The Kindred
(1987)

John is a medical student.  His mother was a famous medical researcher.  On her deathbed, she reveals that she continued to do illicit experiments in a secret lab beneath her house.  She asks him to destroy the lab, with all her data.  John goes to the house with a few friends.  They learn that the mother was experimenting with human animal hybrids, and used John's tissues to create "Anthony".  Anthony is some type of human/sea creature hybrid.  Anthony looks like a tall E.T. with tentacles.  Anthony begins to attack and kill John's friends.

Melissa is behaving very oddly, and trying to prevent them from killing Anthony.  It turns out that Melissa is also a human animal hybrid created by a rival researcher (Rod Steiger).  Anthony kills Melissa, and she turns back into some half human sea creature.

The rival researcher shows up.  He needs Anthony alive to figure out how the mother's research succeeded where his failed.  He ends up killed by Anthony.

John and his friends kill Anthony.  They discover in the basement many jars of miniature Anthony's growing.  They pour gasoline and sent the house up in a huge fireball to kill all the creatures.   

Thanks Joseph C!