UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _________.
Commission File Number 0-21863
-------
EPIX Medical, Inc.
------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
Delaware 04-3030815
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
71 Rogers Street
Cambridge, Massachusetts 02142
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 499-1400
------------
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 [ ]
As of May 1, 1997, 8,678,294 shares of the registrant's Common Stock, $.01
par value per share, were issued and outstanding.
<PAGE>
EPIX MEDICAL, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Balance Sheets - March 31, 1997 and December 31, 1996 ........ 3
Statements of Operations - Three Months Ended
March 31, 1997 and 1996 ..................................... 4
Statements of Cash Flows - Three Months Ended March 31, 1997
and 1996..................................................... 5
Notes to Condensed Financial Statements ....................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................. 10
Signatures............................................................. 11
2
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------------- -------------
(Unaudited)
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 3,790,377 $ 2,667,892
Marketable securities 18,780,637 7,996,186
Accounts receivable 293,180
Prepaid expenses 155,481 57,135
Other current assets 11,634 12,221
------------- -------------
Total current assets 23,031,309 10,733,434
Property and equipment, net 1,087,223 994,179
Notes receivable from officer 300,145 295,344
Other assets 55,090 551,610
------------- -------------
Total assets $ 24,473,767 $ 12,574,567
============= =============
Liabilities and Stockholders' Deficit
Current liabilities:
Current portion of capital lease obligations $ 209,636 $ 208,571
Accounts payable and accrued expenses 1,712,823 2,225,713
------------- -------------
Total current liabilities 1,922,459 2,434,284
Capital lease obligations, less current portion 116,742 176,269
Redeemable convertible preferred stock:
Series B, $.01 par value, 2,655,138 shares authorized; 2,643,736
shares issued and outstanding at December 31, 1996 ($6,416,368
liquidation value) 3,963,682
Series C, $.01 par value, 1,445,536 shares authorized;
1,432,318 shares issued and outstanding at December 31, 1996
($3,565,063 liquidation value) 3,251,444
Series D, $.01 par value, 1,740,002 shares authorized;
1,700,002 shares issued and outstanding at December 31, 1996
($5,641,777 liquidation value) 5,072,575
Series E, $.01 par value, 868,329 shares authorized;
868,329 shares issued and outstanding at December 31, 1996
($4,916,106 liquidation value) 4,916,106
Stockholders' Deficit
Series A convertible preferred stock, $.01 par value, 104,388 shares
authorized; 93,691 shares issued and outstanding at December 31, 1996 1,037,664
Common stock, $.01 par value, 15,000,000
shares authorized; 8,677,161 and 1,564,451 shares
issued and outstanding at March 31, 1997
and December 31, 1996, respectively 86,772 15,644
Additional paid-in capital 32,480,759 112,960
Accretion of redeemable convertible
preferred stock to redemption value (101,059)
Deficit accumulated during the development stage (10,132,965) (8,305,002)
----------- -----------
Total stockholders' deficit 22,434,566 (7,239,793)
----------- ------------
Total liabilities and stockholders' deficit $ 24,473,767 $ 12,574,567
============= ============
</TABLE>
See accompanying notes.
3
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period from
inception
Three months Three months (November
ended ended 29, 1988) to
March 31, March 31, March 31,
1997 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues $ 293,180 $ 2,970,000 $ 14,314,428
Operating Expenses:
Research and development 1,440,027 1,834,273 16,741,950
General and administrative 899,791 352,250 7,829,800
------------- ------------ ------------
Total operating expenses 2,339,818 2,186,523 24,571,750
------------- ------------ ------------
Operating income (loss) (2,046,638) 783,477 (10,257,322)
Interest expense (9,944) (155,820) (595,425)
Interest income 228,619 10,516 735,249
------------- ------------ ------------
Net income (loss) $(1,827,963) $ 638,173 $(10,117,498)
============== ============ ============
Net income (loss) per share $ (0.24) $ 0.08
Shares used in computation of net
income (loss) per share 7,737,000 7,711,000
See accompanying notes.
</TABLE>
4
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Period from inception
Three Months Three Months (November 28, 1988)
Ended Ended to
March 31, 1997 March 31, 1996 March 31, 1997
-------------------- ------------------- -------------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $(1,827,963) $ 638,173 $(10,117,498)
Adjustments to reconcile net income
(loss) to cash provided (used) by
operating activities:
Depreciation and amortization 133,647 145,414 1,786,291
Expenses paid with equity instruments 74,585 204,342
Change in operating assets and
liabilities:
Accounts receivable (297,981) (297,981)
Prepaid expenses and other assets 398,761 (3,925) 259,112
Accounts payable and accrued
expenses (512,890) (85,588) 1,438,899
---------- -------------- -----------
Net cash provided (used) by operating
activities (2,106,426) 768,659 (6,726,835)
Investing activities
Purchase of fixed assets (226,691) (81,272) (2,609,743)
Proceeds from lease financing of fixed
assets 1,122,853
Purchase of marketable securities (21,984,451) (1,575,707) (32,337,147)
Proceeds from sale or redemption of
marketable securities 11,200,000 13,556,510
Issuance of notes receivable from officer (280,000)
---------- -------------- -----------
Net cash provided (used) by investing
activities (11,011,142) (1,656,979) (20,547,527)
---------- -------------- -----------
Financing activities
Repayment of capital lease obligations (58,462) (114,724) (985,195)
Proceeds from issuance of promissory notes 300,000 3,000,000
Proceeds from issuance of bridge notes 600,000 600,000
Proceeds from sale of Series B
redeemable convertible preferred stock 3,941,236
Proceeds from sale of Series D
redeemable convertible preferred stock 4,468,963
Proceeds from sale of Series E
redeemable convertible preferred stock 4,882,372
Proceeds from sale of Series A
convertible preferred stock 1,037,664
Repurchase of stock from officer (270,000)
Sale of common stock 14,268,564 17,650 14,268,564
Proceeds from issuance of stock options
and warrants 29,951 121,135
---------- ------- ----------
Net cash provided (used) by financing
activities 14,240,053 802,926 31,064,739
---------- ------- ----------
Increase (decrease) in cash and cash
equivalents 1,122,485 (85,394) 3,790,377
Cash and cash equivalents at beginning
of period 2,667,892 149,686
---------- ------- -----------
Cash and cash equivalents at end of
period $3,790,377 $64,292 $3,790,377
========== ======= ==========
Supplemental cash flow information
Cash paid for interest $ 9,944 $ 16,802 $ 303,488
========= ======== =========
</TABLE>
See accompanying notes.
5
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
Notes to Condensed Financial Statements
March 31, 1997
(unaudited)
1. Basis of Presentation
The unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and the rules of the Securities
and Exchange Commission (the "Commission"). Accordingly, they do not include all
of the information and footnotes required to be presented for complete financial
statements. The condensed financial statements reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. The results of the interim period ended March 31, 1997 are
not necessarily indicative of the results expected for the full fiscal year.
The condensed financial statements and related disclosures have been
prepared with the assumption that users of the interim financial statements have
read or have access to the audited financial statements for the preceding fiscal
year. Accordingly, these condensed financial statements should be read in
conjunction with the audited financial statements and the related notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
2. Initial Public Offering
On February 4, 1997, the Company completed an initial public offering of
2,000,000 shares of its Common Stock at a price of $7.00 per share. On February
13, 1997, the Company issued an additional 300,000 shares of its Common Stock at
a price of $7.00 per share to cover an underwriters' over-allotment option. The
net proceeds to the Company, after deducting underwriters' discounts and
offering expenses, aggregated approximately $14.3 million.
3. Net Income (Loss) Per Share
Net loss per share for the three months ended March 31, 1997 is computed
using the weighted-average number of outstanding shares of common stock assuming
all convertible preferred stock was converted into common stock at the beginning
of the period. Common stock equivalents, consisting of options and warrants, are
excluded from the calculation because they are anti-dilutive.
Net income per share for the three months ended March 31, 1996 is presented
on a pro forma basis and computed using the weighted-average number of
outstanding shares of common stock and common stock equivalents, assuming
conversion of convertible stock into common stock (as of their original date of
issuance). Common stock equivalents are excluded from the pro forma net income
(loss) per share computation when their effect is anti-dilutive; however,
pursuant to the requirements of the Commission, common stock equivalent shares
relating to stock options and warrants (using the treasury stock method and an
assumed initial public offering price) and convertible preferred stock issued
during the twelve-month period prior to the initial public offering are included
for pro forma purposes, whether or not they are anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Standards No. 128, "Earnings Per Share" (FAS 128), which simplifies
the calculation of earnings per share and creates a standard of comparability to
the recently issued International Accounting Standard No. 33, "Earnings Per
Share". Since early application is not permitted, the Company will adopt this
standard in the fourth quarter of 1997. The earnings per share calculations
required under FAS 128 are not materially different from the net loss per share
calculation for the three months ended March 31, 1997 as presented herein.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Since commencing operations in 1992, the Company has been engaged
principally in the research and development of its product candidates as well as
seeking various regulatory clearances and patent protection. The Company has had
no revenues from product sales and has incurred losses since inception through
March 31, 1997 aggregating approximately $10.1 million. The Company has received
revenues in connection with various licensing and collaboration agreements.
The Company's initial product candidate, MS-325, is currently the Company's
only product candidate undergoing human clinical trials. The Company filed an
Investigational New Drug ("IND") application for MS-325 with the U.S. Food and
Drug Administration ("FDA") in July 1996 and initiated Phase I clinical trials
in September 1996.
The Company anticipates fluctuation in its quarterly results of operations
due to several factors, including: the timing of fees and milestone payments
received from strategic partners; the formation of new strategic alliances by
the Company; the timing of expenditures in connection with research and
development activities; the timing of product introductions and associated
launch, marketing and sales activities; and the timing and extent of product
acceptance for different indications and geographical areas of the world.
Results of Operations
Comparison of Three Months Ended March 31, 1997 and 1996
Revenues. Revenues for the year ended March 31, 1997 were $293,000 as
compared to $3.0 million for the three months ended March 31, 1996. Revenues for
the quarter ended March 31, 1997 consisted of MS-325 development contract
revenue from Mallinckrodt Inc. ("Mallinckrodt"). Revenues during the three
months ended March 31, 1996 consisted of up-front license fees received from
Daiichi Radioisotope Laboratories, Ltd. ("Daiichi") for the rights to
commercialize MS-325 in Japan.
Research and development expenses. Research and development expenses for
the three months ended March 31, 1997 were $1.4 million, as compared to $1.8
million for the three months ended March 31, 1996. The decrease largely reflects
the timing of expenses associated with the advancement of MS-325 through the
development program. The 1996 expense included significant pre-clinical costs to
conduct pharmacology studies, develop the initial manufacturing process and to
produce initial batches of MS-325. During the first quarter of 1997, MS-325 was
in the latter stages of a Phase I clinical trial at which point related expenses
were relatively low. Research and development expenses are expected to increase
in future quarters of 1997 as MS-325 moves into Phase II clinical trials and as
additional costs are incurred to further develop the process for manufacturing
MS-325.
General and administrative expenses. General and administrative expenses
for the three months ended March 31, 1997 were $900,000 as compared to $352,000
for the three months ended March 31, 1996. The increase was largely due to
higher personnel costs associated with the addition of senior management
($100,000) and payment of discretionary bonuses ($100,000) as well as other
increased costs to build the infrastructure needed to support development of
MS-325 and new discovery programs. Increased costs associated with the
transition to and operation as a publicly-held company and higher costs
associated with filing patent applications also contributed to the increase in
1997 as compared to 1996.
7
<PAGE>
Interest expense and income. Interest expense for the three months ended
March 31, 1997 was $10,000, as compared to $156,000 for the three months ended
March 31, 1996. This decrease was due to higher borrowings under promissory
notes and bridge loans in 1996. Interest income for the quarter ended March 31,
1997 was $229,000, as compared to $11,000 for the quarter ended March 31, 1996.
This increase was due to higher average cash available for investment during
1997.
Liquidity and Capital Resources
The Company's principal source of liquidity consists of cash, cash
equivalents and marketable securities which totaled $22.6 million at March 31,
1997, as compared to $10.7 million at December 31, 1996.
In February 1997 the Company completed its initial public offering,
realizing net proceeds of approximately $14.3 million from the sale of 2.3
million shares of common stock, including 300,000 shares from the full exercise
of the underwriters' over-allotment option. The Company is eligible to receive
revenues of $2.0 million and $3.3 million from Mallincrkrodt and Daiichi,
respectively, upon the attainment of certain future MS-325 development
milestones. The Company's agreement with Mallinckrodt requires Mallinckrodt to
fund a portion of the future development costs of MS-325 up to a specified
maximum amount.
During the first quarter of 1997, the Company used $2.1 million of cash for
operating acitivities. The Company expects that its cash needs for operations
will increase significantly in future quarters of 1997 due to planned clinical
trials and other expenses associated with the development of MS-325.
The Company estimates that cash and cash equivalents available at March 31,
1997 will be sufficient to meet the Company's capital requirements through June
1998. The Company's future capital requirements will, however, depend on many
factors, including the progress of the Company's research and development
programs and clinical trials, the time and costs required to gain regulatory
approvals, the ability of the Company to obtain and retain continued funding
from third parties under collaborative agreements, the costs of filing,
prosecuting and enforcing patents, patent applications, patent claims and
trademarks, the status of competing products and the market acceptance of the
Company's products, if and when approved. The Company may be required to raise
substantial additional funds to complete development of any product candidate,
whether or not it receives milestone payments under its collaborations with
Mallinckrodt and Daiichi, or to commercialize any products if and when approved
by the FDA. The Company may be required to obtain such additional funds through
future public or private sales of equity securities, equipment lease financing
or through strategic alliances. There can be no assurance that additional
financing will be available on acceptable terms, if at all.
Because of anticipated spending to support development of MS-325 and new
research programs, the Company does not expect positive cash flow from operating
activities for any future quarterly or annual period prior to commercialization
of MS-325. The Company anticipates continued investments in fixed assets,
including equipment and facilities expansion to support new and continuing
research and development programs. The Company intends to seek additional debt
financing to support any necessary facilities expansion and equipment
requirements that may occur in the foreseeable future. Should the Company be
unable to negotiate an extension of its existing lease or obtain equipment lease
financing at reasonable terms, the Company would be required to find new
facilities, modify its current capital plans, seek alternative sources of debt
or equity financing or use existing cash to fund such expenditures.
8
<PAGE>
The Company has reported only tax losses to date and therefore has not paid
federal or state income taxes since inception. At March 31, 1997, the Company
had net operating loss carryforwards of approximately $9.1 million available to
offset future taxable income. These amounts expire at various times through
2011. As a result of ownership changes resulting from recent sales of equity
securities, the Company's ability to use the loss carryforwards is subject to
limitations as defined in Sections 382 and 383 of the Internal Revenue Code of
1986, as amended (the "Code"). The Company currently estimates that the annual
limitation on its use of net operating losses through May 31, 1996 will be
approximately $900,000. Pursuant to Section 382 of the Code, the change in
ownership resulting from the initial public offering and any other future sale
of stock may limit utilization of subsequent losses in any one year. The Company
is also eligible for research and development tax credits which can be carried
forward to offset federal taxable income. The annual limitation and the timing
of attaining profitability may result in the expiration of net operating loss
and tax credit carryforwards before utilization.
The Company does not believe that inflation has had a material impact on
its operations.
Forward-Looking Statements
The discussion included in this section as well as elsewhere in the
Quarterly Report on Form 10-Q contains forward-looking statements based on the
current expectations of the Company's management. Such statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those projected. See "Important Factors Regarding Forward-Looking
Statements" attached as Exhibit 99.1 and incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 as
previously filed with the Commission. Readers are cautioned not to place undue
reliance on the forward-looking statements which speak only as of the date
thereof. The Company undertakes no obligation to release publicly the result of
any revisions to these forward-looking statements which may be made to reflect
events or circumstances occurring after the date hereof or to reflect the
occurrence of unanticipated events.
9
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
During the three months ended March 31, 1997, the Company issued
approximately 56,000 shares of common stock to Company employees upon
the exercise of stock options.
Item 6. Exhibits and Reports on Form 8-K
(A) EXHIBITS
11.1 Computation of net income (loss) per share
27.2 Financial Data Schedule for the interim
year-to date period ended March 31, 1997
(for electronic filing only).
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
March 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
EPIX MEDICAL, INC.
Date: May 14, 1997 By: /s/ Jeffrey R. Lentz
--------------------
Jeffrey R. Lentz,
Chief Financial Officer and
Vice President, Finance
and Administration
(Principal Financial Officer
and Accounting Officer)
11
<PAGE>
EXHIBIT INDEX
Page
Number Description Number
------ ----------- ------
11.1 Computation of net income (loss) per share 13
27.2 Financial data schedule for the interim year-to date
period ended March 31, 1997 (for electronic filing only). 14
99.1 Important Factors Regarding Forward-Looking
statements filed as Exhibit 99.1 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by
reference.
12
EXHIBIT 11.1
<TABLE>
<CAPTION>
Pro Forma
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Weighted average shares of common stock
and equivalents:
Common stock(1).................................... 7,737,000 6,290,000
Options and warrants, based
on treasury stock method (2)..................... - 1,421,000
----------- ----------
Total............................................ 7,737,000 7,711,000
Net income (loss)...................................... $(1,827,963) $ 638,173
Net income (loss) per share............................ $ (0.24) $ 0.08
============ =============
</TABLE>
(1) All convertible preferred stock converted to common stock upon
completion of the Company's initial public offering in February 1997.
All convertible preferred stock (including, for pro forma purposes,
convertible preferred stock issued during the twelve-month period prior
to the initial public offering) is treated as if converted to common
stock at the beginning of earliest period presented.
(2) Pro forma weighted average shares for the three months ended March
31, 1996 include common stock equivalents issued during the 12 month
period prior to the initial public offering. Weighted average shares
for the three months ended March 31, 1997 exclude all options and
warrants because they are anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of EPIX Medical, Inc. as of March 31, 1997 and for the three months ended
March 31, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0001027702
<NAME> EPIX MEDICAL, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,790,377
<SECURITIES> 18,780,637
<RECEIVABLES> 293,180
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,031,309
<PP&E> 2,733,189
<DEPRECIATION> 1,645,966
<TOTAL-ASSETS> 24,473,767
<CURRENT-LIABILITIES> 1,922,459
<BONDS> 0
0
0
<COMMON> 86,772
<OTHER-SE> 22,347,794
<TOTAL-LIABILITY-AND-EQUITY> 24,473,767
<SALES> 0
<TOTAL-REVENUES> 293,180
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,339,818
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,944
<INCOME-PRETAX> (1,827,963)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,827,963)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,827,963)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
