systems for potential difficulties for the remainder of calendar year 2000.

                                      28


Cautionary Factors with Respect to Forward-Looking Statements

This Form 10-K contains forward-looking statements which are based on
management's current expectations and which involve risks and uncertainties. Our
actual results may differ significantly from the results discussed in the
forward-looking statements. We caution investors that there is no guarantee that
the actual results or business conditions will not differ materially from those
projected or suggested in such forward-looking statements as a result of various
factors, including, but not limited to the following:

 .    Our reliance on current and prospective collaborative partners to supply
     funds for research and development and to commercialize our products;
 .    Uncertainty as to timing of and our ability to commercialize our products;
 .    Our reliance on our lead product candidate;
 .    Our lack of control over the clinical progress of several applications for
     our products, which are controlled by our collaborative partners;
 .    Our reliance on programs in various stages of preclinical development and
     early stage research;
 .    Our reliance on key management personnel;
 .    Intense competition related to the research and development of morphogenic
     and other proteins for various applications and therapies and the
     possibility that others may discover or develop, and we may not be able to
     gain rights with respect to, the technology necessary to commercialize our
     products;
 .    Our lack of development, commercial manufacturing, marketing and sales
     experience and the risk that any products that we develop may not be able
     to be marketed at acceptable prices or receive commercial acceptance in the
     markets that we expect to target;
 .    Uncertainty related to market conditions affecting the biotechnology
     industry;
 .    Uncertainty as to the extent of future government regulation of our
     business;
 .    Our lack of control over governmental approvals on our lead product;
 .    Uncertainty as to whether there will exist adequate reimbursement for our
     products from government, private health insurers and other organizations;
     and
 .    Uncertainty as to whether the merger will be approved by our shareholders
     and regulatory authorities, and if approved, whether the benefits of
     integration will be achieved.

As a result, our future development and commercialization efforts involve a high
degree of risk.  For further information, refer to the more specific risks and
uncertainties described in "Risk Factors" and throughout this annual report on
Form 10-K.

                                      29


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We invest cash balances in excess of operating requirements in short-term
marketable securities, generally corporate bonds and notes with minimum rating
of A and United States Government and agency instruments. The maturities of
these instruments range from one to twenty-nine months, with a weighted average
maturity of less than one year. All marketable securities are considered
available for sale. At December 31, 1999, the fair market value of these
securities amounted to $18,620,000, with unrealized losses of $30,800 included
as a component of stockholders' equity. If interest rates were to increase
rapidly by 5%, an event we consider unlikely, the carrying value of the
securities portfolio could decline by approximately $465,000. However, because
of the quality of the investment portfolio and the short term nature of the
marketable securities, we do not believe that the principal amount of the
securities would be impaired and, therefore, no loss would be ultimately
recognized in the statement of operations.

                                      30


Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                                           Page
Index to Consolidated Financial Statements                                Number
- ------------------------------------------                                ------

Creative BioMolecules, Inc. and Subsidiary:

     Financial Statements:

          Independent Auditors' Report....................................... 32

          Consolidated Balance Sheets........................................ 33

          Consolidated Statements of Operations.............................. 34

          Consolidated Statements of Comprehensive Loss...................... 34

          Consolidated Statements of Stockholders' Equity.................... 35

          Consolidated Statements of Cash Flows.............................. 36

          Notes to Consolidated Financial Statements......................... 37

                                      31


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
 Creative BioMolecules, Inc.

We have audited the accompanying consolidated balance sheets of Creative
BioMolecules, Inc. and its subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of operations, comprehensive loss, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999.  These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its subsidiary at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.

As discussed in Note 13 to the Consolidated Financial Statements, on February
15, 2000, the Company entered into a merger agreement with Ontogeny, Inc. and
Reprogenesis, Inc. to form Curis, Inc.

/s/ Deloitte & Touche LLP
- -------------------------
    Deloitte & Touche LLP

Boston, Massachusetts
February 15, 2000

                                      32


CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
- ----------------------------------------------
CONSOLIDATED BALANCE SHEETS
- ---------------------------
                                                          December 31,
                                               --------------------------------
                                                    1999              1998
                                                    ----              ----
ASSETS
- ------
CURRENT ASSETS:
  Cash and cash equivalents                     $   2,751,069     $  17,738,044
  Marketable securities                            18,619,516        40,197,407
  Accounts receivable                                  60,296           669,232
  Inventory                                                 -            28,733
  Prepaid expenses and other                          146,764           272,168
                                               --------------    --------------
    Total current assets                           21,577,645        58,905,584
                                               --------------    --------------

PLANT AND EQUIPMENT - net                           2,130,158         1,925,602
                                               --------------    --------------

OTHER ASSETS:
  Notes receivable - officers                               -           116,668
  Patents and licensed technology - net               951,198           375,000
  Deferred patent application costs - net           4,124,716         4,732,629
  Deposits and other                                  108,574           108,574
                                               --------------    --------------
     Total other assets                             5,184,488         5,332,871
                                               --------------    --------------
TOTAL                                           $  28,892,291     $  66,164,057
                                               ==============    ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
  Lease obligations - current portion           $     347,323     $     165,934
  Accounts payable                                    612,811         1,621,417
  Accrued liabilities                               1,895,634         2,508,161
  Accrued compensation                                944,270         1,335,692
  Deferred revenue                                    661,279         3,661,279
                                               --------------    --------------
     Total current liabilities                      4,461,317         9,292,483
                                               --------------    --------------

LEASE OBLIGATIONS                                   1,009,388           713,459
                                               --------------    --------------

COMMITMENTS

SERIES 1998/A PREFERRED STOCK, $.01 par value
 23,414 shares issued and outstanding at
 December 31, 1998, liquidation preference of
 $24,113,598 at December 31, 1998                           -        23,052,787
                                               --------------    --------------



STOCKHOLDERS' EQUITY:
  Preferred stock, $.01 par value, 10,000,000
shares authorized, 23,414 issued and
outstanding at December 31, 1998
  Common  Stock, $.01 par value, 50,000,000
shares authorized, 36,665,115 shares and
34,457,469 shares issued and outstanding at
December 31, 1999 and 1998, respectively              366,651           344,575
  Additional paid-in capital                      148,062,906       143,127,113
  Accumulated other comprehensive income              (30,801)          105,461
  Accumulated deficit                            (124,977,170)     (110,471,821)
                                               --------------    --------------
     Total stockholders' equity                    23,421,586        33,105,328
                                               --------------    --------------
TOTAL                                           $  28,892,291     $  66,164,057
                                               ==============    ==============

See notes to consolidated financial statements

                                      33


CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
- ----------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------



                                                                 Years Ended December 31,
                                                    ------------------------------------------------
                                                          1999             1998             1997
                                                          ----             ----             ----
                                                                               
REVENUES:
  Research and development contracts                  $  3,159,460     $ 10,419,071     $ 12,692,475
  Manufacturing contracts                                        -                -          393,926
  License fees and royalties                                52,400           10,000                -
  Interest                                               1,924,313        2,183,472        2,330,743
  Other                                                      1,777           12,391           15,615
                                                    ---------------  ---------------  ---------------
     Total revenues                                      5,137,950       12,624,934       15,432,759
                                                    ---------------  ---------------  ---------------
COSTS AND EXPENSES:
  Research and development                              10,434,560       24,856,147       25,122,039
  Cost of manufacturing contracts                                -                -          273,757
  General and administrative                             6,396,094        7,474,372        6,472,821
  1999 reorganization and 1998 sale of
  manufacturing operations                                 255,701        1,362,249                -
  Interest                                                 161,385          327,304          215,815
                                                    ---------------  ---------------  ---------------
     Total costs and expenses                           17,247,740       34,020,072       32,084,432
                                                    ---------------  ---------------  ---------------

NET LOSS                                               (12,109,790)     (21,395,138)     (16,651,673)
                                                    ---------------  ---------------  ---------------
ACCRETION AND REPURCHASE COSTS ON SERIES 1998/A
PREFERRED STOCK                                         (2,395,559)        (986,587)               -
                                                    ---------------  ---------------  ---------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS            $(14,505,349)    $(22,381,725)    $(16,651,673)
                                                    ===============  ===============  ===============

BASIC AND DILUTED LOSS PER COMMON SHARE                     $(0.40)          $(0.66)          $(0.50)
                                                    ===============  ===============  ===============
COMMON SHARES FOR BASIC AND DILUTED LOSS
COMPUTATION                                             36,665,115       33,672,105       33,078,120
                                                    ===============  ===============  ===============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
- ---------------------------------------------

NET LOSS                                              $(12,109,790)    $(21,395,138)    $(16,651,673)

UNREALIZED GAIN/(LOSS) ON MARKETABLE SECURITIES           (136,262)         105,461                -
                                                    ---------------  ---------------  ---------------

COMPREHENSIVE LOSS                                    $(12,246,052)    $(21,289,677)    $(16,651,673)
                                                    ===============  ===============  ===============


See notes to consolidated financial statements

                                      34


CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
- ----------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -----------------------------------------------



                                                                                                      Accumulated
                                               Common Stock          Additional                          Other
                                           --------------------       Paid-In         Accumulated    Comprehensive
                                             Shares     Amount        Capital           Deficit      Income/(Loss)        Total
                                           ----------  --------     ------------    --------------   -------------     ------------
                                                                                                     
BALANCE, JANUARY 1, 1997                   32,769,553  $327,696     $138,371,802    $ (71,438,423)   $         -       $ 67,261,075

Stock based compensation                                                 254,350                                            254,350
Other issuances of Common Stock               623,029     6,230        1,839,360                                          1,845,590
Net loss                                                                              (16,651,673)                      (16,651,673)
                                           ----------  --------     ------------    --------------   -------------     ------------

BALANCE, DECEMBER 31, 1997                 33,392,582   333,926      140,465,512      (88,090,096)             -         52,709,342

Conversions of Series 1998/A
     Preferred Stock into Common Stock        732,370     7,324        1,544,842                                          1,552,166
Stock based compensation                       48,000       480          321,520                                            322,000
Other issuances of Common Stock               284,517     2,845          795,239                                            798,084
Unrealized gain on marketable securities                                                                 105,461            105,461
Accretion on Series 1998/A Preferred Stock                                               (986,587)                         (986,587)
Net loss                                                                              (21,395,138)                      (21,395,138)
                                           ----------  --------     ------------    --------------   -------------     ------------

BALANCE, DECEMBER 31, 1998                 34,457,469   344,575      143,127,113     (110,471,821)       105,461         33,105,328

Conversions of Series 1998/A
     Preferred Stock into Common Stock      1,311,395    13,114        2,964,885                                          2,977,999
Warrant exercises into Common Stock           397,326     3,973          943,649                                            947,622
Other issuances of Common Stock               498,925     4,989          963,259                                            968,248
Stock based compensation                                                  64,000                                             64,000
Unrealized loss on marketable securities                                                                (136,262)          (136,262)
Accretion and repurchase costs on Series
     1998/A Preferred Stock                                                            (2,395,559)                       (2,395,559)
Net loss                                                                              (12,109,790)                      (12,109,790)
                                           ----------  --------     ------------    --------------   -------------     ------------

BALANCE, DECEMBER 31, 1999                 36,665,115  $366,651     $148,062,906    $(124,977,170)     $ (30,801)      $ 23,421,586
                                           ==========  ========     ============    ==============   =============     ============


See notes to consolidated financial statements

                                      35


CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
- ----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------



                                                                                    Years Ended December 31,
                                                                      ---------------------------------------------------
                                                                            1999             1998              1997
                                                                            ----             ----              ----
                                                                                                 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                $(12,109,790)    $(21,395,138)     $(16,651,673)
                                                                      ---------------- ----------------  ----------------
Adjustments to reconcile net loss to net cash used:
  Gain on disposal of manufacturing related assets                                 -         (600,839)                -
  Depreciation and amortization                                              989,490        2,485,753         2,103,906
  Compensation expense                                                        64,000          371,999           254,350
  Deferred patent and application costs                                      537,781                -           188,055
  Increase (decrease) in cash from:
    Accounts receivable                                                      608,936        3,903,286        (3,117,822)
    Inventory and prepaid expenses                                           154,137         (104,428)           16,821
    Accounts payable and accrued liabilities                              (2,012,555)       1,266,115          (653,619)
    Deferred contract revenue                                             (3,000,000)       3,661,279                 -
                                                                      ---------------- ----------------  ----------------
       Total adjustments                                                  (2,658,211)      10,983,165        (1,208,309)
                                                                      ---------------- ----------------  ----------------

    Net cash provided by (used for) operating activities                 (14,768,001)     (10,411,973)      (17,859,982)
                                                                      ---------------- ----------------  ----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities                                         (9,359,549)     (30,021,298)      (28,254,756)
Sale of marketable securities                                             30,903,094       18,368,193        11,642,181
Expenditures for plant and equipment                                        (610,013)      (2,849,288)       (2,810,611)
Expenditures for patents                                                    (776,586)      (1,120,609)       (1,131,303)
Note receivable from officer                                                       -          (10,000)          (40,000)
Repayment of note receivable from officer                                    116,668          116,667           116,666
Decrease in deposits and other                                                     -           12,549           113,020
Proceeds from sale of manufacturing related assets                                 -       17,092,322                 -
                                                                      ---------------- ----------------  ----------------

  Net cash provided by (used for) for investing activities                20,273,614        1,588,536       (20,364,803)
                                                                      ---------------- ----------------  ----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of equity:
  Series 1998/A Preferred Stock                                                    -       25,000,000                 -
  Warrant exercises                                                          947,622                -                 -
  Common Stock - other                                                       968,248          798,084         1,880,590
Costs of raising equity                                                            -       (1,381,634)          (35,000)
Repurchase of Series 1998/A Preferred Stock                              (22,470,347)               -                 -
Increase in obligations under capital leases                                 311,031          193,524           346,766
Repayments of obligations under capital leases                              (249,142)        (207,402)          (57,650)
                                                                      ---------------- ----------------  ----------------

  Net cash provided by (used for) financing activities                   (20,492,588)      24,402,572         2,134,706
                                                                      ---------------- ----------------  ----------------

NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS                                                     (14,986,975)      15,579,135       (36,090,079)

CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD                                                       17,738,044        2,158,909        38,248,988
                                                                      ---------------- ----------------  ----------------

CASH AND CASH EQUIVALENTS, END OF YEAR                                  $  2,751,069     $ 17,738,044      $  2,158,909
                                                                      ================ ================  ================

SUPPLEMENTAL DISCLOSURE OF NON CASH
INVESTING AND FINANCING ACTIVITIES:
Property and equipment purchased under capital lease obligations        $    313,512     $  1,089,164      $    135,361
                                                                      ================ ================  ================

Capital leases assumed by buyer in connection with sale of
manufacturing operations                                                $          -     $  2,437,802      $          -
                                                                      ================ ================  ================

Conversion of Series 1998/A Preferred Stock                             $  2,978,000     $  1,552,166      $          -
                                                                      ================ ================  ================


See notes to consolidated financial statements

                                      36


CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
- ----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

1.   NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Nature of Business - Creative BioMolecules, Inc. ("the Company") is a
     ------------------
     discovery and development company focused on proprietary protein-based
     therapeutics for human tissue regeneration and restoration.  The Company's
     therapeutics are based on proteins that act as signals in initiating and
     regulating the cellular events involved in tissue regeneration and organ
     formation.  The Company operates in one segment.

     Use of Estimates - The preparation of the Company's consolidated financial
     ----------------
     statements in conformity with generally accepted accounting principles
     requires management to make estimates and assumptions that affect the
     reported amounts and disclosure of certain assets and liabilities at the
     balance sheet date.  Such estimates include the collectability of
     receivables, the carrying value of property and equipment and intangible
     assets and the value of certain liabilities.  Actual results may differ
     from such estimates.

     Reclassifications - Certain amounts in prior years have been reclassified
     -----------------
     to conform to the current year presentation.

     Consolidation - The accompanying consolidated financial statements include
     -------------
     the Company and its wholly owned subsidiary, California Medicinal Chemistry
     Corporation (the "Subsidiary").  Intercompany balances are eliminated in
     consolidation.  The Subsidiary has been inactive since 1985.

     Revenue Recognition - The Company's research agreements with collaborative
     -------------------
     partners have typically provided for the partial or complete funding of
     research and development for specified projects and royalties payable to
     the Company in exchange for licenses to market resulting products or sales
     of products.  Revenue is earned and recognized based upon work performed,
     upon the sale or licensing of product rights, upon shipment of product for
     use in preclinical and clinical testing or upon attainment of benchmarks
     specified in the related agreements.

     The Company's manufacturing contracts provided for technical collaboration
     and manufacturing for third parties.  Revenue was earned and recognized
     based upon work performed.  The Company sold its manufacturing facilities
     to Stryker Corporation in November 1998 (Note 2).

     During the years ended December 31, 1999, 1998 and 1997, total revenues
     from major customers as a percent of total revenues of the Company were as
     follows:

                                              Years Ended December 31,
                                            ----------------------------
     Customer                                 1999      1998     1997
     --------                                 ----      ----     ----

     Biogen, Inc.                              95%       28%      50%
     Stryker Corporation                        3%       55%      34%

     Research and Development - Research and development costs are charged to
     ------------------------
     operations as incurred.  Certain research and development projects are
     partially funded by research and development contracts, and the expenses
     related to these activities are included in research and development costs.

                                      37


CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
- ----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

1.   NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     (CONTINUED)

     Cash Equivalents and Marketable Securities - Cash equivalents consist of
     ------------------------------------------
     short-term, highly liquid investments purchased with remaining maturities
     of three months or less.  All other liquid investments are classified as
     marketable securities.  Marketable securities have been designated as
     "available for sale" and are stated at market value with any unrealized
     holding gains or losses included as a component of stockholders' equity.

     The Company's marketable securities portfolio included approximately
     $18,620,000 and $40,197,000 in corporate bonds and notes as of December 31,
     1999 and 1998, respectively, all with maturities ranging from one to fifty-
     eight months.

     For the years ended December 31, 1999, 1998 and 1997, gross realized gains
     and losses were not material.  In computing gross realized gains and
     losses, the Company computes the cost of its investments on a specific
     identification basis.  Such cost includes the direct cost to acquire the
     securities, adjusted for the amortization of premiums or accretion of
     discounts.  At December 31, 1999, gross unrealized losses were $30,801.  At
     December 31, 1998, gross unrealized gains and losses were $126,000 and
     $21,000, respectively.  At December 31, 1997, gross unrealized gains and
     losses were not material.

     Fair Value of Financial Instruments - The estimated fair value of financial
     -----------------------------------
     instruments has been determined by the Company using available market
     information and appropriate valuation methodologies.  However, considerable
     judgment is required in interpreting data to develop the estimates of fair
     value.

     The estimated fair value of cash, accounts and notes receivable and
     accounts payable approximates fair value due to the short-term nature of
     these instruments.  The fair value of marketable securities is based on
     current market values.  The carrying amounts of the Company's lease
     obligations also approximate fair value (Note 7).

     Inventory - Inventory consists principally of raw materials and laboratory
     ---------
     supplies.  Inventories are stated at the lower of cost (first-in, first-
     out) or market.

     Equipment - Purchased equipment is recorded at cost.  Leased equipment is
     ---------
     recorded at the lesser of cost or the present value of the minimum lease
     payments.  Depreciation and amortization are provided on the straight-line
     method over the estimated useful lives of the related assets (three to
     twenty-five years) or the remaining terms of the leases.

     Patents and Licensed Technology - The Company has filed applications for
     -------------------------------
     United States and foreign patents covering aspects of its technology.
     Costs related to pending patent applications have been deferred.  Costs
     related to successful patent applications and costs related to pending
     applications from which the Company is currently deriving economic benefit,
     are amortized over the estimated useful life of the patent, generally 16 to
     20 years, using the straight-line method.  Costs related to licensed
     technology also have been deferred and are amortized over the estimated
     useful life of the underlying technology, generally 10 to 17 years, using
     the straight-line method.  Accumulated amortization was approximately
     $912,000 and $669,000 at December 31, 1999 and 1998, respectively.

                                      38


CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
- ----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

1.   NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     (CONTINUED)

     Long-lived Assets - The Company evaluates its long-lived assets for
     -----------------
     impairment whenever events or changes in circumstances indicate that
     carrying amount of such assets may not be recoverable.  Recoverability of
     assets to be held and used is measured by a comparison of the carrying
     amount of an asset to the future undiscounted net cash flows expected to be
     generated by the asset.  If such assets are considered to be impaired, the
     impairment to be recognized is measured by the amount by which the carrying
     amount of the asset exceeds the fair value of the asset.  Assets to be
     disposed of are reported at the lower of the carrying amount of fair value,
     less cost to sell.

     Basic and Diluted Loss Per Common Share - Basic loss per common share is
     ---------------------------------------
     computed after giving effect to accretion and repurchase costs on Series
     1998/A Preferred Stock using the weighted average number of common shares
     outstanding during each year.  Diluted loss per common share reflects the
     effect of the Company's outstanding options and warrants, except where such
     items would be anti-dilutive.  In 1999, 1998 and 1997, the effect of stock
     options and warrants was anti-dilutive and, therefore, not included in the
     computation of diluted loss per share.

     SFAS No. 128, "Earnings Per Share," provides that if there is a loss from
     continuing operations, a company should not include potential common shares
     in the denominator of a dilutive per share computation, even if including
     those potential common shares in other dilutive per share computations may
     be dilutive to their comparable basic per share amounts.  Therefore,
     earnings per share excludes the dilutive effect of options, warrants and
     preferred stock of 4,426,000, 8,404,000 and 2,525,000 for the years ended
     December 31, 1999, 1998 and 1997, respectively.

     Stock-Based Compensation - The Company's stock options and purchase plans
     ------------------------
     are accounted for under APB No. 25 ("APB 25"), "Accounting for Stock Issued
     to Employees" (Note 9).

     New Accounting Standards - In June 1998, the Financial Accounting Standards
     ------------------------
     Board ("FASB") released Statement of Financial Accounting Standards No.
     133, "Accounting for Derivative Instruments and Hedging Activities," which
     the Company will be required to adopt effective January 1, 2001. SFAS No.
     133 establishes standards for reporting and accounting for derivative
     instruments, and conforms the requirements for treatment of hedging
     activities across the different types of exposures hedged. The Company has
     not yet completed its evaluation of SFAS No. 133, and is, therefore unable
     to disclose the impact adoption will have on its consolidated financial
     position or results of operations.

2.   SALE OF MANUFACTURING OPERATIONS AND REORGANIZATION CHARGES

     In November 1998, the Company sold certain of its OP-1 manufacturing rights
     and facilities to Stryker. In addition to cash consideration in exchange
     for the manufacturing facility, the transaction is expected to provide the
     Company with increased royalties on Stryker products, if approved for
     commercial sale, in lieu of the manufacturing revenue anticipated under the
     prior agreement. Proceeds and expenses associated with this transaction
     include the following:

                                      39


CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
- ----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

2.   SALE OF MANUFACTURING OPERATIONS AND REORGANIZATION CHARGES
     (CONTINUED)

     Total proceeds                                        $19,530,000
     Less:
      Net book value of manufacturing related assets        18,929,000
      Employee termination costs                             1,438,000
      Legal, accounting and consulting costs                   525,000
                                                         --------------
     Loss on sale of manufacturing operations              $(1,362,000)
                                                         ==============


     As a result of this transaction, the Company recorded a charge of
     $1,362,000 in the quarter ended December 31, 1998. The charge included
     $885,000 related primarily to employee termination benefits and $548,000
     related to estimated health insurance claims on the terminated employees,
     which $903,000 remained to be paid as of December 31, 1998. During the
     quarter ended December 31, 1999, the Company determined that health
     insurance claims were less than originally estimated. This resulted in a
     reduction in the loss on sale of manufacturing operations and the related
     accrual of approximately $255,000.

     In addition, the Company recorded a charge of $64,000 and $205,000 related
     to a change in the exercise terms of stock option agreements in connection
     with the sale of manufacturing operations for the years ended December 31,
     1999 and 1998, respectively.

     Effective October 19, 1999, the Company was reorganized and the Board
     approved a plan to focus our operations and financial resources on the
     development of morphogenic protein-based clinical candidates for the
     treatment of stroke and renal disease. The reorganization charge included
     $511,000 related primarily to termination benefits in the reduction of
     employees from 70 to 43. Salaries and termination benefits, either in the
     form of one-time or periodic payments, were made when the employee ceased
     employment. These employees were in management, research and development
     and administrative support. As of December 31, 1999, there was
     approximately $95,503 of accrued costs, principally representing future
     cash outlays for employee termination costs. The Company expects to pay
     these accrued costs by June 2000.


                                        1999                   1998 Sale of
                               Reorganization Charges   Manufacturing Operations
                               ----------------------   ------------------------
Expensed                                                      $1,362,000
Paid                                                            (459,000)
Reversed                                                               -
                                                        ------------------------
Accrued at December 31, 1998                                  $  903,000
                                                        ------------------------
Expensed                             $ 511,000                         -
Paid                                  (415,000)                 (648,000)
Reversed                                     -                  (255,000)
                               ----------------------   ------------------------
Accrued at December 31, 1999         $  96,000                $        -
                               ======================   ========================

                                      40


CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
- ----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

2.  SALE OF MANUFACTURING OPERATIONS AND REORGANIZATION CHARGES
    (CONTINUED)

    The following table summarizes the effect to the income statement for
    Reorganization Charges and Sale of Manufacturing Operations for the year
    ended December 31, 1999:


          Salaries and termination benefits                         $ 511,000
          Salaries and termination benefits settled
            for amounts less than anticipated                        (255,000)
                                                                   -----------
              Total                                                 $ 256,000
                                                                   ===========

3.   COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT

     In December 1996, the Company entered into a Research Collaboration and
     License Agreement with Biogen to collaborate on the development of novel
     therapeutics based on OP-1 for the treatment of renal disorders.  The
     initial focus of the collaboration was on advancing the development of the
     Company's morphogenic protein, OP-1, for the treatment of acute and chronic
     renal failure.  Under the agreement, the Company granted to Biogen
     exclusive worldwide rights to manufacture, market and sell OP-1 and OP-1
     products developed through the collaboration for the treatment of renal
     disease. The agreement provided for $10,500,000 in research funding over a
     three-year period ending December 31, 1999, of which $7,500,000 had been
     recognized through December 31, 1998.  In December 1998, Biogen and the
     Company signed an Amendment Agreement and Biogen paid $3,000,000 in
     research support for the year ending December 31, 1999. The $3,000,000 has
     been recognized through December 31, 1999. Under the Biogen Amendment, the
     Company has assumed primary responsibility for the development of the
     Company's morphogenic protein, OP-1, for the treatment of renal disorders
     and Biogen retained an option through 1999 to resume responsibility for
     development of OP-1 as a therapy for chronic renal failure.. As of December
     31, 1999, Biogen did not exercise its option, and the Company has assumed
     all rights to OP-1 renal therapies.

4.   NOTES RECEIVABLE - OFFICERS

     In July 1997, the Company loaned $40,000 to an officer of the Company.  The
     loan was evidenced by a fully secured promissory note bearing interest at
     the annual rate of 6.65%.  Twenty-five percent of the principal and accrued
     interest was forgiven on February 7, 1998 and then an equal portion of the
     principal sum and accrued interest was to have been forgiven monthly over
     the remaining term of thirty-six months, provided the officer was employed
     by the Company.  In July 1998, the Company loaned an additional $10,000 to
     the officer.  In December 1998, as part of a severance agreement, the
     Company agreed to forgive the remaining principal of $31,700 plus accrued
     interest.  Accordingly, there was a charge of approximately $39,000 in the
     1998 statement of operations.

     In September 1996, the Company loaned $350,000 to an officer of the
     Company.  The loan was evidenced by a fully secured promissory note bearing
     interest at the annual rate of 6.02% and payable in three equal annual
     installments, plus accrued interest.  As of December 31, 1999, the loan has
     been paid in full.

     On February 8, 2000, the Company loaned to two executive officers an
     aggregate of $1,131,380, which was equal to the aggregate exercise price of
     incentive stock options exercised by them on the same date. The officers
     immediately used these funds to pay the Company the exercise price of such
     incentive stock options. These full recourse loans each bear interest at an
     annual rate of 7% and the principal is due and payable on the earlier of
     May 8, 2002 or 30 days following the sale of the stock purchased with these
     funds.


                                      41


CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
- ----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------


5.    PLANT AND EQUIPMENT




      Plant and equipment consisted of the following:

                                                                            December 31,
                                                                 -----------------------------------
                                                                       1999               1998
                                                                       ----               ----
                                                                               
      Laboratory equipment and furniture                             $ 5,564,575        $ 4,954,427
      Leasehold improvements                                             764,021            572,319
      Office furniture and equipment                                   2,296,666          2,174,991
                                                                 ----------------    ---------------
                                                                       8,625,262          7,701,737

      Less accumulated depreciation and amortization                  (6,495,104)        (5,776,135)
                                                                 ----------------    ---------------

      Total                                                          $ 2,130,158        $ 1,925,602
                                                                 ================    ===============


      Amounts included in plant and equipment applicable to capital leases were
      as follows:



                                                                            December 31,
                                                                 ----------------------------------
                                                                       1999               1998
                                                                       ----               ----
                                                                               
      Laboratory equipment and furniture                             $ 1,471,454        $   913,176
      Office furniture and equipment                                     374,683            312,024
                                                                 ----------------    ---------------

                                                                       1,846,137          1,225,200
      Less accumulated amortization                                     (519,766)          (201,094)
                                                                 ----------------    ---------------

      Total                                                          $ 1,326,371        $ 1,024,106
                                                                 ================    ===============


6.    ACCRUED LIABILITIES

      Accrued liabilities consisted of the following:



                                                                              December 31,
                                                                 -----------------------------------
                                                                       1999               1998
                                                                 ----------------    ---------------
                                                                               
      Research collaboration costs                                   $ 1,469,473        $ 1,332,291
      Severance and related costs                                         95,503            903,330
      Other                                                              330,658            272,540
                                                                 ----------------    ---------------

      Total                                                          $ 1,895,634        $ 2,508,161
                                                                 ================    ===============


                                      42


CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
- ----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

7.   LEASE OBLIGATIONS

     In October 1997, the Company entered into a master lease agreement to
     provide for the lease financing for up to $2,000,000 of laboratory and
     office equipment.  In May 1999, the Company extended the master lease
     agreement, that provides for the sale and leaseback or lease of up to
     $750,000 of laboratory and office equipment.  The lease agreements expire
     in 2002 and in 2003.  The lease commitment expired on December 31, 1999.

     The Company has noncancelable operating lease agreements for office and
     laboratory space and certain office and laboratory equipment.  Rent expense
     for all operating leases was approximately $841,000, $1,037,000 and
     $775,000 for the years ended December 31, 1999, 1998 and 1997,
     respectively.

     Future minimum lease obligations at December 31, 1999, were as follows:

               Year Ending December 31,                 Capital      Operating
     -------------------------------------------      -----------   -----------

     2000                                             $  503,395    $  735,642
     2001                                                503,395       558,489
     2002                                                460,110       274,558
     2003                                                224,867         8,483
     Thereafter                                                -             -
                                                      -----------   -----------
     Total minimum lease payments                      1,691,767    $1,577,172
     Less amount representing interest                   335,056    ===========
                                                      -----------
     Present value of net minimum lease payments       1,356,711
     Less current portion                                347,323
                                                      -----------
     Long-term obligations under capital leases       $1,009,388
                                                      ===========

8.   SERIES 1998/A PREFERRED STOCK AND WARRANTS

     On May 27, 1998 (the "Issue Date"), the Company completed a private
     placement with three institutional investors (the "Investors") for the sale
     of 25,000 shares of Series 1998/A Preferred Stock, $.01 par value per share
     (the "Series 1998/A Preferred Stock"), with a stated value of $1,000 per
     share resulting in gross proceeds of $25,000,000.  Issuance costs totaled
     approximately $1,382,000 (offset against the Series 1998/A Preferred Stock
     proceeds in the accompanying balance sheet at December 31, 1998), resulting
     in net proceeds of approximately $23,618,000.  Accretion on Series 1998/A
     Preferred Stock for the year ended December 31, 1998 was $987,000 and
     includes $733,000, calculated at the rate of 5% per annum of the stated
     value of the outstanding Series 1998/A Preferred Stock from May 27, 1998
     and $254,000 of accretion of issuance costs related to the sale of Series
     1998/A Preferred Stock.

     Through May 7, 1999 the holders converted a total of 4,514 shares of Series
     1998/A Preferred Stock into 2,043,765 shares of Common Stock.  On May 7,
     1999, we repurchased 20,486 shares, which represented all of the then
     outstanding Series 1998/A Preferred Stock following final conversions, for
     approximately $22,470,000 in cash.  Accretion and Repurchase Costs on
     Series 1998/A Preferred Stock was $21,396,000 for the year ended December
     31, 1999, and included the following:  $385,000 calculated at the rate of
     5% per annum of the stated value of the outstanding Series 1998/A Preferred
     Stock; $144,000 of accretion of issuance costs related to the sales of
     Series 1998/A Preferred Stock; and as a result of the repurchase of the
     Series 1998/A Preferred Stock on May 7, 1999, a one-time

                                      43


CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
- ----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

8.  SERIES 1998/A PREFERRED STOCK AND WARRANTS (CONTINUED)

     charge of approximately $1,867,000 recorded in the second quarter of 1999
     which represents accretion of the Series 1998/A Preferred Stock up to its
     repurchase amount and accretion of all remaining issuance costs.  As a
     result of this transaction, the Series 1998/A Preferred Stock has been
     retired and there will be no subsequent conversions into Common Stock.

     Warrants - In connection with a private placement offering in 1994 and
     1995, the Company sold 1,130,000 warrants, each to purchase one share of
     Common Stock.  Each warrant is exercisable for a period of five years from
     the date of issuance at an exercise price of $2.385. During the year ended
     December 31, 1999, 397,326 warrants were exercised.  Proceeds to the
     Company were approximately $948,000.  At December 31, 1999, warrants to
     purchase 414,270 shares of Common Stock are outstanding, while  30,000
     warrants expired unexercised in 1999.

9.   STOCK PLANS

     Stock Option Plans - In May 1987, the Company established the 1987 Stock
     Plan ("1987 Plan") and terminated the 1983 Incentive Stock Option Plan
     ("1983 Plan") such that no further grants of options could be made
     thereunder.  The 1987 Plan was subsequently amended to increase the number
     of shares of Common Stock authorized for issuance thereunder.  A total of
     6,800,000 shares of Common Stock had been reserved for issuance under the
     1987 Plan upon the exercise of options or in connection with awards or
     direct purchases of stock.  On June 30, 1999, the 1987 Plan expired.  At
     December 31, 1999, there were no shares available for grant under the 1987
     Plan.

     In April 1998, the Board of Directors adopted and in June 1998, the
     stockholders of the Company approved the 1998 Stock Plan ("1998 Plan")
     which permits the granting of incentive and non-qualified stock options.
     The number of shares of Common Stock subject to issuance under the 1998
     Plan is 3,000,000.  At December 31, 1999, 1,651,300 shares were available
     for grant under the 1998 Plan.

     Both the 1987 Plan and the 1998 Plan permit the granting of incentive and
     nonqualified stock options to consultants, employees or officers of the
     Company and its subsidiaries at prices determined by the Board of
     Directors.  Awards of stock may be made to consultants, employees or
     officers of the Company and its subsidiaries, and direct purchases of stock
     may be made by such individuals also at prices determined by the Board of
     Directors.  Options become exercisable as determined by the Board of
     Directors and expire up to ten years from the date of grant.

     Director Plan - The 1992 Non-Employee Director Non-Qualified Stock Option
     Plan ("Director Plan") provides for the granting of options to non-employee
     directors.  The Director Plan was amended and approved by the stockholders
     of the Company in June 1999 increasing the number of shares of Common Stock
     authorized for issuance under the Plan from 300,000 to 500,000 shares.  At
     December 31, 1999, 260,000 shares were available for grant under the
     Director Plan.

     On February 8, 2000, the Board of Directors approved the immediate
     acceleration of vesting of certain unvested stock options held by the
     Company's executive officers and outside directors and the extension of the
     exercise period for one year.


                                      44


CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
- ----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

9.    STOCK PLANS (CONTINUED)

     Activity under the stock option and director plans is summarized as
follows:




                                                                                                           Weighted
                                                                                                           Average
                                                                                        Number          Exercise Price
                                                                                      of Shares           Per Share
                                                                                     -------------      --------------
                                                                                                  
     Outstanding, January 1, 1997                                                      4,490,407             $4.29
     Granted                                                                             964,500              8.72
     Exercised                                                                          (301,176)             3.42
     Canceled                                                                           (137,384)             6.61
                                                                                     -------------
     Outstanding, December 31, 1997                                                    5,016,347              5.13
     (2,593,897 exercisable at a weighted average price of $4.04 per share)

     Granted                                                                           1,391,675              4.70
     Exercised                                                                          (211,923)             2.04
     Canceled                                                                           (431,294)             7.78
                                                                                     -------------
     Outstanding, December 31, 1998                                                    5,764,420              4.94
     (3,505,894 exercisable at a weighted average price of $4.53 per share)          =============


     Granted                                                                           1,161,450              3.07
     Exercised                                                                          (433,804)             1.80
     Canceled                                                                           (791,294)             6.78
                                                                                     -------------
     Outstanding, December 31, 1999                                                    5,700,772              4.54
     (3,535,297 exercisable at a weighted average price of $4.64 per share)          =============



     The table below summarizes options outstanding and exercisable at
December 31, 1999:



                                        Options Outstanding               Options Exercisable
                            -----------------------------------------  ---------------------------
                                            Weighted
                                             Average       Weighted     Exercisable     Weighted
                                            Remaining       Average        As of        Average
          Range of             Number of    Contractual     Exercise    December 31,    Exercise
       Exercise Price           Options        Life          Price         1999           Price
     ------------------     -------------  -------------  -----------  --------------  -----------
                                                                        
     $0.35 - $2.25            1,185,489         4.8          $2.01         872,739       $1.94
     $2.26 - $4.50            2,502,400         7.1           2.96       1,348,740        2.86
     $4.51 - $6.75              452,000         6.6           5.50         263,650        5.54
     $6.76 - $9.00              698,818         6.3           7.74         367,218        7.83
     Over $9.00                 862,025         5.2           9.55         682,950        9.54
                            -------------  -------------  -----------  --------------  -----------

     Total                    5,700,772         6.2          $4.54       3,535,297       $4.64
                            =============  =============  ===========  ==============  ===========


                                      45


CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
- ----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

9.   STOCK PLANS (CONTINUED)

     Employee Stock Purchase Plan - The Employee Stock Purchase Plan permits
     eligible employees to purchase Common Stock of the Company up to an
     aggregate of 750,000 shares.  During the year ended December 31, 1999,
     65,121 shares were issued under this plan at the fair market value prices
     of $2.84 and $2.95 per share; during the year ended December 31, 1998,
     105,815 shares were issued under this plan at prices of $3.90 and $2.90 per
     share and during the year ended December 31, 1997, 62,950 shares were
     issued under this plan at prices of $6.08 and $5.84 per share.  In June
     1998, the stockholders of the Company voted to amend the Employee Stock
     Purchase Plan to increase by 250,000 from 500,000 to 750,000 the aggregate
     number of shares of Common Stock which may be purchased by eligible
     employees.

     Stock-Based Compensation - As discussed in Note 1, the Company continues to
     account for its stock-based awards using the intrinsic value method in
     accordance with APB 25 and its related interpretations.  Accordingly, no
     compensation expense has been recognized in the consolidated financial
     statements at the date of grant for employee stock option arrangements. The
     Company recorded a charge of $64,000 and $205,000 related to a change in
     the exercise terms of stock option agreements in connection with the sale
     of manufacturing operations for the years ended December 31, 1999 and 1998,
     respectively.

     Under SFAS 123, "Accounting for Stock-Based Compensation," the fair value
     of stock-based awards to employees is calculated through the use of option
     pricing models, even though such models were developed to estimate the fair
     value of freely tradable, fully transferable options without vesting
     restrictions, which significantly differ from the Company's stock option
     awards.  These models also require subjective assumptions, including future
     stock price volatility and expected time to exercise, which greatly affect
     the calculated values.  The Company's calculations were made using the
     Black-Scholes option pricing model with the following assumptions: expected
     life, six months following total vesting; stock volatility, 94% in 1999 and
     1998, and 71% in 1997; risk free interest rates, 6.4% in 1999, 4.7% in 1998
     and 5.4% in 1997; and no dividends during the expected term.  The Company's
     calculations are based on a multiple option valuation approach and
     forfeitures for broad-based grants are estimated at 2% per year and
     adjusted to actual as they occur.  Forfeitures for grants to executives are
     recognized as they occur.  The weighted average fair value of options
     granted was $2.26, $3.49 and $5.11 in 1999, 1998 and 1997 respectively. If
     the computed fair values of the 1999, 1998 and 1997 awards had been
     amortized to expense over the vesting period of the awards, pro forma net
     loss would have been $14,804,644 or a net loss of $0.40 per share (basic
     and diluted) for the year ended December 31, 1999, $25,466,000 or a net
     loss of  $0.79 per share (basic and diluted) for the year ended December
     31, 1998 and $19,892,000 or a net loss of $0.60 per share (basic and
     diluted) for the year ended December 31, 1997.

     The Company also granted stock options to non-employee consultants in 1997.
     These options were valued based on the fair value of the options granted.
     Total compensation expense recognized related to these options was $254,000
     in 1997.  The Company did not grant stock options to non-employee
     consultants in 1998 and in 1999.

                                      46


CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
- ----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------


10.  INCOME TAXES

     No income tax provision or benefit has been provided for federal income tax
     purposes as the Company has incurred losses since inception.  As of
     December 31, 1999, the Company had available federal and state net
     operating loss carryforwards of approximately $81,700,000 for income tax
     purposes.  In addition, the Company had approximately $1,837,000 of unused
     investment and research and development tax credits.  These net operating
     loss and tax credit carryforwards will expire at various dates between 2000
     and 2020.

     The components of deferred income taxes at December 31, 1999 and 1998
     consisted primarily of the following:


                                                      1999             1998
                                                 --------------   --------------
     Deferred Tax Assets:
     Net operating loss carryforwards             $ 32,916,000     $ 30,600,000
     Investment credit and research and                               1,600,000
       Development tax credit carryforwards          1,837,000
     Research and development expenditures          11,929,000        9,800,000
     Other                                             124,000
                                                 --------------   --------------
     Total                                        $ 46,806,000     $ 42,000,000
     Valuation allowance                           (46,806,000)     (42,000,000)
                                                 --------------   --------------
     Net deferred tax assets                      $         -      $          -
                                                 ==============   ==============


     The Company has not yet achieved profitable operations.  In addition, the
     future availability of the Company's tax benefits may be significantly
     limited under Section 382 of the Internal Revenue Code.  Section 382 limits
     the use of net operating loss carryforwards, credit carryforwards and
     certain other tax attributes as a result of changes in a company's
     ownership.  Accordingly, management believes that the tax benefits as of
     December 31, 1999 and 1998 do not satisfy the realization criteria set
     forth in SFAS No. 109 and has recorded a valuation allowance for the entire
     net asset.

11.  ROYALTY AGREEMENTS

     The Company has entered into various license agreements which require the
     Company to pay royalties based upon a set percentage of certain product
     sales and license fee revenue subject, in some cases, to certain minimum
     amounts.  Total royalty expense approximated $23,000 for the years ended
     December 31, 1999 and 1998 and $37,000 for the year ended December 31,
     1997.

12.  RETIREMENT SAVINGS PLAN

     The Company has a 401(k) retirement savings plan covering substantially all
     of the Company's employees.  Matching Company contributions are at the
     discretion of the Board of Directors.  The Board of Directors authorized
     matching contributions up to 3% of participants' salaries amounting to
     approximately $160,000, $286,000 and $250,000 for the years ended December
     31, 1999, 1998 and 1997, respectively.

                                      47



CREATIVE BIOMOLECULES, INC. AND ITS SUBSIDIARY
- ----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------


13.  SUBSEQUENT EVENT

     On February 15, 2000, the Company announced that it will merge with
     Ontogeny, Inc., and Reprogenesis, Inc., to form a public company named
     Curis, Inc.  Under the terms of the merger, which is subject to stockholder
     approval, Creative's stockholders will receive three Curis shares for every
     ten shares of Creative Common Stock. Following completion of the
     transaction, Creative's stockholders will hold approximately 43%,
     Ontogeny's stockholders will hold approximately 38% and Reprogenesis'
     stockholders will hold approximately 19% of Curis.  Curis, the successor to
     Creative, will record the merger as a purchase of Reprogenesis and
     Ontogeny.  The merger is expected to close in June 2000.

                                      48


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

Not applicable.

                                       49


PART III

Item 10.  DIRECTORS AND OFFICERS OF THE REGISTRANT

Information Concerning Current Directors, Nominees and Executive Officers

Information regarding our executive officers and directors on February 25, 2000,
is set forth below as of that date:




Name                             Age                      Position
- ----                             ---                      --------
                                
Michael M. Tarnow..............   55  Chief Executive Officer, President and Director
Brian H. Dovey.................   58  Chairman of the Board and Director
Charles Cohen, Ph.D............   49  Chief Scientific Officer and Director
Steven L. Basta................   34  Vice President, Finance and Business Development
Carl M. Cohen, Ph.D............   54  Vice President, Research and Development
Cheryl K. Lawton...............   39  General Counsel and Vice President,
Jeremy L. Curnock Cook.........   50  Administration
Martyn D. Greenacre............   58  Director
Suzanne Denbo Jaffe............   56  Director
Michael Rosenblatt, M.D........   52  Director
James R. Tobin ................   55  Director


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

Michael M. Tarnow joined us as President, Chief Executive Officer and Director
in July 1995.  Prior to joining us, Mr. Tarnow was a career pharmaceutical
executive at Merck & Co., Inc., beginning in 1973.  From 1988 to 1990, Mr.
Tarnow headed Merck's worldwide business development activities as Executive
Director of Corporate Development.  In 1990, he was appointed President and CEO
of Merck Frosst Canada, Merck's Canadian subsidiary.  In 1994, Mr. Tarnow
returned to the United States as Executive Vice President of Medco Containment
Services and Merck Managed Care, where he was responsible for initiating managed
care programs in several international markets.  Mr. Tarnow received his J.D.
from the University of Illinois and bachelor's degree from Wayne State
University.  He also serves as a director of Novopharm Biotech, Inc., NeuroVir,
Inc. and Xenon Bioresearch, Inc.

Brian H. Dovey has served as Chairman of the Board since January 1995 and as a
member of our Board of Directors since September 1992.  Since 1988 Mr. Dovey has
been General Partner of Domain Associates, a venture capital firm, affiliates of
which are stockholders of the Company.  From 1983 to 1988, Mr. Dovey was
employed at Rorer Group Inc., now Rhone-Poulenc Rorer Inc., where he held
various management positions, most recently as President.  He also serves as a
director of Connetics Corporation, Geron Corporation, NABI, Inc., Trimeris, Inc.
and Vivus, Inc.

Charles Cohen, Ph.D., one of the founders, has served as Chief Scientific
Officer since June 1990 and as a member of our Board of Directors since April
1982.  Dr. Cohen previously served as Chief Executive Officer from January 1985
to December 1991 and from November 1993 to July 1995, President from January
1985 to December 1991 and from January to July of 1995, Chairman of the Board
from June 1990 to January 1995 and Vice President and Scientific Director from
April 1982 to January 1985.  Prior to co-founding us, he was Manager of
Biochemical Development for Waters Associates, a manufacturer of chromatography
and filtration equipment, then a subsidiary of Millipore Corporation.  He also
serves as a director of Exelixis Pharmaceuticals, Inc. and Xenon Bioresearch,
Inc.  Dr. Cohen received his Ph.D. in Basic Medical Science from New York
University School of Medicine.  Dr. Cohen served as a Research Fellow in the
University of Virginia's Department of Biophysics and Biochemistry.

Steven L. Basta has served as Vice President, Finance and Business Development,
and as our Chief Financial Officer, since January 1999.  Mr. Basta previously
served as Vice President, Corporate Development and Investor Relations from
February 1997 to January 1999.  Prior to joining us, he was associated with
Jundt

                                       50


Associates, an investment management firm, from July 1996 to December 1996. From
September 1990 to June 1996, Mr. Basta held several positions with The Immune
Response Corporation including Executive Director of Product Development from
1994 to 1996, Program Director for an HIV research joint venture from 1992 to
1993, and Director of Investor Relations and Market Development from 1991 to
1992. From 1988 to 1990, he served as an Associate with Dillon, Read & Co, Inc.
He received an M.B.A. from the Kellogg Graduate School of Management of
Northwestern University.

Carl M. Cohen, Ph.D. has served as Vice President, Research and Development
since January 1999.  Dr. Cohen previously served as Vice President, Research
from November 1997 to January 1999.  Prior to joining us, he has served as
Acting Chairman, Department of Biomedical Research since 1996, Chief, Division
of Cellular and Molecular Biology, Department of Biomedical Research from 1979
to 1997 and Associate Chairman, Department of Biomedical Research since 1983 at
St. Elizabeth's Medical Center of Boston.  In addition, he has served as a
Professor, Department of Medicine and Department of Anatomy and Cellular Biology
since 1991 at Tufts University School of Medicine.  Dr. Cohen received his Ph.D.
in Biophysics Research from Harvard University.

Cheryl K. Lawton has served as Vice President and General Counsel since January
1997 and General Counsel and Vice President, Administration since January 1999.
Prior to joining us, she served as Vice President beginning in January 1996,
General Counsel beginning in April 1995 and Associate General Counsel from May
1994 to April 1995 at MediSense, Inc., an international medical device
manufacturing company.  From November 1989 to April 1994 she held various legal
positions and last served as Assistant General Counsel at Damon Corporation, a
clinical laboratory service provider.  Ms. Lawton received her J.D. from Suffolk
University School of Law.

Jeremy L. Curnock Cook has been a member of our Board of Directors since January
1995.  He is currently a director of Rothschild Asset Management Limited which
acts as a manager to International Biotechnology Trust, of which he is also a
Director.  In 1975 Mr. Curnock Cook founded and became Managing Director of The
International Biochemical Group Ltd., a company engaged in applied
biotechnology, which was subsequently acquired by Royal Dutch/Shell Group of
Companies in 1985.  He also serves as a director of Cell Therapeutics, Ribozyme
Pharmaceuticals, Inc., Angiotech Pharmaceuticals, Inc. and Targeted Genetics
Corp.

Martyn D. Greenacre has been a member of our Board of Directors since June 1993.
He is currently Chief Executive Officer and President of Delsys Pharmaceutical
Corporation. From 1993 to 1996, Mr. Greenacre was President and Chief Executive
Officer of Zynaxis, Inc., a biopharmaceutical company. Prior to Zynaxis, from
1973 through 1992, he was with SmithKline Beecham where he held several senior
management positions, most recently as chairman of European operations. He also
serves as a director of Delsys Pharmaceutical Corp. and GENSET, S.A.

Suzanne Denbo Jaffe has been a member of our Board of Directors since January
1997.  She currently serves as President of S.D.J. Associates, Inc.  From 1994
to 1999, Ms Jaffe was Managing Director of Hamilton & Co., an investment
management consulting firm.  From 1985 to 1993 Ms. Jaffe was a Managing Director
of Angelo, Gordon & Co., L.P., a money management firm.  From 1983 to 1985 she
was Deputy Comptroller of New York State.  She served under President Reagan on
the Board of Trustees of the Social Security and Medicare Trust Funds and also
was a member of the ERISA Advisory Council of the Department of Labor.  She is
currently a director of Axel Johnson, Inc. and Research Corporation.

Michael Rosenblatt, M.D. has been a member of our Board of Directors since June
1993.  From 1992-1998, Dr. Rosenblatt served as the Robert H. Ebert Professor of
Molecular Medicine at the Harvard Medical School and the director of the
Harvard-MIT Division of Health Sciences and Technology.  He has served since
1992, and currently serves as Chief of the Division of Bone and Mineral
Metabolism at Beth Israel Deaconess Medical Center.  Since 1993, he has also
been a faculty member in the department of Biological Chemistry and Molecular
Pharmacology, Division of Medical Sciences at Harvard University.  From 1996-
1999, he was the executive director of the Carl J. Shapiro Institute for
Education and Research at Harvard Medical School and Beth Israel Deaconess
Medical Center.  Since 1996, he has been Harvard faculty dean for academic
programs at the Beth Israel Deaconess Medical Center.  He is now the President
(interim) of Beth Israel Deaconess

                                       51


Medical Center and the George R. Minot Professor of Medicine at Harvard Medical
School. Prior to 1992, Dr. Rosenblatt was the Senior Vice President for Research
at Merck Research Laboratories, a pharmaceutical company. He also serves as a
director of ArQule, Inc.

James R. Tobin has been a member of our Board of Directors since January 1995.
He is currently Chief Executive Officer and President of Boston Scientific
Corporation. He served as President and Chief Executive Officer from February
1997 to December 1998 and President and Chief Operating Officer of Biogen from
February 1994 to February 1997. Prior to joining Biogen, Mr. Tobin was with
Baxter International Inc., a health care products company, where he served as
President and Chief Operating Officer from 1992 to 1994 as Executive Vice
President from 1988 to 1992 and in various management positions prior to 1988.
He also serves as a director of Pathogenesis Corporation, Boston Scientific
Corporation and PE Corporation.

Officers are elected and serve at the discretion of the Board of Directors.
There are no family relationships among any of the directors and executive
officers of the Company.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Compliance with Section 16(a) of the Securities Exchange Act of 1934, requires
our directors and officers, and persons who own more than ten percent of our
Common Stock, to file with the Securities and Exchange Commission initial
reports of beneficial ownership and reports of changes in beneficial ownership
of our Common Stock.  Officers, directors and greater than ten-percent
beneficial owners are required by SEC regulation to furnish us with copies of
all Section 16(a) forms they file.

To our knowledge, based solely on our review of the copies of such reports
furnished to us and written representations that no other reports were required,
during the fiscal year ended December 31, 1999, all Section 16(a) filing
requirements applicable to our officers, directors and greater than ten-percent
beneficial owners were complied with.

ITEM 11.  EXECUTIVE COMPENSATION

Compensation of Directors and Executive Officers

Director Compensation

Standard Arrangements.  For their services to us, our non-employee directors of
the Company receive cash payments in the amount of an annual retainer of $10,000
and $1,000 for each Board meeting attended in person.  Non-employee directors
who are members of a committee of the Board receive $1,000 for each committee
meeting attended on a day other than a day on which a Board meeting is held.
There are no cash payments for participation in Board or committee meetings held
by telephone conference call.  Directors who are employed by us do not receive
compensation for attendance at Board or committee meetings.  Directors are
reimbursed for any expenses incurred attendant to Board membership.

Pursuant to our 1992 Non-Employee Director Non-Qualified Stock Option Plan, or
the Director Plan, provides that each non-employee director will be granted an
option to purchase 20,000 shares of Common Stock upon election to the Board of
Directors.  In addition, the Director Plan provides the grant of an annual
option to purchase 5,000 shares of Common Stock to each non-employee member of
the Board serving as of the Annual Meeting.  All of the options under the
Director Plan are granted at the fair market value of the Common Stock on the
date the option is granted. All of the options granted under the Director Plan
vest at the rate of 25% on each of the first four anniversaries after the date
of grant.

                                       52


Item 11.  EXECUTIVE COMPENSATION (CONTINUED)

Executive Compensation

Compensation which was earned for services in all capacities for the years ended
December 31, 1999, 1998 and 1997 and which we paid to or accrued for the Chief
Executive Officer during 1999 and each of our four other most highly compensated
executive officers for service rendered during such periods, is set forth in the
following table.



                                              Summary Compensation Table
                                                                                         Long-Term
                                                 Annual Compensation                Compensation Awards
                                      -----------------------------------------   ------------------------
                                                                                  Restricted   Securities
                                                                Other Annual         Stock     Underlying       All Other
                                       Salary        Bonus      Compensation        Awards       Options      Compensation
Name and Principal Position     Year   ($)(1)         ($)          ($)(2)           ($)(3)       (#)(4)            ($)
- ------------------------------  ----  --------      --------    ------------     -----------    ---------     ------------
                                                                                         
Michael M. Tarnow(5)            1999  $352,917      $200,000              -                -      200,000        $5,000 (6)
  President and                 1998   330,000       176,625              -           24,375       81,000         4,750 (6)
  Chief Executive Officer       1997   315,000       133,000     75,500 (5)                -            -         4,500 (6)

Charles Cohen, Ph.D.            1999   293,333       175,000              -                -      150,000         5,000 (6)
  Chief Scientific Officer      1998   275,000       140,375              -           14,625       67,000         4,500 (6)
                                1997   262,500       102,000              -                -            -         4,500 (6)

Carl M. Cohen, Ph.D.(7)         1999   200,000        30,000              -                -       75,000         5,000 (6)
   Vice President, Research     1998   176,000        24,000              -                -       75,000                -
    and Development             1997    29,333        10,000              -                -      100,000                -

Cheryl K. Lawton                1999   178,083        30,000              -                -       75,000         5,000 (6)
   General Counsel and Vice     1998   157,000        56,875              -           14,625      125,000         3,494 (6)
    President, Administration   1997   145,481        30,000              -                -       70,000                -

Steven L. Basta                 1999   157,583        30,000              -                -       75,000         5,000 (6)
  Vice President, Finance and   1998   131,000        37,500              -                -      125,000        25,950 (8)
  Business Development          1997   108,414        17,000              -                -       50,000        42,760 (8)

_____
(1)  The amounts shown include the individual's before-tax contributions to our
     401(k) retirement plan.

(2)  Unless included in the table, non-cash benefits were less than the lesser
     of 10% of each such person's respective cash compensation or $50,000.

(3)  Represents issue of 10,000 shares of Common Stock to Mr. Tarnow and 6,000
     shares of Common Stock each to Dr. Charles Cohen and Ms. Cheryl Lawton.

(4)  Options to purchase the number of shares shown were granted pursuant to our
     1987 Stock Plan and 1998 Stock Plan.

(5)  Mr. Tarnow joined us in July 1995.  The amounts reported as Other Annual
     Compensation in fiscal 1997 consist of reimbursed relocation and related
     expenses, including reimbursement of related income taxes.

(6)  Consists of matching 401(k) contributions.

(7)  Dr. Carl Cohen joined us in November 1997.

(8)  Mr. Basta joined us in February 1997.  The amounts reported as Other Annual
     Compensation in fiscal 1997 and 1998 consist of reimbursed relocation
     expenses.

                                       53


Option Grants

The following table shows, as to each person named, the options to purchase
Common Stock granted by us under the 1987 Stock Plan and 1998 Stock Plan in
fiscal year 1999.

                       Option Grants in Last Fiscal Year



                                                                                                   Potential Realizable Value
                                                                                                     at Assumed Annual Rates
                                                                                                   of Stock Price Appreciation
                                                     Individual Grants                                 for Option Term (2)
                                 ---------------------------------------------------------      ----------------------------------
                                                    % of Total
                                   Number of          Options
                                   Securities       Granted to
                                   Underlying        Employees      Exercise
                                     Options         in Fiscal         Price    Expiration
Name                               Granted (#)         Year         ($/Share)      Date           0% ($)       5% ($)      10% ($)
- ----                               -----------         ----         ---------   ----------        ------       ------      -------
                                                                                                    
Michael M. Tarnow                200,000 (1)(3)       17.2%          $3.00       2/12/2009        $    -      $377,337    $956,245

Charles Cohen, Ph.D.             150,000 (1)(3)       12.9%           3.00       2/12/2009             -       283,033     717,184

Carl M. Cohen, Ph.D.              75,000 (1)(3)        6.5%           3.06      11/09/2009         3,563       150,252     375,303

Cheryl K. Lawton                  75,000 (1)(3)        6.5%           3.06      11/09/2009         3,563       150,252     375,303

Steven L. Basta                   75,000 (1)(3)        6.5%           3.06      11/09/2009         3,563       150,252     375,303


- ----------

(1)  These options are stock options granted under our 1998 Stock Plan at fair
     market value.  Mr. Tarnow's and Dr. Charles Cohen's options become
     exercisable as to 25% on February 12, 2000 and thereafter vest in equal
     annual portions through February 12, 2003.  Ms. Lawton's and Mr. Basta's
     and Dr. Carl Cohen's options become exercisable as to 25% on November 9,
     2000 and thereafter vest in equal annual portions through November 9, 2003.
     These options were amended as described in note (3) below.

(2)  Amounts represent hypothetical gains that could be achieved for the
     respective options if exercised at the end of the option term.  These gains
     are based on assumed rates of stock price appreciation of 0%, 5% and 10%
     compounded annually from the date the respective options were granted.

(3)  On February 8, 2000, the Board of Directors approved amendments to certain
     stock option agreements of each of Mr. Tarnow, Dr. Charles Cohen, Dr. Carl
     Cohen, Ms. Lawton, and Mr. Basta.  The amendments provided for the
     immediate acceleration of all their unvested stock options and to provide
     that upon such person's termination of employment in connection with the
     proposed merger into Curis, all vested stock options will remain
     exerciseable for up to one year following the date of such termination.
     As of February 8, 2000:

     .    Mr. Tarnow held options to purchase 1,473,747 shares of Common Stock
          after giving effect to his exercise of options to purchase 180,243
          shares on that date;

     .    Dr. Charles Cohen held options to purchase 1,051,555 shares of Common
          Stock after giving effect to his exercise of options to purchase
          285,445 shares on that date;

     .    Dr. Carl Cohen held options to purchase 250,000 shares of Common
          Stock;

     .    Ms. Lawton held options to purchase 270,000 shares of Common Stock;
          and

     .    Mr. Basta held options to purchase 250,000 shares of Common Stock.

                                       54


Aggregated Option Exercises and Fiscal Year End Option Values

The following table shows, as to each person named, the aggregated stock options
exercised under our stock option plans in fiscal year 1999 and year-end values.


                Aggregated Option Exercises in Last Fiscal Year
                       and Fiscal Year-End Option Values




                                                              Number of
                             Shares                     Securities Underlying        Value of Unexercised
                            Acquired                     Unexercised Options         In-the-Money Options
                               on           Value      at Fiscal Year-End (#)      at Fiscal Year-End ($)(2)
                            Exercise      Realized   --------------------------   --------------------------
Name                           (#)         ($)(1)    Exercisable  Unexercisable   Exercisable  Unexercisable
- ----                        --------      --------   -----------  -------------   -----------  -------------
                                                                             
Michael M. Tarnow                  -            -     1,113,240      340,750       $1,775,707    $340,000
Charles Cohen, Ph.D.          41,667       79,167       856,750      280,250        1,271,145     255,000
Carl M. Cohen, Ph.D.               -            -        68,750      181,250           47,063     264,000
Cheryl K. Lawton                   -            -        66,250      203,750           47,063     264,000
Steven L. Basta                    -            -        56,250      193,750           47,063     264,000


(1)  Based upon the closing price of our Common Stock on various dates of
     exercise as reported by The Wall Street Journal.  The options each had an
     exercise price equal to the fair market value of our Common Stock on the
     date the options were granted.  The value realized upon exercise of the
     options resulted directly from appreciation in our stock price during the
     optionee's tenure with us.

(2)  Based upon the $4.9375 closing price of our Common Stock on December 31,
     1999, as reported by The Wall Street Journal.  The options each had an
     exercise price equal to the fair market value of our Common Stock on the
     dates the options were granted.  The valuation of the unexercised in-the-
     money options results directly from appreciation in our stock price during
     the optionee's tenure with us.


Employment Agreements

We have entered into an employment agreement with Michael M. Tarnow pursuant to
which Mr. Tarnow has agreed to serve as our President and Chief Executive
Officer at a current annual base salary of $355,000 (subject to increase), plus
an annual performance bonus at the discretion of the Board of Directors of up to
60% of his annual salary.  Our agreement with Mr. Tarnow was for an initial two-
year term ending on July 16, 1997 and thereafter for successive one year
periods, unless terminated by either party by prior written notice of at least
90 days.  Notwithstanding the foregoing, the employment agreement may be
terminated for cause.  In the event that we terminate Mr. Tarnow's employment
other than for cause or Mr. Tarnow is constructively terminated by having his
authority and role materially reduced or by no longer serving as our President
and Chief Executive Officer or as a Director, we have agreed to pay his salary
for a period of twelve months after the date of termination and have agreed to
pay a pro rata portion of his annual bonus through the date of his termination.
Pursuant to this agreement, Mr. Tarnow was granted options to purchase 1,000,000
shares of our Common Stock.  The options became exercisable as to 20%
immediately and thereafter vest in equal annual portions through July 16, 1999.

We have entered into an employment agreement with Dr. Charles Cohen pursuant to
which we retained Dr. Cohen's services at a current annual salary of $295,000
(subject to increase) and a target annual bonus of 60% of his annual salary
based on performance.  Our original agreement with Dr. Cohen was for an initial
term ending on December 31, 1993 and thereafter continues for additional periods
of one year, unless at anytime

                                       55


during the term such agreement is terminated by either party by written notice
of not less than 90 days. Notwithstanding the foregoing, the employment
agreement may be terminated for cause. In the event we terminate Dr. Cohen's
employment other than for cause, or Dr. Cohen terminates his employment as a
result of breach by us or in certain other limited circumstances constituting a
constructive termination, the Company has agreed to pay his salary at the annual
rate in effect on the date of termination for twelve months after the date of
termination or, if sooner, the date of his employment by a third party.

We have entered into an employment agreement with Dr. Carl Cohen, which
agreement provides for a current annual salary of $212,000 (subject to
increase), plus a bonus to be determined annually based upon mutually agreed
objectives.  Pursuant to this agreement, Dr. Cohen was granted stock options to
purchase 100,000 shares of Common Stock vesting annually over four years.

We have entered into an employment agreement with Cheryl K. Lawton, which
agreement provides for a current annual salary of $191,000 (subject to
increase), plus a bonus to be determined annually based upon mutually agreed
objectives.  Pursuant to this agreement, Ms. Lawton was granted stock options to
purchase 70,000 shares of Common Stock vesting annually over four years.

We have entered into an employment agreement with Steven L. Basta, which
agreement provides for a current annual salary of $170,000 (subject to
increase), plus a bonus to be determined annually based upon mutually agreed
objectives.  Pursuant to this agreement, Mr. Basta was granted stock options to
purchase 50,000 shares of Common Stock vesting annually over four years.

On February 8, 2000, the Board of Directors approved amendments to certain stock
option agreements of our directors and executive officers to provide for the
immediate acceleration of all their unvested stock options and to provide that
upon such person's termination of employment or removal from the board of
directors, as applicable, in connection with the merger into Curis, all vested
stock options will remain exerciseable for up to one year following the date of
such termination or removal, as applicable.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee are Mr. Tobin, Mr. Dovey and Dr.
Rosenblatt.  None of our executive officers is a member of the Compensation
Committee.  There are no interlocks between the members of the Compensation
Committee and our executive officers.

                                       56


Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding beneficial
ownership of our Common Stock as of March 10, 2000, by (i) each stockholder
known by us to be the beneficial owner of more than 5% of the outstanding shares
of Common Stock, (ii) each of our directors, (iii) each of our executive
officers named in the Summary Compensation Table herein, and (iv) all directors
and current executive officers as a group.  Except as otherwise indicated, we
believe that the beneficial owners of the Common Stock listed below, based on
information furnished by such owners, have sole investment and voting power with
respect to such shares.



                                                                                  Number           Percent
                                                                                 of Shares        of Class
                                                                               Beneficially     Beneficially
Name and Address of Beneficial Owner**                                           Owned(1)         Owned(1)
- --------------------------------------                                         ------------     ------------
                                                                                          
Entities associated with Apax Partners(2)...................................     3,423,022           9.0%
  15 Portland Place
  London, United Kingdom
Biotechnology Investments Limited(3)........................................     2,266,122           5.9
  St. Julian's Court
  St. Peter's Port
  Guernsey, Channel Islands
Michael M. Tarnow(4)........................................................     1,690,990           4.3
Steven L. Basta(5)..........................................................       264,449             *
Carl M. Cohen, Ph.D.(11)....................................................       250,000             *
Charles Cohen, Ph.D.(6).....................................................     1,644,830           4.2
Jeremy L. Curnock Cook(7)...................................................        50,000             *
  5 Arrows House
  St. Swithin's Lane
  London, United Kingdom
Brian H. Dovey(8)...........................................................     1,375,861           3.6
  One Palmer Square
  Princeton, NJ 08542
Martyn D. Greenacre(11).....................................................        50,000             *
Suzanne Denbo Jaffe(11).....................................................        50,000             *
Cheryl K. Lawton(9).........................................................       278,692             *
Michael Rosenblatt, M.D.(11)................................................        60,000             *
James R. Tobin(10)..........................................................        50,000
All directors and current executive officers as a group (11 Persons) (11)...     5,764,822          13.8


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

* Less than 1%
** Addresses are given for beneficial owners of more than 5% of the outstanding
Common Stock only.

                                       57


(1)  Applicable percentage of ownership is based on 38,231,502 shares of Common
     Stock outstanding as of March 10, 2000, together with applicable options or
     warrants for such stockholder. Beneficial ownership is determined in
     accordance with the rules of the Securities and Exchange Commission and
     generally includes voting or investment power with respect to securities.
     Shares of Common Stock subject to options or warrants which are currently
     exercisable or convertible or which will become exercisable or convertible
     within sixty (60) days after March 10, 2000, are deemed outstanding for
     computing the beneficial ownership of the person holding such option or
     warrant but are not outstanding for computing the beneficial ownership of
     any other person. Except as indicated by footnote, and subject to community
     property laws where applicable, the persons named in the table above have
     sole voting and investment power with respect to all shares of Common Stock
     shown as beneficially owned by them.

(2)  Includes 258,661 shares held by Banque Wormser Freres, Custodian for Apax
     CR IIA; 102,791 shares held by Banque Wormser Freres, Custodian for Apax CR
     IIC; 597,566 shares of Common Stock held by Coutts & Co (Jersey) Limited,
     Custodian for Apax Ventures II, Ltd.; 1,353,365 shares held by Apax Funds
     Nominees Ltd. "A" Account, Custodian for Apax Ventures III Trust and Apax
     Funds Nominees Ltd. "A" Account, Custodian for Apax Ventures III
     International Partners, L.P.; 1,037,583 shares held by Apax Funds Nominees
     Ltd. "B" Account, Custodian for Apax Ventures IV Trust and Apax Funds
     Nominees Ltd. "B" Account, Custodian for Apax Ventures IV International
     Partners, L.P., and 73,056 shares held by MMG Conseil (collectively
     "Entities associated with Apax Partners"). Ronald Cohen is a director of
     Apax Partners & Co. Ventures Ltd., and he may be deemed to be the
     beneficial owner of 3,126,284 shares of Common Stock (after giving effect
     to the exercise of warrants). The address for Banque Wormser Freres,
     Custodian for Apax CR IIA, Apax CR IIC and MMG Conseil, is No. 45 Avenue
     Kleber, Paris, 75116 France; the address for Coutts & Co (Jersey) Limited,
     Custodian for Apax Ventures II, Ltd., is 23/25 Broad Street, St. Helier,
     Jersey, Channel Islands, and the address for Apax Funds Nominees Ltd. "A"
     Account, Custodian for Apax Ventures III Trust and Apax Ventures III
     International Partners, L.P., and for Apax Funds Nominees Ltd. "B" Account,
     Custodian for Apax Ventures IV Trust and Apax Ventures IV International
     Partners, L.P., is 62 Green Street, London, United Kingdom. The address for
     Mr. Cohen and Apax Partners & Co. Ventures Ltd. is 15 Portland Place,
     London, United Kingdom. The information in the chart and in this footnote,
     other than the percentage of class beneficially owned, is based solely on
     information provided by counsel for the entities and persons listed in this
     footnote under a Stockholders' Agreement dated February 18, 2000.

(3)  Includes 2,266,122 shares of Common Stock beneficially owned by
     Biotechnology Investments Limited ("BIL"). Rothschild Asset Management
     Limited, a company with which Jeremy Curnock Cook is affiliated, and BIL
     have agreed to terminate Rothschild's financial advisory relationship with
     BIL in connection with BIL's reorganization.

(4)  Includes 217,243 shares of Common Stock, of which 10,000 shares are
     restricted, and 1,473,747 shares of Common Stock subject to options
     exercisable on March 10, 2000 or within 60 days thereafter.

(5)  Includes 14,449 shares of Common Stock and 250,000 shares of Common Stock
     subject to options exercisable on March 10, 2000 or within 60 days
     thereafter.

(6)  Includes 531,275 shares of Common Stock owned directly by Dr. Cohen, 50,000
     shares of Common Stock owned by Dr. Cohen's wife, 12,000 shares of Common
     Stock owned by Dr. Cohen's children, and 1,051,555 shares of Common Stock
     subject to options exercisable on March 10, 2000 or within 60 days
     thereafter.

(7)  Includes 50,000 shares of Common Stock subject to options exercisable on
     March 10, 2000 or within 60 days thereafter. Does not include 2,266,122
     shares of Common Stock beneficially owned by BIL due to the termination of
     the advisory relationship between BIL and Rothschild Asset Management

                                       58


     Limited in connection with the reorganization of BIL. Mr. Curnock Cook is
     also a shareholder, but is not an officer or director, of BIL. Rothschild
     Asset Management (C.I.) Limited is a wholly-owned subsidiary of Rothschild
     Asset Management Limited. Mr. Curnock Cook disclaims beneficial ownership
     of the shares owned by BIL. See Note 3.

(8)  Includes 1,188 shares of Common Stock owned directly by Mr. Dovey, 70,000
     shares of Common Stock subject to options exercisable on March 10, 2000 or
     within 60 days thereafter and 1,304,673 shares of Common Stock held by
     Entities associated with Domain Associates, L.L.C. Mr. Dovey is a Managing
     Member of Domain Associates, L.L.C. and a General Partner of the general
     partner of the Entities associated with Domain Associates, L.L.C. and may
     be deemed to be the beneficial owner of shares owned by the Entities
     associated with Domain Associates, L.L.C. Does not include 2,266,122 shares
     of Common Stock beneficially owned by BIL. Domain Associates is the U.S.
     venture capital advisor to BIL. Domain Associates has neither voting nor
     investment power over the shares owned by BIL and Mr. Dovey disclaims
     beneficial ownership of the shares owned by BIL. See Note 3.

(9)  Includes 8,692 shares of Common Stock and 270,000 shares of Common Stock
     subject to options exercisable on March 10, 2000 or within 60 days
     thereafter.

(10) Includes shares of Common Stock subject to options exercisable on March 10,
     2000 or within 60 days thereafter. Does not include shares owned by Biogen,
     Inc. Mr. Tobin was a Director, President and Chief Executive Officer of
     Biogen until December 1998. Mr. Tobin disclaims beneficial ownership of the
     shares owned by Biogen.

(11) Includes shares of Common Stock subject to options exercisable on March 10,
     2000 or within 60 days thereafter.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain Transactions

In November 1998, we sold to Stryker Corporation, certain manufacturing rights
and assigned certain obligations relating to the use and manufacture of OP-1 for
orthopaedic and dental reconstruction.  As part of that transaction, Stryker
assumed all of our rights and obligations relating to the manufacturing contract
with Biogen, executed in 1994 and extended through December 1999, to produce in
our manufacturing facility in West Lebanon, New Hampshire several of Biogen's
protein-based therapeutic candidates for use in Biogen's clinical trials.  James
R. Tobin, one of our directors since January 1995, was President and Chief
Executive Officer of Biogen until December 1998.

In December 1994 and January 1995, we, as part of a private placement, issued
warrants exercisable for a period of five years from the date of issuance at an
exercise price of $2.385 per share.  The investors who held warrants included,
among others, certain beneficial owners of more than 5% of the Common Stock.
During the year ended December 31, 1999, the Entities associated with APAX
Partners and Biotechnology Investments Limited exercised 372,326 and 100,584
warrants, respectively, at $2.385 per share.  At December 31, 1999, warrants to
purchase 414,270 shares of Common Stock were outstanding; none of which were
held by investors who own more than 5% of the Common Stock.

In September 1996, we loaned $350,000 to Michael M. Tarnow, President and Chief
Executive Officer of the Company.  The loan was evidenced by a fully secured
promissory note bearing interest at the annual rate of 6.02% and payable in
three equal annual installments, plus accrued interest.  As of December 31,
1999, the loan has been paid in full.

In December 1996, we entered into a Research Collaboration and License Agreement
with Biogen to collaborate on the development of novel therapeutics based on OP-
1 for the treatment of renal disorders. The initial focus of the collaboration
was on advancing the development of our morphogenic protein, OP-1, for the
treatment of acute and chronic renal failure.  Under the agreement, we granted
to Biogen exclusive worldwide

                                       59


rights to manufacture, market and sell OP-1 and OP-1 products developed through
the collaboration for the treatment of renal disease. Biogen paid us a
$10,000,000 license fee in 1996 and made an $18,000,000 equity investment which
were recorded in the quarter ended December 31, 1996. In addition, the agreement
provided for $10,500,000 in research funding over a three year period ending
December 31, 1999, of which $7,500,000 was recognized through December 31, 1998.
In December 1998, we and Biogen revised the terms of the Agreement. We assumed
primary responsibility for the development of OP-1 for the treatment of renal
disorders. Biogen provided $3,000,000 in research support during 1999 and
retained an option through 1999 to resume development of OP-1 as a therapy for
chronic renal failure. As of December 31, 1999, Biogen did not exercise its
option, and we assumed all rights to OP-1 based renal therapies.

On February 8, 2000 we loaned an aggregate amount of $1,131,380 to Michael
Tarnow and Charles Cohen, Ph.D., both executive officers of the Company. The
loan was used by these individuals to exercise incentive stock options on the
same date. The amount of the loan was equal to the aggregate exercise price of
the incentive stock options acquired by them on that day. These full recourse
loans each bear interest at an annual rate of 7% and the principal is due and
payable on the earlier of May 8, 2002 or 30 days following the sale of the stock
purchased with these funds.

As of March 10, 2000, the holders of approximately four million shares of
outstanding or issuable Common Stock, or the Registrable Securities, are
entitled to certain rights to register such shares under the Securities Act for
sale to the public.  The holders of Registrable Securities include, among
others, Entities associated with Apax Partners, BIL, Entities associated with
Domain Associates, and Biogen.  Under the terms of the Second Amended and
Restated Registration Rights Agreement dated as of January 31, 1992, as amended,
in the event we propose at any time to register any of our securities under the
Securities Act for sale for our own account, such holder shall be entitled to
include shares of Common Stock in such registration.  Such holders have the
additional right to require us, on not more than three occasions, whether or not
we propose to register any of our Common Stock for sale, to register all or part
of their shares for sale to the public under the Securities Act, subject to
certain conditions and limitations.  In addition, holders of Registrable
Securities may require the Company to register all or part of their shares on
Form S-3 (or a successor short form of registration) if we then qualify for use
of such form, subject to certain conditions and limitations.

We have had equity transactions with BIL, Entities associated with Apax
Partners, Dr. Hale individually, Entities associated with Domain Associates and
Biogen, as described above. Mr. Curnock Cook, one of our directors, is a
director of Rothschild Asset Management Limited, which was an advisor to BIL and
to Rothschild Asset Management (C.I.) Limited, which was the manager of BIL. Mr.
Dovey, one of our directors, is a General Partner of Domain Associates and a
General Partner of the general partner of the Entities associated with Domain
Associates. Mr. Tobin, one of our directors, was President and Chief Executive
Officer of Biogen until December 1998.

                                       60


PART IV

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

Item 14 (a)  The following documents are filed as part of this Annual Report on
             Form 10-K.

  14(a)(1)   Financial Statements
             --------------------

             See "Index to Consolidated Financial Statements" at Item 8 in this
             Annual Report on Form 10-K.

14(a)(2)     Financial Statement Schedules and Other Financial Statements
             ------------------------------------------------------------

             Financial statement schedules have not been included because they
             are not applicable or the information is included in the financial
             statements or notes thereto.

  14(a)(3)   Exhibits - See 14 (c) below.
             --------

Item 14(b)   Reports on Form 8-K
             --------------------

             No reports on Form 8-K were filed during the three month period
             ended December 31, 1999.

Item 14 (c)  Exhibits
             --------

             The following is a list of exhibits filed as part of this Annual
             Report on Form 10-K:

             3.1  Restated Certificate of Incorporation, as amended, of the
                  Registrant. (Filed as Exhibit 3.1 to Registrant's Annual
                  Report on Form 10-K for the period ended September 30, 1995
                  (File No. 0- 19910), and incorporated herein by reference.)

             3.2  Restated By-Laws of the Registrant. (Filed as Exhibit 3.4 to
                  Form S-1 Registration Statement (Registration No. 33-46200),
                  or amendments thereto, and incorporated herein by
                  reference.)

             3.3  Certificate of Designations of the Series 1998/A Preferred
                  Stock. (Filed as Exhibit 3.3 to Registrant's Report on Form
                  8-K for the May 27, 1998 Event (File No.    0-19910), and
                  incorporated herein by reference.)

             4.1  Article FOURTH of the Restated Certificate of Incorporation
                  of the Registrant, as amended (see Exhibit 3.1).

             10.1 Second Amended and Restated Registration Rights Agreement,
                  dated as of January 31, 1992. (Filed as Exhibit 10.4 to Form
                  S-1 Registration Statement (Registration No. 33-46200), or
                  amendments thereto, and incorporated herein by reference.)

             10.2 Amendment No. 1 to Second Amended and Restated Registration
                  Rights Agreement, dated as of December 23, 1994, by and
                  between the Registrant and certain of its Stockholders, and
                  Instruments of Adherence to the Second Amended and Restated
                  Registration Rights Agreement. (Filed as Exhibit 10.51 to
                  Registrant's Quarterly Report on Form 10-Q for the period
                  ended December 31, 1994 (File No. 0-19910), and incorporated
                  herein by reference.)

                                       61


            10.3  Amendment No. 2 to Second Amended and Restated Registration
                  Rights Agreement, dated as of May 24, 1996, by and between
                  the Registrant and certain of its Stockholders. (Filed as
                  Exhibit 10.1 to Form S-3 Registration Statement
                  (Registration No. 333- 5477), and incorporated herein by
                  reference.)

            10.4  Amendment No. 3 to Second Amended and Restated Registration
                  Rights Agreement, dated as of December 9, 1996, by and
                  between the Registrant and certain of its Stockholders.
                  (Filed as Exhibit 10.4 to Registrant's Annual Report on Form
                  10-K for the period ended December 31, 1996 (File No.
                  0-19910), and incorporated herein by reference.)

           #10.5  Master Restructuring Agreement, dated as of October 15, 1998,
                  between the Registrant and Stryker Corporation. (Filed as
                  Exhibit 10.10 to the Registrant's Annual Report on Form 10-K
                  for the period ended December 31, 1998 (File No. 0-19910) and
                  incorporated herein by reference.)

           #10.6  Asset Purchase Agreement, dated as of October 15, 1998,
                  between the Registrant and Stryker Corporation. (Filed as
                  Exhibit 10.11 to the Registrant's Annual Report on Form 10-K
                  for the period ended December 31, 1998 (File No. 0-19910), and
                  incorporated herein by reference.)

           #10.7  Creative Irrevocable License Agreement dated November 20, 1998
                  between the Registrant and Stryker Corporation.

           #10.8  Stryker Irrevocable License Agreement dated November 20, 1998
                  between the Registrant and Stryker Corporation.

           #10.9  Assignment from Creative to Stryker dated November 20, 1998.

            10.10 Common Stock Purchase Warrant, dated June 1, 1987, issued by
                  the Registrant to Phoenix Leasing Incorporated. (Filed as
                  Exhibit 10.24 to Form S-1 Registration Statement (Registration
                  No. 33-42159), or amendments thereto, and incorporated herein
                  by reference.)

            10.11 Real Estate Standard Form Industrial Lease, dated as of
                  October 24, 1988, as amended September 17, 1991, by and
                  between WRC Properties, Inc. and the Registrant. (Filed as
                  Exhibit 10.26 to Form S-1 Registration Statement (Registration
                  No. 33-42159), or amendments thereto, and incorporated herein
                  by reference.)

            10.12 Second Amendment, dated January 28, 1994, to Standard Form
                  Industrial Lease dated October 24, 1988, as amended
                  September 17, 1991, by and between the Registrant and WRC
                  Properties, Inc. (Filed as Exhibit 10.15 to Registrant's
                  Annual Report on Form 10- K for the period ended September
                  30, 1994 (File No. 0-19910), and incorporated herein by
                  reference.)

            10.13 Third Amendment, dated September 20, 1994, to Standard Form
                  Industrial Lease dated October 24, 1988, as amended
                  September 17, 1991 and January 28, 1994, by and between the
                  Registrant and WRC Properties, Inc. (Filed as Exhibit 10.16
                  to Registrant's Annual Report on Form 10-K for the period
                  ended September 30, 1994 (File No. 0-19910), and
                  incorporated herein by reference.)

            10.14 Fourth Amendment, dated April 10, 1997, to Standard Form
                  Industrial Lease dated October 24, 1988, as amended
                  September 17, 1991, January 28, 1994 and September 20, 1994,
                  by and between the Registrant and WRC Properties, Inc.
                  (Filed as Exhibit 10.53 to Registrant's Quarterly Report on
                  Form 10-Q for the period ended June 30, 1997 (File No.
                  0-19910), and incorporated herein by reference.)


                                       62


            10.15 Standard Form Industrial Lease, dated February 25, 1992, by
                  and between the Registrant and WRC Properties, Inc. (Filed
                  as Exhibit 10.52 to Form S-1 Registration Statement
                  (Registration No. 33-46200), or amendments thereto, and
                  incorporated herein by reference.)

            10.16 Partial Lease Termination Agreement and Amendment to Lease,
                  dated February 28, 1999, between Creative and W9/TIB Real
                  Estate Limited Partnership (as successor in interest to WRC
                  Properties, Inc.)

            10.17 First Amendment, dated February 28, 1994, to Standard Form
                  Industrial Lease dated February 25, 1992 by and between the
                  Registrant and WRC Properties, Inc. (Filed as
                  Exhibit 10.32 to Registrant's Annual Report on Form 10-K for
                  the period ended September 30, 1995 (File No. 0-19910), and
                  incorporated herein by reference.)

            10.18 Second Amendment, dated September 20, 1994, to Standard
                  Form Industrial Lease dated February 25, 1992, as amended
                  February 28, 1994, by and between the Registrant and WRC
                  Properties, Inc. (Filed as Exhibit 10.33 to Registrant's
                  Annual Report on Form 10- K for the period ended September
                  30, 1995 (File No. 0-19910), and incorporated herein by
                  reference.)

            10.19 Third Amendment, dated April 10, 1997, to Standard Form
                  Industrial Lease dated February 25, 1992, as amended
                  February 28, 1994 and September 20, 1994, by and between the
                  Registrant and WRC Properties, Inc. (Filed as Exhibit 10.54
                  to Registrant's Quarterly Report on Form 10-Q for the period
                  ended June 30, 1997 (File No. 0-19910), and incorporated
                  herein by reference.)

           #10.20 CBM Cross-License Agreement, dated as of November 26,
                  1993, between Enzon, Inc. and the Registrant. (Filed as
                  Exhibit 10.42 to Registrant's Quarterly Report on Form 10-Q
                  for the period ended December 31, 1993 (File No. 0-19910),
                  and incorporated herein by reference.)

           #10.21 Enzon Cross-License Agreement, dated as of November 26,
                  1993, between Enzon, Inc. and the Registrant. (Filed as
                  Exhibit 10.43 to Registrant's Quarterly Report on Form 10-Q
                  for the period ended December 31, 1993 (File No. 0-19910),
                  and incorporated herein by reference.)

           10.22  Exclusive Marketing Agreement, dated as of November 26,
                  1993, between Enzon, Inc. and the Registrant. (Filed as
                  Exhibit 10.44 to Registrant's Quarterly Report on Form 10-Q
                  for the period ended December 31, 1993 (Filed No. 0-19910),
                  and incorporated herein by reference.)

           10.23  Form of Preferred Stock and Warrant Purchase Agreement,
                  with Exhibits thereto, signed by the Registrant and the
                  persons listed on the Schedule attached at the end of the
                  Form of Preferred Stock and Warrant Purchase Agreement.
                  (Filed as Exhibit 10.52 to Registrant's Quarterly Report on
                  Form 10-Q for the period ended December 31, 1994 (File No.
                  0-19910), and incorporated herein by reference.)

           10.24  Form of Warrant issued by the Registrant to the persons
                  listed on the Schedule attached at the end of the Form of
                  Warrant on various dates between December 23, 1994 and
                  January 25, 1995. (Filed as Exhibit 10.53 to Registrant's
                  Quarterly Report on Form 10-Q for the period ended December
                  31, 1994 (File No. 0-19910), and incorporated herein by
                  reference.)

                                       63



           #10.25 Cross-License Agreement, dated as of July 15, 1996, between
                  the Registrant, Genetics Institute, Inc. and Stryker
                  Corporation. (Filed as Exhibit 10.1 to the Quarterly Report on
                  Form 10-Q for the period ended September 30, 1996 of Genetics
                  Institute, Inc. (File No. 0-14587), filed with the Securities
                  and Exchange Commission on November 6, 1996 and incorporated
                  herein by reference.)

           #10.26 Research Collaboration and License Agreement, dated
                  December 9, 1996, between the Registrant and Biogen, Inc.
                  (Filed as Exhibit 10.37 to Registrant's Annual Report on
                  Form 10-K for the period ended December 31, 1996 (File No.
                  0-19910), and incorporated herein by reference.)

            10.27 Amendment Agreement, dated December 30, 1998, by and between
                  the Registrant and Biogen, Inc. (Filed as Exhibit 10.38 to the
                  Registrant's Report on Form 10-K for the period ended December
                  31, 1998 (File No. 0-19910), and incorporated herein by
                  reference.)

            10.28 Restricted Stock Purchase Agreement, dated December 9, 1996,
                  between the Registrant and Biogen, Inc. (Filed as Exhibit
                  10.38 to Registrant's Annual Report on Form 10-K for the
                  period ended December 31, 1996 (File No. 0-19910), and
                  incorporated herein by reference.)

            10.29 Lease, dated June 16, 1997, by and between the Registrant and
                  The Prudential Insurance Company of America. (Filed as Exhibit
                  10.55 to Registrant's Quarterly Report on Form 10-Q for the
                  period ended June 30, 1997 (File No. 0-19910), and
                  incorporated herein by reference.)

            10.30 First Amendment, dated August 10, 1998, to Lease dated April
                  10, 1997, between the Registrant and The Prudential Insurance
                  Company of America. (Filed as Exhibit 10.56 to Registrant's
                  Quarterly Report on Form 10-Q for the period ended September
                  30, 1998 (File No. 0-19910), and incorporated herein by
                  reference.)

            10.31 Master Lease Agreement, dated October 6, 1997, by and between
                  the Registrant and FINOVA Technology Finance, Inc. (Filed as
                  Exhibit 10.38 to Registrant's Annual Report on Form 10-K for
                  the period ended December 31, 1997 (File No. 0-19910), and
                  incorporated herein by reference).

            10.32 Form of Subscription Agreement dated May 29, 1998. (Filed as
                  Exhibit 10.54 to Registrant's Report on Form 8-K for the May
                  27, 1998 Event (File No. 0-19910), and incorporated herein by
                  reference.)

           *10.33 1983 Incentive Stock Option Plan, amended as of September 11,
                  1984. (Filed as Exhibit 10.34 to Form S-1 Registration
                  Statement (Registration No. 33-42159), or amendments thereto,
                  and incorporated herein by reference.)

           *10.34 1987 Stock Plan, as amended on May 20, 1997. (Filed as Exhibit
                  10.52 to Registrant's Quarterly Report on Form 10-Q for the
                  period ended June 30, 1997 (File No. 0-19910), and
                  incorporated herein by reference.)

                                       64



           *10.35 Employee Stock Purchase Plan, as amended on April 16, 1998.
                  (Filed as Exhibit 10.41 to Registrant's Quarterly Report on
                  Form 10-Q for the period ended June 30, 1998 (File No. 0-
                  19910), and incorporated herein by reference.)

           *10.36 1992 Non-Employee Director Non-Qualified Stock Option Plan, as
                  amended on March 20, 1996. (Filed as Exhibit 10.25 to
                  Registrant's Quarterly Report on Form 10-Q for the period
                  ended March 31, 1996 (File No. 0-19910), and incorporated
                  herein by reference.)

            10.37 1998 Stock Plan. (Filed as Exhibit to Registrant's Preliminary
                  Proxy Statement for 1998 Annual Meeting of Stockholders (File
                  No. 0-19910), and incorporated herein by reference.)

           *10.38 Form of Employment Agreement with confidentiality provisions.
                  (Filed as Exhibit 10.31 to Form S-1 Registration Statement
                  (Registration No. 33-42159), or amendments thereto, and
                  incorporated herein by reference.)

           *10.39 Employment Agreement, dated as of January 2, 1992, between
                  Charles Cohen, Ph.D. and the Registrant. (Filed as Exhibit
                  10.47 to Form S-1 Registration Statement (Registration No. 33-
                  46200), or amendments thereto, and incorporated herein by
                  reference.)

           *10.40 Employment Agreement, dated February 25, 1992, between Wayne
                  E. Mayhew III and the Registrant. (Filed as Exhibit 10.51 to
                  Form S-1 Registration Statement (Registration No. 33-46200),
                  or amendments thereto, and incorporated herein by reference.)

           *10.41 Employment Agreement, dated July 17, 1995, between Michael M.
                  Tarnow and the Registrant. (Filed as Exhibit 99.1 to
                  Registrant's Report on Form 8-K for the August 31, 1995 Event
                  (File No. 0-19910), and incorporated herein by reference.)

           *10.42 Employment Agreement, dated May 21, 1996, between Thomas J.
                  Facklam, Ph.D. and the Registrant. (Filed as Exhibit 99.2 to
                  Registrant's Report on Form 8-K for the June 3, 1996 Event
                  (File No. 0-19910), and incorporated herein by reference.)

           *10.43 $350,000 Promissory Note, dated September 6, 1996, from
                  Michael Tarnow to the Registrant. (Filed as Exhibit 10.56 to
                  Registrant's Quarterly Report on Form 10-Q for the period
                  ended September 30, 1997 (File No. 0-19910), and incorporated
                  herein by reference.)

           *10.44 Employment Agreement, dated January 13, 1997, between Cheryl
                  K. Lawton and the Registrant. (Filed as Exhibit 10.50 to
                  Registrant's Quarterly Report on Form 10-Q for the period
                  ended March 31, 1997 (File No. 0-19910), and incorporated
                  herein by reference.)

           *10.45 Employment Agreement, dated February 18, 1997, between Steven
                  L. Basta and the Registrant. (Filed as Exhibit 10.51 to
                  Registrant's Quarterly Report on Form 10-Q for the period
                  ended March 31, 1997 (File No. 0-19910), and incorporated
                  herein by reference.)

           *10.46 Employment Agreement, dated September 17, 1997, between Carl
                  M. Cohen, Ph.D., and the Registrant. (Filed as Exhibit 10.53
                  to Registrant's Annual Report on Form 10-K for the period
                  ended December 31, 1997 (File No. 0-19910), and incorporated
                  herein by reference.)

                                       65



            21    Subsidiaries of the Registrant. (Filed as Exhibit 22 to
                  Form S-1 Registration Statement (Registration No. 33-42159),
                  or amendments thereto, and incorporated herein by reference.)

            23.1  Independent Auditors' Consent.

            27    Financial Data Schedule.

The Registrant will supply the Commission, upon request, with  copies of all
exhibits and schedules to exhibits listed above, as to which such exhibits and
schedules have not been included herein.

*    Management contract or compensatory plan or arrangement required to be
     filed as an exhibit to this Form 10-K.

#    Documents with certain confidential information deleted.

                                       66


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hopkinton,
Massachusetts, on March 13, 2000.

CREATIVE BIOMOLECULES, INC.



By:  /s/ Steven L. Basta
     ----------------------------------------------------
         Steven L. Basta
         Vice President, Finance and Business Development

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


Signature                     Capacity                            Date
- ---------                     --------                            ----

/s/ Brian H. Dovey            Chairman of the Board and Director  March 13, 2000
- ----------------------------
    Brian H. Dovey

/s/ Michael M. Tarnow         President and Chief Executive       March 13, 2000
- ---------------------------- Officer
    Michael M. Tarnow        and Director (principal executive
                             officer)

/s/ Charles Cohen, Ph.D.      Chief Scientific Officer and        March 13, 2000
- ---------------------------- Director
    Charles Cohen, Ph.D.

/s/ Steven L. Basta           Vice President, Finance and         March 13, 2000
- ---------------------------- Business Development
    Steven L. Basta          Treasurer (principal financial
                             officer)

/s/ Susan M. Letterie         Director of Accounting (principal   March 13, 2000
- ---------------------------- accounting officer)
    Susan M. Letterie

                              Director                            March 13, 2000
- ----------------------------
    Jeremy L. Curnock Cook

/s/ Martyn D. Greenacre       Director                            March 13, 2000
- ----------------------------
    Martyn D. Greenacre

/s/ Suzanne D. Jaffe          Director                            March 13, 2000
- ----------------------------
    Suzanne D. Jaffe

/s/ Michael Rosenblatt, M.D.  Director                            March 13, 2000
- ----------------------------
    Michael Rosenblatt, M.D.

/s/ James R. Tobin            Director                            March 13, 2000
- ----------------------------
    James R. Tobin

                                       67

EX-10.7

                                                                    EXHIBIT 10.7

                                    CREATIVE
                          IRREVOCABLE LICENSE AGREEMENT

     This Agreement, dated November 20, 1998 by and between Creative
BioMolecules, Inc., a Delaware corporation with its principal office at 35 South
Street, Hopkinton, Massachusetts 01748 ("CBM") and Stryker Corporation, a
Michigan corporation with its corporate office at 2725 Fairfield Road, P.O. Box
4085, Kalamazoo, Michigan 49003-4085 ("Stryker").

     WHEREAS, the patents and patent applications listed on Schedule 1 attached
hereto have been assigned to Stryker by CBM; and

     WHEREAS, it is the intention of Stryker, by this Irrevocable License
Agreement, to grant to CBM an exclusive license under the Assigned Patent
Rights, subject, however, to the exclusive rights of Stryker in the Stryker
Field (as such terms are defined herein);

     NOW, THEREFORE, in consideration of the foregoing, and of the assignment of
the Assigned Patent Rights by CBM to Stryker, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties, intending to be legally bound, hereby agree as follows:

     1.   Definitions. As used herein, the following words shall have the
          -----------
following meanings:

          a. "Assigned Patent Rights" shall mean (i) the patents and patent
     applications listed on Schedule 1 attached hereto, (ii) any patent
     applications and patents deemed to be Assigned Patents pursuant to Section
     4.2 of the Master Agreement, and (iii) all worldwide counterparts and
     registrations, continuations, divisions, reissues, extensions or
     supplementary protection certificates, continuations-in-part or additions
     (but only to the extent such continuations-in-part or additions claim
     inventions disclosed as required by 35 U.S.C. (S)112 (CIPs) or the
     applicable laws (additions) in the parent application therefor listed in
     Schedule 1) with respect thereto, and all patents issuing therefrom.


          b. "Biological Materials" shall mean any biological materials, assays,
     substances or reagents, including without limitation transformed or
     transfected cells (including any cell expressing an OP Product or any
     analog, mutation or heterodimer thereof), cell lines, DNA sequences,
     vectors, host cells, proteins, antibodies and any fragments or subcellular
     components thereof.

          c.  "Bone Diseases" shall mean Osteoporosis, Osteomalacia and Paget's
     Disease.

          d. "OP" shall mean proteins (or the active sites thereof) or
     polypeptides or combinations of proteins and polypeptides which produce an
     osteogenic effect.

          e. "OP Products" shall mean OP and polyclonal or monoclonal antibodies
     of OP and specific inhibitors or inhibitory activities of the osteogenic
     effect of OP, which inhibitors or inhibitory activities are found and
     identified as such in the course of the Research Project (as defined in the
     Second Amended and Restated Research, Development and Supply Agreement,
     dated May 17, 1991, between CBM and Stryker, as amended).

          f.  "OP Devices" shall mean the combination of OP Products with
     suitably biocompatible and biodegradable carriers.

          g. "Bone Disease Field" shall mean the prevention or treatment of the
     Bone Diseases other than (i) by the local application of OP Products and OP
     Devices in an insoluble formulation directly on bone or joint tissue for
     local, as opposed to general or systemic, effect and (ii) the treatment of
     fractures regardless of whether they result from a Bone Disease.

          h. "Stryker Manufacturing Know-How" means all inventions, know-how,
     Biological Materials, designs, trade secrets, copyrights, processes,
     formulas, techniques, discoveries, ideas and the like that, as of the
     Closing Date (as defined in the Master Agreement), are owned by Stryker or
     as to which Stryker has acquired rights which are

                                       2


     licensable hereunder, that are necessary or useful in the manufacture of OP
     Products or OP Devices.

          i. "Stryker Field" shall mean the field of (i) treatment, repair or
     replacement of bone and joint tissue, including, without limitation,
     meniscus and articular cartilage and ligaments and tendons, but excluding
     the Bone Disease Field, and (ii) treatment, repair or replacement of the
     tooth, dentin, alveolar bone, cementum, enamel, gingiva (to the extent, but
     only to the extent, the gingiva functions as part of the apparatus holding
     the tooth to the jaw) and/or periodontal ligament, but excluding the
     treatment of Oral Ulcerations (as defined below) or any other disease or
     disorder of the tissues of the mouth not involving the tooth, dentin, bone
     (including alveolar bone), cementum, enamel, gingiva (to the extent, but
     only to the extent, the gingiva functions as part of the apparatus holding
     the tooth to the jaw), ligament (including the periodontal ligament),
     tendon and/or cartilage.

          As used herein, "Oral Ulcerations" means the formation of lesions on
     the surface of skin lining the oral cavity caused by loss of tissue but
     does not include Periodontal Disease (as defined below) or any other
     disease or disorder involving the tooth, dentin, bone (including alveolar
     bone), cementum, enamel, gingiva (to the extent, but only to the extent,
     the gingiva functions as part of the apparatus holding the tooth to the
     jaw), ligament (including the periodontal ligament), tendon and/or
     cartilage.

          As used herein, "Periodontal Disease" means degeneration of the
     apparatus holding the tooth to the jaw involving damage to any or all of
     the gingiva (to the extent, but only to the extent, the gingiva functions
     as part of the apparatus holding the tooth to the jaw), alveolar bone,
     cementum, enamel and periodontal ligament.

          j.  "Creative Field" means all uses and applications other than the
     Stryker Field.  The Creative Field includes, without limitation, the Bone
     Disease Field.

                                       3


          k.  "Master Agreement" means the Master Restructuring Agreement dated
     October 15, 1998 between Stryker and CBM.

     2. Grant of Exclusive License. Stryker hereby grants to CBM an irrevocable,
        --------------------------
exclusive, worldwide license, with the unrestricted right to grant sublicenses,
to all of the Assigned Patent Rights for all uses and applications of all
inventions claimed therein, except for the manufacture, use, importation and
sale of OP Products and OP Devices for use in the Stryker Field, which grant
shall be exclusive even as to Stryker, with respect to the Creative Field, it
being understood that Stryker retains the exclusive right to manufacture, use,
import and sell OP Products and OP Devices for use in the Stryker Field. Such
license shall not be terminable by Stryker or any successor, assign or any party
claiming through Stryker under any circumstances or for any reason (including,
without limitation, any breach or default under any other agreement between
Stryker and CBM).

     3. Grant of Non-Exclusive License. Stryker hereby grants to CBM an
        ------------------------------
irrevocable, non-exclusive, worldwide license, with the unrestricted right to
grant sublicenses under all Stryker Manufacturing Know-How solely for use (a) in
the manufacture of OP, OP Products or products or devices formulated with OP for
use in the Creative Field, and (b) in the manufacture of proteins or
polypeptides (or combinations of proteins or polypeptides) other than OP.

     4. Retained Rights. Notwithstanding Section 2, Stryker hereby retains for
        ---------------
itself the right to use OP Products and OP Devices as research and development
tools for the development of other products and devices for use in the Stryker
Field. Nothing in the license granted to Creative hereunder shall preclude
Stryker from engaging in the development, production and sale of products and
devices in the Stryker Field.

     5.   Recording of License. Stryker shall record this license in the United
          --------------------
States Patent and Trademark Office and such other foreign patent offices as CBM
shall determine to be appropriate.

                                       4


     6.   Miscellaneous.
          -------------
          a. This Agreement may only be amended by a written instrument signed
     by both parties, which makes specific reference to this Agreement.

          b. CBM may assign this Agreement without the consent of Stryker. This
     Agreement shall be binding upon and shall inure to the benefit of CBM and
     Stryker and their respective successors and assigns.

          c.  This Agreement is governed by the laws of the State of Delaware.

          d.  This Agreement shall supersede the Irrevocable License Agreement
     dated May 17, 1991 between Stryker and CBM.

     IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the date first above written.

CREATIVE BIOMOLECULES, INC.              STRYKER CORPORATION


By: /s/ Michael M. Tarnow                By:  /s/ REK
    ----------------------------              ---------------------------
Title:  President and CEO                Title: Assistant Secretary
        ------------------------                -------------------------

                                       5

EX-10.8

                                                                    EXHIBIT 10.8
                                     STRYKER
                          IRREVOCABLE LICENSE AGREEMENT

     This Agreement, dated November 20, 1998 by and between Creative
BioMolecules, Inc., a Delaware corporation with its principal office at 35 South
Street, Hopkinton, Massachusetts 01748 ("CBM") and Stryker Corporation, a
Michigan corporation with its corporate office at 2725 Fairfield Road, P.O. Box
4085, Kalamazoo, Michigan 49003-4085 ("Stryker").

     WHEREAS, the patents and patent applications listed on Schedule 1 attached
hereto are owned by CBM; and

     WHEREAS, it is the intention of CBM, by this Irrevocable License Agreement,
to grant to Stryker an exclusive license under the Patent Rights Licensed to
Stryker in the Stryker Field (as such terms are defined herein);

     NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:

     1.   Definitions. As used herein, the following words shall have the
          -----------
following meanings:

          a. "Patent Rights Licensed to Stryker" shall mean (i) the patents and
     applications listed on Schedule 1 attached hereto, (ii) any patent
     applications and patents deemed to be Patent Rights Licensed to Stryker
     pursuant to Section 4.6 of the Master Agreement, and (iii) all worldwide
     counterparts and registrations, continuations, divisions, reissues,
     extensions or supplementary protection certificates, continuations-in-part
     or additions (but only to the extent such continuations-in-part or
     additions claim inventions disclosed as required by 35 U.S.C. (S)112 (CIPs)
     or the applicable laws (additions) in the parent application therefor
     listed in Schedule 1) with respect thereto, and all patents issuing
     therefrom.


          b. "Biological Materials" shall mean any biological materials, assays,
     substances or reagents, including without limitation transformed or
     transfected cells (including any cell expressing an OP Product or an
     analog, mutation or heterodimer thereof conceived, made, developed or
     reduced to practice as part of the Research Project (as defined in the
     Master Agreement)), cell lines, DNA sequences, vectors, host cells,
     proteins, antibodies and any fragments or subcellular components thereof.

          c.  "Bone Diseases" shall mean Osteoporosis, Osteomalacia and Paget's
     Disease.

          d. "OP" shall mean proteins (or the active sites thereof) or
     polypeptides or combinations of proteins and polypeptides which produce an
     osteogenic effect.

          e. "OP Products" shall mean OP and polyclonal or monoclonal antibodies
     of OP and specific inhibitors or inhibitory activities of the osteogenic
     effect of OP, which inhibitors or inhibitory activities are found and
     identified as such in the course of the Research Project (as defined in the
     Second Amended and Restated Research, Development and Supply Agreement,
     dated May 17, 1991, between CBM and Stryker, as amended).

          f.  "OP Devices" shall mean the combination of OP Products with
     suitably biocompatible and biodegradable carriers.

          g. "Bone Disease Field" shall mean the prevention or treatment of the
     Bone Diseases other than (i) by the local application of OP Products and OP
     Devices in an insoluble formulation directly on bone or joint tissue for
     local, as opposed to general or systemic, effect and (ii) the treatment of
     fractures regardless of whether they result from a Bone Disease.

          h. "Creative Manufacturing Know-How" means all inventions, know-how,
     Biological Materials (including, without limitation, any cell line
     expressing an analog of OP-1 conceived, made, developed or reduced to
     practice as part of the Current Scope(s)

                                       2


     of Work conducted pursuant to Section 4.2 of the Master Agreement),
     designs, trade secrets, copyrights, processes, formulas, techniques,
     discoveries, ideas and the like that, as of the Closing Date (as defined in
     the Master Agreement), are owned by CBM or as to which CBM has acquired
     rights which are licensable hereunder, that are necessary or useful in the
     manufacture OP Products or OP Devices.

          i. "Stryker Field" shall mean the field of (i) treatment, repair or
     replacement of bone and joint tissue, including, without limitation,
     meniscus and articular cartilage and ligaments and tendons, but excluding
     the Bone Disease Field, and (ii) treatment, repair or replacement of the
     tooth, dentin, alveolar bone, cementum, enamel, gingiva (to the extent, but
     only to the extent, the gingiva functions as part of the apparatus holding
     the tooth to the jaw) and/or periodontal ligament, but excluding the
     treatment of Oral Ulcerations (as defined below) or any other disease or
     disorder of the tissues of the mouth not involving the tooth, dentin, bone
     (including alveolar bone), cementum, enamel, gingiva (to the extent, but
     only to the extent, the gingiva functions as part of the apparatus holding
     the tooth to the jaw), ligament (including the periodontal ligament),
     tendon and/or cartilage.

          As used herein, "Oral Ulcerations" means the formation of lesions on
     the surface of skin lining the oral cavity caused by loss of tissue but
     does not include Periodontal Disease (as defined below) or any other
     disease or disorder involving the tooth, dentin, bone (including alveolar
     bone), cementum, enamel, gingiva (to the extent, but only to the extent,
     the gingiva functions as part of the apparatus holding the tooth to the
     jaw), ligament (including the periodontal ligament), tendon and/or
     cartilage.

          As used herein, "Periodontal Disease" means degeneration of the
     apparatus holding the tooth to the jaw involving damage to any or all of
     the gingiva (to the extent, but only to the extent, the gingiva functions
     as part of the apparatus holding the tooth to the jaw), alveolar bone,
     cementum, enamel and periodontal ligament.

                                       3


          j.  "Master Agreement" means the Master Restructuring Agreement dated
     October 15, 1998 between Stryker and CBM.

     2. Grant of Exclusive License. CBM hereby grants to Stryker an irrevocable,
        --------------------------
exclusive, worldwide license, with the unrestricted right to grant sublicenses,
to all of the Patent Rights Licensed to Stryker solely for the manufacture, use,
importation and sale of OP Products and OP Devices in the Stryker Field, which
grant shall be exclusive, even as to CBM, with respect to the Stryker Field, it
being understood that CBM retains the exclusive right to manufacture, use,
import and sell OP Products and OP Devices for use in all fields other than the
Stryker Field. Such license shall not be terminable by CBM or any successor,
assign or any party claiming through CBM under any circumstances or for any
reason (including, without limitation, any breach or default under any other
agreement between Stryker and CBM).

     3. Grant of Non-Exclusive License. CBM hereby grants to Stryker an
        ------------------------------
irrevocable, non-exclusive, worldwide license, with the unrestricted right to
grant sublicenses under all Creative Manufacturing Know-How, solely for use (a)
in the manufacture of OP Products and OP Devices for use in the Stryker Field,
(b) in the manufacture of OP Products and OP Devices for Creative and (c) in the
manufacture of proteins or polypeptides (or combinations of proteins or
polypeptides) other than OP.

     4. Retained Rights. Notwithstanding Section 2, CBM hereby retains for
        ---------------
itself the right to use OP Products and OP Devices as research and development
tools for the development of other products and devices for use in the Creative
Field. Nothing in the license granted to Stryker hereunder shall preclude CBM
from engaging in the development, production and sale of products and devices in
the Creative Field.

     5.   Recording of License.  CBM shall record this license in the United
          --------------------
States Patent and Trademark Office and such other foreign patent offices as
Stryker shall determine to be appropriate.

                                      4



     6.   Miscellaneous.
          -------------
          a. This Agreement may only be amended by a written instrument signed
     by both parties, which makes specific reference to this Agreement.

          b. Stryker may assign this Agreement without the consent of CBM. This
     Agreement shall be binding upon and shall inure to the benefit of CBM and
     Stryker and their respective successors and assigns.

          c.  This Agreement is governed by the laws of the State of Delaware.

     IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the date first above written.

CREATIVE BIOMOLECULES, INC.              STRYKER CORPORATION


By: /s/ Michael Tarnow                   By: /s/ John S. Brown
    ----------------------------             ------------------------------
Title: President and CEO                 Title: Chairman, President and CEO
       -------------------------                ---------------------------

                                      5

EX-10.9

                                                                    EXHIBIT 10.9

                                   ASSIGNMENT
                                   ----------

          Creative BioMolecules, Inc., a Delaware corporation, having a place of
business at 35 South Street, Hopkinton, MA, in consideration of One Dollar and
other valuable consideration paid to it by Stryker Corporation, a Michigan
corporation, having a principal place of business at 2725 Fairfield Road,
Kalamazoo, MI, the receipt of which is hereby acknowledged, does hereby sell,
assign and transfer unto said Stryker Corporation, its successors and assigns,
its entire right, title and interest for the United States of America and all
foreign countries, including all rights of priority under the International
Convention for the Protection of Industrial Property, in the inventions and
improvements disclosed in the U.S., foreign, and PCT applications listed in
Schedule A attached hereto, and in all Letters Patent of the United States and
all foreign countries which have been or shall be granted on said inventions, or
any parts thereof, or on said applications, or any divisions, continuations,
reissues, extensions or other applications based in whole or in part thereon.
And CBM agrees, for itself and its successors and assigns, with said Stryker
Corporation and its successors and assigns, but at its or their expense and
charges, hereafter to execute all applications, amended specifications, deeds or
other instruments, and to do all acts necessary or proper to secure the grant of
Letters Patent in the United States and in all other countries to said Stryker
Corporation, with specifications and claims in such form as shall be approved by
the counsel of said Stryker Corporation and to vest and confirm in said Stryker
Corporation, its successors and assigns, the legal title to all such patents and
to otherwise give full effect to and perfect the rights of said Stryker
Corporation under this Assignment.

          And it does hereby authorize and request competent authorities to
issue such Letters Patent as shall be granted upon said applications to said
Stryker Corporation, its successors and assigns.

          WITNESS its hand and seal this 20th day of November, 1998.

                                        Creative BioMolecules, Inc.


                                        By: /s/ Michael M. Tarnow
                                            ----------------------------
                                            Michael M. Tarnow
                                            President
State of Massachusetts
County of Suffolk


          Then personally appeared the above-named Michael M. Tarnow, to me
known and known to me to be the person who executed the foregoing instrument,
and acknowledged it to be his free act and deed, before me, this 19th day of
November, 1998.


                                        /s/ Gabrielle A. Brousseau
                                        --------------------------------
                                        Notary Public
                                        My Commission Expires: 6/23/2000

EX-10.16

                                                                   Exhibit 10.16

                      PARTIAL LEASE TERMINATION AGREEMENT
                            AND AMENDMENT TO LEASE

     This Partial Lease Termination Agreement and Amendment to Lease (this
"Agreement") is hereby entered into as of the 28th day of February, 1999 (the
"Early Termination Date") by and between W9/TIB REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership having an address c/o Archon Group, L.P., 1275 K
Street, N.W., Suite 900, Washington, D.C. 20005 ("Landlord"), and CREATIVE
BIOMOLECULES, INC., a Delaware corporation having an address at 35 South Street,
Hopkinton, Massachusetts 01748 ("Tenant").

     WHEREAS, WRC Properties, Inc. (the "Original Landlord"), as lessor, and
Tenant, as lessee, entered into that certain Standard Form Industrial Lease
dated October 24, 1988 (the "Original Lease"), by which the Original Landlord
leased to Tenant a portion of the building (the "Building") located at and
numbered 35 South Street, Hopkinton, Massachusetts 01748 consisting of
approximately 33,098 square feet of floor area on the first floor of the
Building (the "Original Premises"), as more particularly described in Article 1
of and Exhibit A attached to the Original Lease.

      WHEREAS, the Original Landlord and Tenant entered into that certain
Lease Amendment dated September 17, 1991 (the "First Amendment"), by which the
Original Landlord and Tenant agreed, among other things, to extend the term of
the Original Lease so as to expire on August 31, 1994 and by which the Original
Landlord agreed to lease to Tenant and Tenant agreed to lease from the Original
Landlord an additional 5,970 square feet of floor area on the first floor of the
Building (the "First Amendment Premises").

     WHEREAS, the Original Landlord and Tenant entered into that certain Second
Amendment dated January 28, 1994 (the "Second Amendment"), by which the Original
Landlord and Tenant agreed, among other things, to extend the term of the
Original Lease as amended by the First Amendment so as to expire on June 30,
1995 and by which the Original Landlord agreed to lease to Tenant and Tenant
agreed to lease from the Original Landlord an additional 15,135 square feet of
floor area on the first floor of the Building (the "Second Amendment Premises").

     WHEREAS, the Original Landlord and Tenant entered into that certain Third
Amendment dated September 20, 1994 (the "Third Amendment"), by which the
Original Landlord and Tenant agreed, among other things, to extend the term of
the Original Lease as amended by the First Amendment and the Second Amendment
so as to expire on June 30, 1998.

    WHEREAS, the Original Landlord and Tenant entered into that certain Fourth
Amendment dated April 10, 1994 (the "Fourth Amendment"), by which the Original
Landlord and Tenant agreed, among other things, to extend the term of the
Original Lease as amended by the First Amendment, the Second Amendment and the
Third Amendment so as to expire on June 30, 2001.



     WHEREAS, the Original Premises, the First Amendment Premises and the Second
Amendment Premises are herein referred to collectively as the "Premises".

     WHEREAS, the Premises consists of approximately 54,203 rentable square feet
of floor area.

     WHEREAS, the Original Lease, as amended by the First Amendment, the Second
Amendment, the Third Amendment and the Fourth Amendment, is hereinafter referred
to as the "Lease".

     WHEREAS, the current term of the Lease expires on June 30, 2001.

     WHEREAS, Landlord has succeeded to the interest of the Original Landlord as
owner of the Building and the land upon which it is located and as lessor under
the Lease.

     WHEREAS, Landlord and Tenant have agreed to early termination of the Lease
with respect to a portion of the Premises consisting of approximately 33,000
rentable square feet of floor area on the first floor of the Building as shown
on Exhibit A attached hereto and incorporated herein by this reference (the
"Terminated Premises") and have agreed to otherwise amend the Lease pursuant to
the terms and provisions of this Agreement.

     WHEREAS, simultaneously with the execution and delivery of this Agreement,
Landlord, as lessor, and Stryker Corporation, a Michigan corporation
("Stryker"), as lessee, have entered into that certain lease (the "Stryker
Lease") dated as of the date hereof, by which Landlord has leased to Stryker the
Terminated Premises.

     NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and in the lease, Landlord and Tenant hereby agree as follows:

     1.   Notwithstanding anything in the Lease to the contrary, the term of the
Lease with respect to the Terminated Premises only shall expire on the Early
Termination Date, subject, however, to Tenant's obligation pursuant to the terms
and provisions of the Lease to pay base rent, Lessee's Pro Rata Share of real
estate taxes, Lessee's Pro Rata Share of operating expenses and Lessee's Pro
Rata Share of insurance expenses, each with respect to the Terminated Premises
for the period on and prior to the Early Termination Date, which obligation
shall survive the expiration of the term of the lease with respect to the
Terminated Premises. Therefore, commencing with the first day following the
Early Termination Date through the expiration or earlier termination of the term
of the Lease, the premises leased by Tenant under the lease as modified by this
Agreement shall be a portion of the first floor of the Building consisting of
approximately 21,203 rentable square feet of floor area as shown on Exhibit B
attached hereto and incorporated herein by this reference (the "Retained
Premises").

     2.   On or prior to the Early Termination Date, Tenant shall deliver to
Landlord the Terminated Premises and surrender the same in their "as is"
condition as of the date hereof except with all of Tenant's equipment, trade
fixtures and other personal property removed therefrom.

                                      -2-


     3.   Effective as of the first day after the Early Termination Date through
the end of the term of the Lease, the base rent shall be $127,218.00 per year,
payable in equal monthly installments of $10,601.50 (prorated for the month in
which the Early Termination Date occurs if the Early Termination Date is not the
first day of such month).

     4.   Effective as of the first day after the Early Termination Date through
the end of the term of the Lease, "Lessee's Pro Rata Share" (as defined in
Article I and Article XX of the Lease) shall be changed from "78.65%" to
"30.73%".

     5.   Effective from and after the first day following the Early
Termination Date, any references in the Lease to the Terminated Premises shall
be deleted in their entirety such that (i) except with respect to such
obligations which are attributable to periods on or prior to the Early
Termination Date, Landlord shall have no further obligations to Tenant with
respect to the Terminated Premises after the Early Termination Date, and (ii)
except as otherwise expressly provided in paragraph 1 of this Agreement and
except with respect to such obligations which are attributable to periods on or
prior to the Early Termination Date, Tenant shall have no further obligations to
Landlord with respect to the Terminated Premises after the Early Termination
Date.

     6.   Paragraph 3 of the Fourth Amendment is hereby deleted in its entirety.
Landlord and Tenant acknowledge and agree that, notwithstanding anything in the
Lease to the contrary, Tenant shall have no right to extend the term of the
Lease beyond June 30, 2001.

     7.   Paragraph 4 of the Fourth Amendment is hereby deleted in its entirety.
Landlord and Tenant acknowledge and agree that, notwithstanding anything in the
Lease to the contrary, Tenant shall have no rights to expand its leased premises
and no rights of first offer or first refusal with respect to other space in the
Building.

     8.   Pursuant to Article XXI of the Lease, Tenant has deposited with
Landlord a security deposit in the amount $18,479.72 (the "Security Deposit").
Within thirty (30) days after the Early Termination Date, Landlord shall return
to Tenant a portion of the Security Deposit in the amount of $11,250.87, such
that, on and after the return of such amount of $11,250.87, the amount of the
Security Deposit being held by Landlord will be $7,228.85.

     9.   Pursuant to Article XVIII of the Lease, any notice from Tenant to
Landlord required or permitted under the Lease or this Agreement shall be
addressed to Landlord as follows:

          "W9/TIB Real Estate Limited Partnership
          c/o Archon Group, L.P.
          K Street, N.S., Suite 900
          Washington, D.C. 20005"

     10.  Pursuant to Article XVIII of the Lease, any notice from Landlord to
Tenant required or permitted under the Lease or this Agreement shall be
addressed to Tenant as follows:



                                      -3-


                "Creative Biomolecules, Inc.
                101 Huntington Avenue
                Boston, Massachusetts 02199
                Attention: Cheryl K. Lawton, Esquire"

        11. Notwithstanding anything in the Lease or this Agreement to the
contrary, Tenant shall have (i) the right to sublease and/or permit occupancy of
all or any part of the Retained Premises to Stryker or any Affiliate of Stryker
at any time and from time to time for such periods as Tenant may deem
appropriate and/or (ii) the right to permit Stryker or any Affiliate of Stryker
to access such areas within the Retained Premises as Tenant may deem
appropriate. The foregoing rights of Tenant shall only be effective during such
times as Stryker or any Affiliate of Stryker is occupying all or any material
portion (i.e., ten percent (10%) or more) of the Terminated Premises pursuant to
         ----
the Stryker Lease. As used herein, the phrase "any Affiliate of Stryker" shall
mean any entity which, directly or indirectly, controls, is controlled by or is
under common control with Stryker.


        12. Notwithstanding anything in the Lease or this Agreement to the
contrary, Tenant agrees that (i) there shall not be more than 79 Occupants (as
defined in Article XXV of the Lease) of the Retained Premises at any time and
(ii) discharges from the Retained Premises into the sewer system (as defined in
Article XXV of the Lease) shall not exceed 1,182 gallons per day.

        13. Submission of the Agreement for examination or signature by Tenant
does not constitute a binding agreement, and this Agreement shall not be
effective unless and until execution and delivery thereof by both Landlord and
Tenant.

        14. In all other respects, Landlord and Tenant hereby reaffirm all of
the covenants, agreements, terms, conditions and other provisions of the Lease
except as modified hereby, and the Lease is hereby incorporated in full herein
by this reference. The terms and provisions of this Agreement shall be effective
as of the date first above written, except may otherwise be expressly provided
herein.

                                     -4-




     IN WITNESS WHEREOF, Landlord and Tenant have executed this Partial Lease
Termination Agreement and Amendment to Lease as a sealed instrument as of the
date first above written.

                                  LANDLORD:

                                  W9/TIB REAL ESTATE LIMITED
                                  PARTNERSHIP

                                  By:  W9/TIB GEN-PAR INC., its General
                                       Partner

                                       By: /s/ Stephen M. Abelman
                                          -------------------------------
                                       Name: Stephen M. Abelman
                                            -----------------------------
                                       Title: Assistant Vice President
                                             ----------------------------

                                  TENANT:

                                  CREATIVE BIOMOLECULES, INC.

                                  By: /s/ Cheryl K. Lawton
                                     -------------------------------
                                  Name: Cheryl K. Lawton
                                       -----------------------------
                                  Title: General Counsel and Vice
                                         President Administration
                                        ----------------------------

                                      -5-




                                   EXHIBIT A
                                   ---------

                     PLAN SHOWING THE TERMINATED PREMISES
                     ------------------------------------


                       [Floor plan graphic appears here]


                                     -6-



                                   EXHIBIT B

                      PLAN SHOWING THE RETAINED PREMISES
                      ----------------------------------

                        [Floor plan graphic shown here]

                                     -7-

EX-23.1

                                                                    Exhibit 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement Nos. 33-
68084, 33-83276, 33-91150 and 333-58219 on Form S-3 and Registration Statement
Nos. 33-56706, 33-61884, 33-80945, 333-36171, 333-36175, 333-69463, 333-84511
and 333-84507 on Form S-8 of Creative BioMolecules, Inc. report dated February
15, 2000 (which expresses an unqualified opinion and includes an emphasis of a
matter in a paragraph relating to the potential merger described in Note 13),
appearing in the Annual Report on Form    10-K of Creative BioMolecules, Inc.
for the year ended December 31, 1999.

/s/ Deloitte & Touche LLP
- -------------------------
    Deloitte & Touche LLP


Boston, Massachusetts
March 6, 2000

EX-27

 



<ARTICLE> 5

                                                  
<PERIOD-TYPE>                   12-MOS                   12-MOS
<FISCAL-YEAR-END>                          DEC-31-1999             DEC-31-1998
<PERIOD-START>                             JAN-01-1999             JAN-01-1998
<PERIOD-END>                               DEC-31-1999             DEC-31-1998
<CASH>                                       2,751,069              17,738,044
<SECURITIES>                                18,619,516              40,197,407
<RECEIVABLES>                                   60,296                 669,232
<ALLOWANCES>                                         0                       0
<INVENTORY>                                          0                  28,733
<CURRENT-ASSETS>                            21,577,645              58,905,584
<PP&E>                                       2,130,158               1,925,602
<DEPRECIATION>                                       0                       0
<TOTAL-ASSETS>                              28,892,291              66,164,057
<CURRENT-LIABILITIES>                        4,461,317               9,292,483
<BONDS>                                              0                       0
<PREFERRED-MANDATORY>                                0              23,052,787
<PREFERRED>                                          0                       0
<COMMON>                                       366,651                 344,575
<OTHER-SE>                                  23,054,935              32,760,753
<TOTAL-LIABILITY-AND-EQUITY>                28,892,291              66,164,057
<SALES>                                              0                       0
<TOTAL-REVENUES>                             5,137,950              12,624,934
<CGS>                                                0                       0
<TOTAL-COSTS>                               17,247,740              34,020,072
<OTHER-EXPENSES>                                     0                       0
<LOSS-PROVISION>                                     0                       0
<INTEREST-EXPENSE>                             161,385                 327,304
<INCOME-PRETAX>                                      0                       0
<INCOME-TAX>                                         0                       0
<INCOME-CONTINUING>                                  0                       0
<DISCONTINUED>                                       0                       0
<EXTRAORDINARY>                                      0                       0
<CHANGES>                                            0                       0
<NET-INCOME>                              (14,505,349)            (22,381,725)
<EPS-BASIC>                                     (0.40)                  (0.66)
<EPS-DILUTED>                                   (0.40)                  (0.66)