EPIX MEDICAL INC
S-1/A, 1997-01-30
IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES
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   As filed with the Securities and Exchange Commission on January 30, 1997
    



                                                    Registration No. 333-17581
 -----------------------------------------------------------------------------
 -----------------------------------------------------------------------------



                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                -------------


   
                               AMENDMENT No. 3
                                      to
                                   FORM S-1
                            REGISTRATION STATEMENT
                                    Under
                          THE SECURITIES ACT OF 1933
                                -------------
    



                              EPIX Medical, Inc.
            (Exact Name Of Registrant As Specified In Its Charter)

<TABLE>
<CAPTION>
 <S>                             <C>                           <C>
           DELAWARE                          2835                   04-3030815
(STATE OR OTHER JURISDICTION OF  (PRIMARY STANDARD INDUSTRIAL    (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)   CLASSIFICATION CODE NUMBER)  IDENTIFICATION NUMBER)
</TABLE>

       71 Rogers Street, Cambridge, Massachusetts 02142 (617) 499-1400
             (Address, Including Zip Code, and Telephone Number,
      Including Area Code, of Registrant's Principal Executive Offices)

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

                               MICHAEL D. WEBB
                    President and Chief Executive Officer
                              EPIX MEDICAL, INC.
                               71 Rogers Street
                        Cambridge, Massachusetts 02142
                                (617) 499-1400
          (Name, Address, Including Zip Code, and Telephone Number,
                  Including Area Code, of Agent For Service)
                                -------------

                                  Copies to:
<TABLE>
<CAPTION>
       <S>                                <C>
         WILLIAM T. WHELAN, ESQ.             STEVEN D. SINGER, ESQ.
          Palmer & Dodge LLP                   Hale and Dorr LLP
           One Beacon Street                   60 State Street
       Boston, Massachusetts 02108        Boston, Massachusetts 02109
       (617) 573-0100                          (617) 526-6000
</TABLE>
                                -------------

   Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.

   If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [ ]

   If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]

   If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [ ]


   If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]

   The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to Section 8(a), may determine.
==============================================================================

<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This Prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.

   
                SUBJECT TO COMPLETION, DATED JANUARY 30, 1997
    



PROSPECTUS

                                   [LOGOTYPE]
                                  EPIX MEDICAL

                               2,000,000 Shares
                                 Common Stock

   
  All of the 2,000,000 shares of Common Stock offered hereby are being sold
by EPIX Medical, Inc. ("EPIX" or the "Company"). Prior to this offering, there
has been no public market for the Common Stock of the Company. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. The Common Stock has been approved for quotation
on the Nasdaq National Market under the symbol EPIX.
    

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

            The shares offered hereby involve a high degree of risk.
                    See "Risk Factors" commencing on page 5.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
  EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
   SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
     PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
       REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

   
================================================================================
                     Price to         Underwriting      Proceeds to
                      Public          Discount (1)      Company (2)
- --------------------------------------------------------------------------------
Per Share              $7.00              $.49             $6.51
- --------------------------------------------------------------------------------
Total (3)           $14,000,000        $980,000         $13,020,000
================================================================================
    

(1) See "Underwriting" for indemnification arrangements with the several
    Underwriters.

(2) Before deducting expenses payable by the Company estimated at $700,000.

   
(3) The Company has granted to the Underwriters a 30-day option to purchase
    up to 300,000 additional shares of Common Stock solely to cover
    over-allotments, if any. If all such shares are purchased, the total
    Price to Public, Underwriting Discount and Proceeds to Company will be 
    $16,100,000, $1,127,000 and $14,973,000, respectively. See "Underwriting."
    

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

   
  The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available 
for delivery on or about February 4, 1997, at the office of the agent of
Hambrecht & Quist LLC in New York, New York.
    

HAMBRECHT & QUIST                                  WESSELS, ARNOLD & HENDERSON

          , 1997

<PAGE>

MS-325: NONINVASIVE CARDIOVASCULAR IMAGING
- --------------------------------------------------------------------------------
[EPIX LOGO]


EPIX Medical, Inc. is developing targeted contrast agents to improve the
capability of magnetic resonance imaging ("MRI") to diagnose a variety of
diseases. The Company's principal product under development, MS-325, is an
injectable vascular contrast agent. The Company believes that MS-325 will
simplify the diagnostic pathway for a number of diseases and in many cases
replace highly invasive and expensive X-ray angiography. The Company does not
have any commercially available products at this time.


- --------------------------------------------------------------------------------
X-RAY ANGIOGRAPHY

[bullet] X-ray angiography is generally considered to be the definitive
         diagnostic exam for assessing cardiovascular disease.

[bullet] Approximately 3.3 million diagnostic X-ray
         angiograms are performed annually
         in the U.S.


[bullet] X-ray angiography is highly invasive (i.e., more
         invasive than a peripheral intravenous injection
         ("I.V.") up to and including a surgical procedure),
         painful and expensive.


[bullet] A catheter is fed into the patient
         through an arterial puncture in the
         groin area to introduce contrast media
         and enable an X-ray to be taken.

[bullet] Complications from X-ray angiography
         include renal failure, limb loss
         and death.


[Photograph of x-ray angiography]

[Photograph of x-ray angiography]

- -------------------------------------------------------------------------------
THE EPIX
SOLUTION


[bullet] EPIX is developing MS-325 to provide
         physicians with a clinically superior,
         noninvasive (i.e., no more invasive than
         a peripheral I.V.) and cost-effective
         diagnostic procedure.


[bullet] The patient receives a single injection
         of MS-325 in an arm vein and then
         enters an MRI scanner.

[bullet] MS-325 binds to the blood protein
         albumin and is designed to be excreted
         safely through the kidneys over time.

[bullet] A Phase I clinical trial of MS-325
         commenced in September 1996.

[Photograph of MRI exam]

- --------------------------------------------------------------------------------
MS-325 IS CURRENTLY BEING EVALUATED IN A PHASE I CLINICAL TRIAL AND NEITHER
MS-325 NOR OTHER CONTRAST AGENTS UNDER DEVELOPMENT HAVE RECEIVED MARKETING
APPROVAL FROM THE FDA OR ANY FOREIGN REGULATORY BODY.


   IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ
NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.


                                      2



<PAGE>

HUMAN STUDIES WITH MS-325
- --------------------------------------------------------------------------------
[EPIX LOGO]

EPIX Medical is currently evaluating the safety of MS-325 in a Phase I clinical
trial. The MRI images below were obtained from subjects enrolled in this trial.

- --------------------------------------------------------------------------------
Carotid Arteries

Enhanced right carotid artery showing
the profile of the human subject.

[Photo: MRI of carotid artery]


- --------------------------------------------------------------------------------
Coronary Arteries


Left:
Cross section of the heart, showing the
enhanced right coronary artery (arrow).

Top Right:
Three-dimensional computer-rendered
view of portions of the ascending aorta
and right coronary artery (arrow).

Bottom Right:
Major coronary arteries in a different
subject; RCA=right coronary artery,
LAD= left anterior descending artery,
LCx= left circumflex artery.

[Photo: MRI of coronary arteries (3 views)]


- -------------------------------------------------------------------------------
Pulmonary Vessels


Enhanced pulmonary arteries and veins
of the lungs.


[Photo: MRI of pulmonary vessels]

THE IMAGES ABOVE ARE FROM A PHASE I CLINICAL TRIAL OF THE EPIX VASCULAR IMAGING
AGENT, MS-325, AN INJECTABLE CONTRAST AGENT FOR USE IN MAGNETIC RESONANCE
IMAGING. MS-325 IS CURRENTLY BEING EVALUATED IN CLINICAL TRIALS AND HAS NOT
RECEIVED MARKETING APPROVAL FROM THE FDA OR ANY FOREIGN REGULATORY BODY.

<PAGE>


HUMAN STUDIES WITH MS-325
- --------------------------------------------------------------------------------

[Diagram of aorta and renal arteries]


Aorta and Renal Arteries


The renal arteries extend
from the aorta to the kidneys
(shown on either side of
the image). The aorta then
bifurcates into the iliac
arteries.


[Photo: MRI of aorta and renal arteries]


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

[Diagram of thigh vessels]

Thigh Vessels


Left:
The left femoral artery (arrow)
can be viewed at any angle
from the 3D dataset.

Right:
The femoral artery can be
isolated and displayed using
computer techniques.


[Photo: MRI of thigh vessels]

[Photo: MRI of isolated femoral artery]

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

[Diagram of calf vessels]

Calf Vessels


Left:
Arteries can be seen with
attendant pairs of veins on
either side.

Center:
Isolated left tibial arterial
tree.

Right:
Isolated left saphenous vein.


[Photo: MRI of calf vessels]

[Photo: MRI of isolated tibial artery]

[Photo: MRI of isolated saphenous vein]


- --------------------------------------------------------------------------------
THE IMAGES ABOVE ARE FROM A PHASE I CLINICAL TRIAL OF THE EPIX VASCULAR IMAGING
AGENT, MS-325, AN INJECTABLE CONTRAST AGENT FOR USE IN MAGNETIC RESONANCE
IMAGING. MS-325 IS CURRENTLY BEING EVALUATED IN CLINICAL TRIALS AND HAS NOT
RECEIVED MARKETING APPROVAL FROM THE FDA OR ANY FOREIGN REGULATORY BODY.



<PAGE>
                              PROSPECTUS SUMMARY

  The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. The Common Stock offered hereby involves a high degree of
risk. See "Risk Factors."

                                 The Company


  EPIX Medical, Inc. ("EPIX" or the "Company") is developing targeted contrast
agents both to improve the capability and expand the use of magnetic
resonance imaging ("MRI") as a diagnostic tool for a variety of diseases. The
Company's principal product under development, MS-325, is an injectable
vascular contrast agent designed for multiple vascular imaging indications,
including coronary artery disease ("CAD") and peripheral vascular disease
("PVD"). The Company believes that MS-325 will significantly enhance the
quality of images and provide physicians with a clinically superior,
noninvasive (i.e., no more invasive than a peripheral intravenous injection
("I.V.")) and cost-effective method for diagnosing cardiovascular disease.
The Company further believes that MS-325 will simplify the diagnostic pathway
for a number of diseases and in many cases replace highly invasive (i.e.,
more invasive than a peripheral I.V. up to and including a surgical
procedure) and expensive X-ray angiography, which is currently considered the
definitive diagnostic exam for assessing cardiovascular disease. The Company
is presently conducting Phase I clinical trials of MS-325, and 35 subjects
have received MS-325 to date with no clinically significant adverse effects
reported.

  The Company's objective is to become a worldwide leader in MRI contrast
agents by pursuing a strategy based on commercializing MS-325 and developing
new applications for its proprietary technology platform. EPIX has entered
into strategic alliances with Mallinckrodt Group Inc. ("Mallinckrodt") and
Daiichi Radioisotope Laboratories, Ltd. ("Daiichi") for the development and
commercialization of MS-325 and other vascular contrast agents.

  The use of MRI has grown steadily over the past 10 years due to reduced cost
and improved imaging capabilities and now provides an effective diagnostic
modality for a broad range of applications. MRI manufacturers have improved
the hardware and software of their systems, reducing the time per procedure
drastically while significantly enhancing resolution. While MRI is currently
used extensively to image many organs and tissues in the body, its use in
imaging the arteries and veins has been limited. Prior attempts to develop
contrast agents to facilitate the clinical usefulness of MRI for the
cardiovascular system have had limited success. Unlike most currently
available cardiovascular contrast agents, which are non-specific, MS-325 is a
targeted intravascular contrast agent designed to bind to a common blood
protein, albumin. Because of its affinity for albumin, MS-325 provides the
image acquisition time and signal strength needed to obtain a high contrast,
high resolution image of the cardiovascular system. EPIX believes that the
advantages of MS-325, coupled with the reduced cost and improved imaging
capabilities of MRI, will lead to significantly expanded use of MRI to
diagnose cardiovascular and other diseases.


  Cardiovascular disease is a growing worldwide problem. It is estimated that
approximately 500,000 people in the United States die of CAD each year,
making it the leading cause of death. PVD affects arteries throughout the
body, resulting in approximately 600,000 vascular operations, 400,000 strokes
and 100,000 amputations (primarily related to PVD) each year in the United
States. Diagnosis of CAD and PVD is currently very complex and expensive,
requires multiple tests and ultimately relies upon a painful and costly X-ray
angiogram for a definitive diagnosis. Approximately 3.3 million diagnostic
X-ray angiograms were performed in the United States in 1995 at an estimated
cost of $5.9 billion. The Company believes that MS-325, together with
anticipated hardware and software solutions to problems associated with
cardiac motion, will enable widespread clinical use of MRI to diagnose CAD.
The Company also believes that MS-325 will significantly expand the use of
currently available MRI equipment in diagnosing PVD. If such a product were
available today, the Company believes that it could eliminate many X-ray
angiograms and ancillary tests, dramatically improving the current approach
to the diagnosis of cardiovascular disease. The Company believes, based on
1995 estimated procedure costs, that savings to the United States healthcare
system for CAD alone could exceed $2.0 billion.

  MS-325 is a magnetically active, injectable small molecule. It binds to the
blood protein albumin, remains at high concentrations in the bloodstream
throughout the MRI exam, and is designed to be excreted safely through the
kidneys over time. The Company is also investigating additional imaging
applications for MS-325, including tumor imaging. The Company believes that
its proprietary technology platform will enable it to create additional
contrast agents that target particular tissue and fluid types. Research
efforts are ongoing in the areas of thrombosis and functional brain imaging.


                                      3
<PAGE>

   
  Certain persons and entities related to Accel IV L.P. and Bessemer Venture 
Partners III L.P. have indicated their non-binding intention to purchase
approximately 310,740 shares of Common Stock in this offering. Any 
such sale will be made on the same terms as sales to other investors in this
offering. No assurance can be given that the aforementioned persons and entities
will purchase any or all of such shares.

    


  The Company was incorporated in Delaware in 1988 and commenced operations in
1992. The Company's principal executive offices are located at 71 Rogers
Street, Cambridge, Massachusetts, 02142-1118, and its telephone number is
(617) 499-1400. The Company recently changed its name from Metasyn, Inc.

                                 The Offering

<TABLE>
<CAPTION>
 <S>                                           <C>
 Common Stock offered by the Company           2,000,000 shares

 Common Stock to be outstanding after the
 offering                                      8,314,740 shares (1)

 Use of proceeds                               To fund research and development, clinical trials,
                                               working capital requirements and other general
                                               corporate purposes.
 Proposed Nasdaq National Market Symbol        EPIX
</TABLE>

                        Summary Financial Information
                    (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                                     
                                                                                                    Nine Months  
                                     Period from inception       Year Ended       Nine Months          Ended     
                                      (November 29, 1988)         March 31,          Ended         September 30, 
                                       through March 31,     ------------------- December 31,   ------------------ 
                                              1993            1994      1995       1995 (2)       1995      1996
                                      --------------------- --------  --------- --------------  --------- ---------
<S>                                          <C>             <C>       <C>          <C>         <C>        <C>
   
Statement of Operations Data:
Revenues                                     $1,000          $1,700    $   412      $   900     $   900    $9,635
Operating income (loss)                        (311)           (579)    (2,820)      (4,770)     (3,438)    2,471
Net income (loss)                              (270)           (617)    (2,778)      (4,893)     (3,475)    2,338
Pro forma:
 Net income (loss) per share (3)                                                    $ (0.70)               $ 0.30
 Shares used in per share
   calculations                                                                       6,973                 7,711
</TABLE>
    

<TABLE>
<CAPTION>
                                                                 September 30, 1996
                                                      ------------------------------------------
                                                       Actual   Pro Forma (4)   As Adjusted (5)
                                                      --------- --------------  ----------------
<S>                                                    <C>         <C>              <C>
   
Balance Sheet Data:
Cash and cash equivalents                              $11,735     $11,735          $24,055
Working capital                                         10,882      10,882           23,202
Total assets                                            13,815      13,815           26,135
Capital lease obligations, less current portion            198         198              198
Redeemable convertible preferred stock                  17,166          --               --
Total stockholders' equity (deficit)                    (5,151)     12,015           24,335
</TABLE>
    

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

(1) Based on the number of shares outstanding at December 31, 1996. Excludes
    1,277,803 shares of Common Stock reserved for issuance upon the exercise
    of outstanding options at a weighted average exercise price of $2.30 per
    share, of which options to purchase 392,933 shares were exercisable, and
    79,696 shares of Common Stock issuable upon exercise of outstanding
    warrants at a weighted average exercise price of $3.98 per share. See
    "Capitalization," "Dilution" and "Description of Capital Stock."

(2) The Company changed its fiscal year end from March 31 to December 31
    commencing with the fiscal year ended December 31, 1995.

(3) See Note 2 to Notes to Financial Statements for a description of the
    calculation of pro forma net income (loss) per share.

(4) Reflects the automatic conversion of all outstanding shares of preferred
    stock into shares of Common Stock contemporaneously with the closing of
    this offering.

   
(5) As adjusted to give effect to sale of the 2,000,000 shares of Common
    Stock offered hereby and the application of the net proceeds thereof.
    See "Use of Proceeds" and "Capitalization."
    

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

  Except as otherwise noted, all information in this Prospectus (i) reflects a
1-for-1.5 reverse stock split effected on December 6, 1996, (ii) assumes no
exercise of the Underwriters' over-allotment option, (iii) reflects the
conversion of all outstanding shares of preferred stock into an aggregate of
4,750,289 shares of Common Stock effective upon the closing of this offering
and (iv) reflects an amendment to the Company's Restated Certificate of
Incorporation to be effective upon the closing of this offering to create a
class of authorized but undesignated preferred stock. See "Description of
Capital Stock," "Underwriting" and Notes to Financial Statements.

                                      4
<PAGE>

                                 RISK FACTORS

  This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result
 of certain factors, including
those set forth below and elsewhere in this Prospectus. The following risk
factors should be considered carefully in addition to the other information
presented in this Prospectus before purchasing the shares of Common Stock
offered hereby.

  Early Stage of Development; No Product Sales to Date. The Company commenced
operations in 1992 and is a development stage company. The Company currently
has no products for sale nor is there any guarantee that it will ever have
marketable products. All of the Company's product candidates are in research
or development, and no revenues have been generated from product sales. To
date, the Company has financed its operations through private sales of equity
securities, equipment lease financings and license payments from its
strategic partners. To achieve profitable operations, the Company, alone or
with others, must successfully develop, obtain regulatory approval for,
introduce, market and sell products. The Company does not expect to receive
revenue from the sale of any of its product candidates for the next several
years. There can be no assurance that the Company's product development
efforts will be successfully completed, that required regulatory approvals
will be obtained in a timely manner, if at all, that its product candidates
can be manufactured at an acceptable cost and with acceptable quality or that
any approved products can be successfully marketed. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."

  Dependence on MS-325. MS-325 is currently the Company's only product
candidate in human clinical trials, and there is no guarantee that any of its
other development projects will yield a product candidate suitable for entry
into clinical trials. The failure of MS-325 to achieve regulatory approval
and market acceptance would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--EPIX
Products and Development Programs."

  Dependence on MRI Advancements for Cardiac Applications. Existing MRI
scanners do not have the capability to perform coronary angiography without
improvements in current MRI hardware and software. The success of cardiac
applications of MS-325 is therefore dependent on advancements in MRI hardware
and software. Although several leading MRI manufacturers, academic centers
and others are developing advanced hardware and software, there can be no
assurance when, or if, these techniques will enable MS-325 to provide
clinically relevant images in cardiac indications currently being pursued.
See "Business--Magnetic Resonance Imaging Background" and "--The EPIX
Solution--The EPIX Approach to CAD Diagnosis."

  Uncertainty of Market Acceptance of Technology and Products. The commercial
success of MS-325 and the Company's other product candidates, when and if
approved for marketing by the United States Food and Drug Administration (the
"FDA") and corresponding foreign agencies, will depend on their acceptance by
the medical community and third-party payors as clinically useful,
cost-effective and safe. While contrast agents are currently used in an
estimated 25% of all MRI exams, there are no targeted vascular agents
approved by the FDA in use. Furthermore, clinical use of MRI for vascular
imaging has been limited, and use of MRI for cardiac imaging has occurred
mainly in research. Market acceptance, and thus sales of the Company's
product candidates, will depend on several factors, including safety, price,
ease of administration, effectiveness and the rate of adoption of up-to-date
MRI technology. Market acceptance will also depend on the ability of the
Company and its strategic partners to educate the medical community and
third-party payors about the benefits of diagnostic imaging with MRI enhanced
with the Company's product candidates compared to imaging with other
modalities. The Company's MRI contrast agents represent a new approach to
imaging the cardiovascular system ("CVS"), and market acceptance both of MRI
as an appropriate imaging technique for the CVS and of the Company's product
candidates is critical to the Company's success. There can be no assurance
that the Company's product candidates will gain market acceptance. Failure to
achieve market acceptance would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Business Strategy" and "--Competition."

  Intense Competition and Risk of Technological Obsolescence. Medical
technology is subject to intense competition and rapid technological change.
The Company has many competitors, including pharmaceutical, biotechnology and
chemical companies, a number of which, including both of the Company's
strategic partners, are actively developing and marketing products that could
compete with the Company's product candidates.



                                      5
<PAGE>

Many of these competitors have substantially greater capital and other
resources than the Company and may represent significant competition for the
Company. Such companies may succeed in developing technologies and products
that are more effective or less costly than any of those that may be
developed by the Company, and such companies may be more successful than the
Company in developing, manufacturing and marketing products. Furthermore,
there are several well-established medical imaging modalities that currently
compete, and will continue to compete, with MRI including X-ray angiography,
computer assisted tomography ("CT"), nuclear medicine and ultrasound. Other
companies are actively developing the capabilities of the competing
modalities to enhance their effectiveness in CVS imaging. There can be no
assurance that the Company will be able to compete successfully in the future
or that developments by others will not render MS-325 or the Company's future
product candidates obsolete or non-competitive or that the Company's
strategic partners or customers will not choose to use competing technologies
or products. See "Business--Competition."

  Dependence on Licensed Technology. The Company and Massachusetts General
Hospital ("MGH") have entered into a license agreement (the "MGH License")
pursuant to which the Company is the exclusive licensee to certain
technology, including certain patents and patent applications, which relates
to the Company's product candidates, including MS-325. The MGH License
imposes various commercialization, sub-licensing, royalty and other
obligations on the Company. Failure of the Company to comply with these and
other requirements could result in the conversion of the license from being
exclusive to non-exclusive in nature or termination of the license agreement
itself. Any such event would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Patents and Proprietary Rights."

  Dependence on Strategic Partners. The Company is dependent on strategic
partners for support in product development and the regulatory approval
process as well as a variety of activities including manufacturing, marketing
and distribution of its products in the United States and abroad, when and if
its product candidates are approved for marketing by the FDA and
corresponding foreign agencies. To date, the Company has entered into two
strategic alliances: a collaboration agreement with Mallinckrodt to develop
and commercialize MS-325 and other MRI vascular agents worldwide, excluding
Japan, and a development and license agreement with Daiichi for the
development and commercialization of MS-325 in Japan. The Company may not
receive milestone payments from these alliances should MS-325 fail to meet
certain performance targets in clinical trials. Further, the Company's
receipt of revenues from strategic alliances is affected by the level of
efforts of its partners. There can be no assurance that the Company's
partners will devote the resources necessary to complete development, and
commence marketing, of MS-325 in their respective territories, or that they
will successfully market MS-325. Both Mallinckrodt and Daiichi currently
manufacture imaging agents for other modalities that will compete against
MS-325. Mallinckrodt and the Company will share responsibility for setting
the price of the product worldwide, except Japan, and Daiichi will be
responsible for setting the product price in Japan. There can be no assurance
that either Mallinckrodt or Daiichi will do so in a manner that maximizes
revenues for the Company. In addition, Daiichi has the right to terminate its
agreement on short notice under certain circumstances, and there is no
guarantee that it will not exercise this right. The failure of the Company to
receive milestone payments, a reduction or discontinuance of efforts by the
Company's partners or the termination of these alliances would have a
material adverse effect on the Company's business, financial condition and
results of operations.

  There can be no assurance that the Company will be successful in entering
into additional strategic alliances for the development and commercialization
of future product candidates, nor that these alliances, if entered into, will
be on terms favorable to the Company or will be successful. If the Company
were unable to enter into future strategic alliances with capable partners on
commercially reasonable terms, the development and commercialization of
future product candidates would be delayed and possibly postponed
indefinitely. See "Business--Strategic Alliances" and "--Manufacturing."

  Unproven Safety and Effectiveness of Product Candidates; Uncertainties
Related to Clinical Trials. The Company's product candidates are in research
and development and will require additional research and development,
extensive clinical testing and regulatory approval prior to any commercial
sales. The Company cannot predict if or when any of its products under
development will be commercialized. The Company currently has only one
product candidate, MS-325, in clinical trials. The Company will be required
to complete successfully clinical trials in the United States to demonstrate
the safety and efficacy of MS-325, currently in Phase I clinical trials,
prior to obtaining FDA approval. There can be no assurance that clinical
trials will be successful, or that they will be completed in a timely manner.
Although no clinically significant adverse effects from MS-325 in

                                      6
<PAGE>

Phase I clinical trials have been reported to date, results are based on
preliminary data only, and there can be no assurance that serious side
effects will not be reported as the clinical trial proceeds. The results from
early clinical trials may not be predictive of results that will be obtained
in large scale clinical trials, as a number of companies have suffered
significant setbacks in advanced clinical trials, even after promising
results in earlier trials. There can be no assurance that Phase II or Phase
III clinical trials for MS-325 will be conducted or that such trials, if
begun, will demonstrate any efficacy or will be completed successfully in a
timely manner, if at all. The rate of completion of the Company's clinical
trials is dependent upon, among other things, the rate of patient enrollment.
Patient enrollment is a function of many factors, including the size of the
patient population, the nature of the clinical protocol under which MS-325
will be studied, the proximity of the patient to a clinical site and the
eligibility criteria for the study. Delays in planned patient enrollment may
result in increased costs, regulatory filing delays, or both. Furthermore,
the Company, the FDA or other regulatory authorities may suspend or terminate
clinical trials at any time. Failure to complete successfully any of its
clinical trials on a timely basis or at all would have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Government Regulation."

  Uncertainty Regarding Patents and Proprietary Rights. The Company considers
the protection of its proprietary technologies to be material to its business
prospects. The Company pursues a comprehensive patent program for its product
candidates in the United States and in other countries where it believes that
significant market opportunities exist. The Company owns or has an exclusive
license to patents and patent applications on the critical aspects of its
core technology as well as many specific applications of this technology.
However, the patent positions of pharmaceutical and biopharmaceutical firms
including the Company generally include complex legal and factual questions.
There can be no assurance that the issued patents owned or licensed to the
Company, or any patents that may be issued in the future, will effectively
protect the Company's technology or provide a competitive advantage. There
can be no assurance that any of the patents or patent applications owned or
licensed by the Company will not be challenged, invalidated or circumvented
in the future.

  The Company's commercial success will also depend on its ability to operate
without infringing upon the patents of others in the United States and
abroad. If any third-party patents are upheld as valid and enforceable in any
judicial or administrative proceeding, the Company could be prevented from
practicing the subject matter claimed in such patents, or would be required
to obtain licenses from the owners of each such patent, or to redesign its
products or processes to avoid infringement. There are pending or issued
patents, held by parties not affiliated with the Company, relating to
technologies used by the Company in the development or use of certain of the
Company's contrast agents. In particular, the Company is aware of certain
patents in the United States, Japan and elsewhere owned by or licensed to one
party that relate to MRI contrast agents and which may cover certain of the
Company's MRI contrast agents, including MS-325. Mallinckrodt, one of the
Company's strategic partners, has rights from this third party under those
patents which the Company and Mallinckrodt believe will permit Mallinckrodt
to manufacture, market and sell MS-325 and other products developed pursuant
to the collaboration agreement between the Company and Mallinckrodt were
MS-325 and those other products to be held to fall within the claims of those
third-party patents. If the agreement with Mallinckrodt is terminated by
either party, the Company would likely be required to enter into a strategic
alliance with another party having a license from this third party or obtain
a license from this third party directly or from others licensed by this
third party in order to manufacture, market and sell MS-325 and other
chelate-based MRI contrast agents. However, there can be no assurance that
the Company would be able to consummate a strategic alliance with a party
having this third-party license or obtain licenses from third parties on
commercially reasonable terms, if at all. The patent rights of this third
party in Japan will expire in 2002, before such time as the Company presently
anticipates that Daiichi will have material sales of MS-325 in Japan and,
therefore, the Company believes that the existence of such patents in Japan
is unlikely to have a material adverse effect on the Company. However, in the
event that Daiichi commercializes MS-325 in Japan before 2002, it may be
required to obtain an appropriate license from this third party or from
others licensed by this third party, or take other measures to avoid
infringement of third-party patents, including delaying the commencement of
product sales. There can be no assurance that the Company's current or future
activities will not be challenged in the future, that additional patents will
not be issued containing claims materially constraining the proposed
activities of the Company, that the Company will not be required to obtain
licenses from third parties, or that the Company will not become involved in
costly, time-consuming litigation regarding patents in the field of contrast
agents, including actions brought to challenge or invalidate the Company's
own patent rights. See "Business--Patents and Proprietary Rights."

                                      7
<PAGE>

  Many of the Company's competitors are continuing to actively pursue patent
protection for activities and discoveries similar to the Company's. There can
be no assurance that these competitors, many of which have substantially
greater resources than the Company and have made substantial investments in
competing technologies, will not seek to assert that the Company's products
or chemical processes infringe their existing patents and/or will not seek
new patents that claim to cover aspects of the Company's technology.
Furthermore, patent applications in the United States are maintained in
secrecy until patents issue, and patent applications in foreign countries are
maintained in secrecy for a specified period after filing. Publication of
discoveries in the scientific or patent literature tends to lag behind actual
discoveries and the filing of related patent applications. In addition,
patents issued and patent applications filed relating to pharmaceuticals are
numerous. Therefore, there can be no assurance that the Company is aware of
all competitive patents, either pending or issued, that relate to products or
processes used or proposed to be used by the Company.

  The pharmaceutical and biotechnology industries have been characterized by
extensive litigation regarding patents and other intellectual property
rights. Litigation may be necessary to enforce any patents issued to the
Company and/or determine the scope and validity of others' proprietary
rights. The Company may have to participate in interference proceedings
declared by the United States Patent and Trademark Office or by foreign
agencies to determine the priority of inventions. Any involvement in
litigation surrounding these issues could result in extensive costs to the
Company as well as be a significant distraction for management. Such costs
could have a material adverse effect on the Company's business, financial
condition and results of operations.

  The Company also relies upon trade secrets, technical know-how and
continuing technological innovation to develop and maintain its competitive
position. The Company typically requires its employees, consultants and
advisors to execute confidentiality and assignment of inventions agreements
in connection with their employment, consulting or advisory relationships
with the Company. There can be no assurance, however, that these agreements
will not be breached or that the Company will have adequate remedies for any
breach. Furthermore, there can be no assurance that competitors will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's proprietary technology,
or that the Company can meaningfully protect its rights in unpatented
proprietary technology. Several of the Company's management and scientific
personnel were formerly associated with other pharmaceutical and
biotechnology companies and academic institutions. In some cases, these
individuals are conducting research in similar areas with which they were
involved prior to joining the Company. As a result, the Company, as well as
these individuals, could be subject to claims of violation of trade secrets
and similar claims.

  The Company intends to vigorously protect and defend its intellectual
property. Costly and time-consuming litigation brought by the Company may be
necessary to enforce patents issued to the Company, to protect trade secrets
or know-how owned by the Company, or to determine the enforceability, scope
and validity of the proprietary rights of others. See "Business--Patents and
Proprietary Rights."

  Extensive Government Regulation; No Assurance of Regulatory Approval. The
Company is subject to extensive governmental regulatory requirements and a
lengthy approval process for its product candidates. The development and
commercial use of the Company's product candidates will be regulated by
numerous federal, state and local governmental authorities in the United
States, including the FDA and comparable foreign regulatory agencies abroad.
The nature of the Company's research and development and manufacturing
processes requires the use of hazardous substances and testing on certain
laboratory animals. Accordingly, the Company is subject to extensive federal,
state and local laws, rules, regulations and policies governing the use,
generation, manufacture, storage, air emission, effluent discharge, handling
and disposal of certain materials and wastes, as well as the use of and care
for laboratory animals. Although the Company believes it is in compliance
with all such laws and maintains policies and procedures to ensure that it
remains in compliance, there can be no assurance that accidents will not
happen that would expose the Company to legal risk and/or financial loss.
Furthermore, there can be no assurance that current laws will not be changed
or that new laws will not be passed that force the Company to change its
policies and procedures, an event which could impose significant costs on the
Company.

  The regulatory approval process for new MRI contrast agents, including
required preclinical studies and clinical trials, is lengthy and expensive.
Although certain employees of the Company have experience in obtaining
regulatory approvals, the Company itself has only limited experience in
filing or pursuing applications necessary to gain regulatory approvals.
Preclinical testing of the Company's product development candidates is
subject

                                      8
<PAGE>

to Good Laboratory Practices ("GLP") as prescribed by the FDA and the
manufacture of any products developed by the Company will be subject to Good
Manufacturing Practices ("GMP") as prescribed by the FDA. There can be no
assurance that the necessary FDA clearances and subsequent approvals will be
obtained in a timely manner, if at all. There can be no assurance as to the
length of the clinical trial period or the number of patients that will be
required to be tested in the clinical trials in order to establish the safety
and efficacy of MS-325 or any future product candidates of the Company. The
Company may encounter unanticipated delays or significant costs in its
efforts to secure necessary approvals. There can be no assurance, even after
the performance of clinical trials and the passage of time and the
expenditure of such resources, that regulatory approval will be obtained for
MS-325 or any other product candidates that may be developed by the Company.
The Company's analysis of data obtained from preclinical and clinical
activities is subject to confirmation and interpretation by regulatory
authorities which could delay, limit or prevent FDA regulatory approval.
Future United States legislative or administrative actions also could prevent
or delay regulatory approval of the Company's product candidates. Even if
regulatory approvals are obtained, they may include significant limitations
on the indicated uses for which a product may be marketed. A marketed product
also is subject to continual FDA and other regulatory agency review and
regulation. Later discovery of previously unknown problems or failure to
comply with the applicable regulatory requirements may result in restrictions
on the marketing of a product or withdrawal of the product from the market,
as well as possible civil or criminal sanctions. Further, many academic
institutions and companies conducting research and clinical trials in the MRI
contrast agent field are using a variety of approaches and technologies. Any
adverse results obtained by such researchers in preclinical studies or
clinical trials could adversely affect the regulatory environment for MRI
contrast agents generally. In addition, if marketing approval is obtained,
the FDA may require post-marketing testing and surveillance programs to
monitor the product's efficacy and side effects. Results of these
post-marketing programs may prevent or limit the further marketing of the
monitored product.

  The Company and its strategic partners are also subject to numerous and
varying foreign regulatory requirements governing the design and conduct of
clinical trials and the manufacturing and marketing of its products. The
foreign regulatory approval process may include all of the risks associated
with obtaining FDA approval set forth above, and there can be no assurance
that foreign regulatory approvals will be obtained on a timely basis, if at
all. See "Business--Government Regulation."

  History of Operating Losses and Accumulated Deficit; Uncertainty of Future
Profitability. The Company's future financial results are uncertain. The
Company has experienced significant losses since it commenced operations in
1992. As of September 30, 1996, the Company had accumulated net losses of
approximately $6.2 million. These losses have resulted primarily from
expenses associated with the Company's research and development activities,
including preclinical and clinical trials, and general and administrative
expenses. The Company anticipates that its research and development expenses
will increase significantly in the future and it expects to incur substantial
losses over at least the next several years. There can be no assurance that
the Company will ever be able to generate revenues from the sale of products.
Moreover, even if the Company generates product revenues, there can be no
assurance that the Company will be able to achieve or sustain profitability.
The Company's results of operations have varied and will continue to vary
significantly from quarter to quarter and depend on, among other factors: 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,
including clinical trials; 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

  Future Capital Needs; Uncertainty of Additional Funding. Since inception,
the Company has funded its operations primarily through private sales of
equity securities, equipment lease financings and license payments from its
strategic partners. The Company believes that the proceeds of this offering,
together with existing cash and cash equivalents, will be sufficient to fund
its operations through June 1998. The Company believes that it will need to
raise substantial additional funds for research, development and other
expenses, through equity or debt financings, strategic alliances or
otherwise, prior to commercialization of any of its product candidates. The
Company's future liquidity and capital requirements will depend upon numerous
factors, including the following: the progress and scope of clinical trials;
the timing and costs of filing future regulatory submissions; the timing and
costs required to receive both United States and foreign governmental
approvals; the cost of filing,

                                      9
<PAGE>

prosecuting, defending and enforcing patent claims and other intellectual
property rights; the extent to which the Company's products gain market
acceptance; the timing and costs of product introductions; the extent of the
Company's ongoing research and development programs; the costs of training
physicians to become proficient with the use of the Company's products; and,
if necessary once regulatory approvals are received, the costs of developing
marketing and distribution capabilities. There can be no assurance that
additional financing will be available on terms acceptable to the Company, or
at all. The Company's inability to fund its capital requirements would have a
material adverse effect on the Company's business, financial condition and
results of operations. If adequate funds are not available, the Company may
be required to curtail operations significantly or to obtain funds by
entering into arrangements with strategic partners or others that may require
the Company to relinquish rights to certain of its technologies, product
candidates, products or potential markets. To the extent that additional
capital is raised through the sale of equity or securities convertible into
equity, the issuance of such securities could result in dilution to the
Company's existing stockholders. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

  Limited Manufacturing Capability. The Company does not have, nor does it
currently have plans to develop, full-scale manufacturing capability for
MS-325. While it does manufacture small amounts of MS-325 for research and
development efforts, the Company intends to rely on Mallinckrodt as the
primary manufacturer of MS-325 for Phase III clinical trials as well as for
any future human clinical trials and commercial use. If Mallinckrodt is
unable to produce MS-325 in adequate amounts and at a reasonable cost or to
comply with any applicable regulations, including GMP, it could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, should Mallinckrodt fail to fulfill its
manufacturing responsibilities satisfactorily, the Company could be forced to
find an alternative manufacturer. There can be no assurance that the Company
would be able to find such an alternative manufacturer. In the event the
Company were forced to develop its own FDA-approved full-scale manufacturing
capability, it would require significant expenditures of capital and
management attention and resources and could require the Company to obtain a
license from a third party, and would result in a delay in the approval or
commercialization of MS-325. There can be no assurance that the Company would
be able to obtain such a license on commercially reasonable terms, if at all.
See "Risk Factors--Uncertainty Regarding Patents and Proprietary Rights" and
"Business--Strategic Alliances" and "--Manufacturing."

  Dependence on Suppliers. The Company currently procures the raw materials
for the various components of MS-325 from a broad variety of vendors and,
wherever possible, maintains relationships with multiple vendors for each
component. There are a number of components of MS-325 for which the largest
suppliers may have significant control over the market price due to
controlling market shares. If any one of the Company's suppliers decided to
increase prices significantly or reduce quantities of components of MS-325
available for sale to the Company, it could have a material adverse effect on
the Company's ability to commercialize MS-325 and on the Company's business,
financial condition and results of operations. See "Business--Manufacturing."

  Potential Product Liability Exposure and Insurance. The clinical testing,
manufacturing and marketing of the Company's product candidates may expose
the Company to product liability claims, and there can be no assurance that
the Company will not experience material product liability losses in the
future. The Company currently has limited product liability insurance for the
use of its product candidates in clinical research, but there can be no
assurance that such coverage will continue to be available on terms
acceptable to the Company or that such coverage will be adequate for
liabilities actually incurred. The Company does not have product liability
insurance coverage for the commercial sale of its products but intends to
obtain such coverage if and when its product candidates are commercialized.
However, there can be no assurance that the Company will be able to obtain
adequate additional product liability insurance coverage on acceptable terms,
if at all. A successful claim brought against the Company in excess of
available insurance coverage, or any claim or product recall that results in
significant adverse publicity against the Company, may have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Product Liability Insurance."

  Uncertainty of Adequate Reimbursement. The Company could be adversely
affected by changes in reimbursement policies of governmental or private
healthcare payors, particularly to the extent any such changes affect
reimbursement for procedures in which the Company's product candidates would
be used. Failure by physicians, hospitals and other users of the Company's
products to obtain sufficient reimbursement from third-party payors for the
procedures in which the Company's product candidates would be used or adverse
changes

                                      10
<PAGE>

in governmental and private third-party payors' policies toward reimbursement
for such procedures would have a material adverse effect on the Company's
business, financial condition and results of operations. If the Company
obtains the necessary foreign regulatory approvals, market acceptance of the
Company's product candidates in international markets would be dependent, in
part, upon the availability of reimbursement within prevailing healthcare
payment systems. Reimbursement and healthcare payment systems in
international markets vary significantly by country, and include both
government sponsored health care and private insurance. The Company intends
to seek international reimbursement approvals, although there can be no
assurance that any such approvals will be obtained in a timely manner, if at
all, and failure to receive international reimbursement approvals could have
an adverse effect on market acceptance of the Company's products in the
international markets in which such approvals are sought. See
"Business--Reimbursement."

  Dependence Upon Key Personnel. The Company's future business and operating
results depend in significant part upon the continued contributions of its
key technical and senior management personnel, many of whom would be
difficult to replace and certain of whom perform important functions for the
Company beyond those functions suggested by their respective job title or
description. The Company's future business and operating results also depend
in significant part upon its ability to attract and retain qualified
management, operational and technical personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting or retaining such personnel. Although the Company
maintains key life insurance on the lives of certain officers, the loss of
any key employee, the failure of any key employee to perform in his or her
current position, or the Company's inability to attract and retain skilled
employees, as needed, could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Management--Executive Officers and Directors."

  No Public Market; Possible Volatility of Share Price. Prior to this
offering, there has been no public market for the Common Stock, and there can
be no assurance that an active trading market will develop or be sustained
after this offering. The initial public offering price will be determined
through negotiations among the Company and the representatives of the
Underwriters based on several factors and may not be indicative of the market
price of the Common Stock after this offering. The market prices of the
capital stock of medical technology companies have historically been very
volatile, and the market price of the shares of Common Stock may be highly
volatile. The market price of the shares of the Common Stock may be
significantly affected by factors such as actual or anticipated fluctuations
in the Company's operating results, announcements of technological
innovations, new products or new contracts by the Company or its competitors,
developments with respect to patents or proprietary rights, conditions and
trends in the pharmaceutical and other technology industries, adoption of new
accounting standards affecting such industries, changes in financial
estimates by securities analysts, general market conditions and other
factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the common stock of development stage companies. These
broad market fluctuations may adversely affect the market price of the Common
Stock. In the past, following periods of volatility in the market price of a
particular company's securities, class action securities litigation has often
been brought against that company. Such litigation, if brought against the
Company, could result in substantial costs and a diversion of management's
attention and resources. See "Underwriting."

  Anti-Takeover Effect of Certain Charter and By-Law Provisions and Delaware
Law. The Company's Restated Certificate of Incorporation as it is proposed to
be amended and restated concurrently with the closing of this offering (the
"Restated Certificate") authorizes the Board of Directors to issue, without
stockholder approval, up to 1,000,000 shares of preferred stock ("Preferred
Stock") with voting, conversion and other rights and preferences that could
adversely affect the voting power or other rights of the holders of Common
Stock. The issuance of Preferred Stock or of rights to purchase Preferred
Stock could be used to discourage an unsolicited acquisition proposal. In
addition, the possible issuance of Preferred Stock could discourage a proxy
contest, make more difficult the acquisition of a substantial block of the
Company's Common Stock or limit the price that investors might be willing to
pay for shares of the Company's Common Stock. The Restated Certificate
provides for staggered terms for the members of the Board of Directors. A
staggered Board of Directors and certain provisions of the Company's By-laws
(the "By-laws") and of Delaware law applicable to the Company could delay or
make more difficult a merger, tender offer or proxy contest involving the
Company. The Company, for example, will be subject to Section 203 of the
General Corporate Law of Delaware which, subject to certain exceptions,
restricts certain transactions and business combinations between a
corporation and a stockholder

                                      11
<PAGE>

owning 15% or more of the corporation's outstanding voting stock (an
"interested stockholder") for a period of three years from the date the
stockholder becomes an interested stockholder. These provisions may have the
effect of delaying or preventing a change of control of the Company without
action by the stockholders and, therefore, could adversely affect the price
of the Company's Stock. See "Management," "Description of Capital
Stock--Preferred Stock" and "--Anti-Takeover Measures."

  Control by Directors and Officers. Upon completion of this offering, the
present directors, executive officers and principal stockholders of the
Company and their affiliates will beneficially own approximately 67.7% of the
outstanding Common Stock of the Company. As a result, these stockholders will
be able to significantly influence corporate actions requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. Such concentration of ownership may have the effect
of delaying or preventing a change in control of the Company. See "Principal
Stockholders."

  Broad Discretion of Management to Allocate Offering Proceeds. The Company
expects to use the net proceeds of this offering for research and development
and funding of clinical trials in support of regulatory and reimbursement
approvals and for working capital and general corporate purposes. The Company
is not yet able to estimate precisely the allocation of the proceeds among
such uses, and the timing and amount of expenditures will vary depending upon
numerous factors. The Company's management will have broad discretion to
allocate the proceeds of this offering and the timing of expenditures. See
"Use of Proceeds."

   
  Shares Eligible for Future Sale; Registration Rights. Future sales of Common
Stock in the public market following this offering could adversely affect the
market price of the Common Stock. Upon completion of this offering, the
Company will have 8,314,740 shares of Common Stock outstanding, assuming no
exercise of options and warrants outstanding on December 31, 1996. Of these
shares, the 2,000,000 shares sold in this offering (plus any additional
shares sold upon exercise of the Underwriters' over-allotment option) will be
freely transferable without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), unless they are held by "affiliates" of the
Company as that term is used under the Securities Act and the regulations
promulgated thereunder. Of the 6,314,740 remaining shares, approximately
112,357 shares of Common Stock will be eligible for sale under Rules 144 and 701
under the Securities Act on the ninety-first day after the effectiveness of this
offering. Stockholders of the Company, who will hold in the aggregate 6,202,383
shares of Common Stock after this offering, have agreed, subject to certain
limited exceptions, not to sell or otherwise dispose of any of the shares held
by them as of the date of this Prospectus for a period of 180 days after the
date of this Prospectus (the "lock-up period") without the prior written consent
of Hambrecht & Quist LLC. However, Hambrecht & Quist LLC may in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. At the end of the aforementioned
lock-up period, an additional 3,950,721 shares of Common Stock (plus
approximately 318,638 shares issuable upon exercise of vested options and
outstanding warrants) will be eligible for immediate resale, subject to
compliance with Rules 144 and Rule 701 under the Securities Act. An additional
2,177,587 shares of Common Stock held by existing stockholders will become
eligible for sale at various times over a period of less than two years and
could be sold earlier if the holders exercise any available registration rights.
The holders of 4,750,289 shares of Common Stock have the right in certain
circumstances to require the Company to register their shares under the
Securities Act for resale to the public beginning at the end of the lock-up
period. If such holders, by exercising their demand registration rights, cause a
large number of shares to be registered and sold in the public market, such
sales could have an adverse effect on the market price for the Company's Common
Stock. If the Company were required to include in a Company-initiated
registration shares held by such holders pursuant to the exercise of their
piggyback registration rights, such sales may have an adverse effect on the
Company's ability to raise needed capital and could also have an adverse effect
on the market price for the Company's Common Stock. In addition, approximately
90 days after the date of this Prospectus, the Company expects to file a
registration statement on Form S-8 registering a total of approximately
1,560,654 shares of Common Stock subject to outstanding stock options or
reserved for issuance under the Company's stock option and stock purchase plans.
See "Management--Director Compensation," "--Stock Plans," "Description of
Capital Stock," "Shares Eligible for Future Sale--Registration Rights" and
"Underwriting."
    

  Immediate and Substantial Dilution. Purchasers of the shares of Common Stock
offered hereby will experience immediate and substantial dilution in the net
tangible book value of their investment from the initial

                                      12
<PAGE>

public offering price. Additional dilution will occur upon exercise of
outstanding options and warrants. See "Dilution," "Description of Capital
Stock--Stock Purchase Warrants" and "Shares Eligible for Future Sale."

  Absence of Dividends. To date, the Company has neither declared nor paid any
cash dividends on shares of its Common Stock and does not anticipate paying
any cash dividends in the foreseeable future. See "Dividend Policy."

  Forward-looking Statements. This Prospectus contains forward-looking
statements, which may be deemed to include the Company's plans to continue
the development and achieve commercial introduction of its product
candidates. Actual results could differ from those projected in any
forward-looking statement for the reasons detailed in the other sections of
this "Risk Factors" section or elsewhere in this Prospectus.

                                      13
<PAGE>

                               USE OF PROCEEDS

   
  The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby after deducting the underwriting 
discounts and estimated offering expenses are estimated to be $12,320,000
($14,273,000 if the Underwriters' over-allotment option is exercised in
full). The Company expects to use the net proceeds for research and
development and funding of clinical trials in support of regulatory and
reimbursement approvals and for working capital and general corporate
purposes. The Company is not yet able to estimate precisely the allocation of
the proceeds among such uses, and the timing and amount of expenditures will
vary depending upon numerous factors. The Company's Board of Directors and
management retain complete discretion with respect to the allocation of such
proceeds and the timing of expenditures. Although the Company may use a
portion of the net proceeds for possible licensing or acquisition of products
and technologies that are complementary to those of the Company, or
acquisitions of businesses that are complementary to those of the Company,
there are no current plans or commitments in this regard. Pending such uses,
the Company plans to invest the net proceeds in investment grade,
interest-bearing securities. The Company intends to invest and use the
proceeds so as not to be considered an "investment company" under the
Investment Company Act of 1940, as amended.
    

  The Company believes that the net proceeds from the offering and its
existing cash and cash equivalents will be sufficient to fund its operations
through June 1998. Thereafter, the Company may require additional funds to
support its operating requirements or for other purposes and may seek to
raise such additional funds through public or private equity financing or
from other sources. There can be no assurance that additional financing will
be available at all or that, if available, such financing would be obtainable
on terms favorable to the Company and would not be dilutive. See "Risk
Factors--Future Capital Needs; Uncertainty of Additional Funding," "--Broad
Discretion of Management to Allocate Offering Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

                               DIVIDEND POLICY

  To date, the Company has neither declared nor paid any cash dividends on
shares of its Common Stock and does not anticipate paying any cash dividends
in the foreseeable future.

                                      14
<PAGE>

                                CAPITALIZATION

   
  The following table sets forth, at September 30, 1996, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company,
giving effect to the conversion upon the closing of the offering of 6,738,076
shares of Preferred Stock into 4,750,289 shares of Common Stock and (iii) the
capitalization of the Company on an as adjusted basis to give effect to the
issuance and sale by the Company of 2,000,000 shares of Common Stock after 
deducting the underwriting discounts and estimated offering expenses. This 
table should be read in conjunction with the Financial Statements of the 
Company and the Notes thereto included elsewhere in this Prospectus.
    

<TABLE>
<CAPTION>
                                                                                      September 30, 1996
                                                                            ------------------------------------
                                                                             Actual     Pro forma    As Adjusted
                                                                            -------     ----------   -----------
                                                                                       (in thousands)
<S>                                                                         <C>         <C>          <C>
Capital lease obligations, less current portion                             $   198     $   198      $   198
                                                                            --------    --------     --------
Series B Redeemable Convertible Preferred Stock, $.01 par value;
  2,655,138 shares authorized; 2,643,736 shares issued and outstanding
  actual; none issued and outstanding pro forma and as adjusted               3,961          --           --
                                                                            --------    --------     --------
Series C Redeemable Convertible Preferred Stock, $.01 par value;
  1,445,536 shares authorized; 1,432,318 shares issued and outstanding
  actual; none issued and outstanding pro forma and as adjusted               3,234          --           --
                                                                            --------    --------     --------
Series D Redeemable Convertible Preferred Stock, $.01 par value;
  1,740,002 shares authorized; 1,700,002 shares issued and outstanding
  actual; none issued and outstanding pro forma and as adjusted               5,071          --           --
                                                                            --------    --------     --------
Series E Redeemable Convertible Preferred Stock, $.01 par value; 868,329
  shares authorized; 868,329 shares issued and outstanding actual; none
  issued and outstanding pro forma and as adjusted                            4,900          --           --
                                                                            --------    --------     --------
Stockholders' equity deficit (1):
    Series A Convertible Preferred Stock, $.01 par value; 104,388 shares
  authorized; 93,691 shares issued and outstanding actual; none issued
  and outstanding pro forma and as adjusted                                   1,038          --           --
    Common Stock, $.01 par value; 15,000,000 shares authorized;
  1,539,673 shares issued and outstanding actual; 6,289,969 shares
  issued and outstanding pro forma; 8,289,969 shares issued and
  outstanding as adjusted (2)                                                    15          63           83
    Additional paid-in capital                                                   94      18,187       30,487
    Accretion of dividends on redeemable convertible preferred stock            (63)         --           --
    Accumulated deficit                                                      (6,235)     (6,235)      (6,235)
                                                                            --------    --------     --------
    Total stockholders' equity (deficit)                                     (5,151)     12,015       24,335
                                                                            --------    --------     --------
     Total capitalization                                                   $12,213     $12,213      $24,533
                                                                            ========    ========     ========
</TABLE>

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

(1) Effective upon the closing of this offering, the Company's Restated
    Certificate of Incorporation will be further amended and restated to,
    among other matters, reduce the number of authorized shares of Preferred
    Stock from 6,813,393 to 1,000,000, none of which will be outstanding upon
    the closing of the offering. See "Description of Capital Stock--Preferred
    Stock."

(2) Excludes (i) 1,292,517 shares of Common Stock issuable upon exercise of
    options outstanding at September 30, 1996 at a weighted average exercise
    price of $2.20 per share, of which options to purchase 329,330 shares of
    Common Stock were exercisable, and (ii) 79,696 shares of Common Stock
    issuable of upon exercise of warrants outstanding at September 30, 1996
    at a weighted average exercise price of $3.98 per share. See
    "Management--Stock Plans," "Description of Capital Stock" and Notes 8 and
    9 to Notes to Financial Statements.

                                      15
<PAGE>

                                   DILUTION

   
  As of September 30, 1996, the Company had a pro forma net tangible book
value of approximately $12.0 million, or $1.91 per share of Common Stock. Pro
forma net tangible book value per share represents the amount of total
tangible assets, less total liabilities, divided by the number of shares of
Common Stock then outstanding after giving effect to the conversion of all
outstanding shares of Preferred Stock into shares of Common Stock upon the
completion of this offering. After giving effect to the sale of 2,000,000
shares of Common Stock offered hereby and after deduction of the estimated 
underwriting discounts and commissions and offering expenses payable by the 
Company, the adjusted pro forma net tangible book value of the Company as of 
September 30, 1996 would have been $24.3 million, or $2.94 per share of Common 
Stock. This represents an immediate increase in pro forma net tangible book 
value of $1.03 per share to existing investors and an immediate dilution of 
$4.06 per share of to new investors. The following table illustrates this per 
share dilution:
    

<TABLE>
<CAPTION>
<S>                                                                            <C>      <C>
   
 Assumed initial offering price per share                                               $7.00
  Pro forma net tangible book value per share before the offering              $1.91
  Increase attributable to new investors                                        1.03
                                                                               -------
Adjusted pro forma net tangible book value per share after the offering                  2.94
                                                                                        -----
Dilution per share to new investors                                                     $4.06
                                                                                        =====
    

</TABLE>

  The following table summarizes on a pro forma basis as of September 30, 1996
the difference between the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share
paid:

<TABLE>
<CAPTION>
                             Shares Purchased       Total Consideration
                          ---------------------- -------------------------
                                                                            Average Price
                            Number     Percent       Amount      Percent      Per Share
                         ------------  --------- --------------  ---------  ---------------
<S>                        <C>          <C>       <C>             <C>          <C>
   
Existing stockholders      6,289,962     75.9%    $18,494,711      56.9%       $ 2.94
New investors              2,000,000     24.1      14,000,000      43.1          7.00
                           ---------    -----     -----------     ------        -----
    Total                  8,289,962    100.0%    $32,494,711     100.0%
                           =========    ======    ===========     ======
</TABLE>
    

  The foregoing computations assume no exercise of warrants or stock options
outstanding at September 30, 1996, at which date there were 1,292,517 shares
of Common Stock issuable upon exercise of outstanding options at a weighted
average exercise price of $2.20 per share, of which options to purchase
329,330 shares of Common Stock were exercisable, and 79,696 shares of Common
Stock issuable of upon exercise of outstanding warrants at a weighted average
exercise price of $3.98 per share. See "Management--Stock Plans" and
"Description of Capital Stock."

                                      16
<PAGE>

                           SELECTED FINANCIAL DATA

  The following selected financial data for the period from inception
(November 29, 1988) through March 31, 1993, the nine months ended December
31, 1995, and for each of the two years in the period ended March 31, 1995
are derived from Financial Statements of the Company which have been audited
by Ernst & Young LLP, independent auditors. The financial statements as of
December 31, 1995 and March 31, 1995 and the nine months ended December 31,
1995 and for each of the two years in the period ended March 31, 1995 and the
report of Ernst & Young LLP relating thereto are included elsewhere herein.
The financial data for the nine months ended September 30, 1996 and 1995 are
derived from unaudited financial statements included elsewhere herein. The
unaudited financial statements include all adjustments, consisting of normal
recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and the results of operations for
these periods. Operating results for the nine months ended September 30, 1996
are not indicative of the results that may be expected for the entire year
ending December 31, 1996. The following data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations," the Financial Statements, related Notes and other financial
information included herein.

<TABLE>
<CAPTION>
                                                                                                
                                                                                                
                                                                                                
                                                                                                      Nine Months     
                                    Period from inception        Year Ended        Nine Months           Ended        
                                     (November 29, 1988)          March 31,           Ended          September 30,    
                                      through March 31,     ---------------------  December 31,  ----------------------
                                             1993            1994        1995       1995 (1)        1995       1996
                                     --------------------- --------- ----------- -------------- ----------- ----------
                                                           (in thousands, except per share data)
<S>                                         <C>             <C>        <C>           <C>          <C>         <C>
Statement of Operations Data:
Revenues                                    $1,000          $1,700     $   412       $   900      $   900     $ 9,635
Operating expenses:
 Research and development                      470           1,382       2,407         4,165        2,989      4,952
 General and administrative                    841             897         825         1,505        1,349      2,212
                                            ------           ------     ------        ------       ------     -------
  Total operating expenses                   1,311           2,279       3,232         5,670        4,338      7,164
                                            ------           ------     ------        ------       ------     -------
Operating income (loss)                       (311)           (579)     (2,820)       (4,770)      (3,438)     2,471
Interest income (expense), net                  41             (38)         42          (123)         (37)      (133)
                                            ------           ------     ------        ------       ------     -------
Net income (loss)                           $ (270)          $(617)    $(2,778)      $(4,893)     $(3,475)    $2,338
                                            ======           ======     ======        ======       ======     =======
Pro forma:
 Net income (loss) per share (2)                                                     $ (0.70)                 $ 0.30
 Shares used in per share
   calculations (2)                                                                    6,973                   7,711
</TABLE>

<TABLE>
<CAPTION>
                                                                March 31,
                                                      -----------------------------
                                                                                     December 31,    September 30,
                                                       1993       1994      1995       1995 (1)          1996
                                                      --------  --------- --------- --------------  ---------------
                                                                             (in thousands)
<S>                                                   <C>       <C>        <C>          <C>             <C>
Balance Sheet Data:
Cash and cash equivalents                             $  114    $ 4,154    $  1,079     $   150         $11,735
Working capital (deficit)                               (142)     3,574        516       (1,327)         10,882
Total assets                                           1,118      5,050      2,141        1,211          13,815
Capital lease obligations, less current portion           13        292        107          342             198
Redeemable convertible preferred stock                    --      3,941      3,949        3,956          17,166
Total stockholders' equity (deficit)                     773        200     (2,552)      (7,336)         (5,151)
</TABLE>

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

(1) The Company changed its fiscal year end from March 31 to December 31
    commencing with the fiscal year ended December 31, 1995.

(2) See Note 2 to Notes to Financial Statements for a description of the
    calculation of pro forma net income (loss) per share.

                                      17
<PAGE>

                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Financial Statements and Notes
thereto included elsewhere in this Prospectus. Except for the historical
information contained herein, the discussion in this Prospectus contains
certain forward-looking statements that involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations and
intentions. The cautionary statements made in this Prospectus should be read
as being applicable to all related forward-looking statements wherever they
appear in this Prospectus. The Company's actual results could differ
materially from those discussed here. Factors that could cause or contribute
to such differences include those discussed in "Risk Factors," as well as
those discussed elsewhere herein.

Overview

  The Company was incorporated in 1988. 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 September 30, 1996 aggregating
approximately $6.2 million. The Company has received revenues in connection
with various licensing and collaboration agreements. In August 1996, the
Company entered into a strategic alliance with Mallinckrodt pursuant to which
it received $6.0 million in up-front license fees. The agreement provides for
an additional $2.0 million payment upon the earlier of a specified date or
the achievement of an MS-325 development milestone. In March 1996, the
Company entered into a strategic alliance with Daiichi. Under this agreement,
the Company received $3.0 million in license fees and $5.0 million from the
sale of Preferred Stock, and is entitled to receive up to $3.3 million in
future payments based upon the Company's achievement of certain product
development milestones.

  The Company reported profitable operating results for the nine-month period
ended September 30, 1996 due to significant license fees and milestone
payments received from Mallinckrodt and Daiichi. However, the Company expects
continued operating losses for the next several years as it incurs expenses
to support research, development and efforts to obtain regulatory approvals.

  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 in July 1996 and
initiated Phase I clinical trials in September 1996.

  In 1995, the Company changed its fiscal year end from March 31 to December
31. 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 Nine Months Ended September 30, 1996 and 1995

  Revenues. Revenues for the nine-month period ended September 30, 1996 were
$9.6 million as compared to $900,000 for the corresponding period of 1995.
Revenues for the nine-month period ended September 30, 1996 included $6.0
million in license fees and approximately $665,000 of development contract
revenue from Mallinckrodt. Revenues for the period also included $3.0 million
in license fees (net of 10% foreign withholding tax) received from Daiichi
for the rights to commercialize MS-325 in Japan. Revenues for the nine-month
period ended September 30, 1995 consisted entirely of payments received from
a pharmaceutical company as consideration for an option for certain rights to
the Company's future contrast agents in Japan. The option expired and the
rights to the agent were subsequently licensed to a third party.

  Research and development expenses. Research and development expenses for the
nine-month period ended September 30, 1996 were $5.0 million as compared to
$3.0 million for the corresponding period of 1995. This increase was due
primarily to increased MS-325 development costs associated with the
commencement of Phase I clinical trials in September 1996.

                                      18
<PAGE>

  General and administrative expenses. General and administrative expenses for
the nine-month period ended September 30, 1996 were $2.2 million as compared
to $1.3 million for the corresponding period of 1995. The $900,000 increase
was due to increased personnel costs associated with recruitment and
compensation of additional senior managers (approximately $235,000) and
increased expenses for strategic consulting and business development
activities ($128,000). Significant secondary causes of the increase include
higher patent costs as well as increased agency fees and legal expenses
associated principally with the formation of collaborative agreements. In
addition, general and administrative expenses for the 1996 period included
$250,000 of nonrecurring expense incurred in connection with the
restructuring of a liver agent development program which was terminated by
the Company in 1995. The Company had terminated the program after reassessing
the anticipated future product development costs under the program measured
against the size of the potential market for products. As part of a
negotiated termination of the agreement covering the development program, the
Company paid the contracting party $250,000 and gave a non-exclusive license
to the technology developed to date under the program in exchange for royalty
payments on future sales of products by the contracting party. The Company
expects total general and administrative expenses to increase as the
Company's product candidates advance through clinical trials and to eventual
commercialization.

  Interest income and expense. Interest income for the nine-month period ended
September 30, 1996 was $140,000 as compared to $63,000 for the corresponding
period of 1995. This increase was due to higher average cash available for
investment. Interest expense for the nine-month period ended September 30,
1996 was $274,000 as compared to $100,000 for the corresponding period of
1995. This increase was due to higher borrowings under promissory notes and
bridge loans.

Comparison of Nine Months Ended December 31, 1995 and Years Ended March 31,
1995 and 1994

  Revenues. Revenues for the nine-month period ended December 31, 1995
consisted of the aforementioned $900,000 received as consideration for an
option for certain rights to contrast agents which has since expired. Revenue
for the years ended March 31, 1995 and 1994 of $411,000 and $1.7 million,
respectively, consisted principally of research and license fees received
from a Japanese company in connection with a liver agent development program
which was terminated by the Company in 1995.

  Research and development expenses. Research and development expenses were
$4.2 million for the nine-month period ended December 31, 1995 as compared
to $2.4 million for the year ended March 31, 1995 and $1.4 million for the
year ended March 31, 1994. The respective year-to-year increases were
attributable to increased payments to third parties for research studies,
hiring of additional staff and building the infrastructure required to
perform research, development and regulatory activities with respect to the
Company's product candidates, principally MS-325.

  General and administrative expenses. General and administrative expenses
were $1.5 million for the nine-month period ended December 31, 1995 as
compared to $825,000 for the year ended March 31, 1995 and $897,000 for the
year ended March 31, 1994, reflecting the investment in personnel and
facilities to support the Company's expanded operations. General and
administrative expenses for the nine-month period ended December 31, 1995
exceeded those for the year ended March 31, 1995 largely due to increased
salaries ($150,000) and higher legal costs ($117,000), due principally to the
formation of various collaborations. Also contributing to the increase were
increased patent costs attributable to the timing and increased scope of
patent activities and nonrecurring license fee expense incurred in connection
with the development of MS-325. General and administrative expenses for the
year ended March 31, 1994 exceeded those for the year ended March 31, 1995
due primarily to a finder's fee paid in 1994 to a third party in connection
with identifying possible collaborative partners for the Company's liver
agent development program.

  Interest income and expense. Interest income for the nine-month period ended
December 31, 1995 was $28,000 as compared to $121,000 and $29,000 for the
years ended March 31, 1995 and 1994, respectively. The decrease in interest
income for the nine-month period ended December 31, 1995 as compared to the
prior fiscal period was due to lower average cash available for investment.
Interest income for the year ended March 31, 1995 increased over the prior
fiscal year primarily due to higher average invested cash balances resulting
from the Series B Convertible Preferred Stock financing completed in March
1994. Interest expense for the nine-month period ended December 31, 1995 was
$151,000 as compared to $79,000 and $67,000 for the years ended March 31,
1995 and 1994, respectively. The increased interest expense for the
nine-month period ended

                                      19
<PAGE>

December 31, 1995 was due primarily to additional interest expense related to
the convertible promissory notes issued in May and November 1995.

Liquidity and Capital Resources

  The Company has financed its operations since inception principally through
the sale of its Preferred Stock, with proceeds therefrom totaling $18.4
million (including $3.8 million from convertible debt securities that were
converted to Preferred Stock) and payments aggregating $13.6 million received
from third parties, including Mallinckrodt and Daiichi, in connection with
collaboration and license arrangements. In addition, the Company arranged
capital lease lines under which it has borrowed $1.4 million to date to
partially fund approximately $2.2 million of capital expenditures. From
inception through September 30, 1996, the Company has incurred $19.7 million
of costs attributable to operating activities, including $13.4 million
related to the research and development of technology and new product
candidates, including MS-325.

  During the nine-month period ended September 30, 1996, operating activities
provided $2.6 million of cash, as license fees received in connection with
collaboration agreements more than offset operating expenses during the
period. During the same period investing activities used $756,000 of cash
primarily for the purchase of fixed assets, consisting principally of
laboratory and office equipment. Financing activities during the nine-month
period ended September 30, 1996 provided $9.8 million of cash primarily in
the form of net proceeds from the sale of the Company's preferred stock,
totaling $9.3 million and the issuance of notes payable aggregating $900,000,
which were subsequently converted into preferred stock of the Company.

   
  Operating activities during the nine-month period ended December 31, 1995
used $3.5 million in cash primarily for continued spending on research and
development of MS-325 and for general and administrative expenses. Proceeds
from a sale leaseback arrangement more than offset capital expenditures
during the same period; consequently, investing activities provided $136,000
of cash during the period. Other significant cash flow events during the
period included $2.7 million of proceeds received from the issuance of
promissory notes which were subsequently converted in 1996 into preferred
stock of the Company.
    

  The Company does not anticipate the receipt of license fees from new
collaboration agreements at any time in the immediate future. 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.

  The Company has reported only tax losses to date and therefore has not paid
federal or state income taxes since inception. The Company accounts for
income taxes under Statement of Financial Accounting Standards No. 109 (FAS
109). Realization of deferred taxes is dependent on future events and
earnings, if any, the timing and extent of which are uncertain. Accordingly,
the benefit of deferred tax assets has been fully reserved as of September
30, 1996 and 1995. At September 30, 1996, the Company had net operating loss
carryforwards of approximately $7.8 million available to offset future
taxable income. These amounts expire at various times through 2010. 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 this offering and any other future sale of stock may
limit utilization of future losses in any one year. The Company is also
eligible for research and development tax credits approximating $300,000 at
September 30, 1996, 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.

                                      20
<PAGE>

  The Company's principal source of liquidity consists of cash and cash
equivalents totaling $11.7 million at September 30, 1996. The Company is
eligible to receive an additional $2.0 million of revenues from Mallinckrodt
and $3.3 million from Daiichi upon the attainment of certain product
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. The Company expects that its cash needs will
increase significantly in future periods due to pending and planned clinical
trials and other increased operating expenses. The Company estimates that the
net proceeds of this offering and existing cash and cash equivalents 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 financings or through strategic alliances. There
can be no assurance that additional financing will be available on acceptable
terms, if at all.

                                      21
<PAGE>

                                   BUSINESS

Overview

  The Company is developing targeted contrast agents both to improve the
capability and expand the use of MRI as a diagnostic tool for a variety of
diseases. Contrast agents that are targeted or specific are designed to bind
to a particular organ or organ system. The Company's principal product under
development, MS-325, is an injectable vascular contrast agent designed for
multiple vascular imaging indications, including CAD and PVD. The Company
believes that MS-325 will significantly enhance the quality of images and
provide physicians with a clinically superior, noninvasive (i.e., no more
invasive than a peripheral intravenous injection ("I.V.")) and cost-effective
method for diagnosing cardiovascular disease. The Company further believes
that MS-325 will simplify the diagnostic pathway for a number of
cardiovascular diseases and in many cases replace highly invasive (i.e., more
invasive than a peripheral I.V. up to and including a surgical procedure) and
expensive X-ray angiography, which is currently considered the definitive
diagnostic exam for assessing cardiovascular disease. The Company is
presently conducting Phase I clinical trials of MS-325, and 35 subjects have
received MS-325 to date with no clinically significant adverse effects
reported. The Company has entered into strategic alliances with Mallinckrodt
and Daiichi for the development and commercialization worldwide of MS-325 and
other vascular contrast agents.

  MS-325 is a magnetically active, injectable small molecule. It binds to the
blood protein albumin, remains at high concentrations in the bloodstream
throughout the MRI exam, and is designed to be excreted safely through the
kidneys over time. Because of its affinity for albumin, MS-325 provides the
image acquisition time and signal strength needed to obtain a high contrast,
high resolution image of the cardiovascular system. The Company is also
investigating additional imaging applications for MS-325, including tumor
imaging. The Company believes that its proprietary technology platform will
enable it to create additional contrast agents that target particular tissue
and fluid types. Research efforts are ongoing in the areas of thrombosis
(blood clots) and functional brain imaging.

Magnetic Resonance Imaging Background

  In MRI, images are obtained by placing a portion of the patient's body in a
magnetic field and applying safe, low-energy radio waves. The different
organs and tissues in the body respond uniquely to the MRI's electromagnetic
field and these responses are then scanned and converted into a
three-dimensional image. MRI can easily provide high contrast, high
resolution images of anatomy deep inside the body.

  The use of MRI, which was developed in the 1970s, has grown steadily over
the past decade due to declining costs, increased clinical effectiveness,
reduced exam times and more comprehensive coverage by third-party payors. As
an example, a standard MRI brain exam, which in 1985 required 60 minutes and
cost approximately $1,500, now takes only 30 minutes, costs approximately
half as much and can identify tumors that are over 50% smaller than those
detectable in 1985. The installed base of MRI scanners in the United States
grew from fewer than 400 scanners in 1985 to an estimated 3,900 in 1995,
during which year there were an estimated 8.5 million MRI exams performed.

  Underlying MRI's economic and clinical advancement is the consistent and
rapid technological progress achieved by MRI equipment manufacturers such as
General Electric, Siemens and Philips. Over the past 10 years, MRI equipment
manufacturers have achieved significant improvements in both MRI hardware and
software while reducing the price of a new machine by more than 35%. The
primary hardware components in an MRI scanner are the magnet, gradients,
radio frequency coils and computer processors and memory. Since 1985,
gradients have quadrupled in speed and power, and enhancements in radio
frequency coils have improved the signal-to-noise ratio by over 100%.
Improvements in computer processors, memory and software, including new
techniques to improve scanning, image processing and motion compensation,
have been even more dramatic.

  Images obtained in certain applications of MRI can be enhanced through the
use of contrast agents. Contrast agents are injected into a vein in the
patient's arm prior to a scan and are designed to amplify the contrast
between various tissues, organs and anatomic structures. Currently available
MRI contrast agents are primarily non-specific gadolinium compounds which
diffuse throughout the body following injection. They are effective at
enhancing images of certain tissue types, primarily in the brain and spine,
but lack the efficacy to be clinically useful for many vascular applications.
Non-specific contrast agents are used in an estimated 25% of MRI exams and
their usage has grown approximately 40% over the last four years.

  MRI has been established as the modality of choice for a broad range of
indications, including brain tumors, many spinal disorders and knee injuries.
Nevertheless, MRI has been used sparingly as an imaging modality for the
vascular system due to its limited ability to image arteries and veins in
patients. In particular, cardiac motion

                                      22
<PAGE>

currently precludes MRI of the coronary arteries. Several leading MRI
manufactures, academic centers and others are developing hardware and
software solutions to the problem of cardiac motion. In both CAD and PVD,
clinically significant magnetic resonance images of the arterial anatomy are
also limited by MRI's inability to provide sufficient contrast between the
arteries and the surrounding tissues. Further, MRI studies using the existing
non-specific contrast agents are limited by their rapid diffusion out of the
vascular system. Consequently, many experts believe MRI contrast agents which
remain in the vascular system for extended periods of time will be necessary
to obtain sufficient contrast for clinically relevant vascular images.

The EPIX Solution

  The Company believes that MS-325, together with the anticipated hardware and
software solutions to the cardiac motion problem, will enable widespread
clinical use of MRI to diagnose CAD. The Company also believes that MS-325
will significantly expand the use of currently available MRI equipment in
diagnosing PVD. MS-325 has been designed to be used with MRI to provide
physicians with a clinically superior, noninvasive and cost-effective
diagnostic pathway by eliminating many X-ray angiograms and ancillary tests.

   MS-325: Cardiology Indications

  Background. It is estimated that approximately 500,000 people in the United
States die of CAD each year, making it the leading cause of death. CAD is
characterized by the accumulation of plaque on the arterial walls, leading to
a disruption in blood flow to the heart muscle. This interruption of blood to
the heart can cause ischemia (lack of oxygen) or infarction (death of heart
tissue) and result in significant morbidity or death. In order to diagnose a
patient who exhibits apparent symptoms of CAD, prescribe an effective
treatment and monitor the results of intervention, a physician often requires
information on the anatomy and function of the heart and, specifically, the
coronary arteries. Due, in part, to the lack of cost-effective, noninvasive,
comprehensive diagnostic imaging procedures, diagnosis of CAD is currently a
complex and expensive process. Based on independent sources, the Company
believes that in 1995 over six million patients in the United States
underwent over 11 million various diagnostic tests for the diagnosis of CAD
at an estimated cost of approximately $7.0 billion. The Company believes that
MRI-based cardiac evaluations using MS-325 would simplify the process of
diagnosing CAD, significantly improving patient outcomes and lowering total
medical costs.


  Traditional Approach to CAD Diagnosis. The current diagnostic process for
CAD is complex, expensive and can involve multiple, often inconclusive,
tests. While the specific diagnostic pathway may vary for any given patient,
several appointments for multiple diagnostic exams may be necessary prior to
formulation of a treatment plan. Figure 1 below outlines the traditional
approach to CAD diagnosis.

       Figure 1--Coronary Artery Disease: Traditional diagnostic pathway
- --------------------------------------------------------------------------------



<TABLE>
<S>            <C>                    <C>               <C>               <C>
                7% Acute/Critical                        60% Drug Therapy
              ----   Ischemia                           ----  or Rule Out
              |                                         |         CAD
              |                       Traditional       |
  Initial     |                       Non-Invasive      |
Chest Pain    |                         Imaging         |                  50%    Drug   
  Workup      |                       o Stress echo-    |                 ---- Therapy or
              |                         cardiogram      |                 |    No Therapy
o EKG         |    Indeterminate                        |                 |
o Exercise    |51%  Non-acute         o Nuclear stress  |                 |27%
  stress test ----  Myocardial   ----   perfusion study |    Coronary     ----  PTCA
              |     Infarction                          |40%  X-ray       |
6.75 Million  |42%                       3.44 Million   ---- Angiography  |
  Patients    ---- Rule Out CAD             Patients                      |23%
                                                             1.38 Million ----  CABG
                                                               Patients   
</TABLE>



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

  Note: Percentages are estimates derived by the Company from both data
compiled by the Company and data obtained from independent sources. Actual
diagnostic outcomes could vary depending on numerous factors, including
geographical location of the patient, type of medical setting in which the
tests are administered and physician practice patterns.



                                      23
<PAGE>

  An estimated 6.75 million patients enter the CAD diagnostic pathway in the
United States after experiencing chest pain or shortness of breath. An
electrocardiogram ("EKG") is often performed at this stage. Approximately 7%
of these patients present with severe pain and acute or critical ischemia and
are immediately triaged for treatment. For the remaining 93%, the physician
completes a work-up, history and physical exam to determine whether the
patient exhibits symptoms consistent with CAD and has any of the risk factors
for CAD, such as smoking, high cholesterol, family history, excess weight,
diabetes or high blood pressure. A patient with an abnormal EKG or
significant risk factors will likely be referred to a cardiologist for
further testing. The cardiologist will typically continue the work-up with an
exercise stress test. Based on EKG and exercise stress test results, CAD is
ruled out for approximately 42% of all patients entering the diagnostic
pathway. For the remaining 51% of all patients, results of the exercise
stress test are indeterminate and the cardiologist generally will perform a
stress echocardiogram and/or a nuclear stress perfusion study. Approximately
60% of patients undergoing these tests receive either drug therapy or no
further treatment. For the remaining 40% of patients, for whom the stress
echocardiogram or a nuclear stress perfusion study is positive or
indeterminate, a coronary X-ray angiogram is often prescribed. Approximately
50% of the patients who receive coronary X-ray angiograms are either treated
with drugs or require no therapy. If the coronary X-ray angiogram indicates
surgically correctable disease, the patient will be scheduled for a
percutaneous transluminal coronary angioplasty ("PTCA"), a procedure designed
to enlarge partially blocked arteries, or referred to a cardiac surgeon for a
coronary artery bypass graft ("CABG"), a surgical procedure designed to
circumvent a blocked or partially blocked artery or arteries with a vascular
graft.

  As indicated above, the following tests are generally part of the
traditional diagnostic pathway for CAD:

  (bullet) EKGs measure the electrical potential of the heart using several
           surface electrodes. Varying patterns of monitored electrical
           activity may indicate heart abnormalities, including ischemic heart
           disease or a previous heart attack.

  (bullet) Exercise stress tests measure a patient's ability to exercise
           without chest pain. For certain patients with extreme results, the
           test can be used to confirm or exclude the presence of blockages
           which significantly decrease blood flow and sometimes to prescribe
           drug therapy. However, for most patients the test is inconclusive.
           The test provides no information on the anatomy of the coronary
           arteries.

  (bullet) Stress echocardiograms use transthoracic ultrasound to measure
           motion of the walls of the heart under physical or pharmacological
           stress. In most cases, a lack of blood flow to a particular area of
           the heart will be reflected in atypical motion of the heart wall.
           The test is noninvasive and costs between $300 and $900. While a
           normal stress echocardiogram usually eliminates the possibility of
           blockages which significantly decrease blood flow, the test is
           often inconclusive and provides no information on the anatomy of
           the coronary arteries. Over 800,000 stress echocardiograms were
           performed in the United States in 1995 at an estimated cost of over
           $250 million.

  (bullet) Nuclear stress perfusion studies, which measure the flow of blood
           to cardiac tissue, can be used either as the critical diagnostic
           test prior to X-ray angiography or to confirm the impact on blood
           flow of an intermediate blockage identified through X-ray
           angiography. These tests are noninvasive, use small quantities of
           ionizing radiation and cost between $600 and $1,400. A patient is
           injected with a radiopharmaceutical and then a gamma camera is used
           to detect uptake of the agent in the heart muscle. A deficiency in
           blood flow to particular regions of the heart is shown on the
           resultant images. While the test can identify the effects of CAD,
           it provides no information on the anatomy of the coronary arteries
           and it cannot determine the location of blockages. Approximately
           2.7 million nuclear stress perfusion studies were conducted in the
           United States in 1995 at an estimated cost of $1.9 billion.

  (bullet) Coronary X-ray angiography is currently considered by many to be
           the definitive diagnostic exam for imaging the coronary artery
           anatomy. It uses conventional X-ray technology enhanced with
           iodinated contrast media. Coronary X-ray angiography is highly
           invasive and costs between $2,000 and $6,000 per procedure. The
           procedure requires an interventional cardiologist to puncture the
           femoral artery in the patient's groin area and feed a catheter up
           into the patient's heart. During X-ray imaging, up to 100
           milliliters of contrast media are injected into the catheter,
           effectively replacing blood flow in the heart and associated
           arteries for approximately two seconds. This cardiac
           catheterization must be performed in a surgical setting and
           requires patient monitoring for at least six hours after the
           procedure.

                                      24
<PAGE>

           Approximately 5% of patients undergoing a coronary X-ray angiogram
           experience serious side effects, including renal failure, limb loss
           and death, which may be caused by both the insertion of the
           catheter and the high dosage of iodinated radio-opaque dye. In
           addition, coronary X-ray angiography does not always provide
           sufficient information for clinical decision-making. While the
           procedure identifies the location of arterial blockages, in many
           cases it cannot conclusively determine their impact on blood flow.
           Therefore, for many blockages, a nuclear stress perfusion study
           must be performed to enable the physician to make a definitive
           diagnosis. Due to the expensive nature of coronary X-ray
           angiography, its high risk of complications, and the fact that
           approximately 50% of the patients undergoing coronary X-ray
           angiograms ultimately are diagnosed as having conditions that do
           not warrant invasive therapy, physicians employ a battery of tests
           to triage patients in an effort to avoid this procedure. However,
           because a diagnostic coronary X-ray angiogram is currently the only
           test that can image the coronary artery anatomy, approximately 1.4
           million such procedures were performed in the United States in 1995
           at an approximate cost of $3.8 billion.

  The EPIX Approach to CAD Diagnosis. The Company believes that MS-325,
coupled with anticipated advances in software and hardware for MRI equipment,
will enable physicians to use cardiac MRI to perform a noninvasive,
integrated cardiac exam for the diagnosis of CAD. Such a procedure is
designed to provide information on coronary artery anatomy, including
location of arterial blockages, perfusion and cardiac function, in one
sitting early in the diagnostic pathway. Because the procedure is intended to
provide physicians with more comprehensive diagnostic information at an
earlier stage of the diagnostic pathway, physicians will be able to make a
more informed diagnosis, and arrange for appropriate patient treatment,
sooner than would otherwise be possible, thereby achieving better patient
outcomes at a lower cost. Although several leading MRI manufacturers,
academic centers and others are developing advanced hardware and software,
there can be no assurance when, or if, these techniques will enable MS-325 to
provide clinically relevant images in cardiac indications currently being
pursued. See "Risk Factors--Dependence on MRI Advancements for Cardiac
Applications." Figure 2 below outlines the EPIX approach to the diagnosis of
CAD.


           Figure 2--Coronary Artery Disease: EPIX diagnostic pathway
- --------------------------------------------------------------------------------


<TABLE>
<S>            <C>                    <C>               <C>               <C>
                7% Acute/Critical                        80%  Drug Therapy
              ----   Ischemia                           ---- or Rule Out CAD
              |                                         |                 
              |                       EPIX Solution     |
  Initial     |                        MS-325/MRI       |
Chest Pain    |                                         | 9% Coronary
  Workup      |                       o Anatomy         ----  X-ray       ---- CABG
              |                                         |    Angiography  
o EKG         |    Indeterminate      o Perfusion       |                 
o Exercise    |51%  Non-acute                           |    0.31 Million 
  stress test ----  Myocardial   ---- o Function        |      Patients   
              |     Infarction                          |11%              
6.75 Million  |42%                    3.44 Million      ---- PTCA         
  Patients    ---- Rule Out CAD         Patients
</TABLE>


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



  Note: Percentages are estimates derived by the Company from both data
compiled by the Company and data obtained from independent sources. Actual
diagnostic outcomes could vary depending on numerous factors, including
geographical location of the patient, type of medical setting in which the
tests are administered and physician practice patterns.


  The Company believes that the use of MS-325 with MRI to perform integrated
cardiac exams will simplify and improve the diagnostic work-up for CAD by
enabling noninvasive cardiologists (approximately 80% of all cardiologists)
to visualize the coronary arteries noninvasively early in the work-up. Under
the EPIX approach for CAD assessment, a patient who has an indeterminate EKG
and exercise stress test would be referred for a noninvasive, integrated
cardiac exam. Unlike the invasive nature of coronary X-ray angiography, the
patient would receive a single injection of MS-325 in a vein in the arm prior
to the exam and then enter the MRI scanner.

                                      25
<PAGE>

The exam is expected to provide the physician with three-dimensional anatomic
detail of the coronary arteries as well as the perfusion and functional
information currently provided by stress echocardiograms and nuclear stress
perfusion studies. Based on the results of the MS-325-based integrated
cardiac exam, the cardiologist would either prescribe no treatment, prescribe
drug therapy or refer the patient to an interventional cardiologist (i.e., a
cardiologist who performs invasive procedures) for a PTCA or surgical
planning for a CABG. Because the MRI exam using MS-325 is expected to provide
all of the anatomic information currently provided by a coronary X-ray
angiogram, the need for coronary X-ray angiography as a diagnostic tool will
be reduced. Only in the limited number of cases where CABG is deemed
necessary would the patient be subjected to invasive coronary X-ray
angiography for surgical planning.

  The Company believes that the EPIX simplified diagnostic pathway could
result in significant cost savings to the United States healthcare system for
the diagnosis of CAD. These savings are predicated on providing noninvasive
coronary artery anatomic information earlier in the CAD work-up. In 1995, for
the approximately 3.44 million patients in the United States completing the
traditional diagnostic pathway, the total cost of the diagnostic work-up for
CAD was approximately $5.4 billion. Under the EPIX approach to diagnosis of
CAD, both stress echocardiograms and nuclear stress perfusion studies could
be eliminated. In addition, because an MRI exam with MS-325 is expected to
provide physicians with anatomic information early in the CAD work-up, the
Company believes that half of the patients who undergo coronary X-ray
angiography but do not ultimately require invasive therapy will be able to
avoid a coronary X-ray angiogram. The estimated total cost for the 3.44
million patients completing the EPIX diagnostic pathway for CAD would be $3.2
billion, yielding approximately $2.2 billion in savings to the United States
healthcare system based on estimated 1995 procedure costs.

             Figure 3--Estimated Savings: Traditional CAD diagnostic
                     pathway versus EPIX diagnosit pathway
- --------------------------------------------------------------------------------



Traditional

                   60% Drug Therapy
   $500           ----  or Rule Out
                  |         CAD
Traditional       |
Non-Invasive      |
  Imaging         |                  50%    Drug   
o Stress echo-    |                 ---- Therapy or
  cardiogram      |                 |    Rule Out CAD
                  |                 |
o Nuclear stress  |     $2,700      |27%
  perfusion study |    Coronary     ----  PTCA
                  |40%  X-ray       |
                  ---- Angiography  |
                                    |23%
  3.44 Million                      ----  CABG
    Patients              
                     1.38 Million 
                       Patients   

      Estimated Total U.S. Cost = $5.4 billion



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



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



EPIX

                   80%  Drug Therapy
                  ---- or Rule Out CAD
   $700           |                 
EPIX Solution     |
 MS-325/MRI       |     $2,700
                  | 9% Coronary
o Anatomy         ----  X-Ray       ---- CABG
                  |    Angiography  
o Perfusion       |                 
                  |    0.31 Million 
o Function        |      Patients   
                  |11%              
3.44 Million      ---- PTCA         
  Patients

   Estimated Total U.S. Cost = $3.2 billion



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



  Note: Percentages are estimates derived by the Company from both data
compiled by the Company and data obtained from independent sources. Actual
diagnostic outcomes could vary depending on numerous factors, including
geographical location of the patient, type of medical setting in which the
tests are administered and physician practice patterns.


  Post-Intervention Monitoring and "Relooks." The Company believes that, after
either a PTCA or a CABG, optimal patient management would include follow-up
exams to determine re-forming of blockages ("restenosis") as well as proper
functioning of grafts. However, while it is estimated that approximately
400,000 PTCAs and 500,000 CABGs were performed in the United States in 1995,
only a small proportion of the patients undergoing these procedures received
follow-up coronary X-ray angiography ("relooks"). Due to the risk, discomfort
and expense associated with coronary X-ray angiography, follow-up imaging
currently is limited, which can lead to increased patient

                                      26
<PAGE>

management costs and poorer outcomes due to undiagnosed restenosis and other
complications. The Company believes that the availability of MS-325 may lead
to an increase in follow-up exams using MRI. Furthermore, the Company
believes that MS-325 would enable noninvasive cardiologists to visualize the
coronary arteries of the increasing number of patients who have been treated
with thrombolytic therapy (streptokinase and TPA).

   MS-325: Radiology Indications

  Background. PVD affects arteries throughout the body and results in
significant morbidity and mortality. There are approximately 600,000 vascular
operations, 400,000 strokes and 100,000 amputations (primarily related to
PVD) each year in the United States. Similar to CAD, blockage of arteries
outside the heart can lead to ischemia (lack of oxygen) or infarction (death
of tissue). Complications from PVD include pain, limitations in mobility,
amputation of the extremities, hypertension, kidney failure in the case of
renal arteries, or stroke in the case of carotid or cerebral arteries. The
need for imaging the vascular system outside the heart extends to many areas
of the body, including the carotid arteries, vessels of the leg, the aorta
and pulmonary arteries.

  Traditional Approach to PVD Diagnosis. A patient with PVD may present with a
wide range of symptoms, such as leg pain, gangrene, hypertension, renal
failure, stroke or transient ischemic attack ("TIA"), a brief episode of
cerebral ischemia usually characterized by blurred vision, slurred speech,
numbness or paralysis. The appropriate initial diagnostic tests vary
according to the particular PVD indication. Traditional imaging modalities
for diagnosing PVD, such as ultrasound, nuclear medicine and CT, frequently
do not provide definitive diagnostic information. For example, ultrasound and
renal nuclear scans have poor image quality, leading to exams which are
frequently indeterminate. CT can be used for certain radiological
applications, but can only image a limited area during each scan due to the
large amounts of potentially toxic X-ray contrast media required.

  With the exception of imaging carotid arteries, MRI has not made a
significant impact on the diagnosis of PVD to date. Non-contrast MRI studies
of the vascular system, which measure blood flow and not anatomy, are often
ineffective when used in patients with disease because of their limitations
in imaging the blood flow associated with PVD, which may be either minimal or
turbulent. Even for the imaging of carotid arteries, where flow-based MRI has
had a substantial clinical impact, the lack of direct anatomic data limits
its ability to provide a quantitative measurement of stenosis required for
accurate diagnosis. MRI studies using existing non-specific contrast agents
are limited by the rapid diffusion of the agents out of the vascular system.

  As with the diagnostic work-up of CAD, a peripheral X-ray angiogram is
generally considered to be the definitive diagnostic exam for radiological
indications. In the work-up of PVD of the lower extremities, for example, the
patient typically presents with leg pain, gangrene or limited mobility. The
surgeon checks the patient's pulse in the ankles and performs two noninvasive
exams, impedance plethysmography and ankle brachial index measurements, which
confirm that the patient has PVD and often localizes the disease within the
limb. An ultrasound exam is sometimes performed at this stage. Peripheral
X-ray angiography is then performed to visualize the extent of the disease
and to plan for surgery. Like coronary X-ray angiograms, peripheral X-ray
angiograms are performed in a surgical setting and involve the puncture of
the femoral artery in the groin area, the placement of a catheter in the
artery and the replacement of blood by X-ray contrast media. While peripheral
X-ray angiograms have slightly lower morbidity rates compared to coronary
X-ray angiograms, the risks are significant with complications, including
limb loss and renal failure, occurring at a rate of 1.7%. The cost of
peripheral X-ray angiography is estimated to range from less than $1,000 to
almost $3,000 per procedure. Despite the drawbacks of peripheral X-ray
angiography, approximately 1.9 million of these procedures were performed in
the United States in 1995. Figure 4 below outlines the traditional diagnostic
pathway for various forms of PVD.

                                      27
<PAGE>

     Figure 4--Peripheral Vascular Disease: Traditional diagnostic pathway
- --------------------------------------------------------------------------------



<TABLE>
<S>                         <C>                              <C>              <C>
          Anatomic Area           Current Diagnostic Exams

- ----------------------                   
Carotid                            Ultrasound              
Artery                ----            MRI              ----|             |
- ----------------------                                     |             |
                                                           |             |
- ----------------------                                     |             |
Aorta                 ----            CT                   |             ----   Surgery
- ----------------------             Ultrasound          ----|             |
                                                           | Peripheral  |
- ----------------------                                     |   X-ray     |
Renal                          Renal nuclear scan          | Angiography |
Arteries              ----         Ultrasound          ----|             |    Percutaneous
- ----------------------                                     |             ---- Transluminal
                                                           |             |    Angioplasty
- ----------------------             Impedance               |             |       (PTA)
Extremities           ----    plethysmography (IPG)        |             |
- ----------------------      Ankle Brachial Index (ABI) ----|             |
                        |          Ultrasound              
                        |
                        |
                        |
          [GRAPHIC OF HUMAN BODY]
</TABLE>



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

  The EPIX Approach to PVD Diagnosis. The Company believes that the use of
MS-325 with MRI will simplify and improve the PVD diagnostic pathway by
enabling radiologists to visualize peripheral arteries noninvasively early in
the work-up with resolution sufficient to provide a definitive diagnosis and
surgical plan. Although several available MRI contrast agents also provide
high resolution, they diffuse out of the cardiovascular system rapidly,
making it possible to obtain detailed anatomic images only over a limited
area. MS-325 is designed to remain in the blood vessels for over an hour
providing sufficient time for detailed images of large portions of the
vascular system. By significantly increasing the contrast of the vascular
system and using the MRI equipment currently in widespread use, the Company
believes that MS-325 will enable MRI to overcome the principal problem that
has limited its clinical effectiveness in diagnosing PVD.

  An MRI exam utilizing MS-325 is intended to provide sufficient anatomic
detail for a definitive diagnosis and the anatomic data necessary for
surgical planning. Unlike peripheral X-ray angiography which, due to its
invasive and painful nature, high cost and risk of complications, is often
deferred in favor of noninvasive, often inconclusive exams, an MRI exam
utilizing MS-325 is intended for use early in the PVD work-up. Phase I
clinical trials, although not completed, have yielded measurements of signal
intensity over time consistent with the Company's belief that MRI with MS-325
will provide physicians with diagnostic information clinically equivalent to
peripheral X-ray angiography earlier in the diagnostic pathway. Consequently,
the Company believes that MS-325-based MRI exams would not only replace a
large portion of the approximately 1.9 million peripheral X-ray angiograms
performed in the United States each year, but would also be used in a
significant number of instances where ultrasound, nuclear medicine or other
noninvasive modalities are currently employed but lack definitive diagnostic
capability as described above. Based upon estimated 1995 procedure costs, the
Company believes that the use of MS-325 with MRI to diagnose PVD could yield
savings to the United States healthcare system of nearly $1.0 billion.

  Thrombosis is another vascular disease outside the heart that is diagnosed
with a variety of radiological imaging techniques. Commonly referred to as
"blood clots," thrombosis can occur in the legs, arms, pelvis, lungs

                                      28
<PAGE>

and neck, and is the cause of over 400,000 deaths per year in the United
States. Blood clots can cause death from a pulmonary embolus (an obstruction
in the pulmonary vasculature), stroke or heart attack. Ultrasound and nuclear
stress perfusion studies are used early in the work-up in an attempt to defer
peripheral X-ray angiography because of cost, mortality and complications.
These noninvasive modalities are often indeterminate. Although limited in use
because of the mortality and complication rate, peripheral X-ray angiography,
as in PVD, continues to be considered by many to be the definitive diagnostic
tool. The Company believes that an MRI exam using MS-325 will be able to
noninvasively provide diagnostic information which is clinically equivalent
to peripheral X-ray angiography for the diagnosis of blood clots in selected
cases.

Business Strategy

  The Company's objective is to become a leader in MRI contrast agents. It
will seek to do so by pursuing a strategy based on commercializing MS-325 and
developing new applications for its proprietary technology platform. The
Company's key business objectives are to:

  Establish the safety and clinical utility of MS-325 for multiple vascular
imaging indications. The Company is conducting Phase I clinical trials to
establish the safety of MS-325 for human use, after which it intends to
conduct Phase II and Phase III clinical trials for multiple cardiology and
radiology indications. The Company intends to conduct the clinical trial
programs for cardiology and radiology indications concurrently to the extent
possible.

  Achieve market acceptance of MS-325.  The Company intends to collect
pharmacoeconomic and clinical data that demonstrates that MRI enhanced with
MS-325 is superior to the traditional diagnostic pathway. Through its
strategic partners' extensive worldwide marketing and sales networks, the
Company intends to present this data to both physicians and third-party
payors. The Company believes that third-party payors will promote the use of
MS-325 because of its potential for substantial cost savings and clinical
benefits.

  Broaden the use of MS-325 to additional clinical indications. The Company
intends to evaluate MS-325 for use in the diagnosis of various tumors. For
example, the Company is currently planning a Phase II clinical trial for the
use of MS-325 in the diagnosis of breast cancer. Based on the physical
properties of MS-325 and preclinical studies, the Company believes that
MS-325 has potential application as part of a noninvasive imaging procedure
that would enable physicians to discriminate between malignant and benign
breast masses in patients with indeterminate mammograms or palpable lumps.

  Develop new targeted MRI contrast agents. In addition to evaluating the use
of MS-325 in diagnosing thrombosis, the Company is developing
thrombosis-specific MRI contrast agents based on its proprietary technology
platform. The Company is also pursuing a discovery program for functional
brain imaging.

  Maximize the value of strategic alliances. The Company currently has
strategic alliances with Mallinckrodt and Daiichi. The Company entered into
these alliances, and will seek to enter into future strategic alliances with
pharmaceutical and imaging agent industry leaders, in order to obtain access
to resources and infrastructure to leverage the Company's strengths.

Technology

   Background

  The products under development by the Company are based upon its proprietary
biophysics technology platform. The Company's product candidates are small
molecule chelates (soluble metal-organic complexes) containing a magnetically
active metal element which elicit a strong MRI signal and are designed to be
safely excreted through the kidneys over time. The Company has developed
significant expertise in the design, synthesis and characterization of
metal-containing complexes for in vivo use. While the contrast agents
primarily used in MRI today are non-targeted in that they diffuse
indiscriminately throughout the tissues of the body, the Company believes
that its proprietary technology platform will enable it to design contrast
agents which are capable of targeting specific tissues or organs by binding
to particular proteins. The Company's proprietary biophysics technology
platform consists of two key elements:

   Receptor-Induced Magnetic Enhancement

  Receptor-induced magnetic enhancement ("RIME") technology, which was
developed by Dr. Randall Lauffer, the Company's founder, while at
Massachusetts General Hospital ("MGH"), allows targeting of a

                                      29
<PAGE>

contrast agent to particular tissue and fluid types in the body while
simultaneously multiplying the signal enhancing effect of the agent and is
now exclusively licensed by the Company under patents held by MGH. RIME
technology involves the design of metal complexes that bind to particular
proteins and receptor molecules in the body. This binding causes increased
concentration and retention of the contrast agent in the specific tissues and
fluids that contain targeted receptor molecules. The binding also causes a
special magnetic effect based on the complex biophysics of MRI contrast
agents. One of the factors that determines an MRI contrast agent's signal
enhancing effect is its rotation, or tumbling rate, in solution. When an
agent binds to a large molecule through the RIME process, the agent's
tumbling rate decreases substantially, resulting in a corresponding increase
in the strength of the agent's magnetic signal, which is detectable by MRI.

   Enzyme Sensing Technology

  Developed by EPIX scientists, enzyme sensing technology is an extension of
the RIME technology that allows MRI to probe biological events on the
molecular level for the first time, thereby increasing the sensitivity of
MRI. The Company is developing small molecule contrast agents that become
active in the presence of certain enzymes which allows them to bind to their
target receptor molecules and express their full RIME signal enhancement.
Because the presence of elevated levels of particular enzymes occur only in
certain biological situations, enzyme sensing technology would allow MRI to
scan for specific biological events currently undetectable with MRI.

EPIX Products and Development Programs

   MS-325

  The Company's lead product candidate, MS-325, is a targeted vascular
contrast agent intended for use with MRI. MS-325 is a gadolinium-based small
molecule chelate, engineered with the Company's proprietary RIME technology.
Animal studies have demonstrated that, when injected into the bloodstream,
MS-325 binds reversibly to the blood protein albumin and is designed to be
excreted safely through the kidneys over time. This allows the agent to
remain at high concentrations in the bloodstream during the imaging procedure
and then be gradually excreted from the body. The Company has designed the
half-life of the agent to allow for the optimal imaging window of at least
one hour. In animal studies, MS-325 has exhibited signal enhancement that is
significantly stronger than currently available agents. In an image enhanced
by MS-325 using standard MRI techniques, the blood, which is infused with
gadolinium, gives off a strong magnetic signal and appears bright while the
surrounding tissue gives off a very low magnetic signal and appears dark.

  While MS-325 is based on the Company's proprietary technology platform, its
chemical composition is similar to currently available MRI contrast agents
which have a strong safety record and are known to cause few, if any, side
effects. Furthermore, due to the increased magnetic signal elicited by
MS-325, the Company expects it to be used at a similar or lower dose than
currently available MRI contrast agents. As a result of these factors, the
Company believes that MS-325 will have a safety profile comparable to
currently available MRI contrast agents.

  The Company submitted an IND application for MS-325 to the FDA on July 22,
1996 and commenced a Phase I clinical trial on September 6, 1996. Thirty-five
subjects participated in the clinical safety monitoring portion of the trial,
which ended on November 22, 1996. Eighteen of these subjects, who were
divided into three different dosing groups, participated in a typical Phase I
safety study in which the dose of MS-325 was gradually increased from one
group to the next. The remaining 17 subjects, who received the highest dose
tested, were also imaged in order to confirm the appropriateness of the dose
and to evaluate the imaging characteristics of MS-325. Vital signs, blood
chemistries and other biological and physical markers were monitored in all
subjects. Based on preliminary results, no clinically significant adverse
effects have been reported. The Company anticipates that the final audit of
the Phase I data will be completed by February 1997. Assuming successful
completion of the Phase I clinical trial, the Company intends to conduct
concurrent but separate Phase II and Phase III clinical trials for different
cardiology and radiology indications.

  In addition to the diagnosis of CAD and PVD, the Company intends to pursue
the use of MS-325 for additional clinical indications, including thrombosis,
commonly referred to as "blood clots." The Company believes that MRI with
MS-325 could eliminate the need for selected ultrasound and nuclear medicine
studies of thrombosis while providing, noninvasively, diagnostic information
which is clinically equivalent to that provided by peripheral X-ray
angiography.

  The Company further believes that, based on the physical properties of
MS-325 and preclinical studies, MS-325 has potential application as part of
a noninvasive imaging procedure that would enable physicians to

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<PAGE>

discriminate between malignant and benign breast masses in patients with
indeterminate mammograms or palpable lumps. Another potential application for
MS-325 in the diagnosis of breast cancer is in defining the size of malignant
lesions. The Company believes that an MRI breast exam using MS-325 could
allow better determination of eligibility for breast-conserving therapy.

   Other Research and Development Programs

  Thrombosis Imaging. The Company is developing new agents designed
specifically for imaging blood clots. The Company is seeking to develop a
targeted contrast agent and protocol that would enable MRI to illuminate
blood clots against a dark background. The Company believes that its
proprietary technology platform could also enable MRI to differentiate old
and new clot formations and that such a product would change the diagnostic
pathway for many of the conditions associated with thrombotic disease,
including pulmonary embolism and deep vein thrombosis. The Company believes
that use of the new approach would lead to better medical outcomes due to
earlier definitive diagnosis. Early diagnosis is especially important for
clots in the pelvis and vena cava, the large vein through which blood returns
to the heart, because of their increased likelihood of migrating to the lungs
where the clots can be fatal. The Company believes that a thrombosis-specific
contrast agent could largely replace the noninvasive modalities currently in
use, including nuclear medicine ventilation/ perfusion scans.

  Functional Brain Imaging. Functional brain imaging involves measuring small
changes in the brain to, in effect, "watch" the brain function in real time.
In the past, these cognitive function mapping studies were done using
modalities such as electro-encephalograms and nuclear medicine, both of which
are generally recognized to have low resolution and provide limited clinical
information. Recently however, investigators at a number of institutions,
including MGH, have developed a new brain imaging technique using MRI. Even
in its present experimental form, the technique is rapidly being adopted by
many leading neuroscience centers throughout the world. The technique detects
small increases in blood volume or flow that accompany the greater metabolic
activity in stimulated brain regions, thus allowing one to watch, in real
time, different regions of the brain "light up" as a person thinks, moves or
views objects. At present, studies are being conducted using a specialized
MRI technique which does not employ a contrast agent. However, these studies
are currently difficult to interpret since blood flow changes induced by
cognitive activity are subtle and associated signals are weak. Clinical
applications of functional brain imaging are potentially broad, including
pre-surgical planning, neurodegenerative disease diagnosis and psychiatry.

  EPIX is currently conducting preclinical testing of prototype brain imaging
agents with researchers at MGH based on the Company's proprietary technology
platform. The Company is seeking to establish the feasibility of developing
an agent that would be able to magnify the signal from small volume changes
in blood flow to particular areas of the brain. The Company believes that
such a contrast agent could enable highly illuminated three-dimensional MRI
scans of brain function.

Strategic Alliances

  The Company's strategy includes entering into alliances with leaders in the
pharmaceutical and diagnostic imaging industries to facilitate the
development, manufacture, marketing, sale and distribution of its products.
To date, the Company has formed strategic alliances with Mallinckrodt and
Daiichi for the development and commercialization of MS-325. See "Risk
Factors--Dependence on Strategic Partners."

   Mallinckrodt Group Inc.

  Pursuant to a collaboration agreement between the Company and Mallinckrodt,
which was executed in August 1996, the Company granted Mallinckrodt an
exclusive license to develop and commercialize MS-325 worldwide, excluding
Japan. The agreement also provides for potential collaboration and cost
sharing arrangements in connection with future MRI vascular agent programs,
whether developed by the Company or Mallinckrodt or in-licensed by either
party. The operations of the collaboration are supervised by a joint steering
committee comprised of an equal number of representatives of both parties.
Mallinckrodt and the Company will collaborate on the clinical development of
MS-325, beginning with Phase I clinical trials. The Company has primary
responsibility for conducting Phase I and Phase II clinical trials and for
manufacturing MS-325 for such trials. Mallinckrodt will assume primary
responsibility for development and manufacturing starting with Phase III
clinical trials. Mallinckrodt will also be responsible for the marketing and
distribution of MS-325 worldwide, excluding Japan. The agreement imposes
certain development due diligence obligations on both of the parties and
certain marketing due diligence obligations on Mallinckrodt.

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<PAGE>

   
  The Company received a $6.0 million license fee upon execution of the
agreement with Mallinckrodt. The agreement provides for an additional $2.0
million payment upon the earlier of a specified date or the achievement of an
MS-325 milestone. Mallinckrodt and the Company will generally share equally in
the worldwide, excluding Japan, development and manufacturing scale-up and
product launch costs of MS-325 and all future MRI vascular agents which may be
covered by the agreement. The parties' current obligations with respect to
MS-325 development costs are limited to a specified amount. Under the
arrangement, the Company will share in future operating profits, if any.
    

  The agreement provides that Mallinckrodt may not develop, market or sell any
MRI vascular agent worldwide except Japan other than those that are part of
the collaboration without the approval of the joint steering committee (in
which case they, if approved, would become part of the collaboration).

   Daiichi Radioisotope Laboratories, Ltd.

  Pursuant to a development and license agreement, which was entered into in
March 1996, the Company granted Daiichi an exclusive license to develop and
commercialize MS-325 in Japan. Under this arrangement, Daiichi will assume
primary responsibility for clinical development, regulatory approval,
marketing and distribution of MS-325 in Japan. The Company retained the right
and obligation to manufacture MS-325 for development activities and
commercial sale under the agreement. However, Daiichi may, under certain
circumstances, elect to formulate MS-325 purchased from the Company into a
final product. The agreement imposes certain development due diligence
obligations on both parties and marketing due diligence obligations on
Daiichi. The agreement may be terminated by Daiichi upon 30 days prior
written notice if Daiichi determines in its reasonable opinion that MS-325
lacks clinical efficacy, presents serious side effects or otherwise exhibits
unacceptable properties. In connection with this strategic alliance, the
Company received an up-front fee from Daiichi in the amount of $3.0 million
and Daiichi is required to make future payments to EPIX up to an aggregate
amount of $3.3 million, upon the achievement of certain MS-325 development
milestones. Daiichi also made a $5.0 million equity investment in the
Company. Daiichi will make royalty payments to the Company on net sales of
MS-325 in Japan.

  In 1992, the Company entered into an agency agreement with Sumitomo
Corporation ("Sumitomo") whereby the Company engaged Sumitomo as its
exclusive agent to assist the Company in entering into arrangements with
third parties for the development and commercialization of vascular, liver
and tumor MRI agents in Japan. Sumitomo assigned this agreement to Summit
Pharmaceuticals International Corporation ("Summit") in 1995. In accordance
with the agreement, the Company paid Summit a specified percentage on all
amounts received by the Company from Daiichi to date and will make payments
to Summit on future milestone payments it receives from Daiichi, if any. The
Company will be obliged to make such payments with respect to future
arrangements with partners headquartered in Japan if entered into prior to
the first anniversary of the termination of the agency agreement.

Competition

  The healthcare industry is characterized by extensive research efforts and
rapid technological change, and there are many companies that are working to
develop products similar to the Company's. There are currently no
FDA-approved targeted vascular contrast agents for use with MRI. However,
there are a number of non-specific MRI agents approved for marketing in the
United States and certain foreign markets that are likely to compete with the
Company's products for certain applications. Magnevist(R) by Schering-AG,
Dotarem(R) by Guerbet, S.A., Omniscan(R) by Nycomed Imaging ASA, and
ProHance(R) by Bracco S.p.A. are all such products. The Company is aware of
other agents under development that may have application in vascular imaging.
There can be no assurance that the Company's competitors will not succeed in
the future in developing products that are more effective than any that are
being developed by the Company. The Company believes that its ability to
compete within the MRI contrast agent market is dependent on a number of
factors, including the success and timeliness with which it completes FDA
trials, the breadth of applications, if any, for which it receives approval,
and the effectiveness, cost, safety and ease of use of the Company's products
in comparison to the products of the Company's competitors. The success of
the Company will also be based on physician acceptance of MRI as a primary
imaging modality for certain cardiovascular and other applications. See "Risk
Factors--Uncertainty of Market Acceptance of Technology and Products."

  The Company has many competitors including pharmaceutical, biotechnology and
chemical companies, a number of which, including both of the Company's
strategic partners, are actively developing and marketing

                                      32
<PAGE>

products that, if commercialized, would compete with the Company's product
candidates. Many of these competitors have substantially greater capital and
other resources than the Company and may represent significant competition
for the Company. Such companies may succeed in developing technologies and
products that are more effective or less costly than any of those that may be
developed by the Company, and such companies may be more successful than the
Company in developing, manufacturing and marketing products. Furthermore,
there are several well-established medical imaging modalities that currently
compete, and will continue to compete, with MRI, including X-ray angiography,
CT, nuclear medicine and ultrasound. Other companies are actively developing
the capabilities of the competing modalities to enhance their effectiveness
in CVS imaging. There can be no assurance that the Company will be able to
compete successfully in the future or that developments by others will not
render MS-325 or the Company's future product candidates obsolete or
non-competitive or that the Company's collaborators or customers will not
choose to use competing technologies or products.

Patents and Proprietary Rights

  EPIX considers the protection of its proprietary technologies to be material
to its business prospects. The Company pursues a comprehensive patent program
in the United States and in other countries where it believes that
significant market opportunities exist.

  The Company owns or has exclusively licensed patents and patent applications
on the critical aspects of its core technology as well as many specific
applications of this technology. EPIX has exclusively licensed two patents in
the United States broadly covering RIME technology, albumin binding with
metal chelates, and liver targeting metal chelates, and has received notice
of allowance for similar patent applications in Japan and Europe. The Company
has exclusively licensed four additional patents in the United States and
received notice of allowance of an additional U.S. patent covering novel
metal chelates, with similar patent applications in Japan and Europe.
Finally, the Company has patent applications pending in the United States,
Japan and Europe covering various aspects of its RIME technology. The
Company's patent protection for MS-325 currently extends to 2007 in the
United States, Japan and Europe. If the currently pending patent applications
issue, this protection will be extended until 17 years after the date of
issue in the United States, and until 2016 in Europe and Japan.

  An issued patent grants to the owner the right to exclude others from
practicing inventions claimed therein. In the United States, a patent filed
before June 8, 1995 is enforceable for 17 years from the date of issuance or
20 years from the deemed date of filing the underlying patent applications,
whichever is longer. Patents based on applications filed from June 8, 1995
expire 20 years from the deemed date. The General Agreement on Tariffs and
Trade provides that patents whose applications were filed on or after June 8,
1995 are effective for 20 years from filing. This new rule is generally
regarded as unfavorable to pharmaceutical companies, where the time period
between patent filing and commercialization of the patented product may be
extended many years because of the lengthy development cycle and regulatory
process.

  The patent positions of pharmaceutical and biopharmaceutical firms involve
complex legal and factual questions. There can be no assurance that the
Company's issued patents, or any patents that may be issued in the future,
will effectively protect the Company's technology or provide a competitive
advantage. There can be no assurance that any of the Company's patents or
patent applications will not be challenged, invalidated or circumvented in
the future.

  The Company's commercial success will also depend on its ability to operate
without infringing upon the patents of others in the United States and
abroad. If any third-party patents are upheld as valid and enforceable in any
judicial or administrative proceeding, the Company could be prevented from
practicing the subject matter claimed in such patents, or would be required
to obtain licenses from the patent owners of each such patent, or to redesign
its products or processes, to avoid infringement. There can be no assurance
that such licenses would be available or, if available, would be available on
terms acceptable to the Company or that the Company would be successful in
any attempt to redesign its products or processes to avoid infringement.
Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing and selling its products, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.

  There are pending or issued patents, held by parties not affiliated with the
Company, relating to technologies used by the Company in the development or
use of certain of the Company's product candidates. In particular,

                                      33
<PAGE>

the Company is aware of certain patents in the United States, Japan and
elsewhere owned by or licensed to one party that relate to MRI contrast
agents and which may cover certain of the Company's MRI product candidates,
including MS-325. Mallinckrodt, one of the Company's partners, has rights
from this third party under those patents which the Company and Mallinckrodt
believe will permit Mallinckrodt to manufacture, market and sell MS-325 and
other products developed pursuant to the collaboration agreement between the
Company and Mallinckrodt were MS-325 and those other products to be held to
fall within the claims of those third-party patents. If the agreement with
Mallinckrodt is terminated by either party, the Company would be required to
enter into a strategic alliance with another party having a license from this
third party or obtain a license from this third party directly or from others
licensed by this third party in order to manufacture, market and sell MS-325
and other chelate-based MRI contrast agents. However, there can be no
assurance that the Company would be able to consummate a strategic alliance
with a party having this third-party license or obtain a license on
commercially reasonable terms, if at all. The patent rights of this third
party in Japan will expire in 2002, before such time as the Company presently
anticipates that Daiichi will have material sales of MS-325 in Japan and,
therefore, the Company believes that the existence of such patents in Japan
is unlikely to have a material adverse effect on the Company. However, in the
event that Daiichi commercializes MS-325 in Japan before 2002, it may be
required to obtain an appropriate license or take other measures to avoid
infringement of the third party patents, including delaying the commencement
of product sales. There can be no assurance that the Company's current or
future activities will not be challenged, that additional patents will not be
issued containing claims materially constraining the proposed activities of
the Company, that the Company will not be required to obtain licenses from
third parties, or that the Company will not become involved in costly,
time-consuming litigation regarding patents in the field of contrast agents,
including actions brought to challenge or invalidate the Company's own patent
rights. At the same time, the Company is aware of certain products under
development by the third party referred to above and others which it believes
may infringe certain of the Company's exclusively licensed patents. The
Company intends to pursue license or cross-license arrangements with or, if
necessary and appropriate, infringement proceedings against, these parties
upon their seeking final regulatory approval for the marketing and sale of
any such products. See "Risk Factors--Uncertainty Regarding Patents and
Proprietary Rights. "

  Many of the Company's competitors are continuing to actively pursue patent
protection for activities and discoveries similar to the Company's. There can
be no assurance that these competitors, many of which have substantially
greater resources than the Company and have made substantial investments in
competing technologies, will not in the future seek to assert that the
Company's products or chemical processes infringe their existing patents
and/or will not seek new patents that claim to cover aspects of the Company's
technology. Furthermore, patent applications in the United States are
maintained in secrecy until patents issue, and patent applications in foreign
countries are maintained in secrecy for a specified period after filing.
Publication of discoveries in the scientific or patent literature tends to
lag behind actual discoveries and the filing of related patent applications.
In addition, patents issued and patent applications filed relating to
biopharmaceuticals are numerous. Therefore, there can be no assurance that
the Company is aware of all competitive patents, either pending or issued,
that relate to products or processes used or proposed to be used by the
Company.

  The Company and MGH have entered into a license agreement pursuant to which
MGH has granted the Company an exclusive worldwide license to the patents and
patent applications which relate to the Company's only product candidate,
MS-325. The MGH License imposed certain due diligence obligations with
respect to the development of products covered by the license, all of which
have been fulfilled to date. The MGH License requires the Company to pay
royalties on net sales of MS-325 by the Company. The Company must also pay
MGH a percentage of all royalties received by the Company from its
sublicensees. Accordingly, the Company will be required to make payments to
MGH on profits generated under the Mallinckrodt collaboration, if any, and on
royalties received from Daiichi under its license agreement, if any. Failure
of the Company to comply with these requirements could result in the
conversion of the license from being exclusive to non-exclusive in nature or
termination of the license agreement itself. Any such event would have a
material adverse effect on the Company's business, financial condition and
results of operations.

  The pharmaceutical and biotechnology industries have been characterized by
extensive litigation regarding patents and other intellectual property
rights. Litigation may be necessary to enforce any patents issued to the
Company and or determine the scope and validity of others' proprietary
rights. The Company may have to participate in interference proceedings
declared by the United States Patent and Trademark Office or by foreign

                                      34
<PAGE>

agencies to determine the priority of inventions. Any involvement in
litigation surrounding these issues could require extensive costs to the
Company as well as be a significant distraction for management. Such costs
could have a material adverse effect on the Company's business, financial
condition and results of operations.

  The Company also relies upon trade secrets, technical know-how, and
continuing technological innovation to develop and maintain its competitive
position. The Company typically requires its employees, consultants, and
advisors to execute confidentiality and assignment of inventions agreements
in connection with their employment, consulting or advisory relationships
with the Company. These agreements require disclosure and assignment to the
Company of ideas, developments, discoveries and inventions made by employees,
consultants and advisors. There can be no assurance, however, that these
agreements will not be breached or that the Company will have adequate
remedies for any breach. Furthermore, no assurance can be given that
competitors will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the
Company's proprietary technology, or that the Company can meaningfully
protect its rights in unpatented proprietary technology.

  The Company intends to vigorously protect and defend its intellectual
property. Costly and time-consuming litigation brought by the Company may be
necessary to enforce patents issued to the Company, to protect trade secrets
or know-how owned by the Company, or to determine the enforceability, scope,
and validity of the proprietary rights of others. See "Risk
Factors--Uncertainty Regarding Patents and Proprietary Rights."

Manufacturing

  The Company currently manufactures, as part of its ongoing development
efforts, small non-GMP batches of MS-325 in its laboratories located in
Cambridge, Massachusetts. The Company has contracted for the manufacture in
accordance with GMP of MS-325 from outside contractors for use in preclinical
and Phase I and II clinical trials. As part of its strategic alliance with
the Company, Mallinckrodt will serve as primary manufacturer for MS-325
thereafter. If Mallinckrodt is unable to produce MS-325 in adequate amounts
and at a reasonable cost or to comply with any applicable regulations,
including GMP, it could have a material adverse effect on the Company's
business, financial condition and results of operations. Furthermore, should
Mallinckrodt fail to fulfill its manufacturing responsibilities
satisfactorily, the Company could be forced to find an alternative
manufacturer. There can be no assurance that the Company would be able to
find such an alternative manufacturer. In the event the Company was forced to
develop its own FDA-approved full-scale manufacturing capability, it would
require significant expenditures of capital and management attention and
resources and could require the Company to obtain a license from a third
party, and would result in a delay in the approval or commercialization of
MS-325. There can be no assurance that the Company would be able to obtain
such a license on commercially reasonable terms, if at all. The Company
currently procures the raw materials for the various components of MS-325
from a broad variety of vendors and, wherever possible, maintains
relationships with multiple vendors for each component. There are a number of
components of MS-325 for which the largest suppliers may have significant
control over the market price due to controlling market shares. If any one of
the Company's suppliers decided to increase prices significantly or reduce
quantities of any component of MS-325 available for sale to the Company, it
could have a material adverse effect on the Company's ability to
commercialize MS-325 and on the Company's business, financial condition and
results of operations. See "Business--Strategic Alliances," "Risk
Factors--Uncertainty Regarding Patents and Proprietary Rights," "--Limited
Manufacturing Capability" and "--Dependence on Suppliers."

Government Regulation

  The manufacture and commercial distribution of the Company's product
candidates are subject to extensive governmental regulation in the United
States and other countries. Pharmaceuticals, including contrast imaging
agents for use with MRI, are regulated in the United States by the FDA under
the Food, Drug and Cosmetic Act ("FD&C Act") and require FDA approval prior
to commercial distribution. Pursuant to the FD&C Act, pharmaceutical
manufacturers and distributors must be registered with the FDA and are
subject to ongoing FDA regulation, including periodic FDA inspection of their
facilities and review of their operating procedures. Noncompliance with
applicable requirements can result in failure to receive approval, withdrawal
of approval, total or partial suspension of production, fines, injunctions,
civil penalties, recalls or seizure of products and criminal prosecution,
each of which would have a material adverse effect on the Company's business,
financial conditions and results of operations.

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<PAGE>

  In order to undertake clinical trials and market pharmaceutical products for
diagnostic or therapeutic use in humans, the procedures and safety standards
established by the FDA and comparable agencies in foreign countries must be
followed. In the United States, a company seeking approval to market a new
pharmaceutical must obtain FDA approval of a new drug application ("NDA").
Before an NDA may be filed, however, a certain procedure is typically
followed. This includes: (i) performance of preclinical laboratory and animal
studies; (ii) submission to the FDA of an application for an IND, which must
become effective before human clinical trials may commence; (iii) completion
of adequate and well-controlled human clinical trials to establish the safety
and efficacy of the pharmaceutical for its intended application; (iv)
submission to the FDA of an NDA; and (v) approval of the NDA by the FDA prior
to any commercial sale or shipment of the agent.

  Preclinical studies include laboratory evaluation of product chemistry and
animal studies to assess the potential safety and efficacy of the product and
its formulation. The results of the preclinical studies are submitted to the
FDA as part of an IND, and unless the FDA objects, the IND will become
effective 30 days following its receipt by the FDA. Clinical trials are
conducted in accordance with protocols that detail the objectives of the
study, the parameters to be used to monitor safety and the efficacy criteria
to be evaluated. Each protocol together with information about the clinical
investigators who will perform the studies and the institutions at which the
trials will be performed are submitted to the FDA as part of the IND. An
independent institutional review board ("IRB") at each institution at which
the trial will be conducted will also be asked by the principal investigator
at that institution to approve, according to FDA regulations governing IRBs,
the trials that will be performed at that institution. The IRB will consider,
among other things, ethical factors, the protection of human subjects and the
possible liability of the institution.

  Clinical trials under the IND are typically conducted in three sequential
phases, but the phases may overlap. In Phase I, the initial introduction of
the pharmaceutical into humans, the pharmaceutical is tested for safety,
dosage tolerance, metabolism, distribution, excretion and clinical
pharmacology in healthy adult subjects. Imaging agents may also be subject to
a Phase IB trial under which an agent's imaging characteristics in humans are
first evaluated. Phase II involves a detailed evaluation of the safety and
efficacy of the agent in a range of doses in patients with the disease or
condition being studied. Phase III clinical trials typically consist of
evaluation of safety and efficacy in a larger patient population and at more
institutions.

  The Company submitted an IND for MS-325 to the FDA on July 22, 1996 and
commenced Phase I clinical trials on September 6, 1996. The clinical safety
monitoring portion of the trial ended on November 22, 1996. Upon the
successful completion of the Phase I clinical trials, the Company intends to
conduct concurrent but separate Phase II and Phase III clinical trials for
different cardiology and radiology indications. The process of completing
clinical testing and obtaining FDA approval for a new product is likely to
take a number of years. When the study as described in the IND is complete,
and assuming that the results support the safety and efficacy of the product
for that indication, the Company intends to submit an NDA to the FDA. The NDA
approval process can be expensive, uncertain and lengthy. Although the FDA is
supposed to complete its review of an NDA within 180 days of the date that it
is filed, the review time is often significantly extended by the FDA which
may require more information or clarification of information already provided
in the NDA. During the review period, an FDA advisory committee likely will
be asked to review and evaluate the application and provide recommendations
to the FDA about approval of the pharmaceutical. In addition, the FDA will
inspect the facility at which the pharmaceutical is manufactured to ensure
compliance with GMP and other applicable regulations. Failure of the
third-party manufacturers to comply or come into compliance with GMP
requirements could significantly delay FDA approval of the NDA. The FDA may
grant an unconditional approval of an agent for a particular indication or
may grant approval conditioned on further post-marketing testing and/or
surveillance programs to monitor the agent's efficacy and side effects.
Results of these post-marketing programs may prevent or limit the further
marketing of the agent. In addition, additional studies and a supplement to
the initially approved NDA will be required to gain approval for the use of
an approved product in indications other than those for which the NDA was
approved initially.

  While the Company, because of its agreement with Mallinckrodt, does not
currently intend to manufacture any of its products itself once they are
approved, it may choose to do so in the future. Should the Company decide to
manufacture its products, the Company would be required to obtain a license
from a third party having rights to patents which may cover certain of the
Company's contrast agents. There can be no assurance that the Company would
be able to obtain such a license from the third party. Furthermore, the
Company's

                                      36
<PAGE>

manufacturing facilities would be subject to inspection and approval by the
FDA before the Company could begin commercial distribution of product from
its own manufacturing facilities. See "Business--Patents and Proprietary
Rights" and "Risk Factors--Uncertainty Regarding Patents and Proprietary
Rights."

  After an NDA is approved, the Company would continue to be subject to
pervasive and continuing regulation by the FDA, including record keeping
requirements, reporting of adverse experience from the use of the agent and
other requirements imposed by the FDA. FDA regulations also require FDA
approval of an NDA supplement for certain changes if they affect the safety
and efficacy of the pharmaceutical, including, but not limited to, new
indications for use, labeling changes, the use of a different facility to
manufacture, process or package the product, changes in manufacturing methods
or quality control systems and changes in specifications for the product.
Failure by the Company to receive approval of an NDA supplement could have a
material adverse effect on the Company's business, financial condition and
results of operations.

  The advertising of most FDA-regulated products is subject to FDA and Federal
Trade Commission jurisdiction, but the FDA has sole jurisdiction over
advertisements for prescription drugs. The Company is and may be subject to
regulation under state and Federal law regarding occupational safety,
laboratory practices, handling of chemicals, environmental protection and
hazardous substance control. The Company also will be subject to other
present and possible future local, state, federal and foreign regulation.
Failure to comply with regulatory requirements could have a material adverse
effect on the Company's business, financial conditions and results of
operations.

  Approval and marketing of pharmaceutical products outside of the United
States are subject to regulatory requirements that vary widely from country
to country. In the European Union ("EU"), the general trend has been towards
coordination of common standards for clinical testing of new agents, leading
to changes in various requirements imposed by each EU country. The level of
regulation in the EU and other foreign jurisdictions varies widely. The time
required to obtain regulatory approval from comparable regulatory agencies in
each foreign country may be longer or shorter than that required for FDA
approval. In addition, in certain foreign markets the Company may be subject
to governmentally mandated prices for its products.

  Regulations regarding the approval, manufacture and sale of the Company's
product candidates are subject to change. The Company cannot predict what
impact, if any, such changes might have on its business, financial condition
or results of operations.

  The Company's research, development and manufacturing processes require the
use of hazardous substances and testing on certain laboratory animals. As a
result, the Company is also subject to federal, state, and local laws,
regulations and policies governing the use, generation, manufacture, storage,
air emission, effluent discharge, handling and disposal of certain materials
and waste as well as the use of and care of laboratory animals. These laws
and regulations are all subject to change. The Company cannot predict what
impact, if any, such changes might have on its business, financial condition
or results of operations.

Reimbursement

  The Company expects that sales volumes and prices of its products will be
dependent in large measure on the availability of reimbursement from
third-party payors and that individuals seldom would be willing or able to
pay directly for all the costs associated with procedures which in the future
may incorporate the use of the Company's products. The Company expects that
its products will be purchased by hospitals, clinics, doctors and other users
that bill various third-party payors, such as Medicare, Medicaid and other
government insurance programs, and private payors including indemnity
insurers, Blue Cross Blue Shield plans and managed care organizations
("MCOs") such as health maintenance organizations. Most of these third-party
payors provide coverage for MRI for some indications when it is medically
necessary, but the amount that a third-party payor will pay for MRI may not
include a separate payment for a contrast imaging agent that is used with
MRI. Reimbursement rates vary depending on the procedure performed, the
third-party payor, the type of insurance plan and other factors. For example,
Medicare pays hospitals a prospectively determined amount for an in-patient
stay based on a Medicare beneficiary's discharge diagnosis related group
("DRG"). This payment includes payment for any procedure, including MRI, that
is performed while a beneficiary is in the hospital. No additional payment is
made for contrast agents used during the procedure. Other third-party payors
may pay a hospital an additional amount for an MRI procedure performed on an
in-patient according to another methodology such

                                      37
<PAGE>

as a fee schedule or a percentage of charge. Such payment may or may not
include a payment for a contrast imaging agent. In the outpatient setting,
Medicare and other third-party payors may pay for all, some portion of, or
none of the cost of contrast agents used with MRI.

  Third-party payors carefully review and increasingly challenge the prices
charged for procedures and medical products. In the past few years, the
amounts paid for radiology procedures in particular have come under careful
scrutiny and have been subject to decreasing reimbursement rates. In
addition, an increasing percentage of insured individuals are receiving their
medical care through MCOs which monitor and often require preapproval of the
services that a member will receive. Many MCOs are paying their providers on
a capitated basis which puts the providers at financial risk for the services
provided to their patients by paying them a predetermined payment per member
per month. The percentage of individuals covered by MCOs is expected to grow
in the United States over the next decade. Even Medicare is shifting many of
its beneficiaries into managed care plans. The Company believes that the
managed care approach to healthcare and the growth in capitated arrangements
and other arrangements under which the providers are at financial risk for
the services that are provided to their patients will facilitate the market
acceptance of its products, as it believes that the use of its products will
significantly lower the overall costs and improve the effectiveness of
managing patient populations. There can be no assurance, however, that the
Company's products will be available, will lower costs of care for any
patients or that providers will choose to utilize them even if they do, or if
reimbursement will be available.

  In foreign markets, reimbursement is obtained from a variety of sources,
including governmental authorities, private health insurance plans and labor
unions. In most foreign countries, there are also private insurance systems
that may offer payments for alternative therapies. Although not as prevalent
as in the United States, health maintenance organizations are emerging in
certain European countries. The Company may need to seek international
reimbursement approvals, although there can be no assurance that any such
approvals will be obtained in a timely manner or at all. Failure to receive
international reimbursement approvals could have a material adverse effect on
market acceptance of the Company's product candidates in the international
markets in which such approvals are sought.

  The Company believes that reimbursement in the future will be subject to
increased restrictions such as those described above, both in the United
States and in foreign markets. The Company believes that the overall
escalating cost of medical products and services has led to, and will
continue to lead to, increased pressures on the health care industry, both
foreign and domestic, to reduce the cost of products and services, including
products offered by the Company. There can be no assurance, in either the
United States or foreign markets, that third party reimbursement and coverage
will be available or adequate, that current reimbursement amounts will not be
decreased in the future or that future legislation, regulation, or
reimbursement policies of third-party payors will not otherwise adversely
affect the demand for the Company's product candidates or its ability to sell
its product candidates on a profitable basis, particularly if MRI exams
enhanced with the Company's contrast agents are more expensive than competing
vascular imaging techniques that are equally effective. The unavailability or
inadequacy of third-party payor coverage or reimbursement could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Product Liability Insurance

  The clinical and commercial development of pharmaceuticals, including
contrast imaging agents such as those being developed by the Company, may
entail exposure to product liability claims. While the Company has never been
subject to any liability claims stemming from the manufacture of or
preclinical or clinical trials of its products, there can be no assurance
that it will not face such claims in the future. While the Company currently
has product liability insurance coverage for the clinical research use of its
product candidates, there can be no assurance that such coverage limits will
be adequate nor that a successful product liability lawsuit would not have a
material adverse effect on the Company. The Company does not have product
liability insurance coverage for the commercial sale of its products but
intends to obtain such coverage if and when its products are commercialized.
If and when MS-325 or other EPIX product candidates are approved for
marketing by the FDA, or similar foreign regulatory bodies, there can be no
assurance that sufficient product liability insurance will be available on
terms acceptable to the Company or at all.

                                      38
<PAGE>

Facilities

  The Company leases a total of 17,050 square feet of space at 71 Rogers
Street and adjacent locations, all in Cambridge, Massachusetts. The lease
runs until December 31, 1997. The Company believes that its current
facilities are adequate to meet its requirements for the foreseeable future.

Employees

  As of November 30, 1996 the Company employed 36 persons on a full-time
basis, of which 26 were involved in research and development and 10 in
administration and general management. Fifteen of the Company's employees
hold Ph.D. or M.D. degrees. The Company believes that its relations are good
with all of its employees. None of the Company's employees is a party to a
collective bargaining agreement. See "Management--Executive Officers and
Directors."

Legal Proceedings

  The Company is not a party to any material legal proceedings.

                                      39
<PAGE>

                                  MANAGEMENT

Executive Officers and Directors

  The following table sets forth certain information regarding the executive
officers, directors and key employees of the Company as of December 31, 1996:

<TABLE>
<CAPTION>
               Name                                    Age   Position

               -------------------------------------------------------------------------------------------------------------------
               <S>                                    <C>    <C>
               Michael D. Webb                        38     President, Chief Executive Officer, Secretary and Director
               James E. Smith, Ph.D.                  53     Executive Vice President, Research and Development
               Randall B. Lauffer, Ph.D.              39     Chief Scientific Officer and Director
               E. Kent Yucel, M.D.                    40     Senior Vice President and Chief Medical Officer
               Susan M. Flint                         45     Vice President, Regulatory Affairs
               Stephen C. Knight, M.D.                36     Vice President, Strategic Planning and Corporate Development
               Jeffrey R. Lentz                       43     Vice President, Finance and Administration, Chief Financial Officer,
                                                             Treasurer and Assistant Secretary
               Christopher F. O. Gabrieli (1)(2)      36     Chairman of the Board
               Luke B. Evnin, Ph.D. (1)(2)            33     Director
               Stanley T. Crooke, M.D., Ph.D. (1)     51     Director and Chairman of the Scientific Advisory Board
</TABLE>

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

(1) Member of the Compensation Committee.

(2) Member of the Audit Committee.

  Michael D. Webb joined EPIX in December 1994 from Ciba-Corning Diagnostics,
Inc., where he was most recently Senior Vice President, Worldwide Marketing
and Strategic Planning. During his tenure at Ciba from April 1989 to December
1994, Mr. Webb's achievements included the development and commercialization
of the ACS:180(r) immunodiagnostics system. From 1984 to 1989, Mr. Webb was a
senior consultant at Booz, Allen & Hamilton, Inc., specializing in healthcare
and life sciences. Mr. Webb holds an MM degree in marketing and finance from
the J.L. Kellogg Graduate School of Management at Northwestern University.

  Dr. James E. Smith has over 20 years experience in the in vivo diagnostics
industry. Prior to joining EPIX in February 1996, Dr. Smith worked for 16
years at Du Pont Merck Pharmaceutical Company, where his experience included
research and development, regulatory, QA/QC and manufacturing for the radio-
pharmaceutical division, most recently as Senior Director of
Radiopharmaceutical Research and Development. Dr. Smith has published and
lectured on radiopharmaceutical research and development. Dr. Smith received
his Ph.D. degree in inorganic chemistry from the University of Washington.

  Dr. Randall B. Lauffer, Chief Scientific Officer, founded the Company in
November 1988 and served as Chief Executive Officer until December 1994 and
as Chairman until October 1996. From November 1983 to March 1992, Dr. Lauffer
was a member of the faculty of Harvard Medical School, serving most recently
as Assistant Professor of Radiology from 1987 to 1992. During this time he
was also Director of the NMR Contrast Media Laboratory at MGH as well as an
NIH Postdoctoral Fellow and an NIH New Investigator. Dr. Lauffer is the
primary inventor of the Company's core technology and is the originator of
several types of MRI technology, including hepatobiliary (liver-enhancing)
agents, vascular agents, tissue blood flow agents, and strategies to increase
the magnetic efficiency of MRI agents in the body. He has written over 50
scientific publications and two books, and has been named on several U.S.
patents. Dr. Lauffer holds a Ph.D. degree in inorganic chemistry from Cornell
University.

                                      40
<PAGE>

  Dr. E. Kent Yucel joined the Company in June 1996. From March 1993 to July
1996, he was Chief of Vascular and Interventional Radiology and Director of
MRI at Boston Medical Center and Professor of Radiology at Boston University
Medical School. From July 1988 to February 1993 he served as Assistant
Professor of Radiology at MGH and Harvard Medical School. Dr. Yucel was
Principal Investigator for a Phase III vascular imaging trial of Prohance(R),
the nonspecific MRI agent now sold by Bracco. Dr. Yucel is the editor and
co-author of Magnetic Resonance Angiography (McGraw-Hill, 1995). Dr. Yucel
received his M.D. degree from Harvard Medical School.

  Ms. Susan M. Flint joined the Company in April 1995. She is a Regulatory
Affairs specialist with over twenty years of experience in regulatory
submissions and clinical trials. She was a regulatory affairs/clinical
research consultant to various companies, including EPIX, from April 1993 to
April 1995. Ms. Flint previously held the position of Director of Clinical
Trials at Advanced Magnetics, Inc. from February 1989 to March 1993 and
Director of Regulatory Affairs at Du Pont Pharmaceutical Company from June
1975 to January 1989. She has filed a number of applications for INDs and ten
NDAs, along with several medical device applications. Ms. Flint is certified
by the Regulatory Affairs Professional Society. She received her M.S. degree
in pharmacology from Northeastern University.

  Dr. Stephen C. Knight joined the Company in July 1996. From April 1991 to
June 1996, Dr. Knight was a senior consultant with Arthur D. Little
specializing in biotechnology, pharmaceuticals and valuation. Dr. Knight was
also a consultant at APM, Inc., a consulting company. Prior to 1990, Dr.
Knight performed research at AT&T Bell Laboratories, the National Institute
of Neurological and Communicative Diseases and Stroke, and Yale University.
He serves on the board of directors of Pharmos, Inc. Dr. Knight holds an M.D.
from the Yale University School of Medicine and an MPPM degree from the Yale
School of Organization and Management.

  Jeffrey R. Lentz joined the Company in May 1996 as Vice President, Finance
and Administration. He is also the Company's Chief Financial Officer and
Treasurer. Prior to joining the Company, Mr. Lentz worked from August 1994 to
May 1996 in private practice as a consultant and in venture capital. Mr.
Lentz served as Director of Finance with Nova Biomedical Corporation from
March 1993 to August 1994 and as a senior manager with Ernst & Young LLP from
November 1986 to November 1992. Mr. Lentz is a certified public accountant
and holds an M.S. degree from Northeastern University.

  Christopher F. O. Gabrieli has served as a director of the Company since
February 1994. He has been a General Partner at Bessemer Venture Partners in
Wellesley Hills, Massachusetts since September 1986, where he is responsible
for the firm's venture capital investment activities in healthcare and the
life sciences. He currently serves on the boards of directors of Isis
Pharmaceuticals, where he was a co-founder, Opta Food Ingredients and several
privately held biomedical companies. Prior to joining Bessemer, Mr. Gabrieli
was a founder, President and director of GMIS, Inc., a supplier of clinical
information systems. Mr. Gabrieli is a graduate of Harvard College.

  Dr. Luke B. Evnin has served as a director of the Company since February
1994. He is a General Partner at Accel Partners, where he has been involved
in the firm's biomedical investing activities since September 1990. He
currently serves on the boards of directors of several private companies
including Iotek, Sonix Technologies, and Signal Pharmaceuticals. Dr. Evnin
received his Ph.D. degree from the Department of Biochemistry at the
University of California at San Francisco.

  Dr. Stanley T. Crooke has served as a director of the Company since January
1996. Since 1987, he has been Chairman and Chief Executive Officer of Isis
Pharmaceuticals in Carlsbad, California. Dr. Crooke serves on the boards of
directors of GeneMedicine, SIBIA and the Biotechnology Industry Organization.
Dr. Crooke holds an M.D. degree and a Ph.D. degree in pharmacology, both from
Baylor College of Medicine, where Dr. Crooke has served as an adjunct
professor of pharmacology.

  The Company, the holders of the Company's Series A and Series B Convertible
Preferred Stock and certain of the holders of the Company's Common Stock (the
"Common Holders"), including Dr. Lauffer, are parties to an Amended and
Restated Stockholders' Voting Agreement pursuant to which each such
stockholder has agreed to elect (i) two directors designated by the Common
Holders and the Series A stockholders, voting together as a class, (ii) two
directors designated by the Series B stockholders, one to be designated by
Accel IV L.P. and certain related persons and one to be designated by
Bessemer Venture Partners III L.P. and (iii) two directors mutually agreeable
to Dr. Lauffer and the holders of a majority of then outstanding shares of
Series

                                      41
<PAGE>

B Convertible Preferred Stock. Drs. Lauffer and Evnin and Mr. Gabrieli were
elected pursuant to this agreement. This agreement will automatically
terminate upon the consummation of this offering.

  The Company's Restated Certificate, to be filed concurrently with the
closing of this offering, provides for a classified board of directors
consisting of three classes, with each class being as nearly equal in number
as possible. The term of one class expires and their successors are elected
for a term of three years at each annual meeting of the Company's
stockholders. The Company has designated two class I directors (Drs. Evnin
and Lauffer), one class II director (Dr. Crooke) and two class III directors
(Messrs. Gabrieli and Webb). These class I, class II and class III directors
will serve until the annual meeting of stockholders to be held in 1997, 1998
and 1999, respectively, and until their respective successors are duly
elected and qualified, or until their earlier resignation or removal. The
Restated Certificate provides that directors may be removed only for cause by
a majority of stockholders. See "Description of Capital Stock--Anti-Takeover
Measures." There are no family relationships among any of the directors or
executive officers.

Board Committees

  The Company has standing Audit and Compensation Committees of the Board of
Directors. The Audit Committee consists of Dr. Evnin and Mr. Gabrieli. The
primary function of the Audit Committee is to assist the Board of Directors
in the discharge of its duties and responsibilities by providing the Board
with an independent review of the financial health of the Company and of the
reliability of the Company's financial controls and financial reporting
systems. The Audit Committee reviews the general scope of the Company's
annual audit, the fee charged by the Company's independent accountants and
other matters relating to internal control systems.

  The Compensation Committee of the Board of Directors determines the
compensation to be paid to all executive officers of the Company, including
the Chief Executive Officer. The Compensation Committee's duties include the
administration of the Company's Amended and Restated 1992 Equity Incentive
Plan (the "Equity Plan") and the 1996 Employee Stock Purchase Plan. The
Compensation Committee is currently composed of Drs. Crooke and Evnin and Mr.
Gabrieli.

Scientific Advisory Board

  The Company's Scientific Advisory Board consists of individuals with
demonstrated expertise in various fields who advise the Company concerning
long-term scientific planning, research and development. Members also
evaluate the Company's research program, recommend personnel to the Company
and advise the Company on technology matters. While the Scientific Advisory
Board has not met collectively, its members have been available individually
to advise the Company on specific scientific and technical issues. Scientific
Advisory Board members are compensated on a time and expenses basis and some
members have received nonstatutory stock options under the Equity Plan. The
Company has entered into consulting agreements with a number of the
Scientific Advisory Board members.

  No member of the Scientific Advisory Board is employed by the Company, and
members may have other commitments to or consulting or advisory contracts
with their employers or other entities that may conflict or compete with
their obligations to the Company. Accordingly, such persons are expected to
devote only a small portion of their time to the Company. The current members
of the Company's Scientific Advisory Board are:

  Stanley T. Crooke, M.D., Ph.D., Chairman of the Scientific Advisory Board.
See "Management--Executive Officers and Directors."

  Lawrence H. Cohn, M.D., is Professor of Surgery at Harvard Medical School
and Chief of Cardiac Surgery at the Brigham and Women's Hospital in Boston.
He is a member of the Council on Cardiovascular Surgery at the American Heart
Association and serves on the editorial boards of the Journal of the American
College of Cardiology, American Heart Journal, the Journal of Cardiovascular
Surgery, and the Harvard Heart Letter. Dr. Cohn is an author of over 300
scientific papers in the area of cardiovascular surgery.

  Richard S. J. Frackowiak, M.D., is Professor and Head of the Wellcome
Department of Cognitive Neurology and Director of the Leopold Muller
Functional Imaging Laboratory at the Institute of Neurology in London. He is
also Consultant Neurologist at the National Hospital for Neurology and
Neurosurgery. Dr. Frackowiak is Editor-in-Chief of NeuroImage: a Journal of
Brain Function and Deputy Chief Editor of the Journal of

                                      42
<PAGE>

Cerebral Blood Flow and Metabolism. He has published over 200 scientific
papers in the area of function brain imaging.

  Jean-Marie Lehn, Ph.D., is Professor of Chemistry at the Universite Louis
Pasteur, Strasbourg, France. He has authored over 400 scientific papers in
the areas of organic, bio-organic and inorganic chemistry. Dr. Lehn shared
the 1987 Nobel Prize in Chemistry for the design of the first cryptand, a
cage-like complexing agent for metal ions.

  Kenneth N. Raymond, Ph.D., is Professor of Chemistry at the University of
California, Berkeley. He is Chair of the Inorganic Division of the American
Chemical Society and serves on the editorial boards of Advances in Inorganic
Chemistry, the Journal of Biological Inorganic Chemistry, the Journal of
Coordination Chemistry, and BioMetals. Dr. Raymond has published over 260
scientific papers on the structural, biological and medical aspects of metals
such as iron and gadolinium.

  Bruce R. Rosen, M.D., Ph.D., is an Associate Professor of Radiology at
Harvard Medical School and Co-Director of the Massachusetts General Hospital
NMR Center. He is also Director of the Radiological Sciences Joint Program at
the Harvard/Massachusetts Institute of Technology Division of Health Sciences
and Technology. Dr. Rosen serves on the Board of Trustees of the
International Society of Magnetic Resonance in Medicine and is on the
editorial boards of Magnetic Resonance Imaging and the Journal of Computer
Assisted Tomography. He is also Associate Editor of Human Brain Mapping. Dr.
Rosen has published over 100 scientific papers in MRI, including the first
studies of real-time cognitive activity in the human brain.

  Burton E. Sobel, M.D., is the E. L. Amidon Professor and Chairman of the
Department of Medicine and Professor of Biochemistry at the University of
Vermont. He is also Physician-in-Chief at Fletcher Allen Health Care in
Burlington, VT. Dr. Sobel is a Fellow of the American College of Cardiology
and the Royal Society of Medicine and has various editorial positions with
Circulation, American Journal of Cardiology, Coronary Artery Disease, and
Fibrinolysis. He has published extensively in the area of coronary artery
disease.

  Christopher T. Walsh, Ph.D., is the Hamilton Kuhn Professor and Chairman of
the Department of Biological Chemistry and Molecular Pharmacology at Harvard
Medical School. He is a member of the National Academy of Sciences, the
Institute of Medicine, and the National Institutes of Health General Medical
Sciences Council. Dr. Walsh serves on the Scientific Advisory Boards of KOSAN
Biosciences and IDUN Pharmaceuticals, and he is a director of LeukoSite. He
has over 400 publications in the areas of enzymatic reactions and the
mechanisms of drug action.

Director Compensation

  Directors currently receive no compensation for their service on the
Company's Board of Directors except pursuant to the 1996 Director Stock
Option Plan (the "Director Plan") described below.

  1996 Director Stock Option Plan. In December 1996, the Board of Directors
and stockholders of the Company adopted the Director Plan. All of the
directors who are not employees of the Company (the "Eligible Directors") are
currently eligible to participate in the Director Plan. There are 66,666
shares of Common Stock reserved for issuance under the Director Plan. Upon
the election or reelection of an Eligible Director, such director is
automatically granted an option to purchase 6,666 shares of Common Stock (the
"Option"). Each Option becomes exercisable with respect to 1,333 shares on
each anniversary date of grant for a period of five years, provided that the
optionee is still a director of the Company at the opening of business on
such date. The Options have a term of ten years. The exercise price for the
Options is equal to the last sale price for the Common Stock on the business
day immediately preceding the date of grant, as reported on the Nasdaq
National Market. The exercise price may be paid in cash or shares of Common
Stock, or a combination of both.

Executive Compensation

  The following table sets forth certain compensation information for the
Chief Executive Officer of the Company and the one other executive officer of
the Company whose salary and bonus for the year ended December 31, 1996
exceeded $100,000 (together, the "Named Executive Officers"):

                                      43
<PAGE>

                          Summary Compensation Table

<TABLE>
<CAPTION>
                                                                               Long-Term
                                                  Annual Compensation     Compensation Awards
                                               ------------------------- ---------------------
                                                                         Securities Underlying
Name and Principal Position             Year       Salary       Bonus         Options (#)       All Other Compensation
- --------------------------------------  ------ --------------  --------- --------------------- ------------------------
<S>                                     <C>       <C>               <C>         <C>                     <C>
Michael D. Webb,                        1996      $175,000          --           83,333                      --
 President and Chief Executive Officer  1995      $175,000          --               --                 $30,000 (1)
Randall B. Lauffer, Ph.D.,              1996      $160,000          --               --                 $ 1,100 (2)
 Chief Scientific Officer               1995      $158,367          --               --                 $ 1,100 (2)
James E. Smith, Ph.D.,                  1996      $200,615 (4)      --          106,666                      --
 Executive Vice President,              1995      $ 82,238 (5)      --               --                      --
 Research and Development (3)
Susan M. Flint, (6)                     1996      $112,300          --           16,666                      --
 Vice President, Regulatory Affairs     1995      $ 26,282 (7)      --           46,666                      --
Stephen C. Knight, M.D.,                1996      $ 80,000     $30,000          133,333                      --
 Vice President, Strategic Planning
  and Corporate Development (8)

</TABLE>

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

(1) Consists of payment made upon commencement of employment with the
    Company.

(2) Consists of life insurance premiums paid by the Company on behalf of Dr.
    Lauffer on a policy for the benefit of Dr. Lauffer.

(3) Dr. Smith became an employee of the Company in February 1996. Prior
    thereto, he was engaged as a consultant to the Company.

(4) Includes $37,200 compensation earned for consulting services.

(5) Includes $82,238 compensation earned for consulting services.

(6) Ms. Flint became an employee of the Company in April 1995. Prior thereto,
    she was engaged as a consultant to the Company.

(7) Consists of compensation earned for consulting services.

(8) Dr. Knight became an employee of the Company in July 1996.

  The following table sets forth certain information regarding options granted
during the fiscal year ended December 31, 1996 by the Company to the Named
Executive Officers.

                      Option Grants In Last Fiscal Year

<TABLE>
<CAPTION>
                                                                                        Potential Realizable  
                                                 Individual Grant                                 Value          
                             --------------------------------------------------------   at Assumed Annual Rates 
                               Number of      Percent of                                   of Stock Price     
                               Securities    Total Options                                  Appreciation      
                               Underlying     Granted to     Exercise or                for Option Terms (1)  
                                Options      Employees in    Base Price    Expiration ----------------------- 
Name                          Granted (#)     Fiscal Year     ($/share)       Date         5%         10%
 ----------------------------------------- --------------- ------------- ------------ ----------- -----------
<S>                             <C>              <C>           <C>          <C>         <C>         <C>
Michael D. Webb                  83,333 (2)      11.1%         $ 5.250       8/7/06     $275,140    $697,260
Randall B. Lauffer, Ph.D.             0          --             --               --           --          --
James E. Smith, Ph.D.           100,000 (3)      13.3%         $ 0.825       2/1/06     $ 51,884    $131,484
                                 33,333 (4)       4.4%         $ 5.250       8/7/06     $110,055    $278,902
Susan M. Flint                   16,666 (5)       2.2%         $ 5.250       8/7/06     $ 55,026    $139,447
Stephen C. Knight, M.D.         133,333 (6)      17.7%         $ 4.500      6/17/06     $377,336    $956,243
</TABLE>

                                      44
<PAGE>

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

(1) The dollar amounts under these columns are the result of calculations at
    the 5% and 10% rates set by the Securities and Exchange Commission and,
    therefore, are not intended to forecast possible future appreciation, if
    any, in the price of the underlying Common Stock. No gain to the
    optionees is possible without an increase in price of the underlying
    Common Stock, which will benefit all stockholders proportionately.

(2) The option becomes exercisable as to 16.8% of the shares covered by such
    option:

(bullet) upon the earlier of (i) commencement of Phase III clinical trials
         for MS-325 or a clinically equivalent vascular agent as determined
         by the Company's Board of Directors or (ii) August 7, 2005;

(bullet) upon the earlier of (i) the first anniversary of the date of
         commencement of Phase III clinical trials for MS-325 or a clinically
         equivalent vascular agent as determined by the Company's Board of
         Directors or (ii) August 7, 2005;

(bullet) upon the earlier of (i) the second anniversary of the date of
         commencement of Phase III clinical trials for MS-325 or a clinically
         equivalent vascular agent as determined by the Company's Board of
         Directors or (ii) August 7, 2005;

(bullet) upon the earlier of (i) the first anniversary of the date of receipt
         of NDA approval for MS-325 or a clinically equivalent vascular agent
         as determined by the Company's Board of Directors or (ii) August 7,
         2005; and

(bullet) upon the earlier of (i) the second anniversary of the date of
         receipt of NDA approval for MS-325 or a clinically equivalent
         vascular agent as determined by the Company's Board of Directors or
         (ii) August 7, 2005.

  The option also becomes exercisable as to 16% of the shares covered by such
  option upon the earlier of (i) the date of receipt of NDA approval for
  MS-325 or a clinically equivalent vascular agent as determined by the
  Company's Board of Directors or (ii) August 7, 2005.

(3) The option became exercisable as to 16% of the shares covered by such
    option on February 23, 1996. The option also became exercisable as to 20%
    of the shares on August 21, 1996 (30 days after the FDA's receipt of the
    Company's MS-325 IND filing for MS-325). The option becomes exercisable
    as to 16% of the shares covered by such option February 23 of each of
    1997, 1998, 1999 and 2000.

(4) The option becomes exercisable as to 50% of the shares covered by such
    option upon the earlier of (i) commencement of Phase III clinical trials
    for MS-325 or a clinically equivalent vascular agent as determined by the
    Company's Board of Directors or (ii) August 7, 2004. The option also
    becomes exercisable as to 50% of the shares covered upon the earlier of
    (i) receipt of NDA approval for MS-325 or a clinically equivalent
    vascular agent as determined by the Company's Board of Directors or (ii)
    August 7, 2004.

(5) The option becomes exercisable as to 50% of the shares covered by such
    option upon the earlier of (i) commencement of Phase III clinical trials
    for MS-325 or a clinically equivalent vascular agent as determined by the
    Company's Board of Directors or (ii) August 7, 2004. The option also
    becomes exercisable as to 50% of the shares covered by such option upon
    the earlier of (i) receipt of NDA approval for MS-325 or a clinically
    equivalent vascular agent as determined by the Board of Directors or (ii)
    August 7, 2004.

(6) The option became exercisable as to 12.5% of the shares covered by such
    option on July 17, 1996. The option becomes exercisable as to 12.5% of
    the shares covered by such option on July 17 of each of 1997, 1998, 1999,
    2000 and 2001. The option also becomes exercisable as to 25% of the
    shares covered by such option on the earlier of (i) completion of a major
    corporate milestone which he has personally led for the Company as
    determined by the Company's Chief Executive Officer and on approval by
    the Company's Board of Directors or (ii) June 17, 2005.

                                      45
<PAGE>

  The following table sets forth certain information concerning exercisable
and unexercisable stock options held by the Named Executive Officers as of
December 31, 1996:

             Aggregated Option Exercises In Last Fiscal Year And
                        Fiscal Year-End Option Values

<TABLE>
<CAPTION>
                                                         Number of Securities                                      
                                                              Underlying                                           
                                                             Unexercised                 Value of Unexercised      
                             Shares                           Options at                 In-The-Money Options      
                            Acquired                       Fiscal Year-End              at Fiscal Year-End (1)     
                               in         Value    -------------------------------  -------------------------------
Name                        Exercise  Realized (1) Exercisable       Unexercisable   Exercisable    Unexercisable
- ------------------------- ----------- ------------ -------------- ---------------- --------------  ----------------
<S>                          <C>        <C>            <C>             <C>            <C>             <C>
   
Michael D. Webb              33,333     $268,197       105,179         241,955        $846,270        $1,547,105
Randall B. Lauffer, Ph.D.
  (2)                            --           --            --                  --          --                --
James E. Smith, Ph.D.            --           --        42,666          97,333         327,462           599,532
Susan M. Flint                   --           --        14,667          48,665         118,012           311,632
Stephen C. Knight, M.D.          --           --        16,666         116,667          66,664           466,668
</TABLE>
    

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

(1) Based on the difference between the fair market value of the underlying
    shares of Common Stock on December 31, 1996 as determined by the Board of
    Directors and the option exercise price.

(2) Dr. Lauffer does not hold any stock options.

                                      46
<PAGE>

Stock Plans

  Amended and Restated 1992 Equity Incentive Plan. The Company's 1992 Equity
Incentive Plan was adopted in July 1992 and amended and restated in December
1996 (as amended and restated, the "Equity Plan"). The Equity Plan is
designed to provide the Company flexibility in awarding equity incentives by
providing for multiple types of incentives that may be awarded. The purpose
of the Equity Plan is to attract and retain key employees of and consultants
of the Company and to enable them to participate in the long-term growth of
the Company. The Equity Plan provides for the grant of stock options
(incentive and nonstatutory), stock appreciation rights, performance shares,
restricted stock or stock units for the purchase of an aggregate of 1,599,901
shares of Common Stock, subject to adjustment for stock-splits and similar
capital changes. Awards under the Equity Plan can be granted to officers,
employees and other individuals as determined by the committee of the Board
of Directors which administers the Equity Plan, each of whose members is a
"non-employee director" within the meaning of Rule 16b-3 under the
Securities Act. The Compensation Committee of the Board of Directors
administers the Equity Plan. The Compensation Committee selects the
participants and establishes the terms and conditions of each option or other
equity right granted under the Equity Plan, including the exercise price, the
number of shares subject to options or other equity rights and the time at
which such options become exercisable. The exercise price of all "incentive
stock options" within the meaning of Section 422 of the Code, granted under
the Equity Plan must be at least equal to 100% of the fair market value of
the option shares on the date of grant. The term of any incentive stock
option granted under the Equity Plan may not exceed ten years.

  As of December 31, 1996, options to purchase an aggregate of 1,497,644
shares of Common Stock had been granted under the Equity Plan. Options to
purchase 172,574 shares were exercised as of such date and options to
purchase 47,267 shares were cancelled. Of the options to purchase an
aggregate of 1,277,803 shares of Common Stock that were outstanding as of
such date, options to purchase 392,933 shares were exercisable. No stock
appreciation rights or award other than option grants have been granted under
the Equity Plan.

  1996 Employee Stock Purchase Plan. In December 1996, the Company adopted the
Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") under which
employees may purchase shares of Common Stock at a discount from fair market
value. There are 66,666 shares of Common Stock reserved for issuance under
the Purchase Plan. To date, no shares of Common Stock have been issued under
the Purchase Plan. The Purchase Plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Code. Rights to
purchase Common Stock under the Purchase Plan are granted at the discretion
of the Compensation Committee, which determines the frequency and duration of
individual offerings under the Purchase Plan and the dates when stock may be
purchased. Eligible employees participate voluntarily and may withdraw from
any offering at any time before stock is purchased. Participation terminates
automatically upon termina-tion of employment. The purchase price per share
of Common Stock in an offering is 85% of the lesser of its fair market value
at the beginning of the offering period or on the applicable exercise date
and may be paid through payroll deductions, periodic lump sum payments or a
combination of both. The Purchase Plan terminates in December 2006.

Compensation Committee Interlocks and Insider Participation

  The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company. The Compensation Committee also administers various
incentive compensation and benefit plans. See "Management--Stock Plans." The
Compensation Committee currently consists of Drs. Crooke and Evnin and Mr.
Gabrieli. Dr. Evnin is a General Partner of Accel Partners, a venture capital
firm and a principal stockholder of the Company. Mr. Gabrieli is a General
Partner of Bessemer Venture Partners, a venture capital firm and a principal
stockholder of the Company. See "Certain Transactions" and "Principal
Stockholders."

                                      47
<PAGE>

                             CERTAIN TRANSACTIONS

  In May 1995, the Company issued convertible promissory notes to Accel IV
L.P., Bessemer Venture Partners III L.P. and certain related persons in the
aggregate principal amount of $1,500,000 bearing interest at a rate of 10%
per annum and convertible into shares of Series C Convertible Preferred Stock
at a conversion price of $4.54 per share (the "1995 Convertible Notes"). Dr.
Luke B. Evnin, a director of the Company, is a General Partner of Accel IV
Associates L.P., the General Partner of Accel IV L.P. See footnotes (2) and
(10) to the table set forth under "Principal Stockholders." Christopher F.O.
Gabrieli, Chairman of the Company, is a General Partner of Deer III & Co.,
the General Partner of Bessemer Venture Partners III L.P. See footnotes (3)
and (9) to the table set forth under "Principal Stockholders."

  In November and December 1995, Accel IV L.P., Bessemer Venture Partners III
L.P. and certain related persons made bridge loans to the Company in an
aggregate principal amount of $1,200,000 in exchange for promissory notes
bearing interest at a rate of 10% per annum and convertible into shares of
the Company's securities in the Company's next permanent equity financing
(the "1995 Bridge Notes").

  In January 1996, the 1995 Convertible Notes were amended and restated (the
"Amended 1995 Convertible Notes") to, among other things, change the
conversion price to between $1.51 and $2.25 per share, depending on certain
events of conversion. At such time, the Company also issued additional
convertible promissory notes to the holders of the Amended 1995 Convertible
Notes in an aggregate principal amount of $1,515,862 (the "1996 Convertible
Notes") with the same terms as the Amended 1995 Convertible Notes in exchange
for cash and the surrender of the 1995 Bridge Notes (including accrued
interest thereon).

  In February 1996, Accel IV L.P., Bessemer Venture Partners III L.P. and
certain related persons made bridge loans to the Company in the aggregate
principal amount of $600,000 in exchange for promissory notes bearing
interest at a rate of 10% per annum (the "1996 Bridge Notes").

  In March 1996, the Company entered into a Development and License Agreement
with Daiichi. Pursuant to such agreement, the Company granted Daiichi an
exclusive license to develop and market MS-325 in Japan in exchange for an
up-front fee of $3.0 million and future milestone payments for up to an
aggregate of $3.3 million and royalty payments on net sales of MS-325 in
Japan. In addition, pursuant to the agreement with Daiichi, in May and August
1996, the Company sold an aggregate of 868,329 shares of Series E Convertible
Preferred Stock to Daiichi (which will convert into an aggregate amount of
578,886 shares of Common Stock upon the closing of this offering) at a price
of $5.76 per share.

  In May 1996, the Company sold 1,700,002 shares of Series D Convertible
Preferred Stock (which will convert into 1,133,325 shares of Common Stock
upon the closing of this offering) at a price of $3.00 per share (the "Series
D Financing"). In connection with the Series D Financing, Accel IV L.P.,
Bessemer Venture Partners III L.P. and certain related persons surrendered
their respective 1996 Bridge Notes as partial payment for their respective
shares of Series D Preferred Stock and each received cash payments from the
Company in the aggregate amount of $9,698 for accrued interest on their
respective 1996 Bridge Notes. Through the Series D Financing, Accel IV L.P.
and certain related persons purchased 266,668 shares (244,267 shares held by
Accel IV L.P., 9,867 shares held by Accel Investors '93 L.P., 5,067 shares
held by Accel Keiretsu L.P., 5,867 shares held by Ellmore C. Patterson
Partners and 1,600 shares held by Prosper Partners), Bessemer Venture
Partners III L.P. and certain related persons purchased 266,667 shares
(213,696 shares held by Bessemer Venture Partners III L.P. and 40,983 shares
held by certain related persons, including 9,990 shares held directly by Mr.
Gabrieli and 1,998 shares held by the Gabrieli Family Foundation, of which
Mr. Gabrieli is President), affiliates of Advent International Corporation
purchased 666,667 shares (365,000 shares held by Rovent II Limited
Partnership, 200,000 shares held by Advent Performance Materials Limited
Partnership, 66,667 shares held by Adwest Limited Partnership and 35,000
shares held by Advent Partners Limited Partnership) and Fidelity Ventures
Ltd. purchased 500,000 shares.

  Concurrently with the Series D Financing, Accel IV L.P., Bessemer Ventures
Partners III L.P. and certain related persons converted the entire principal
amount of their respective Amended 1995 Convertible Notes and 1996
Convertible Notes, plus accrued interest, into 1,432,318 shares of Series C
Convertible Preferred Stock (which will convert into 954,872 shares of Common
Stock upon the closing of this offering) as follows: 656,006 shares held by
Accel IV L.P.; 26,498 shares held by Accel Investors '93 L.P.; 13,607 shares
held by Accel Keiretsu L.P.; 15,755 shares held by Ellmore C. Patterson
Partners; 4,296 shares held by Prosper Partners); 642,837 shares

                                      48
<PAGE>

held by Bessemer Venture Partners III L.P.; and 43,386 shares held by certain
persons related to Bessemer Venture Partners III L.P., including 25,328
shares held directly by Mr. Gabrieli and 4,605 shares held by the Gabrieli
Family Foundation.

  In May 1996, the Company repurchased from Randall B. Lauffer, Ph.D., a
director and executive officer of the Company, 66,666 shares of Common Stock
at a price per share of $4.05.

  In June 1995 and April 1996, the Company made two loans to Dr. Lauffer, each
in the principal amount of $50,000 and bearing interest at the rate of 7.31%
and 6.51% per annum, respectively (the Applicable Federal Rates for long term
loans announced for such months), and each secured by a pledge of 14,814
shares of the Company's Common Stock held by Dr. Lauffer. As of November 30,
1996, the outstanding amounts on these loans were $55,352.82 and $52,140.27,
respectively. In May 1996, the Company made a loan to Dr. Lauffer in the
principal amount of $180,000 bearing interest at the rate of 6.83% per annum
(the Applicable Federal Rate for long term loans announced for May 1996) and
secured by a pledge of 44,444 shares of the Company's Common Stock held by
Dr. Lauffer. As of November 30, 1996, the outstanding amount on this loan was
$186,197.52. Each of these loans is subject to acceleration upon the
voluntary termination of Dr. Lauffer's employment, among other events.

                                      49
<PAGE>

                            PRINCIPAL STOCKHOLDERS

  The following table and footnotes set forth certain information regarding
the beneficial ownership of the Company's Common Stock as of December 31,
1996 by (i) persons known by the Company to beneficially own 5% or more of
the Company's Common Stock, (ii) the Named Executive Officers, (iii) each
director of the Company and (iv) all current executive officers and directors
as a group:

<TABLE>
<CAPTION>
                                                                                    Percentage of Shares
                                                                                   Beneficially Owned (1)
                                                                                  -----------------------
                                                              Number of Shares
                                                             Beneficially Owned      Before      After
Beneficial Owners                                                    (1)            Offering    Offering
 ---------------------------------------------------------- --------------------- ----------- -----------
<S>                                                               <C>                 <C>         <C>
   
Accel IV L.P. and certain related persons (2)                     1,586,353           25.1%       19.1%
 One Embarcadero Center
  Suite 3820
  San Francisco, CA 94111
Bessemer Venture Partners III
  L.P. and certain related persons (3)                            1,575,395           24.9        18.9
 Bessemer Venture Partners
  1025 Old Country Road
  Suite 205
  Westbury, NY 11590
Daiichi Radioisotope Laboratories, Ltd. (4)                         578,885            9.2         7.0
 17-10, Kyobashi 1-chome Chuo-ku
  Tokyo, 104 Japan
Affiliates of Advent International Corporation (5)                  455,019            7.2         5.5
 101 Federal Street
  Boston, MA 02110
Fidelity Ventures Ltd. (6)                                          357,636            5.7         4.3
 82 Devonshire Street, R25C
  Boston, MA 02109
Michael D. Webb (7)                                                 171,845            2.7         2.0
Randall B. Lauffer, Ph.D. (8)                                     1,266,664           20.1        15.2
Christopher F.O. Gabrieli (9)                                     1,575,395           24.9        18.9
Luke B. Evnin, Ph.D. (10)                                         1,586,353           25.1        19.1
Stanley T. Crooke, M.D., Ph.D. (11)                                  11,041             *           *
All current executive officers and directors as a group
  (10 persons) (12)                                               4,678,626           72.5%       55.7%
</TABLE>
    

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

* Indicates less than 1%.

   
 (1) Reflects the conversion, contemporaneously with the closing of this
     offering, of all outstanding shares of preferred stock of the Company
     into an aggregate of 4,750,289 shares of Common Stock. The number of
     shares of Common Stock deemed outstanding after this offering includes
     the 2,000,000 shares of Common Stock of the Company being offered for
     sale in this offering. The persons and entities named in the table have
     sole voting and investment power with respect to the shares beneficially
     owned by them, except as noted below. Share numbers include shares of
     Common Stock issuable pursuant to the outstanding options and warrants
     that may be exercised within the 60-day period following December 31,
     1996.
    

 (2) Consists of the following shares and warrants exercisable within the
     60-day period following December 31, 1996: 1,440,897 shares and a
     warrant to purchase 12,213 shares held by Accel IV L.P.; 58,200 shares
     and a warrant to purchase 493 shares held by Accel Investors '93 L.P.;
     34,604 shares and a warrant to purchase 293 shares held by Ellmore C.
     Patterson Partners; 29,885 shares and a warrant to purchase 253 shares
     held by

                                      50
<PAGE>

   
     Accel Keiretsu L.P.; and 9,435 shares and a warrant to purchase 80 shares
     held by Prosper Partners. Accel IV Associates L.P. is the General Partner
     of Accel IV L.P. and has voting and investment control over the shares held
     by Accel IV L.P. Arthur C. Patterson, James R. Swartz, James W. Bryer, Paul
     H. Klingenstein, Luke B. Evnin, Eugene D. Hill, III, G. Carter Sednaoui and
     the Swartz Family Partnership L.P. are the General Partners of Accel IV
     Associates L.P. Messrs. Patterson, Swartz, Klingenstein, Bryer, Evnin and
     Sednaoui are the General Partners of Accel Investors '93 L.P. and have
     voting and investment control over shares held by Accel Investors '93 L.P.
     Mr. Patterson is the sole General Partner of Ellmore C. Patterson Partners
     and has voting and investment control over shares held by Ellmore C.
     Patterson Partners. Accel Partners & Co. L.P. is the General Partner of
     Accel Keiretsu L.P. and has voting and investment control over shares held
     by Accel Keiretsu L.P. Messrs. Patterson and Swartz are the co-owners and
     partners of Accel Partners & Co. L.P. Messrs. Klingenstein and Sednaoui are
     the attorneys-in-fact for Prosper Partners and disclaim beneficial
     ownership of shares held by Prosper Partners. Does not include shares that
     certain persons and entities related to Accel IV L.P. may purchase in this
     offering. Such persons and entities have indicated a non-binding intention
     to purchase 110,740 shares in this offering. If such shares are purchased,
     Accel IV L.P. and related persons and entities will own 20.4% of the Common
     Stock outstanding after this offering.

     (3) Includes the following shares held by the following persons and
     entities related to Bessemer Venture Partners III L.P. as to which Bessemer
     Venture Partners III L.P. has voting and investment control: William T.
     Burgin (1,969); Robert H. Buescher (3,366); G. Felda Hardymon (18,366);
     Christopher F.O. Gabrieli (32,357); David J. Cowan (5,125); Brimstone
     Island Co. L.P. (1,969); Gabrieli Family Foundation (6,604); Diane N.
     McPartlin (528); Ravi B. Mhatre (666); Gautam A. Prakash (3,713); Robi L.
     Soni (1,705); Rodney A. Cohen (1,222); Richard R. Davis (4,045); Adam P.
     Godfrey (1,662); Barbara M. Henagan (2,997); Belisarius Corp. (7,667);
     Robert J.S. Roriston (947); Russell D. Sternlicht (639); Quentin Corp.
     (11,152); and BVP III Special Situations L.P. (26,465). Also includes a
     warrant to purchase 13,333 shares exercisable within the 60-day period
     following December 31, 1996 held by Bessemer Venture Partners III L.P. Does
     not include shares held by the following persons related to Bessemer
     Venture Partners III L.P. as to which shares Bessemer Venture Partners III
     L.P. does not possess voting or investment control: Michael Barash (1,666);
     Neill H. Brownstein (6,184); C. Samantha Chen (1,124); Rachel J. Erickson
     (660); and John K. Rodakis (1,321). Messrs. Burgin, Buescher, Gabrieli,
     Hardymon and Cowen are the voting General Partners of Deer III & Co., the
     General Partner of Bessemer Venture Partners III L.P. and BVP III Special
     Situations L.P. and disclaim beneficial ownership of shares and the warrant
     held by Bessemer Venture Partners III L.P. and shares held by BVP III
     Special Situations L.P. except to the extent of their partnership interest.
     Does not include any shares that Bessemer Venture Partners III L.P. and
     certain related persons and entities may purchase in this offering.
     Bessemer Venture Partners III L.P. and certain related persons and entities
     have indicated a non-binding intention to purchase 200,000 shares in this
     offering. If such shares are purchased, Bessemer Venture Parners III L.P.
     and certain related persons and entities will own 21.3% of the Common 
     Stock outstanding after this offering.
    

 (4) Osamu Ikeda, M.D., President and Chief Executive Officer of Daiichi
     Radioisotope Laboratories, Ltd., has voting and investment control over
     these shares.

   
 (5) Includes the ownership by the following venture capital funds managed by
     Advent International Corporation: 249,125 shares held by Rovent II
     Limited Partnership, 136,506 shares held by Advent Performance Materials
     Limited Partnership, 45,501 shares held by Adwest Limited Partnership,
     23,887 shares held by Advent Partners Limited Partnership. In its
     capacity as manager of these funds, Advent International Corporation
     exercises sole voting and investment power with respect to all shares
     held by these funds. Advent International Corporation exercises its
     voting and investment power through a group of three persons, none of
     whom may act independently and a majority of whom must act in concert to
     exercise voting or investment power over the beneficial holdings of such
     entity. Therefore, no individual in this group is deemed to share voting
     or investment power.
    

 (6) Includes 16,375 shares subject to options exercisable within the 60-day
     period following December 31, 1996 held by FMR Corp. FMR Corp. is the
     parent and sole owner of Fidelity Capital Associates, Inc., the General
     Partner of Fidelity Ventures Ltd.

 (7) Includes 105,179 shares subject to options exercisable within the 60-day
     period following December 31, 1996.

 (8) Includes 26,666 shares held by Dr. Lauffer's wife and 16,000 shares held
     in a trust for the benefit of Dr. Lauffer's children as to which Dr.
     Lauffer disclaims beneficial ownership. Also includes 1,000,000 shares
     held by a trust for the benefit of Dr. Lauffer as to which shares Dr.
     Lauffer has voting and investment control.


                                      51
<PAGE>

 (9) See footnote (3) above. Mr. Gabrieli disclaims beneficial ownership of
     these shares except to the extent of his proportionate pecuniary
     interest therein or with respect to shares held in his name.

(10) See footnote (2) above. Dr. Evnin disclaims beneficial ownership of
     these shares except to the extent of his proportionate pecuniary
     interest in shares held by Accel IV L.P. and Accel Investors '93 L.P.

(11) Consists of options exercisable within the 60-day period following
     December 31, 1996.

(12) See footnotes (2), (3) and (7)--(11) above. Includes an additional
     140,464 shares subject to options exercisable within the 60-day period
     following December 31, 1996.


                                       52
<PAGE>

                         DESCRIPTION OF CAPITAL STOCK

   
  The authorized capital stock of the Company currently consists of 15,000,000
shares of Common Stock, $0.01 par value per share, and 6,813,393 shares of
Preferred Stock, $0.01 par value per share. Upon the closing of this
offering, the authorized capital stock of the Company will consist of
15,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock
after giving effect to the amendment and restatement of the Company's
Restated Certificate of Incorporation to delete references to the Series A,
Series B, Series C, Series D and Series E Convertible Preferred Stock. Prior
to this offering, there were outstanding an aggregate of (i) 1,564,451 shares
of Common Stock and (ii) 6,738,076 shares of Preferred Stock, consisting of
93,691 shares of Series A Convertible Preferred Stock, 2,643,736 shares of
Series B Convertible Preferred Stock, 1,432,318 shares of Series C
Convertible Preferred Stock, 1,700,002 shares of Series D Convertible
Preferred Stock and 868,329 shares of Series E Convertible Preferred Stock,
which shares will automatically convert into an aggregate of 4,750,289 shares
of Common Stock upon the closing of this offering. As of the date of this
Prospectus, the Company had 60 shareholders. Upon the closing of this
offering, the Company will have 8,314,740 shares of Common Stock outstanding.
    

  The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by (i) the provisions of the Company's Restated
Certificate and By-laws (each as filed and effected, respectively, on or
before the closing of this offering and included as exhibits to the
Registration Statement) and (ii) the provisions of applicable law.

Common Stock

  Holders of Common Stock are entitled to one vote per share on matters to be
voted upon by the stockholders. There are no cumulative voting rights.
Holders of Common Stock are entitled to receive dividends if, as and when
declared by the Board of Directors out of funds legally available therefor.
See "Dividend Policy." Upon the liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in the assets
of the Company available for distribution to its stockholders, subject to the
preferential rights of any then outstanding shares of Preferred Stock. No
shares of Preferred Stock will be outstanding immediately following the
closing of this offering. The Common Stock outstanding upon the effective
date of the Registration Statement, and the shares offered by the Company
hereby, upon issuance and sale, will be fully paid and nonassessable.

Preferred Stock

  The Company is currently authorized to issue 6,813,393 shares of Preferred
Stock. Upon the consummation of the offering, all of the issued and
outstanding shares of Preferred Stock will be converted into an aggregate of
4,750,289 shares of Common Stock. Immediately following such conversion, all
currently outstanding shares of Preferred Stock will be cancelled, retired
and eliminated from the Company's authorized shares of capital stock and the
number of authorized shares of Preferred Stock will be decreased to 1,000,000
shares.

  Upon consummation of the offering, the Company's Board of Directors will
have the authority to issue up to 1,000,000 shares of Preferred Stock in one
or more series and to fix the relative rights, preferences, privileges,
qualifications, limitations and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences, sinking fund terms
and the number of shares constituting any series or the designation of such
series, without further vote or action by the stockholders. The Company
believes that the power to issue Preferred Stock will provide flexibility in
connection with possible corporate transactions. The issuance of Preferred
Stock could adversely affect the voting power of the holders of Common Stock
and restrict their rights to receive payment upon liquidation and could have
the effect of delaying, deferring or preventing a change-in-control of the
Company. See "Description of Capital Stock--Anti-Takeover Measures." The
Company has no present plans to issue any shares of Preferred Stock.

Stock Purchase Warrants

  During the period from December 1992 to May 1996, the Company issued
warrants to purchase an aggregate of 75,317 shares of Preferred Stock in
connection with equipment leasing transactions and equity financings,
including (i) two warrants exercisable for an aggregate amount of 10,697
shares of Company's Series A Convertible Preferred Stock at an exercise price
of $11.21. per share (which will be exercisable for an aggregate of 36,618
shares of Common Stock at an exercise price of $3.27 per share upon
consummation of this offering), (ii) a warrant exercisable for 11,402 shares
of Company's Series B Convertible Preferred Stock at an exercise price of
$1.51 per share (which will be exercisable for 7,601 shares of Common Stock
at an exercise price of $2.27 upon consummation of this offering), (iii) a
warrant exercisable for 13,218 shares of Company's Series C

                                      53
<PAGE>

Convertible Preferred Stock at an exercise price of $4.54 per share (which
will be exercisable for 8,812 shares of Common Stock at an exercise price of
$6.81 upon consummation of this offering) and (iv) six warrants exercisable
for an aggregate of 40,000 shares of Company's Series D Convertible Preferred
Stock at an exercise price of $3.00 per share (which will be exercisable for
an aggregate of 26,665 shares of Common Stock at an exercise price of $4.50
upon consummation of this offering) (collectively, the "Preferred Stock
Warrants"). The Preferred Stock Warrants will expire five years after the
date of the closing of the offering. The exercise price of each Preferred
Stock Warrant is subject to adjustment in the event of a stock split,
combination or dividend by the Company. The number and kind of securities for
which each Preferred Stock Warrant is exercisable is subject to adjustment in
the event of a merger or reclassification by the Company.

Anti-Takeover Measures

  In addition to the Board of Directors' ability to issue shares of Preferred
Stock, the Restated Certificate and the By-laws contain several other
provisions that are commonly considered to discourage unsolicited takeover
bids. The Restated Certificate includes a provision classifying the Board of
Directors into three classes with staggered three-year terms, and the
By-laws include a provision prohibiting stockholder action by written consent
except as otherwise provided by law. Under the Restated Certificate and
By-laws, the Board of Directors may enlarge the size of the Board and fill
any vacancies on the Board. The Restated Certificate requires the approval of
the holders of at least 66-2/3% of the outstanding capital stock of the
Company prior to (i) the merger of the Company into another entity, (ii) the
sale or disposition of all or substantially all of the Company's assets,
(iii) the issuance or transfer by the Company of its securities having a
market value in excess of $500,000 and (iv) engaging in any other business
combination transaction, unless such transaction has been approved by a
majority of the Board of Directors. Further, provisions of the By-laws and
the Restated Certificate provide that the stockholders may amend the By-laws
or certain provisions of the Restated Certificate only with the affirmative
vote of 66-2/3% of the Company's capital stock. The By-laws provide that
nominations for directors may not be made by stockholders at any annual or
special meeting unless the stockholder intending to make a nomination
notifies the Company of its intention a specified period in advance and
furnishes certain information. The By-laws also provide that special meetings
of the Company's stockholders may be called only by the President or the
Board of Directors and require advance notice of business to be brought by a
stockholder before the annual meeting.

  Upon the consummation of the offering made hereby, the Company will be
subject to the provisions of Section 203 of the Delaware General Corporation
Law, a law regulating corporate takeovers (the "Anti-Takeover Law"). In
certain circumstances, the Anti-Takeover Law prevents certain Delaware
corporations, including those whose securities are listed on the Nasdaq
National Market, from engaging in a "business combination" (which includes a
merger or sale of more than ten percent of the corporation's assets) with an
"interested stockholder" (a stockholder who owns 15% or more of the
corporation's outstanding voting stock) for three years following the date on
which such stockholder became an "interested stockholder" subject to certain
exceptions, unless the transaction is approved by the board of directors and
the holders of at least 66-2/3% of the outstanding voting stock of the
corporation (excluding shares held by the interested stockholder). The
statutory ban does not apply if, upon consummation of the transaction in
which any person becomes an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock of the
corporation (excluding shares held by persons who are both directors and
officers or by certain employee stock plans). A Delaware corporation subject
to the Anti-Takeover Law may "opt out" of the Anti-Takeover Law with an
express provision either in its certificate of incorporation or by-laws
resulting from a stockholders' amendment approved by at least a majority of
the outstanding voting shares; such an amendment is effective following
expiration of twelve months from adoption. The Company has not "opted out" of
the Anti-Takeover Law.

  The foregoing provisions of the Restated Certificate and By-laws and
Delaware law could have the effect of discouraging others from attempting
hostile takeovers of the Company and, as a consequence, they may also inhibit
temporary fluctuations in the market price of the Common Stock that might
result from actual or rumored hostile takeover attempts. Such provisions may
also have the effect of preventing changes in the management of the Company.
It is possible that such provisions could make it more difficult to
accomplish transactions which stockholders may otherwise deem to be in their
best interests.

Transfer Agent

  The transfer agent and registrar for the Common Stock is Boston EquiServe.

                                      54

<PAGE>

                       SHARES ELIGIBLE FOR FUTURE SALE

  Upon completion of this offering, the Company will have 8,314,740 shares of
Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option or of any other outstanding options. Of these shares,
the 2,000,000 shares sold in this offering will be freely transferable,
without restriction or further registration under the Securities Act, except
for shares purchased by "affiliates" of the Company as that term is defined
in Rule 144 under the Securities Act.

  The remaining 6,314,740 outstanding shares of Common Stock are owned by
existing stockholders and are deemed "Restricted Shares" under Rule 144.
These may not be resold, except pursuant to an effective registration
statement or an applicable exemption from registration. Of these remaining
shares, approximately 112,357 shares of Common Stock will be eligible for
sale under Rules 144 and 701 on the ninety-first day after the effectiveness
of this offering. Stockholders of the Company, holding in the aggregate
6,202,383 shares of Common Stock, have agreed to enter into the 180-day
lock-up agreements described below. At the end of such 180-day period, an
additional 3,950,721 shares of Common Stock will be eligible for sale under
Rules 144 and 701. The remaining Restricted Shares will become eligible from
time to time thereafter upon the expiration of the minimum two-year holding
period prescribed by Rule 144.

  In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned Restricted Shares for at least two years from the later of the date
such Restricted Shares were acquired from the Company and (if applicable) the
date they were acquired from an affiliate, is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1%
of the then outstanding shares of Common Stock or the average weekly trading
volume in the public market during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain requirements as to the
manner and notice of sale and the availability of public information
concerning the Company. All sales of shares of the Company's Common Stock,
including Restricted Shares, held by affiliates of the Company must be sold
under Rule 144, subject to the foregoing volume limitations and other
restrictions.

  The Commission has proposed an amendment to Rule 144 which would reduce the
holding period required for shares subject to Rule 144 from two years to one
year. If this proposal is adopted as of the expected closing of this
offering, an additional 1,946,033 shares of Common Stock would become
eligible for sale by existing stockholders to the public after the expiration
of the 180-day lock-up period.

  The Company's directors and executive officers and certain of its
stockholders have agreed that they will not, without the prior written
consent of the representatives of the Underwriters, offer to sell, sell,
contract to sell, grant any option to sell or otherwise dispose of or require
the Company to file with the Commission a registration statement under the
Securities Act to register any shares of Common Stock or securities
convertible or exchangeable for shares of Common Stock or warrants or other
rights to acquire shares of Common Stock during the 180-day period following
the effective date of the Registration Statement.

  The Company plans to file registration statements under the Securities Act
to register approximately 1,427,322, 66,666 and 66,666 shares of Common Stock
issuable under the Equity Plan, the Director Plan and the Stock Purchase
Plan, respectively, 90 days after the date of this Prospectus. Upon
registration, such shares will be eligible for immediate resale upon
exercise, subject, in the case of affiliates, to the volume, manner of sale
and notice requirements of Rule 144.

  No prediction can be made as to the effect, if any, that market sales of
additional shares or the availability of such additional shares for sale will
have on the market price of the Common Stock. Nevertheless, sales of
substantial amounts of Common Stock in the public market may have an adverse
impact on the market price for the Common Stock. See "Risk Factors--Shares
Eligible for Future Sale; Registration Rights" and "--Immediate and
Substantial Dilution."

Registration Rights

  The holders of the 4,750,289 shares of Common Stock to be issued on
conversion of the Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock (the
"Registrable Shares") are entitled to certain rights with respect to
registration of the Registrable Shares under the Securities Act beginning at
the end of the lock-up period. If the Company proposes to register any of its
securities under the Securities Act, either for its own account or for the
account of other security holders,

                                      55

<PAGE>

such holders are entitled to notice of such registration and are entitled to
include such Registrable Shares in the registration. The rights are subject
to certain conditions and limitations, among them, the right of the
underwriters of a registered offering to limit the number of shares included
in such registration. Holders of Registrable Shares benefiting from these
rights may also require the Company to file at its expense a registration
statement under the Securities Act with respect to their shares of Common
Stock and, subject to certain conditions and limitations, the Company is
required to use its best efforts to effect such registration. Furthermore,
such holders may, subject to certain conditions and limitations, require the
Company to file additional registration statements on Form S-3 with respect
to such Registrable Shares. Such holders did not have the right to have
shares of Common Stock registered under the Securities Act as part of this
offering.

                                      56
<PAGE>

                                 UNDERWRITING

  Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist
LLC and Wessels, Arnold & Henderson, L.L.C., have severally agreed to
purchase from the Company the following respective numbers of shares of
Common Stock:

                                         Number of
Name                                       Shares
- ------------------------------------     ---------
Hambrecht & Quist LLC
Wessels, Arnold & Henderson, L.L.C.

                                         ----------
Total                                    2,000,000
                                         ==========

  The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if
any of such shares are purchased.

   
  The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $.27 per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $.10 per share to certain other
dealers. After the initial public offering of the shares, the offering price
and other selling terms may be changed by the Representatives of the
Underwriters. The Representatives have informed the Company that the
Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
    

  The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock at the initial public offering price, less
the underwriting discount, set forth on the cover page of this Prospectus. To
the extent that the Underwriters exercise this option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage thereof which the number of shares of Common Stock to be purchased
by it shown in the above table bears to the total number of shares of Common
Stock offered hereby. The Company will be obligated, pursuant to the option,
to sell shares to the Underwriters to the extent the option is exercised. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of shares of Common Stock offered hereby.

  The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.

  The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to
contribute to payments the Underwriters may be required to make in respect
thereof.

   
  Certain existing stockholders of the Company, including the executive
officers and directors, who will own in the aggregate 6,202,383 shares of
Common Stock after this offering, have agreed that they will not, without the
prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise
dispose of any shares of Common Stock, options or warrants to acquire shares
of Common Stock or securities exchangeable for or convertible into shares of
Common Stock owned by them during the 180-day period following the date of
this Prospectus. The Company has agreed that, it will not, without the prior
written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of
any shares of Common Stock, options or warrants to acquire shares of Common
Stock or securities exchangeable for or convertible into shares of Common
Stock, other than pursuant to its equity benefit plans, during the 180-day
period following the date of this Prospectus.

  Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock was determined by
negotiation among the Company and the Representatives.
    

                                      57

<PAGE>

Among the factors to be considered in determining the initial public offering
price are prevailing market and economic conditions, revenues and earnings of
the Company, market valuations of other companies engaged in activities
similar to those of the Company, estimates of the business potential and
prospects of the Company, the present state of the Company's business
operations, the Company's management and other factors deemed relevant.

   
  Certain persons and entities related to Accel IV L.P. have indicated their 
non-binding intention to purchase 110,740 shares of Common Stock in this
offering. Bessemer Venture Partners III L.P. and certain related persons and
entities have indicated their non-binding intention to purchase 200,000 shares
in this offering. Any such sale will be made on the same terms as sales to other
investors in this offering. No assurance can be given that the aforementioned
persons and entities will purchase any or all of such shares. To the extent such
persons and entities purchase any such shares, such shares will be subject to
the lock-up agreements discussed above. Hambrecht & Quist LLC, in its capacity
as representative of the Underwriters, has represented to the Company that it
will not release such shares from the lock-up agreements before the expiration
of the 90-day period following the date of this Prospectus, if at all. See
"Principal Stockholders."
    

                                LEGAL MATTERS

  The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Palmer & Dodge LLP, Boston, Massachusetts. William T.
Whelan, a partner of Palmer & Dodge LLP, is an Assistant Secretary of the
Company. Certain legal matters are being passed upon for the Underwriters by
Hale and Dorr LLP, Boston, Massachusetts.

                                   EXPERTS

  The financial statements of the Company at December 31, 1995 and March 31,
1995 and for the nine months ended December 31, 1995, and for each of the two
years in the period ended March 31, 1995 appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.

                            ADDITIONAL INFORMATION

  The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act, with respect to the shares of Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules
thereto. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules thereto. All statements made in this Prospectus
regarding the contents of any contract, agreement or other document filed as
an exhibit to the Registration Statement are qualified by reference to the
copy of such document filed as an exhibit to the Registration Statement. A
copy of the Registration Statement may be inspected without charge at the
offices of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of all or any part thereof may be obtained from the Commission
upon the payment of certain fees prescribed by the Commission. Such reports
and other information can also be reviewed through the Commission's Web site
(http://www.sec.gov).

  Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.

  The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent auditors and will
make available copies of quarterly reports for the first three quarters of
each fiscal year containing unaudited financial information.

                                      58

<PAGE>

                     [THIS PAGE INTENTIONALLY LEFT BLANK]



<PAGE>






                              EPIX MEDICAL, INC.
                     (A Company in the Development Stage)

                        INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                  Page
                                                                ---------
<S>                                                               <C>
Report of Independent Auditors                                     F-3
Financial Statements
Balance Sheets                                                     F-4
Statements of Operations                                           F-5
Statements of Redeemable Convertible Preferred
  Stock and Stockholders' Equity (Deficit)                         F-6
Statements of Cash Flows                                           F-8
Notes to Financial Statements                                     F-10
</TABLE>

                                     F-1
<PAGE>

                      [THIS PAGE INTENTIONALLY LEFT BLANK]

                                     F-2
<PAGE>

                        REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
EPIX Medical, Inc.

     We have audited the accompanying balance sheets of EPIX Medical, Inc. (a
company in the development stage) as of December 31, 1995 and March 31, 1995,
and the related statements of operations, redeemable convertible preferred stock
and stockholders' equity (deficit), and cash flows for the nine months ended
December 31, 1995, and each of the two years in the period ended March 31, 1995.
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.

     Since the date of completion of the audit of the accompanying financial
statements and initial issuance of our report thereon dated April 12, 1996,
except for Note 14, as to which the date is May 14, 1996, which report contained
an explanatory paragraph regarding the Company's ability to continue as a going
concern, the Company, as discussed in Note 14, has received significant proceeds
from the sale of Preferred Stock and from strategic collaboration agreements.
Therefore the conditions that raised substantial doubt about whether the Company
will continue as a going concern no longer exist.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of EPIX Medical, Inc. at
December 31, 1995 and March 31, 1995, and the results of its operations and its
cash flows for the nine months ended December 31, 1995, and each of the two
years in the period ended March 31, 1995, in conformity with generally accepted
accounting principles.

                                       /s/ Ernst & Young LLP


                                       Ernst & Young LLP


Boston, Massachusetts
April 12, 1996, except for Note 14, as
 to which the date is August 30, 1996

                                     F-3
<PAGE>

                              EPIX MEDICAL, INC.
                     (A Company in the Development Stage)

                                BALANCE SHEETS

<TABLE>

<CAPTION>
                                                                        March 31      December 31    September 30
                                                                          1995           1995            1996
                                                                     -------------- --------------  --------------
Assets                                                                                               (Unaudited)
<S>                                                                    <C>            <C>            <C>
Current assets:
  Cash and cash equivalents                                            $ 1,079,355    $   149,686    $11,734,558
  Accounts receivable                                                                                    665,088
  Prepaid expenses                                                          49,496         58,940         74,695
  Other current assets                                                      23,000         13,178         10,267
                                                                       -----------    -----------    -----------
      Total current assets                                               1,151,851        221,804     12,484,608
Property and equipment, net                                                890,814        856,912        981,498
Notes receivable from officer                                                              51,878        290,437
Other assets                                                                98,082         80,171         58,735
                                                                       -----------    -----------    -----------
      Total assets                                                     $ 2,140,747    $ 1,210,765    $13,815,278
                                                                       ===========    ===========    ===========
Liabilities and Stockholders' Deficit                                                                (Unaudited)
Current liabilities:
  Current portion of capital lease obligations                         $   263,657    $   304,416    $   239,679
  Accounts payable and accrued expenses                                    372,183      1,244,201      1,362,574
                                                                       -----------    -----------    -----------
      Total current liabilities                                            635,840      1,548,617      1,602,253
Capital lease obligations, less current portion                            107,120        342,256        198,459
Promissory notes                                                                        2,700,000
Redeemable convertible preferred stock:
  Series B, $.01 par value, 2,655,138 shares authorized; 2,643,736
    shares issued and outstanding at March 31, 1995, December 31,
    1995 and September 30, 1996 ($6,170,731 liquidation value at
    September 30, 1996)                                                  3,949,383      3,955,505      3,961,636
  Series C, $.01 par value, 1,445,536 shares authorized; 1,432,318
    shares issued and outstanding at September 30, 1996 ($3,485,238
    liquidation value at September 30, 1996)                                                           3,233,694
  Series D, $.01 par value, 1,740,002 shares authorized; 1,700,002
    shares issued and outstanding at September 30, 1996 ($5,515,452
    liquidation value at September 30, 1996)                                                           5,071,027
  Series E, $.01 par value, 868,329 shares authorized; 868,329
    shares issued and outstanding at September 30, 1996 ($5,319,631
    liquidation value at September 30, 1996)                                                           4,899,755
Stockholders' deficit:
  Series A convertible preferred stock, $.01 par value, 104,388
    shares authorized; 93,691 shares issued and outstanding at March
    31, 1995, December 31, 1995 and September 30, 1996                   1,037,664      1,037,664      1,037,664
  Common stock, $.01 par value, 15,000,000 shares authorized;
    1,441,686, 1,563,808 and 1,539,673 shares issued and outstanding
    at March 31, 1995, December 31, 1995 and September 30, 1996,
    respectively                                                            14,417         15,638         15,396
  Additional paid-in capital                                                84,606        198,418         93,990
  Accretion of redeemable convertible preferred stock to
    redemption value                                                        (8,147)       (14,269)       (63,364)
  Deficit accumulated during the development stage                      (3,680,136)    (8,573,064)    (6,235,232)
                                                                       -----------    -----------    -----------
      Total stockholders' deficit                                       (2,551,596)    (7,335,613)    (5,151,546)
                                                                       -----------    -----------    -----------
      Total liabilities and stockholders' deficit                      $ 2,140,747    $ 1,210,765    $13,815,278
                                                                       ===========    ===========    ===========
</TABLE>



                           See accompanying notes.

                                     F-4
<PAGE>

                              EPIX MEDICAL, INC.
                     (A Company in the Development Stage)

                           STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                                 Period from
                                                                                                                  Inception
                                                                Nine months                                     (November 29,
                                 Year ended     Year ended         ended               Nine months ended          1988) to
                                  March 31       March 31       December 31              September 30           September 30
                                    1994           1995            1995               1995           1996           1996
                                ----------------------------   ---------------   --------------- -------------  ---------------
                                                                                          (Unaudited)            (Unaudited)
<S>                              <C>            <C>             <C>                <C>            <C>            <C>
Revenues                         $1,700,000     $   411,509     $   900,000        $   900,000    $9,635,088     $13,646,597
Operating expenses:
 Research and development         1,381,528       2,407,113       4,164,940          2,989,257     4,951,652      13,374,909
 General and administrative         897,117         824,769       1,504,811          1,348,358     2,212,086       6,280,189
                                 -----------    -----------     -----------        -----------    -----------    -----------
   Total operating expenses       2,278,645       3,231,882       5,669,751          4,337,615     7,163,738      19,655,098
                                 -----------    -----------     -----------        -----------    -----------    -----------
Operating income (loss)            (578,645)     (2,820,373)     (4,769,751)        (3,437,615)    2,471,350      (6,008,501)
Interest expense                    (66,976)        (78,672)       (151,057)          (100,077)     (273,640)       (570,345)
Interest income                      29,141         120,845          27,880             62,943       140,122         359,081
                                 -----------    -----------     -----------        -----------    -----------    -----------
Net income (loss)                $ (616,480)    $(2,778,200)    $(4,892,928)       $(3,474,749)   $2,337,832     $(6,219,765)
                                 ===========    ===========     ===========        ===========    ===========    ===========
Pro forma (unaudited):
 Net income (loss) per share                                    $     (0.70)                      $     0.30
                                                                ===========                       ===========
 Weighted-average common
   stock and equivalents                                          6,973,000                        7,711,000
                                                                ===========                       ===========
</TABLE>

                           See accompanying notes.

                                     F-5
<PAGE>

                              EPIX MEDICAL, INC.
                     (A Company in the Development Stage)

              STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
                       AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                  Redeemable            Series A
                                                 Convertible           Convertible
                                               Preferred Stock       Preferred Stock      Common Stock
                                            ----------------------  ------------------ ------------------
                                             Shares      Amount    Shares    Amount     Shares    Amount
                                            --------- ------------  ------ ----------- --------- --------
<S>                                         <C>        <C>         <C>     <C>         <C>        <C>
Issuance of common stock in May 1989                                                     333,330  $ 3,333
Issuance of Series A preferred stock in
  March 1992 (net of legal costs of
  $12,336)                                                         93,691  $1,037,664
Cumulative net loss for the period
  November 29, 1988 (date of inception)
  through March 31, 1992
                                            --------- ------------  ------ ----------- --------- --------
Balance at March 31, 1992                                          93,691   1,037,664    333,330    3,333
Issuance of common stock in April 1992 as
  payment for consulting services received                                                 5,186       52
Net loss
                                            --------- ------------  ------ ----------- --------- --------
Balance at March 31, 1993                                          93,691   1,037,664    338,516    3,385
Issuance of common stock in February 1994
  as payment for consulting services
  received                                                                                 5,186       52
Three-for-one stock dividend declared and
  paid in March 1994                                                                   1,031,118   10,311
Issuance of Series B preferred stock in
  March 1994, net of issuance costs of
  $58,764                                   2,643,736  $ 3,941,236
Issuance of warrants in conjunction with
  financing
Net loss
                                            --------- ------------  ------ ----------- --------- --------
Balance at March 31, 1994                   2,643,736    3,941,236 93,691   1,037,664  1,374,820   13,748
Issuance of common stock upon exercise of
  options                                                                                 66,866      669
Issuance of warrants in conjunction with
  financing
Accretion of redeemable convertible
  preferred stock to redemption value                        8,147
Net loss
                                            --------- ------------  ------ ----------- --------- --------
Balance at March 31, 1995                   2,643,736    3,949,383 93,691   1,037,664  1,441,686   14,417


                                                       Cumulative
                                                      Accretion of
                                                      Dividends on    Deficit
                                                       Redeemable   Accumulated      Total
                                           Additional  Convertible     During    Stockholders'
                                             Paid-in    Preferred   Development      Equity
                                             Capital      Stock        Stage       (Deficit)
                                            --------- ------------ -------------  -------------
<S>                                          <C>         <C>         <C>           <C>
Issuance of common stock in May 1989         $1,667                                    $5,000


Issuance of Series A preferred stock in
  March 1992 (net of legal costs of $12,336)                                        1,037,664
Cumulative net loss for the period
  November 29, 1988 (date of inception)
  through March 31, 1992                                               $(27,911)      (27,911)
                                            --------- ------------ -------------  -------------
Balance at March 31, 1992                     1,667                     (27,911)    1,014,753
Issuance of common stock in April 1992 as
  payment for consulting services received       26                                        78
Net loss                                                               (242,078)     (242,078)
                                            --------- ------------ -------------  -------------
Balance at March 31, 1993                     1,693                    (269,989)      772,753
Issuance of common stock in February 1994
  as payment for consulting services
  received                                       26                                        78
Three-for-one stock dividend declared and
  paid in March 1994                          5,156                     (15,467)
Issuance of Series B preferred stock in
  March 1994, net of issuance costs of
  $58,764
Issuance of warrants in conjunction with
  financing                                  43,391                                    43,391
Net loss                                                               (616,480)     (616,480)
                                            --------- ------------ -------------  -------------
Balance at March 31, 1994                    50,266                    (901,936)      199,742
Issuance of common stock upon exercise of
  options                                    27,415                                    28,084
Issuance of warrants in conjunction with
  financing                                   6,925                                     6,925
Accretion of redeemable convertible
  preferred stock to redemption value                    $(8,147)                      (8,147)
Net loss                                                             (2,778,200)   (2,778,200)
                                            --------- ------------ -------------  -------------
Balance at March 31, 1995                    84,606       (8,147)    (3,680,136)   (2,551,596)


                                     F-6


<PAGE>
<S>                                         <C>       <C>          <C>     <C>         <C>       <C>

Issuance of common stock upon exercise of
  options                                                                                 38,399      384
Issuance of common stock in July 1995
  under license agreement                                                                 83,723      837
Accretion of redeemable convertible
  preferred stock to redemption value                        6,122
Issuance of warrants in conjunction with
  financing
Net loss
                                            --------- ------------  ------ ----------- --------- --------
Balance at December 31, 1995                2,643,736    3,955,505 93,691   1,037,664  1,563,808   15,638


Issuance of common stock upon exercise of
  options (unaudited)                                                                     42,531      425
Issuance of Series C preferred stock upon
  conversion of Convertible Notes and
  interest thereon in May 1996, net of
  issuance costs of $12,560 (unaudited)     1,432,318    3,210,177
Issuance of warrants in conjunction with
  financing (unaudited)
Issuance of Series D preferred stock for
  cash in May 1996, net of issuance costs
  of $31,043 (unaudited)                    1,500,002    4,468,963
Issuance of Series D preferred stock upon
  conversion of Bridge Notes in May 1996
  (unaudited)                                 200,000      600,000
Issuance of Series E preferred stock in
  May and August 1996, net of issuance
  costs of $117,628 (unaudited)               868,329    4,882,372
Issuance of compensatory stock option
  grants (unaudited)
Repurchase of common stock from officer in
  May 1996 (unaudited)                                                                   (66,666)    (667)
Accretion of redeemable convertible
  preferred stock to redemption value
  (unaudited)                                               49,095
Net income (unaudited)
                                            --------- ------------  ------ ----------- --------- --------
Balance at September 30, 1996 (unaudited)   6,644,385  $17,166,112 93,691  $1,037,664  1,539,673  $15,396
                                            ========= ============  ====== =========== ========= ========





<S>                                         <C>       <C>          <C>            <C>
Issuance of common stock upon exercise of
  options                                      16,874                                  17,258
Issuance of common stock in July 1995
  under license agreement                      68,235                                  69,072
Accretion of redeemable convertible
  preferred stock to redemption value                     (6,122)                      (6,122)
Issuance of warrants in conjunction with
  financing                                    28,703                                  28,703
Net loss                                                             (4,892,928)   (4,892,928)
                                            --------- ------------ -------------  -------------
Balance at December 31, 1995                  198,418    (14,269)    (8,573,064)   (7,335,613)
Issuance of common stock upon exercise of
  options (unaudited)                          19,343                                  19,768
Issuance of Series C preferred stock upon
  conversion of Convertible Notes and
  interest thereon in May 1996, net of
  issuance costs of $12,560 (unaudited)
Issuance of warrants in conjunction with
  financing (unaudited)                        78,236                                  78,236
Issuance of Series D preferred stock for
  cash in May 1996, net of issuance costs
  of $31,043 (unaudited)
Issuance of Series D preferred stock upon
  conversion of Bridge Notes in May 1996
  (unaudited)
Issuance of Series E preferred stock in
  May and August 1996, net of issuance
  costs of $117,628 (unaudited)
Issuance of compensatory stock option
  grants (unaudited)                           67,326                                  67,326
Repurchase of common stock from officer in
  May 1996 (unaudited)                       (269,333)                               (270,000)
Accretion of redeemable convertible
  preferred stock to redemption value
  (unaudited)                                            (49,095)                     (49,095)
Net income (unaudited)                                                2,337,832     2,337,832
                                            --------- ------------ -------------  -------------
Balance at September 30, 1996 (unaudited)   $  93,990   $(63,364)   $(6,235,232)  $(5,151,546)
                                            ========= ============ =============  =============
</TABLE>

                           See accompanying notes.

                                     F-7




<PAGE>

                              EPIX MEDICAL, INC.
                     (A Company in the Development Stage)

                           STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                    Nine months
                                     Year ended     Year ended         ended
                                      March 31       March 31       December 31
                                        1994           1995             1995
                                   -------------- ---------------  ---------------

<S>                                <C>            <C>              <C>
Operating activities
Net income (loss)                   $  (616,480)    $(2,778,200)    $(4,892,928)
Adjustments to reconcile net
  income (loss) to cash provided
  (used) by operating activities:
 Depreciation and  amortization         295,370         285,515         396,673
 Expenses paid with equity
   instruments                                                           67,816
 Change in operating assets  and
  liabilities:
  Accounts receivable
  Prepaid expenses and other
    current assets                       50,928          (2,769)         16,411
  Accounts payable and accrued
    expenses                             80,922         (36,009)        872,018
                                    -----------     -----------     -----------
Net cash provided (used)
  by operating activities              (189,260)     (2,531,463)     (3,540,010)
Investing activities
Purchase of fixed assets               (106,299)       (367,830)       (324,429)
Proceeds from sale leaseback of
  fixed assets                          553,067          41,468         511,145
Purchase of marketable securities    (2,356,510)
Proceeds from sale of marketable
  securities                                          2,356,510
Issuance of note receivable from
  officer                                                               (50,000)
                                    -----------     -----------     -----------
Net cash provided (used) by
  investing activities               (1,909,742)      2,030,148         136,716
                                    -----------     -----------     -----------
</TABLE>

<TABLE>
<CAPTION>



                                                                   Period from
                                                                    inception
                                         Nine months ended        (November 29,
                                           September 30              1988) to
                                   -----------------------------   September 30
                                        1995           1996            1996
                                   --------------- -------------  ---------------
                                            (Unaudited)            (Unaudited)
<S>                                <C>             <C>             <C>
Operating activities
Net income (loss)                    $(3,474,749)   $2,337,832     $(6,219,765)
Adjustments to reconcile net
  income (loss) to cash provided
  (used) by operating activities:
 Depreciation and  amortization          279,432       406,169       1,509,572
 Expenses paid with equity
   instruments                            67,816       136,526         204,342
 Change in operating assets  and
  liabilities:
  Accounts receivable                                 (665,088)       (665,088)
  Prepaid expenses and other
    current assets                        16,357            32        (154,134)
  Accounts payable and accrued
    expenses                             185,999       341,110       1,585,311
                                     -----------    -----------    -----------
Net cash provided (used)
  by operating activities             (2,925,145)    2,556,581      (3,739,762)
Investing activities
Purchase of fixed assets                (402,969)     (542,812)     (2,230,971)
Proceeds from sale leaseback of
  fixed assets                           274,114        17,173       1,122,853
Purchase of marketable securities                                   (2,356,510)
Proceeds from sale of marketable
  securities                           1,945,621                     2,356,510
Issuance of note receivable from
  officer                                (50,000)     (230,000)       (280,000)
                                     -----------    -----------    -----------
Net cash provided (used) by
  investing activities                 1,766,766      (755,639)     (1,388,118)
                                     -----------    -----------    -----------
</TABLE>

                                     F-8
<PAGE>

                              EPIX MEDICAL, INC.
                     (A Company in the Development Stage)

                    STATEMENTS OF CASH FLOWS--(Continued)

<TABLE>
<CAPTION>
                                                                            Nine months
                                                Year ended    Year ended       ended
                                                 March 31      March 31     December 31
                                                   1994          1995          1995
                                               ------------- -------------  -------------

<S>                                            <C>           <C>            <C>
Financing activities
Repayment of capital lease obligations          $ (157,975)   $ (245,399)   $ (245,489)
Proceeds from issuance of promissory notes                                   2,700,000
Proceeds from issuance of bridge notes
Proceeds from sale of Series B redeemable
  convertible preferred stock                    3,941,236
Proceeds from sale of Series D redeemable
  convertible preferred stock
Proceeds from sale of Series E redeemable
  convertible preferred stock
Proceeds from sale of Series A convertible
  preferred stock
Repurchase of stock from officer
Sale of common stock                                              28,084        18,514
Proceeds from issuance of warrants                                                 600
                                                -----------   -----------   -----------
Net cash provided (used) by financing
  activities                                     3,783,261      (217,315)    2,473,625
                                                -----------   -----------   -----------
Increase (decrease) in cash and cash
  equivalents                                    1,684,259      (718,630)     (929,669)
Cash and cash equivalents at beginning of
  period                                           113,726     1,797,985     1,079,355
                                                -----------   -----------   -----------
Cash and cash equivalents at end of period      $1,797,985    $1,079,355    $  149,686
                                                ===========   ===========   ===========
Supplemental cash flow information
Cash paid for interest                          $   66,976    $   78,672    $   51,441
                                                ===========   ===========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                          Period from
                                                Nine months ended          inception
                                                   September 30           (November 29,
                                           ----------------------------     1988) to
                                                                         September 30
                                               1995           1996           1996
                                           ------------- --------------  --------------
                                                   (Unaudited)            (Unaudited)
<S>                                        <C>           <C>              <C>
Financing activities
Repayment of capital lease obligations      $ (200,315)   $  (217,173)    $  (869,763)
Proceeds from issuance of promissory notes   1,500,000        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       4,468,963
Proceeds from sale of Series E redeemable
  convertible preferred stock                               4,882,372       4,882,372
Proceeds from sale of Series A convertible
  preferred stock                                                           1,037,664
Repurchase of stock from officer                             (270,000)       (270,000)
Sale of common stock                            31,636         19,768          71,366
Proceeds from issuance of warrants                                                600
                                            -----------   -----------     -----------
Net cash provided (used) by financing
  activities                                 1,331,321      9,783,930      16,862,438
                                            -----------   -----------     -----------
Increase (decrease) in cash and cash
  equivalents                                  172,942     11,584,872      11,734,558
Cash and cash equivalents at beginning of
  period                                       154,009        149,686              --
                                            -----------   -----------     -----------
Cash and cash equivalents at end of period  $  326,951    $11,734,558     $11,734,558
                                            ===========   ===========     ===========
Supplemental cash flow information
Cash paid for interest                      $   47,885    $    81,319     $   278,408
                                            ===========   ===========     ===========
</TABLE>

                           See accompanying notes.

                                     F-9
<PAGE>

                              EPIX MEDICAL, INC.
                     (A Company in the Development Stage)
                        NOTES TO FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

     EPIX Medical, Inc. ("EPIX" or the "Company") was formed on November 29,
1988 as a Delaware corporation and commenced operations in 1992. The Company is
developing targeted contrast agents both to improve the capability and expand
the use of magnetic resonance imaging ("MRI") as a diagnostic tool for a variety
of diseases. The Company's principal product under development, MS-325, is an
injectable contrast agent designed for multiple vascular imaging indications.

     The Company is a development-stage enterprise, as defined in Statement of
Financial Accounting Standards No. 7, and has, since inception, been engaged in
the research and development of its product candidates as well as seeking
regulatory clearances and patent protection and raising capital to fund
operations.

     Change of Year End

     Subsequent to March 31, 1995, the Company elected to change its fiscal year
end from March 31 to December 31.

     Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

     Significant Revenues

     All of the revenues received during the year ended March 31, 1994 were
derived from a single source. For the year ended March 31, 1995 one source
represented 61% and another source represented 39% of the total revenues. All of
the revenues received during the nine months ended December 31, 1995 were
derived from a single source.

2. SIGNIFICANT ACCOUNTING POLICIES

     Unaudited Interim Financial Statements

     The balance sheet as of September 30, 1996 and the related statements of
operations, redeemable convertible preferred stock and stockholders' equity
(deficit) and cash flows for the nine months ended September 30, 1995 and 1996
and the period from inception (November 29, 1988) to September 30, 1996, are
unaudited and, in the opinion of management, include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation. The
results of operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the entire year.

     Cash and Cash Equivalents

     The Company considers all investments with original maturities of three
months or less to be cash equivalents. Cash equivalents consist of money market
accounts and short-term investments.

     Property and Equipment

     Property and Equipment are recorded at historical cost. Depreciation on
laboratory equipment and furniture, fixtures and other equipment is determined
using the straight-line method over the estimated useful lives of the related
assets, ranging from 3 to 5 years. Leasehold improvements are amortized using
the straight-line method over the shorter of the asset life or the remaining
life of the lease. Expenditures for maintenance and repairs are charged to
expense; betterments are capitalized.

     Capital Lease Obligations

     Assets and liabilities relating to capital leases are recorded at the
present value of the future minimum rental payments using interest rates
appropriate at the inception of the lease.


                                     F-10
<PAGE>

                              EPIX MEDICAL, INC.
                     (A Company in the Development Stage)
                  NOTES TO FINANCIAL STATEMENTS--(Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

     Income Taxes

     The Company provides for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under this method,
deferred taxes are recognized using the liability method, whereby tax rates are
applied to cumulative temporary differences between carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income
tax purposes based on when and how they are expected to affect the tax return. A
valuation allowance is provided to the extent that there is uncertainty as to
the Company's ability to generate taxable income in the future to realize the
benefit from its net deferred tax asset.

     Fair Value of Financial Instruments

     In 1995 the Company adopted SFAS No. 107, "Disclosures about the Fair Value
of Financial Instruments," which requires the disclosure of the fair value of
financial instruments. At December 31, 1995, the Company's financial instruments
consist of cash, cash equivalents, notes receivable from a related party,
accounts payable and accrued expenses, capital lease obligations, promissory
notes payable and mandatorily redeemable preferred stock. Fair value of issued
equity instruments is based upon negotiated prices and includes cash and the
fair value of other consideration received.

     Mandatorily Redeemable Preferred Stock

     Mandatorily redeemable preferred stock is recorded upon issuance at fair
value, net of issuance costs, and periodically accreted to redemption value
using the interest method.


     Revenue Recognition and Funded Research

     Revenues from nonrefundable license fees and options to acquire license
rights, where no future obligation exists or is expected, are recognized upon
execution of the underlying license agreement. Non-refundable fees for which
collection is subject to attainment of future milestones (such as contractually
specified dates and commencement or completion of specified clinical trials) are
recorded when such milestones are attained. Revenues from research and
development collaborations are recognized in accordance with the underlying
agreement as research and development is conducted. Revenues from joint
development projects with third parties are recorded for amounts due from third
parties when the Company expends more than its contractual share of total
project costs. [The Company records as research and development expense its
obligation to such third parties which occurs when the Company expends less than
its contractual share of the total project costs.] Payments received for which
revenue has not been earned are recorded as deferred revenue.


     Technology, Licenses and Patents

     Costs associated with technology, licenses and patents are expensed as
incurred.

     Stock-Based Compensation

     The Company has elected to follow Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" (APB 25) in accounting for its
stock-based compensation plans, rather than the alternative fair value
accounting method provided for under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation." Under APB 25, when the
exercise price of options granted under these plans equals the market price of
the underlying stock on the date of grant, no compensation expense is required.

     Pro Forma Net Income (Loss) Per Share (Unaudited)

     Pro forma net income (loss) per share is computed using the
weighted-average number of outstanding shares of Common Stock and Common Stock
equivalents, assuming conversion of Series A Convertible Preferred Stock
("Series A Preferred Stock"), Series B Redeemable Convertible Preferred Stock
("Series B Preferred Stock"), 


                                     F-11
<PAGE>

                              EPIX MEDICAL, INC.
                     (A Company in the Development Stage)
                  NOTES TO FINANCIAL STATEMENTS--(Continued)

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Series C Redeemable Convertible Preferred Stock ("Series C Preferred Stock"),
Series D Redeemable Convertible Preferred Stock ("Series D Preferred Stock") and
Series E Redeemable Convertible Preferred Stock ("Series E Preferred Stock")
into Common Stock (as of their original date of issuance), which will occur upon
completion of the Company's proposed initial public offering. 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 Securities and Exchange 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 all periods presented whether or not they are anti-dilutive.
Historical earnings per share have not been presented because such amounts are
not considered meaningful due to the significant change in the Company's capital
structure that will occur in connection with the Company's proposed initial
public offering.

     Accounting Pronouncement

     In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," which establishes criteria
for the recognition and measurement of impairment loss associated with
long-lived assets. The Company has adopted this standard in 1996, and its
adoption did not have a material impact on the Company's financial position or
results of operations.


3. PROPERTY AND EQUIPMENT

     Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                      March 31    December 31
                                                        1995          1995
                                                    ------------  -------------
<S>                                                 <C>           <C>
Laboratory equipment                                 $  918,466    $1,163,370
Leasehold improvements                                  417,955       462,099
Furniture, fixtures and other equipment                 157,068       215,869
                                                      ---------     ---------
                                                      1,493,489     1,841,338
Less accumulated depreciation and amortization          602,675       984,426
                                                      ---------     ---------
                                                     $  890,814    $  856,912
                                                      =========     =========
</TABLE>

4. LEASES

     Under a $1.4 million lease line, the Company has entered into a number of
capital leases for equipment, including sale and leaseback transactions
involving certain equipment. Assets under capital leases, the majority of which
are laboratory equipment, totaled $800,737 and $1,320,994 at March 31, 1995 and
December 31, 1995, respectively. Accumulated amortization relating to assets
under capital leases was $383,809 and $661,257 at March 31, 1995 and December
31, 1995 respectively.

     Additionally, the Company leases office space under operating lease
arrangements. The initial term of the lease expires in December 1997 and is
renewable with 12 months notice for an additional five year term.

     Future minimum commitments under leases with non-cancelable terms of one or
more years are as follows at December 31, 1995:


                                     F-12
<PAGE>

                              EPIX MEDICAL, INC.
                     (A Company in the Development Stage)
                  NOTES TO FINANCIAL STATEMENTS--(Continued)

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
                                           Capital    Operating
                                            Leases      Leases
                                         ----------- -----------
<S>                                      <C>         <C>
1996                                       $381,280    $110,000
1997                                        228,096     120,000
1998                                        160,591
                                           --------    --------
Total minimum lease payments                769,967    $230,000
                                                       ========
Less amounts representing interest          123,295
                                           --------
Present value minimum lease payments        646,672
Less amounts due within one year            304,416
                                           --------
                                           $342,256
                                           ========
</TABLE>

     Rent expense amounted to approximately $79,819, $94,600 and $86,100 for the
twelve months ended March 31, 1994, March 31, 1995, and for the nine months
ended December 31, 1995 respectively, and approximately $312,500 for the period
from inception (November 29, 1988) to December 31, 1995.

     Included in accounts payable and accrued expenses were the following items
at March 31, 1995 and December 31, 1995:
<TABLE>
<CAPTION>
                                                  March 31,   December 31,
                                                    1995          1995
                                                 -----------  --------------
<S>                                              <C>          <C>
Accounts payable                                  $147,623     $  615,174
Accrued development costs                                         435,562
Accrued interest                                                   99,616
Accrued licensing expense                           72,707         27,972
Accrued payroll                                     86,601         15,990
Accrued professional fees                           32,173
Other accrued expenses                              33,079         49,887
                                                  ---------     ---------
Total accounts payable and accrued expenses       $372,183     $1,244,201
                                                  =========     =========
</TABLE>

6. PROMISSORY NOTES

     In May 1995, the Company issued Promissory Notes ("Promissory Notes") in an
aggregate amount of $1,500,000, which approximates fair value. The Promissory
Notes bear interest at the rate of 10% per year and become due upon demand on or
after February 15, 1996. The Promissory Notes and accrued interest thereon are
convertible, at any time after the date of issuance, into shares of the Series C
Preferred Stock, at an initial conversion price of $4.54 per share. The initial
conversion price per share shall be subject to adjustment from time to time as
provided in the agreement. In November and December 1995, the Company issued a
series of additional Promissory Notes aggregating $1,200,000 with the same terms
of interest and repayment. It is contemplated that the Convertible Notes (see
Note 14) for which the Promissory Notes may subsequently be exchanged will be
converted concurrent with a Series D Preferred Stock equity financing during
1996. Accordingly, all the Promissory Notes have been classified as long-term at
December 31, 1995.

7. CAPITAL STOCK

   
     Shares of Series A Preferred Stock and Series B Preferred Stock are
convertible into shares of Common Stock by dividing $11.21 by the Series A
Preferred Stock conversion price in effect at the time of conversion and, in the
case of the Series B Preferred Stock, by dividing $1.51 by the Series B
Preferred Stock conversion price in effect at the time of conversion. The
conversion price for Series A and Series B Preferred Stock is subject to
adjustment from time to time based upon terms identified in the respective
agreements. The Company has reserved 320,723 and 1,762,484 shares of Common
Stock for issuance upon conversion of the Series A and Series B Preferred Stock,
respectively, at December 31, 1995.
    


                                     F-13
<PAGE>

                              EPIX MEDICAL, INC.
                     (A Company in the Development Stage)
                  NOTES TO FINANCIAL STATEMENTS--(Continued)


8. WARRANTS

     The stockholders of Series A and Series B Preferred Stock are entitled to
have voting rights equal to the number of Common Stocks into which the Preferred
Stocks may be converted at such time and shall be entitled to elect two
directors of the Company. Upon liquidation, the holders of Series B Preferred
Stock are also entitled to a cumulative liquidating cash dividend of 18% per
annum, compounded annually from the date of issuance, plus any other declared
but unpaid dividends thereon. In the event of liquidation, the holders of Series
A and Series B Preferred Stock are entitled to be paid an amount equal to $11.21
per share plus all declared and unpaid dividends in the case of Series A
Preferred Stock and $1.51 per share plus unpaid cumulative dividends and any
other declared but unpaid dividends thereon in the case of Series B Preferred
Stock, subject to adjustment, in the event of any stock dividends, stock split,
combination or other similar recapitalization affecting such shares. As of
December 31, 1995, aggregate cumulative unpaid dividends on Series B Preferred
Stock is $1,496,364 ($0.85 per share). At any time on or after February 1, 2000,
the holders of 67% or more of the then outstanding shares of Series B Preferred
Stock are entitled to require the Company to redeem shares of Series B Preferred
Stock then held by such stockholders. Upon exercise of the redemption right by
the Series B stockholders, the Company is required to pay such Series B
stockholders an amount equal to $1.51 per share, subject to adjustments from
time to time as identified in the agreement, plus all accrued but unpaid
dividends.

     In connection with a master line of leasing (see Note 5) the Company has
issued two warrants to purchase shares of the Company's Series A Preferred Stock
at an exercise price of $11.21 per share, subject to adjustment. The Company has
reserved 10,697 shares of Series A Preferred Stock and 36,618 shares of Common
Stock for issuance upon exercise of the warrants and subsequent conversion by
the Warrant Holders of Series A Preferred Stock into Common Stock. Warrants for
the purchase of 9,365 and 1,332 shares of the Company's Series A Preferred Stock
remain outstanding as of December 31, 1995 and expire the earlier of five years
from the date of an initial public offering or on December 21, 2002 and August
5, 2002, respectively.

     During the year ended March 31, 1995, and in connection with the master
lease line, the Company issued a warrant to purchase shares of the Company's
Series B Preferred Stock ("Series B Warrants") at an exercise price of $1.51 per
share, subject to adjustment. The Company has reserved 11,402 shares of the
Company's Series B Preferred Stock and 7,601 shares of Common Stock for issuance
upon exercise of the warrants and subsequent conversion by the Warrant Holders
of Series B Preferred Stock into Common Stock. Warrants to purchase 11,402
shares of the Company's Series B Preferred Stock remain outstanding as of
December 31, 1995 and expire on the earlier of five years from the date of an
initial public offering or June 6, 2004.

     During the nine months ended December 31, 1995, in connection with the
master lease line, the Company issued a warrant to purchase shares of the
Company's Series C Preferred Stock at an exercise price of $4.54 per share,
subject to adjustment. The Company has reserved 13,218 shares of the Company's
Series C Stock and 8,812 shares of Common Stock for issuance upon exercise of
the warrants and subsequent conversion by the Warrant Holders of Series C
Preferred Stock into Common Stock. Warrants to purchase 13,218 shares of the
Company's Series C Preferred Stock remain outstanding as of December 31, 1995
and expire on the earlier of five years from the date of an initial public
offering or August 2, 2005.

     The value ascribed to the warrants aggregating $79,019 has been accounted
for as additional paid in capital.

9. 1992 EQUITY INCENTIVE PLAN

     On July 1, 1992, the Company adopted the 1992 Equity Incentive Plan (the
"Equity Plan"), which provides stock awards to purchase shares of Common Stock
to be granted to employees and consultants under incentive and nonstatutory
stock option agreements. Under the Plan, the exercise price for stock options
shall not be less than fair market value of the optioned stock at the date of
grant. The options are exercisable over a period determined by the Board of
Directors, but not longer than ten years after the date they are granted. Stock
option information is as follows:


                                     F-14
<PAGE>

                              EPIX MEDICAL, INC.
                     (A Company in the Development Stage)
                  NOTES TO FINANCIAL STATEMENTS--(Continued)

 9. 1992 EQUITY INCENTIVE PLAN (Continued)

<TABLE>
<CAPTION>
                                     Options       Option price    Available for
                                   Outstanding   range per share       Grant        Exercisable
                                  -------------- ---------------- ---------------  --------------
<S>                               <C>            <C>              <C>              <C>
March 31, 1993                        107,976         $0.42           725,259           6,975
                                                                      ========        ========
 Granted                              142,648         $0.42
                                     --------
March 31, 1994                        250,624         $0.42           582,611          34,592
                                                                      ========        ========
 Granted                              359,131         $0.45
 Exercised                            (66,866)        $0.42
 Canceled                              (1,400)        $0.42
                                     --------
March 31, 1995                        541,489      $0.42 - $0.45      224,880         143,207
                                                                      ========        ========
 Granted                              133,993      $0.45 - $0.83
 Exercised                            (38,399)     $0.42 - $0.45
 Canceled                             (40,933)     $0.42 - $0.45
                                     --------
December 31, 1995                     596,150      $0.42 - $0.83      131,820         200,631
                                                                      ========        ========
 Granted (unaudited)                  738,898      $0.83 - $6.75
 Exercised (unaudited)                (42,531)     $0.42 - $0.83
                                     --------
September 30, 1996 (unaudited)      1,292,517      $0.42 - $6.75      159,563         329,330
                                     ========                         ========        ========
</TABLE>

10. INCOME TAXES

     The Company has incurred losses since inception and, due to the degree of
uncertainty related to the ultimate use of the loss carryforwards, fully
reserved this tax benefit. The Company has the following total deferred tax
assets as of March 31, 1995 and December 31, 1995:

<TABLE>
<CAPTION>
                                                    March 31,     December 31,
                                                       1995           1995
                                                  --------------  --------------
<S>                                               <C>             <C>
Deferred tax assets:
 Net operating loss carryforwards                  $ 1,273,000     $ 3,137,000
 Research and development tax credits                  100,000         300,000
 Book over tax depreciation and amortization            79,800         113,400
 Other                                                  18,800           9,900
                                                     ---------      ---------
Total deferred tax assets                            1,471,600       3,560,300
Valuation allowances                                (1,471,600)     (3,560,300)
                                                     ---------      ---------
Deferred income taxes, net                         $       -0-     $       -0-
                                                     =========      =========
</TABLE>

     As of December 31, 1995, the Company has net operating loss carryforwards
for income tax purposes of approximately $7.8 million, which expire through the
year 2010. The valuation allowance increased by $200,483, $1,212,900 and
$2,088,700 in the twelve months ended March 31, 1994 and March 31, 1995 and the
nine months ended December 31, 1995 respectively, due primarily to the
additional allowance for the net operating losses incurred in the respective
periods. The tax net operating loss carryforwards differ from the accumulated
deficit principally due to temporary differences in the recognition of certain
revenue and expense items for financial and tax reporting purposes.


11. DEFINED CONTRIBUTION PLAN

     During the year ended March 31, 1995, the Company began a defined
contribution 401(k) plan which covers substantially all employees. The plan
permits participants to make contributions from 1% to 15% of their compensation
(as defined).

                                     F-15
<PAGE>

                              EPIX MEDICAL, INC.
                     (A Company in the Development Stage)
                  NOTES TO FINANCIAL STATEMENTS--(Continued)


12. RELATED PARTY TRANSACTION

     In June 1995, the Company received a promissory note from a director and
executive officer of the Company in exchange for the principal amount of
$50,000. The note is due in June 2005 and bears interest at an annual rate of
7.31% (the applicable Federal Rate at issuance). The note is subject to certain
acceleration clauses and is secured by a pledge of 14,814 shares of the
Company's Common Stock held by the borrower.

13. SIGNIFICANT AGREEMENTS

     The Company has a license agreement with Massachusetts General Hospital
("MGH") for the exclusive license of a number of patents and patent applications
on which the Company's research and development efforts are significantly based.
In exchange, the Company will remit royalties based on a specified percentage of
revenues. Under this agreement, the Company is required to pay for all patent
application costs related to the licensed technology. On July 10, 1995, the
Company issued and sold to the MGH 83,723 shares of the Company's Common Stock
for $1,256 as consideration for certain modifications to the license. The
Company expensed the difference between proceeds received and fair value at the
time of issuance, approximately $68,000.

    In March 1992, the Company entered into an Agency Agreement with
Sumitomo Corp. ("Sumitomo") to assist the Company in entering into collaboration
and licensing arrangements with other companies in Japan for the development,
manufacture, distribution and sale of the Company's future products. At that
time, the Japanese Company purchased 66,923 shares of the Company's Series A
Preferred Stock, $.01 par value, for $11.21 per share. In October 1995, Sumitomo
assigned the Agency Agreement and its shares to Summit Pharmaceutical
International Corporation ("Agent"). Under the terms of the amended Agency
Agreement, which expired and was extended for one year in March 1996, the
Company is required to pay the Agent certain commissions and fees, based on a
stipulated percentage of amounts received by the Company as license fees
milestone payments or capital investments.

     Also, in March 1992, the Company entered into a $3.5 million development
and license agreement with, a Japanese manufacturer and distributor ("Japanese
Manufacturer and Distributor") of medical products. Under the terms of the
agreement, the Company received funding for research and development through the
sale of Preferred Stock and license rights to the Company's liver MRI contrast
agent product candidate. The Company will also receive royalties on future sales
of the liver contrast agent. In exchange, the Japanese Manufacturer and
Distributor received exclusive rights to develop and commercialize the product
in Japan and certain rights in other countries in the Far East (see Note 14). In
March of 1992, the Japanese Manufacturer and Distributor purchased an equity
interest in the Company in accordance with the agreement by acquiring 26,768
shares of Series A Preferred Stock for $11.21 per share. As of December 31,
1995, the Company had received an aggregate of $2.7 million in revenues (net of
withholding tax) under this agreement.

14. SUBSEQUENT EVENTS

     In January 1996, the Company issued convertible promissory notes for an
aggregate amount of $3,015,862 ("Convertible Notes") (see Note 6) in exchange
for $300,000 of cash and cancellation of $2.7 million of previously issued
promissory notes and accrued interest thereon. The Convertible Notes bear
interest at the rate of 10% per year and become due upon demand on or after
February 15, 1996. The Convertible Notes and accrued interest thereon are
convertible, at any time after the date of issuance, into shares of the
Company's Series C Preferred Stock at an initial conversion price that will be
between $1.51 and $2.25 depending upon certain events of conversion. The initial
conversion price per share shall be subject to further adjustment.

     The stockholders of Series C Preferred Stock will be entitled to have
voting rights equal to the number of shares of Common Stock into which such
shares of Preferred Stock may be converted at such time. In the event of
liquidation, the holders of Series C Preferred Stock will be entitled to be paid
an amount equal to the 


                                     F-16
<PAGE>

                              EPIX MEDICAL, INC.
                     (A Company in the Development Stage)
                  NOTES TO FINANCIAL STATEMENTS--(Continued)

14. SUBSEQUENT EVENTS (Continued)

price per share at which shares of Series C Preferred Stock are initially issued
plus unpaid cumulative dividends plus any other declared but unpaid dividends
thereon, subject to adjustment in the event of any stock dividends, stock split,
combination or other similar recapitalization affecting such shares.

     Shares of Series C Preferred Stock, upon issuance, will be convertible into
Common Stock by dividing the initial price per share at which such shares are
issued by the Series C Preferred Stock conversion price in effect at the time of
conversion. The initial conversion price for Series C Preferred Stock, $2.25 per
share, is subject to adjustment. The Company has reserved 954,872 shares of
Common Stock for issuance upon conversion of the Series C Preferred Stock.

     In February 1996, the Company also issued convertible promissory notes for
an aggregate amount of $600,000 ("Bridge Notes") which bear interest at a rate
of 10% per year and are due upon demand. The Bridge Notes and accrued interest
thereon are convertible, at any time after the date of issuance, on an
equivalent basis into securities of the next equity financing which is expected
to be Series D Preferred Stock, with an initial conversion price of $3.00 per
share which is subject to adjustment. The Company has reserved 1,133,325 shares
of Common Stock for issuance upon conversion of the Series D Preferred Stock.


     In March 1996, the Company entered into marketing, development and license
agreements with Daiichi Radioisotope Laboratories Ltd., a Japanese
pharmaceutical company ("Daiichi"). The agreements cover the Company's vascular
MRI contrast agent and provide for the Company to receive a license fee of $3.0
million (net of withholding tax), milestone payments of up to $3.3 million (net
of withholding tax) and proceeds from the issuance of 868,329 shares of Series E
Preferred Stock at price of $5.76 per share. The milestone payments are keyed to
the achievement of certain research and development milestones, such as the
commencement of various clinical trials. The agreements also provides for the
Company to supply product to Daiichi and to receive royalties for sales made by
Daiichi in Japan.


     In April 1996, the Company received a promissory note from a director and
executive officer of the Company in exchange for the principal amount of
$50,000. The note is due in April 2006 and bears interest at an annual rate of
6.51% (the applicable Federal Rate at issuance). The note is subject to certain
acceleration clauses and is secured by a pledge of 14,814 shares of the
Company's Common Stock held by the borrower.

     In May 1996, the Convertible Notes and accrued interest thereon were
converted into 1,432,318 shares of the Series C Preferred Stock.

     In May 1996, the Company issued 1,700,002 shares of Series D Preferred
Stock, priced at $3.00 per share, in exchange for cash and the Bridge Notes and
accrued interest thereon.

     In May 1996, the Company issued warrants to purchase 40,000 shares of the
Company's Series D Preferred Stock at an exercise price of $3.00 per share,
subject to adjustment. The Company has reserved 26,665 shares of Common Stock
for issuance upon exercise of the warrants and subsequent conversion of Series D
Preferred Stock.

     The sale of the Series E Preferred Stock, was completed in two separate
closings, one in May 1996 and the other in August 1996, for a total of 868,329
shares. The Company has reserved 578,885 shares of Common Stock for issuance
upon conversion of the Series E Preferred Stock.


     Under the Company's Restated Certificate of Incorporation adopted in May
1996, at any time prior on or after May 29, 2001, holders of two thirds of the
then outstanding shares of the Series B, Series C, Series D and Series E
Preferred Stock may require the Company to redeem such series of preferred stock
at specified redemption prices (equal, as of September 30, 1996, to the original
purchase price of each such series) plus any declared but unpaid dividends
thereon. The consent of the holders of a majority of the outstanding shares of
Series D Preferred Stock is required to effect a redemption of any securities
prior to the redemption of Series D Preferred Stock. The holders of Series C and
Series E Preferred Stock are entitled to a $.05 per share annual 

                                     F-17
<PAGE>

                              EPIX MEDICAL, INC.
                     (A Company in the Development Stage)
                  NOTES TO FINANCIAL STATEMENTS--(Continued)

14. SUBSEQUENT EVENTS (Continued)

dividend if, when and as declared by the Board of Directors which must be paid
prior to payment of any other dividends.


     In May 1996, the Company received a promissory note from an officer of the
Company in exchange for the amount of $180,000. The note is due in May 2006 and
bears interest at an annual rate of 6.83% (the applicable Federal Rate at
issuance). The note is subject to certain acceleration clauses and is secured by
a pledge of 44,444 shares of the Company's Common Stock held by the borrower.
The Company also repurchased from the same officer of the Company, 66,666 shares
of Common Stock at a price per share of $4.05.

     As a result of the above noted ownership change, the Company's ability to
utilize its tax loss carryforwards and tax credits is subject to limitations as
defined in Internal Revenue Code Sections 382 and 383. The Company currently
estimates that their annual limitation on the use of tax loss carryforwards
through May 31, 1996 will be approximately $900,000. Research and development
tax credits through May 31, 1996 of approximately $300,000 cannot be utilized
until such tax loss carryforwards are fully utilized.


     In August 1996, the Company entered into a strategic collaboration
agreement with Mallinckrodt Group Inc. ("Mallinckrodt "), a U.S. pharmaceutical
company, involving research, development and marketing of MS-325 and future MRI
vascular contrast agents developed or in-licensed by either party. Under the
terms of the agreement each party is obligated to fund a portion of the
development cost of MS-325 up to a specified maximum amount. Mallinckrodt will
have the right to manufacture MS-325 and to market the product worldwide except
Japan. The Company received a $6.0 million license fee payment upon execution of
the agreement and is eligible to receive an additional $2.0 million upon the
earlier of the completion of a specified milestone or a designated date. The
Company is also entitled to reimbursement from Mallinckrodt of development costs
that the Company incurs during any quarter in excess of its contractual share of
total project costs. To the extent the Company's development costs during any
quarter are less than the Company's share of the total project costs, the
Company is obligated to repay Mallinckrodt. At September 30, 1996, no such
amounts have been collected or paid in connection with this cost sharing
arrangement. Under the agreement, the Company will share in future operating
profits from the sale of products covered under the agreement.


     In November 1996, the Board of Directors of the Company authorized
management to file a registration statement with the Securities and Exchange
Commission in order to permit the Company to sell shares of its Common Stock to
the public. If the offering is consummated under terms presently anticipated,
all of the Preferred Stock issued and outstanding will automatically convert
into 4,750,296 shares of Common Stock. Immediately following such conversion,
all currently outstanding shares of Preferred Stock will be canceled, retired
and eliminated from the Company's authorized shares of capital stock and the
number of authorized shares of Preferred Stock will be decreased to 1,000,000
shares.

     In December 1996, the Company adopted the Company's 1996 Employee Stock
Purchase Plan (the "Purchase Plan") under which employees may purchase shares of
Common Stock at a discount from fair market value. There are 66,666 shares of
Common Stock reserved for issuance under the Purchase Plan. To date, no shares
of Common Stock have been issued under the Purchase Plan. The Purchase Plan is
intended to qualify as an employee stock purchase plan within the meaning of
Section 423 of the code. Rights to purchase Common Stock under the Purchase Plan
are granted at the discretion of the Compensation Committee, which determines
the frequency and duration of individual offerings under the Purchase Plan and
the dates when stock may be purchased. Eligible employees participate
voluntarily and may withdraw from any offering at any time before stock is
purchased. Participation terminates automatically upon termination of
employment. The purchase price per share of Common Stock in an offering is 85%
of the lesser of its fair market value at the beginning of the offering period
or on the applicable exercise date and may be paid through payroll deductions,
periodic lump sum payments or a combination of both. The Purchase Plan
terminates in December 2006.

                                     F-18
<PAGE>

                              EPIX MEDICAL, INC.
                     (A Company in the Development Stage)
                  NOTES TO FINANCIAL STATEMENTS--(Continued)

14. SUBSEQUENT EVENTS (Continued)

     In December 1996, the Board of Directors and stockholders of the Company
adopted the Company's 1996 Director Stock Option Plan (the "Director Plan"). All
of the directors who are not employees of the Company (the "Eligible Directors")
are currently eligible to participate in the Director Plan. There are 66,666
shares of Common Stock reserved for issuance under the Director Plan. Upon the
election or reelection of an Eligible Director, such director is automatically
granted an option to purchase 6,666 shares of Common Stock (the Option). Each
Option becomes exercisable with respect to 1,333 shares on each anniversary date
of grant for a period of five years, provided that the optionee is still a
director of the Company at the opening of business such date. The Options have a
term of ten years. The exercise price for the Options is equal to the last sale
price for the Common Stock on the business day immediately preceding the date of
grant, as reported on The Nasdaq National Market. The exercise price may be paid
in cash or shares of Common Stock, or a combination of both.

   In December 1996, the Company amended the 1992 Equity Plan. The Equity
Plan is designed to provide the Company flexibility in awarding equity
incentives by providing for multiple types of incentives that may be awarded.
The purpose of the Equity Plan is to attract and retain key employees of and
consultants of the Company and to enable them to participate in the long-term
growth of the Company. The Equity Plan provides for the grant of stock
options (incentive and nonstatutory), stock appreciation rights, performance
shares, restricted stock or stock units for the purchase of an aggregate of
1,599,901 shares of Common Stock, subject to adjustment for stock-splits and
similar capital changes. Awards under the Equity Plan can be granted to
officers, employees and other individuals as determined by the committee of
the Board of Directors which administers the Equity Plan. The Compensation
Committee selects the participants and establishes the terms and conditions
of each option or other equity right granted under the Equity Plan, including
the exercise price, the number of shares subject to options or other equity
rights and the time at which such options become exercisable. The exercise
price of all "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), granted under the
Equity Plan must be at least equal to 100% of the fair market value of the
option shares on the date of grant. The term of any incentive stock option
granted under the Equity Plan may not exceed ten years.

     A reverse stock split was approved by the Board of Directors in December
1996, whereby one share of Common Stock is outstanding after the split for each
1.5 shares of Common Stock outstanding prior to the split. All share and per
share amounts related to Common Stock presented in the accompanying financial
statements have been restated to reflect the reverse stock split.

     In December 1996, the Company and the Japanese Manufacturer and Distributor
agreed to restructure an existing agreement to collaborate on the development
and commercialization of a liver MRI contrast agent. In connection with the
restructuring, the parties terminated further collaboration efforts and the
Japanese Manufacturer and Distributor relinquished its exclusive rights in Japan
to the liver MRI agent in exchange for a non-exclusive technology license and a
$250,000 payment from the Company. The Company is entitled to receive royalties
based upon specified percentage of future revenues, if any, from the sale of
liver MRI contrast agents by the Japanese Manufacturer and Distributor.

                                     F-19
<PAGE>

[INSIDE PANEL PAGE]



TECHNOLOGY AND RESEARCH PIPELINE
- --------------------------------------------------------------------------------

[EPIX LOGO]


MS-325 and the Next
Generation of Targeted
MRI Agents

[bullet] MS-325 was designed by EPIX 
scientists to bind to the blood 
protein albumin and provide an 
enhanced magnetic signal. 

[bullet] EPIX scientists are developing 
additional targeting and signal 
enhancement technologies to 
expand the number of diseases 
which can be detected with MRI.

[Diagram of MS-325 molecular structure]
[Diagram caption: Chemical structure of MS-325]

[Diagram of MS-325 attached to albumin]
[Diagram caption: MS-325 fitting into albumin binding site]

[Diagram of MS-325 mechanism of action]
[Diagram caption: MS-325 mechanism of action: signal enhancement upon binding
to albumin]


- --------------------------------------------------------------------------------
EPIX Products and Research Areas

In addition to developing MS-325 for vascular applications, EPIX is conducting
research in the following areas:

[bullet] MS-325 for MRI exams to diagnose tumors, including breast cancer;

[bullet] Thrombus-seeking agents for the detection of blood clots throughout 
         the body; and

[bullet] Functional brain-imaging agents to enhance the use of MRI in
         differentiating among the many neurodegenerative and psychiatric
         diseases.

[Diagram demonstrating current areas of research]

[Diagram captions: Brain Activation
                   Thrombus
                   Vascular MS-325]

- --------------------------------------------------------------------------------
MS-325 IS CURRENTLY BEING EVALUATED IN CLINICAL TRIALS AND NEITHER MS-325 NOR
OTHER CONTRAST AGENTS UNDER DEVELOPMENT HAVE RECEIVED MARKETING APPROVAL FROM
THE FDA OR ANY FOREIGN REGULATORY BODY.








<PAGE>

================================================================================

 No dealer, salesperson or other person has been authorized to give any 
information or to make any representations other than those contained in this 
Prospectus and, if given or made, such information or representations must 
not be relied upon as having been authorized by the Company or the 
Underwriters. This Prospectus does not constitute an offer to sell or a 
solicitation of an offer to buy to any person in any jurisdiction in which 
such offer or solicitation would be unlawful, or to any person to whom it is 
unlawful. Neither the delivery of this Prospectus nor any offer or sale made 
hereunder shall, under any circumstances, create any implication that there 
has been no change in the affairs of the Company or that the information 
contained herein is correct as of any time subsequent to the date hereof. 

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

                              TABLE OF CONTENTS 

   
                                              Page 
  Prospectus Summary                            3 
  Risk Factors                                  5 
  Use of Proceeds                              14 
  Dividend Policy                              14 
  Capitalization                               15 
  Dilution                                     16 
  Selected Financial Data                      17 
  Management's Discussion and 
    Analysis of Financial Condition
    and Results of Operations                  18
  Business                                     22 
  Management                                   40 
  Certain Transactions                         48 
  Principal Stockholders                       50 
  Description of Capital Stock                 53 
  Shares Eligible for Future Sale              55 
  Underwriting                                 57 
  Legal Matters                                58 
  Experts                                      58 
  Additional Information                       58 
  Index to Financial Statements                F-1 
    


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

   
 Until February 24, 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligations of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
    

================================================================================

                               2,000,000 Shares 

                                 [EPIX LOGO]

                                 Common Stock 

                                 PROSPECTUS 
                                ------------- 

                              HAMBRECHT & QUIST 
                              WESSELS, ARNOLD & 
                                  HENDERSON 


                                       , 1997 

================================================================================



<PAGE>




                                   PART II

                    INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

  The following are the expenses of issuance and distribution of the Common
Stock registered hereunder on Form S-1 other than underwriting discounts and
commissions:

SEC registration fee                           $  7,667
Nasdaq listing fee                             $ 40,037
NASD filing fee                                $  3,030
Blue Sky fees and expenses                     $ 10,000
Printing, engraving and mailing expenses       $120,000
Accounting fees and expenses                   $150,000
Legal fees and expenses                        $275,000
Transfer Agent and Registrar fees              $  5,500
Miscellaneous expenses                         $ 88,766

  Total                                        $700,000

Item 14. Indemnification of Directors and Officers

  Section 145 of the Delaware General Corporation Law grants the Registrant
the power to indemnify each person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative by
reason of the fact that he is or was a director, officer, employee or agent
of the Registrant, or is or was serving at the request of the Registrant as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with any such action, suit or
proceeding if (i) he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Registrant and
(ii) with respect to any criminal action or proceeding, he had no reasonable
cause to believe his conduct was unlawful, provided, however, no
indemnification shall be made in connection with any proceeding brought by or
in the right of the Registrant where the person involved is adjudged to be
liable to the Registrant except to the extent approved by a court.

  Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that a director shall not be personally liable to the Registrant's
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that the eliminations or limitation of liability is not
permitted under the Delaware General Corporation Law as in effect when such
liability is determined.

  Article TENTH of the Registrant's Restated Certificate of Incorporation
provides that the Registrant shall, to the fullest extent permitted by the
Delaware General Corporation Law, as amended from time to time, indemnify
each person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he is or was, or has agreed to become a director or officer of the
Registrant. The indemnification provided for in Article TENTH is expressly
not exclusive of any other rights to which those seeking indemnification may
be entitled under any law, agreement or vote of stockholders or disinterested
directors or otherwise, and shall inure to the benefit of the heirs,
executors and administrators of such persons. Article TENTH further permits
the Board of Directors to authorize the grant of indemnification rights to
other employees and agents of the Registrant and such rights may be
equivalent to, or greater or less than, those set forth in Article TENTH.

  Article V, Section 1 of the Registrant's By-laws provides that the
Registrant shall, to the full extent permitted by the Delaware General
Corporation Law, as amended from time to time, and the Certificate of
Incorporation, indemnify each person whom it may indemnify thereto.

  Article V, Section 2 of the Registrant's By-Laws provides that the
Registrant shall have the power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the

                                      II-1
<PAGE>

Registrant, or is or was serving at the request of the Registrant as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against such person and incurred by such person in any such capacity or
arising out of such person's status as such.

  The Registrant's Restated Certificate of Incorporation and applicable
provisions of Delaware law provide that directors of the Registrant will not
be personally liable to the Registrant or its stockholders for monetary
damages for breach of fiduciary duty as a director, whether or not an
individual continues to be a director at the time such liability is asserted,
except for liability (i) for any breach of the director's duty of loyalty to
the Registrant or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv)
for any transaction from which the director derives an improper personal
benefit.

  The Registrant expects to enter into agreements with certain officers and
directors affirming the Registrant's obligation to indemnify them to the
fullest extent permitted by law and providing various other protections.

Item 15. Recent Sales of Unregistered Securities

  Since 1993, the Registrant has sold and issued the following unregistered
securities:

  In March 1994, the Registrant sold 2,643,736 shares of Series B Convertible
Preferred Stock at a purchase price of $1.513 per share to Bessemer Venture
Partners III L.P., Accel IV L.P. and certain related persons. Such shares
will convert into shares of Common Stock on a 1-for-1.5 basis upon the
consummation of the Registrant's initial public offering as a result of a
1-for-1.5 reverse stock split effected in December 1996.

  In June 1994, the Registrant issued to Dominion Ventures, Inc., a warrant to
purchase 11,402 shares of the Registrant's Convertible Series B Preferred
Stock having an exercise price per share of $1.513. This warrant will be
exercisable for 7,601 shares of Common Stock with an exercise price of $2.27
per share upon consummation of the Registrant's initial public offering as a
result of a 1-for-1.5 reverse stock split effected in December 1996.

  In May 1995, the Registrant sold to Bessemer Venture Partners III L.P.,
Accel IV L.P. and certain related persons Convertible Promissory Notes (the
"1995 Convertible Notes") having an aggregate principal amount of $1,500,000
and convertible, as a whole, at the holders' option, into 355,256 shares of
the Registrant's Series C Convertible Preferred Stock at a conversion price
of $4.54 per share.

  In August 1995, the Registrant issued to Dominion Fund II a warrant to
purchase 13,218 shares of the Registrant's Series C Convertible Preferred
Stock having an exercise price per share of $4.54. This warrant will be
exercisable for 8,812 shares of Common Stock with an exercise price of $6.81
per share upon consummation of the Registrant's initial public offering as a
result of a 1-for-1.5 reverse stock split effected in December 1996.

  In November and December 1995, Accel IV L.P., Bessemer Venture Partners III
L.P. and certain related persons made bridge loans to the Company in an
aggregate principal amount of $1,200,000 in exchange for promissory notes
bearing interest at a rate of 10% per annum and convertible on a
dollar-for-dollar basis for shares of the Company's securities in the
Company's next permanent equity financing (the "1995 Bridge Notes").

  In January 1996, all of the 1995 Convertible Notes were amended and restated
to, among other things, change the conversion price to between 1.51 and $2.25
per share, depending on certain events of conversion, and the Registrant
issued to Bessemer Venture Partners III L.P., Accel IV L.P. and certain
related persons Convertible Promissory Notes (the "1996 Convertible Notes")
having an aggregate principal amount of $1,515,862 and convertible, as a
whole, at the holder's option, into shares of the Registrants' Series C
Convertible Preferred Stock at a conversion price between $1.51 and $2.25 per
share, depending on certain events of conversion, in exchange for cash and
the surrender of the 1995 Bridge Notes and accrued interest thereon.

  In May 1996, the Registrant sold 1,700,002 shares of Series D Convertible
Preferred Stock at a purchase price of $3.00 per share to a group of
sophisticated investors. Such shares will convert into shares of Common Stock
on a 1-for-1.5 basis upon the consummation of the Company's initial public
offering as a result of a 1-for-1.5 reverse stock split effected in December
1996.

  In May 1996, in connection with the Registrant's sale of Series D
Convertible Preferred Stock, the Registrant issued warrants to purchase an
aggregate of 40,000 shares of the Registrant's Series D Preferred Stock

                                      II-2
<PAGE>

having an exercise price of $3.00 per share. The warrants were issued to
Bessemer Venture Partners III L.P., Accel IV L.P., Accel Investors '93 L.P.,
Ellmore C. Patterson Partners, Accel Keiretsu L.P. and Prosper Partners.
These warrants will be exercisable for an aggregate of 26,665 shares of
Common Stock with an exercise price of $4.50 per share upon consummation of
the Registrant's initial public offering as a result of a 1-for-1.5 reverse
stock split effected in December 1996.

  Concurrently with the sale of Series D Convertible Preferred Stock, the 1995
Convertible Notes and the 1996 Convertible Notes were surrendered and
converted into an aggregate of 1,432,318 shares of Series C Convertible
Preferred Stock at a conversion price of $2.25 per share. Such shares will
convert into shares of Common Stock on a 1-for-1.5 basis upon the
consummation of the Registrant's initial public offering as a result of a
1-for-1.5 reverse stock split effected in December 1996.

  In May 1996, the Registrant sold to Daiichi Radioisotope Laboratories, Ltd.
520,997 shares of the Registrant's Series E Convertible Preferred Stock at a
purchase price of approximately $5.76 per share. Such shares will convert
into shares of Common Stock on a 1-for-1.5 basis upon the consummation of the
Registrant's initial public offering as a result of a 1-for-1.5 reverse stock
split effected in December 1996.

  In August 1996, the Registrant issued to Daiichi Radioisotope Laboratories,
Ltd. 347,332 shares of the Registrant's Series E Convertible Preferred Stock
at a purchase price of approximately $5.76 per share. Such shares will
convert into shares of Common Stock on a 1-for-1.5 basis upon the
consummation of the Registrant's initial public offering as a result of a
1-for-1.5 reverse stock split effected in December 1996.

  Between June 30, 1992 and December 31, 1996, the Registrant granted options
to purchase 1,497,644 shares of Common Stock to its employees and consultants
under its 1992 Equity Incentive Plan having exercise prices ranging from
$0.42 to $8.50 per share. As of December 31, 1996, options to purchase
172,574 shares had been exercised, options to purchase 47,267 shares had been
cancelled and options to purchase 1,277,803 shares remained outstanding.

  No underwriter was engaged in connection with the foregoing issuance of
securities. The above described issuances of the Registrant's Preferred Stock
were made in reliance upon Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), as transactions not involving any public
offering. The Company has reason to believe that all of the foregoing
purchasers were familiar with or had access to information concerning the
operations and financial conditions of the Company, and all of those
individuals were acquiring the shares for investment and not with a view to
the distribution thereof. At the time of issuance, all of the foregoing
shares of Preferred Stock were deemed to be restricted securities for
purposes of the Act and the certificates representing such securities bore
legends to that effect.

Item 16. Exhibits and Financial Statement Schedules

  (a) Exhibits

<TABLE>
<CAPTION>
<S>                    <C>
   
         1.1*          Form of Underwriting Agreement.
         3.1*          Restated Certificate of Incorporation of the Registrant.
         3.2*          Certificate of Amendment of Restated Certificate of Incorporation of Registrant.
         3.3*          Form of Restated Certificate of Incorporation of Registrant.
         3.4*          By-Laws of the Registrant, as amended.
         3.5*          Form of Amended and Restated By-Laws of Registrant.
         4.1*          Specimen certificate for shares of Common Stock of the Registrant.
         5.1*          Opinion of Palmer & Dodge LLP.
         10.1+*        Agency Agreement between the Registrant and Sumitomo Corporation dated March 13, 1992.
         10.2+*        Amendment to the Agency Agreement between the Registrant and Sumitomo Corporation dated June 26, 1992.
         10.3*         Short Form Lease from Trustees of the Cambridge East Trust to the Registrant dated July 1, 1992.
         10.4*         Form of Warrant to Purchase Shares of Series A Convertible Preferred Stock dated December 21, 1992.
         10.5*         Dominion Ventures Master Lease Agreement No. 8050 dated December 21, 1992.
    

                                      II-3
<PAGE>
   
         10.6*         First Amendment to Master Lease Agreement No. 8050 dated May 14, 1993.
         10.7*         Second Amendment to Master Lease Agreement No. 8050 dated August 5, 1993.
         10.8*         First Amendment Lease From Trustees of the Cambridge Trust to the Registrant dated October 20, 1993.
         10.9*         Warrant to Purchase Shares of Series B Convertible Preferred Stock dated June 6, 1994.
         10.10*        Second Amendment to Master Lease Agreement No. 8050 dated June 6, 1994.
         10.11+*       Amendment Agreement to the Agency Agreement between the Registrant and Sumitomo Corporation dated
                       September 15, 1994.
         10.12*        Second Amendment Lease From Trustees of the Cambridge East Trust to the Registrant dated September 17, 1994.
         10.13*        Convertible Promissory Note Purchase Agreement by and among the Registrant and certain purchasers named
                       therein dated May 26, 1995.
         10.14+*       Amended and Restated License Agreement between the Registrant and The General Hospital Corporation dated
                       July 10, 1995.
         10.15*        Warrant to Purchase Shares of Series C Convertible Preferred Stock dated August 2, 1995.
         10.16*        Third Amendment to the Master Lease Agreement No. 8050 dated August 2, 1995.
         10.17*        Amendment No. 1 to Convertible Promissory Note Purchase Agreement by and among the Registrant and certain
                       purchasers named therein dated January 19, 1996.
         10.18+*       Extension Agreement to Agency Agreement between the Registrant and Sumitomo Corporation dated March 5, 1996.
         10.19+*       Development and License Agreement dated March 29, 1996 by and among the Registrant and Daiichi
                       Radioisotope Laboratories, Ltd.
         10.20*        Third Amendment Lease From Trustees of the Cambridge East Trust to the Registrant dated May 1, 1996.
         10.21*        Series D Convertible Preferred Stock Purchase Agreement by and among the Registrant and certain purchasers
                       named therein dated May 29, 1996.
         10.22*        Third Amended and Restated Stockholders' Rights Agreement by and among the Registrant and certain of its
                       stockholders named therein dated May 29, 1996.
         10.23*        Form of Warrant to Purchase Shares of Series D Preferred Stock dated May 29, 1996.
         10.24*        Amendment No. 1 to Third Amended and Restated Stockholders' Rights Agreement dated May 31, 1996.
         10.25*        Series E Convertible Preferred Stock Purchase Agreement dated May 31, 1996 between the Registrant and
                       Daiichi Radioisotope Laboratories, Ltd.
         10.26+        Strategic Collaboration Agreement between the Registrant and Mallinckrodt Medical, Inc. and Mallinckrodt
                       Group Inc. dated August 30, 1996. Filed herewith.
         10.27*        Amendment No. 2 to Third Amended and Restated Stockholders' Rights Agreement dated December 6, 1996.
         10.28*        Amended and Restated 1992 Equity Incentive Plan.
         10.29*        Form of Incentive Stock Option Certificate.
         10.30*        Form of Nonstatutory Stock Option Certificate.
         10.31*        1996 Director Stock Option Plan.
         10.32*        1996 Employee Stock Purchase Plan.
         10.33*        Form of Consulting and Confidentiality Agreement between the Registrant and certain consultants of the
                       Registrant.
         10.34*        Form of Invention and Non-disclosure Agreement between the Registrant and certain employees of the
                       Registrant.
         10.35*        Form of Non-Competition and Non-Solicitation Agreement between the Registrant and certain employees of the
                       Registrant.
         10.36*        Form of Common Stock Purchase Agreement.
         10.37*        Form of Stock Purchase and Right of First Refusal Agreement.
         23.1*         Consent of Palmer & Dodge LLP (included in Exhibit 5.1).
         23.2          Consent of Ernst & Young LLP. Filed herewith.
         24.1*         Power of Attorney.
         24.2*         Certified resolutions of the Registrant authorizing power of attorney.
         27.1*         Financial Data Schedule.
</TABLE>
    

                                      II-4
<PAGE>

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

+ Certain confidential material contained in the document has been omitted
  and filed separately with the Securities and Exchange Commission pursuant
  to Rule 406 of the Securities Act.

* Previously filed.


       

  (b) Financial Statement Schedules

  All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.

Item 17. Undertakings

  (a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under "Item 14-
Indemnification of Directors and Officers" above, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.

  (b) The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required
by the underwriters to permit prompt delivery to each purchaser.

  (c) The undersigned Registrant hereby undertakes that:

    (1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be a part of this
registration statement as of the time it was declared effective.

    (2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.

                                      II-5
<PAGE>

                                  SIGNATURES


   
  Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Cambridge, State of Massachusetts, on January 29, 1997.
    


EPIX MEDICAL, INC.

                                   By: /s/ Michael D. Webb
                                       -----------------------------------
                                       Michael D. Webb
                                       President and Chief Executive Officer


   
  Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
    


<TABLE>
<CAPTION>

           Signature                               Title                                          Date
- -----------------------------------------------------------------------------------------------------------------
<S>                                    <C>                                                  <C>
   
/s/ Michael D. Webb                    President, Chief Executive Officer                   January 29, 1997
- --------------------------------         and Director (Principal Executive Officer)
    Michael D. Webb                


    Jeffrey R. Lentz*                  Chief Financial Officer, and Vice President,         January 29, 1997
- --------------------------------         Finance and Administration (Principal
    Jeffrey R. Lentz                     Financial Officer and Principal Accounting
                                         Officer)

    Christopher F. O. Gabrieli*        Director and Chairman of the Board                   January 29, 1997
- ------------------------------- 
    Christopher F. O. Gabrieli

    Stanley T. Crooke, M.D., Ph.D.*    Director                                             January 29, 1997
- ------------------------------- 
    Stanley T. Crooke, M.D., Ph.D.

    Luke B. Evnin, Ph.D.*              Director                                             January 29, 1997
- -------------------------------
    Luke B. Evnin, Ph.D.

    Randall B. Lauffer,  Ph.D.*        Director                                             January 29, 1997
- -------------------------------
    Randall B. Lauffer, Ph.D.



              *By /s/ Michael D. Webb
                  ---------------------------------
                      Michael D. Webb
                      Attorney-in-Fact
</TABLE>
    

                                      II-6
<PAGE>

                                EXHIBIT INDEX


<TABLE>
<CAPTION>
         Exhibit
          Number                                             Description                                             Page
     --------------------------------------------------------------------------------------------------------------------------
<S>                 <C>                                                                                              <C>
   
       1.1*         Form of Underwriting Agreement.
       3.1*         Restated Certificate of Incorporation of the Registrant.
       3.2*         Certificate of Amendment of Restated Certificate of Incorporation of Registrant.
       3.3*         Form of Restated Certificate of Incorporation of Registrant.
       3.4*         By-Laws of the Registrant, as amended.
       3.5*         Form of Amended and Restated By-Laws of Registrant.
       4.1*         Specimen certificate for shares of Common Stock of the Registrant.
       5.1*         Opinion of Palmer & Dodge LLP.
      10.1+*        Agency Agreement between the Registrant and Sumitomo Corporation dated March 13, 1992.
      10.2+*        Amendment to the Agency Agreement between the Registrant and Sumitomo Corporation dated June 26, 1992.
      10.3*         Short Form Lease from Trustees of the Cambridge East Trust to the Registrant dated July 1, 1992. 
      10.4*         Form of Warrant to Purchase Shares of Series A Convertible Preferred Stock dated December 21, 1992.
      10.5*         Dominion Ventures Master Lease Agreement No. 8050 dated December 21, 1992.
      10.6*         First Amendment to Master Lease Agreement No. 8050 dated May 14, 1993.
      10.7*         Second Amendment to Master Lease Agreement No. 8050 dated August 5, 1993.
      10.8*         First Amendment Lease From Trustees of the Cambridge Trust to the Registrant dated October 20, 1993.
      10.9*         Warrant to Purchase Shares of Series B Convertible Preferred Stock dated June 6, 1994.
      10.10*        Second Amendment to Master Lease Agreement No. 8050 dated June 6, 1994.
      10.11+*       Amendment Agreement to the Agency Agreement between the Registrant and Sumitomo Corporation dated
                    September 15, 1994.
      10.12*        Second Amendment Lease From Trustees of the Cambridge East Trust to the Registrant dated September 17, 1994.
      10.13*        Convertible Promissory Note Purchase Agreement by and among the Registrant and certain purchasers named
                    therein dated May 26, 1995.
      10.14+*       Amended and Restated License Agreement between the Registrant and The General Hospital Corporation dated
                    July 10, 1995.
      10.15*        Warrant to Purchase Shares of Series C Convertible Preferred Stock dated August 2, 1995.
      10.16*        Third Amendment to the Master Lease Agreement No. 8050 dated August 2, 1995.
      10.17*        Amendment No. 1 to Convertible Promissory Note Purchase Agreement by and among the Registrant and certain
                    purchasers named therein dated January 19, 1996.
      10.18+*       Extension Agreement to Agency Agreement between the Registrant and Sumitomo Corporation dated March 5, 1996.
      10.19+*       Development and License Agreement dated March 29, 1996 by and among the Registrant and Daiichi Radioisotope
                    Laboratories, Ltd. Filed herewith.
      10.20*        Third Amendment Lease From Trustees of the Cambridge East Trust to the Registrant dated May 1, 1996.
      10.21*        Series D Convertible Preferred Stock Purchase Agreement by and among the Registrant and certain purchasers
                    named therein
                    dated May 29, 1996.
      10.22*        Third Amended and Restated Stockholders' Rights Agreement by and among the Registrant and certain of its
                    stockholders
                    named therein dated May 29, 1996.
      10.23*        Form of Warrant to Purchase Shares of Series D Preferred Stock dated May 29, 1996.

    

<PAGE>
<CAPTION>
         Exhibit
          Number                                             Description                                             Page
     --------------------------------------------------------------------------------------------------------------------------
<S>                <C>                                                                                              <C>
     10.24*        Amendment No. 1 to Third Amended and Restated Stockholders' Rights Agreement dated May 31, 1996.
     10.25*        Series E Convertible Preferred Stock Purchase Agreement dated May 31, 1996 between the Registrant and
                   Daiichi Radioisotope Laboratories, Ltd.
     10.26+        Strategic Collaboration Agreement between the Registrant and Mallinckrodt Medical, Inc. and
                   Mallinckrodt Group Inc. dated August 30, 1996. Filed herewith.
     10.27*        Amendment No. 2 to Third Amended and Restated Stockholders' Rights Agreement dated December 6, 1996.
     10.28*        Amended and Restated 1992 Equity Incentive Plan.
     10.29*        Form of Incentive Stock Option Certificate.
     10.30*        Form of Nonstatutory Stock Option Certificate.
     10.31*        1996 Director Stock Option Plan.
     10.32*        1996 Employee Stock Purchase Plan.
     10.33*        Form of Consulting and Confidentiality Agreement between the Registrant and certain consultants of the
                   Registrant.
     10.34*        Form of Invention and Non-disclosure Agreement between the Registrant and certain employees of the
                   Registrant.
     10.35*        Form of Non-Competition and Non-Solicitation Agreement between the Registrant and certain employees of
                   the Registrant.
     10.36*        Form of Common Stock Purchase Agreement.
     10.37*        Form of Stock Purchase and Right of First Refusal Agreement.
     23.1*         Consent of Palmer & Dodge LLP (included in Exhibit 5.1).
     23.2          Consent of Ernst & Young LLP. Filed herewith.
     24.1*         Power of Attorney.
     24.2*         Certified resolutions of the Registrant authorizing power of attorney.
     27.1*         Financial Data Schedule.
</TABLE>


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

+ Certain confidential material contained in the document has been omitted
  and filed separately with the Securities and Exchange Commission pursuant
  to Rule 406 of the Securities Act.

* Previously filed.

       




                                                                   Exhibit 10.26

                        STRATEGIC COLLABORATION AGREEMENT


                                     between


                                 METASYN, INC.,


                           MALLINCKRODT MEDICAL, INC.


                                       and


                             MALLINCKRODT GROUP INC.


                           dated as of August 30, 1996





<PAGE>



                                TABLE OF CONTENTS
<TABLE>

<S>      <C>    <C>                                                                                             <C>
ARTICLE  1.     DEFINITIONS...................................................................................  1
         1.1.   "Additional Compounds"........................................................................  1
         1.2.   "Affiliate"...................................................................................  2
         1.3.   "Applicable Interest Rate"....................................................................  2
         1.4.   "Base Case Scenario Model"....................................................................  2
         1.5.   "Blood Pool Magnetic Resonance Contrast Agents"...............................................  2
         1.6.   "Costs of Goods Sold".........................................................................  2
         1.7.   "Development Costs"...........................................................................  2
         1.8.   "Development Phase"...........................................................................  3
         1.9.   "Development Program".........................................................................  3
         1.10.  "Effective Date"..............................................................................  3
         1.11.  "FDA".........................................................................................  3
         1.12.  "Field".......................................................................................  3
         1.13.  "First Commercial Sale".......................................................................  3
         1.14.  "IND".........................................................................................  3
         1.15.  "Launch Costs"................................................................................  3
         1.16.  "Licensed Compound"...........................................................................  3
         1.17.  "Licensed Product"............................................................................  3
         1.18.  "Major Market Countries"......................................................................  4
         1.19.  "MGH Patent Rights"...........................................................................  4
         1.20.  "MKG Patent Rights"...........................................................................  4
         1.21.  "Metasyn Patent Rights".......................................................................  4
         1.22.  "Metasyn Technology"..........................................................................  4
         1.23.  "NDA".........................................................................................  4
         1.24.  "Net Sales"...................................................................................  4
         1.25.  "Operating Margin"............................................................................  5
         1.26.  "Outside Compounds"...........................................................................  5
         1.27.  "Party".......................................................................................  5
         1.28.  "Patent Rights"...............................................................................  5
         1.29.  "Program".....................................................................................  6
         1.30.  "Replacement Compound"........................................................................  6
         1.31.  "Research Costs"..............................................................................  6
         1.32.  "Research Phase"..............................................................................  6
         1.33.  "Research Program"............................................................................  6
         1.34.  "Sales and Marketing Costs"...................................................................  6
         1.35.  [ ]*..........................................................................................  6
         1.36.  "Second Generation Compounds".................................................................  6
         1.37.  "Territory"...................................................................................  7
         1.38.  "Third Party".................................................................................  7

ARTICLE  2.     SCOPE AND STRUCTURE OF THE COLLABORATION......................................................  7
         2.1.   General.......................................................................................  7
         2.2.   [ ]*..........................................................................................  7
         2.3.   Non-Competition; Third Party Products Obtained by MKG.........................................  7
         2.4.   Japan.........................................................................................  8




*Confidential information omitted and filed with the Commission.

                                                        (i)

<PAGE>



                2.4.1.  Acknowledgement of DRL Arrangement....................................................  8
                2.4.2.  Costs.................................................................................  8

ARTICLE  3.     LICENSE GRANTS; MANUFACTURING AND MARKETING RIGHTS............................................  9
         3.1.   Grant of License Rights by Metasyn to MKG.....................................................  9
                3.1.1.  License Grant.........................................................................  9
                3.1.2.  Sublicenses...........................................................................  9
                3.1.3.  Reserved Rights of MGH and the U.S. Government........................................  9
                3.1.4.  Reserved Rights of Metasyn............................................................  9
                3.1.5.  Third Party Patent Rights.............................................................  9
         3.2.   Manufacturing and Supply of Licensed Compounds and Licensed Products.......................... 10
                3.2.1.  Manufacture and Supply by Metasyn During the Development
                        Phase................................................................................. 10
                3.2.2.  Manufacture and Supply by MKG......................................................... 10
                3.2.3.  Assistance by Metasyn to MKG for Manufacturing License................................ 10
                3.2.4.  Right to Manufacture for the Japanese Market.......................................... 10
         3.3.   No Other Technology Rights.................................................................... 11

ARTICLE  4.     THE DEVELOPMENT PROGRAM....................................................................... 11
         4.1.   Conduct of the Development Program............................................................ 11
                4.1.1. General................................................................................ 11
                4.1.2.  Annual Development Plan............................................................... 11
                4.1.3.  Selection of Replacement Compound..................................................... 12
                4.1.4.  Selection of Second Generation Compounds or Outside
                        Compounds for Development............................................................. 12
         4.2.   Product Objectives............................................................................ 12
                4.2.1.  Metasyn Product Objectives............................................................ 12
                4.2.2.  MKG Product Objectives................................................................ 12
                4.2.3.  Extensions............................................................................ 13
         4.3.   Attendance at Regulatory Meetings............................................................. 13
         4.4.   Development Information; Reports.............................................................. 13
         4.5.   Availability of Employees..................................................................... 13
         4.6.   Visit of Facilities........................................................................... 14
         4.7.   Core Laboratory............................................................................... 14

ARTICLE  5.     RESEARCH PROGRAM.............................................................................. 14
         5.1.   Additional Research Programs.................................................................. 14
         5.2.   Conduct of Research Program................................................................... 14
                5.2.1.  General............................................................................... 14
                5.2.2.  Annual Research Plan.................................................................. 14
                5.2.3.  Data.................................................................................. 15
                5.2.4.  Sources of Compounds.................................................................. 15
                5.2.5.  Semi-Annual Reports................................................................... 15


                                                       (ii)

<PAGE>



ARTICLE  6.     MARKETING..................................................................................... 15
         6.1.   Sales and Marketing Plan...................................................................... 15
         6.2.   Exclusive Right............................................................................... 16
         6.3.   Diligence..................................................................................... 16
         6.4.   Labeling and Packaging........................................................................ 16
         6.5.   Participation by Metasyn Employees in Field Sales Activities.................................. 16
         6.6.   Co-Promotion Option........................................................................... 16

ARTICLE  7.     MANAGEMENT OF THE COLLABORATION............................................................... 17
         7.1.   Joint Steering Committee...................................................................... 17
                7.1.1.  General............................................................................... 17
                7.1.2.  Chair................................................................................. 18
                7.1.3.  Minutes............................................................................... 18
         7.2.   Disagreements................................................................................. 18

ARTICLE  8.     PAYMENTS...................................................................................... 18
         8.1.   Fee........................................................................................... 18
         8.2.   Milestone Payment............................................................................. 18
         8.3.   Funding of the Development Program............................................................ 19
                8.3.1.  Sharing of Development Costs.......................................................... 19
                8.3.2.  Previously Incurred Production Costs.................................................. 19
                8.3.3.  Advances.............................................................................. 19
                8.3.4.  Annual Reconciliation................................................................. 19
         8.4.   Funding of the Research Program............................................................... 20
                8.4.1.  Sharing of Research Costs............................................................. 20
                8.4.2.  Advances.............................................................................. 20
                8.4.3.  Annual Reconciliation................................................................. 20
                8.5.    Cash Flow Provisions.................................................................. 20
         8.6.   Share of Operating Margins.................................................................... 21
         8.7.   Operating Margin Reports...................................................................... 21
         8.8.   Audits by Metasyn............................................................................. 21
         8.9.   Audits by MKG................................................................................. 22

ARTICLE  9.     INTELLECTUAL PROPERTY......................................................................... 22
         9.1.   Filing, Prosecution and Maintenance of MGH Patent Rights...................................... 22
                9.1.1.  Responsibility and Costs.............................................................. 22
                9.1.2.  Abandonment........................................................................... 23
                9.1.3.  Notice of Infringement................................................................ 23
                9.1.4.  Prosecution by MGH or Metasyn of MGH Patent Rights.................................... 23
                9.1.5.  Prosecution Under the Direction of the Joint Steering Committee....................... 23
                9.1.6.  Declaratory Actions................................................................... 23
         9.2.   Filing, Prosecution and Maintenance of Metasyn Patent Rights.................................. 24
                9.2.1.  Prosecution and Maintenance........................................................... 24
                9.2.2.  Abandonment; Failure to Pay........................................................... 24
                9.2.3.  Infringement by Others; Prosecution Under the Direction of the
                        Joint Steering Committee.............................................................. 24
                9.2.4.  Cooperation in Infringement Actions................................................... 24


                                                     (iii)

<PAGE>



                9.2.5.   Declaratory Actions.................................................................. 24
         9.3.   Infringement Action Against Either Party...................................................... 25
         9.4.   MKG Patent Rights............................................................................. 25
                9.4.1.   Maintenance of MKG Patent Rights..................................................... 25
                9.4.2.   Abandonment; Failure to Pay.......................................................... 25
                9.4.3.   Infringement by Others; Prosecution Under the Direction of the
                         Joint Steering Committee............................................................. 25
                9.4.4.   Cooperation in Infringement Actions.................................................. 25
                9.4.5.   Declaratory Actions.................................................................. 25
         9.5.   Cooperation in Infringement Actions........................................................... 26
         9.6.   Cooperation................................................................................... 26

ARTICLE  10.    CONFIDENTIALITY............................................................................... 26
         10.1.  Nondisclosure Obligations..................................................................... 26
                10.1.1.  General.............................................................................. 26
                10.1.2.  Limitations.......................................................................... 26
         10.2.  Samples....................................................................................... 27
         10.3.  Terms of this Agreement....................................................................... 27
         10.4.  Publications.................................................................................. 27
                10.4.1.  Procedure............................................................................ 27
                10.4.2.  Delay................................................................................ 28
                10.4.3.  Resolution........................................................................... 28
         10.5.  Injunctive Relief............................................................................. 28

ARTICLE  11.    REPRESENTATIONS AND WARRANTIES................................................................ 28
         11.1.  Patent Validity............................................................................... 28
         11.2.  Accuracy of Exhibits C and E.................................................................. 28
         11.3.  Authorization................................................................................. 28
         11.4.  [ ]*.......................................................................................... 29

ARTICLE  12.    INDEMNITY..................................................................................... 29
         12.1.  MKG Indemnity Obligations..................................................................... 29
         12.2.  Metasyn Indemnity Obligations................................................................. 29
         12.3.  Product Liability............................................................................. 29
         12.4.  Contribution.................................................................................. 30
         12.5.  Procedure..................................................................................... 30

ARTICLE  13.    EXPIRATION AND TERMINATION.................................................................... 31
         13.1.  The Development Phase......................................................................... 31
                13.1.1.  Expiration of the Development Phase.................................................. 31
                13.1.2.  Termination of Development Phase..................................................... 31
                13.1.3.  Existing Obligations................................................................. 31
                13.1.4.  Effect of Termination of the Development Program..................................... 31
         13.2.  The Research Program.......................................................................... 31
                13.2.1.  Expiration of Research Phase......................................................... 31
                13.2.2.  Termination of the Research Program.................................................. 32
                13.2.3.  Existing Obligations................................................................. 32



*Confidential information omitted and filed with the Commission.

                                                     (iv)

<PAGE>



                13.2.4.  Effect of Termination of the Research Program........................................ 32
         13.3.  Expiration of this Agreement.................................................................. 32
         13.4.  Termination of this Agreement................................................................. 32
                13.4.1.  Termination by Either Party.......................................................... 32
                13.4.2.  Termination by Metasyn............................................................... 33
         13.5.  Effect of Expiration or Termination of This Agreement......................................... 33
                13.5.1.  Existing Obligations................................................................. 33
                13.5.2.  Effect of Termination by Metasyn..................................................... 33
                13.5.3.  Effect of Termination by MKG......................................................... 34
                13.5.4.  Termination due to Termination of MGH License........................................ 35
                13.5.5.  Survival............................................................................. 35

ARTICLE  14.    MISCELLANEOUS................................................................................. 35
         14.1.  Force Majeure................................................................................. 35
         14.2.  Assignment.................................................................................... 35
         14.3.  Severability.................................................................................. 36
         14.4.  Notices....................................................................................... 36
         14.5.  Applicable Law................................................................................ 37
         14.6.  Dispute Resolution............................................................................ 37
         14.7.  Public Announcements.......................................................................... 37
         14.8.  Entire Agreement.............................................................................. 38
         14.9.  Headings...................................................................................... 38
         14.10. Agreement Not to Solicit Employees............................................................ 38
         14.11. Exports....................................................................................... 38
         14.12. Waiver........................................................................................ 38
         14.13. Counterparts.................................................................................. 38

</TABLE>

Exhibit A Base Case Scenario Model (ss.1.4) Exhibit B Chemical Structure of
Compound MS-325 (ss.1.16) Exhibit C List of MGH Patent Rights (ss.1.19) Exhibit
D List of MKG Patent Rights (ss.1.20) Exhibit E List of Metasyn Patent Rights
(ss.1.21) Exhibit F First Annual Development Plan (ss.4.1.2)


Appendix I          MGH License (Recitals)
Appendix II         Costs of Goods Sold (ss.1.6)
Appendix III        Development Costs (ss.1.7)
Appendix IV         Research Costs (ss.1.31)
Appendix V          Sales and Marketing Costs (ss.1.34)

                                       (v)

<PAGE>



                        STRATEGIC COLLABORATION AGREEMENT


         THIS STRATEGIC COLLABORATION AGREEMENT dated as of August 30, 1996 (the
"Agreement") is made by and among METASYN, INC., a Delaware corporation having
its principal place of business at 71 Rogers Street, Cambridge, Massachusetts
02142-1118 U.S.A. ("Metasyn"), MALLINCKRODT MEDICAL, INC., a Delaware
corporation having its principal place of business at 675 McDonnell Boulevard,
St. Louis, Missouri 63134 and MALLINCKRODT GROUP INC., a New York corporation
having its principal place of business at 7733 Forsyth Boulevard, St. Louis,
Missouri 63105, by and through its unincorporated Medical Imaging division
(together with Mallinckrodt Medical, Inc., "MKG").


                                    RECITALS

         WHEREAS, Metasyn has obtained certain rights under certain patents and
patent applications owned by The General Hospital Corporation, doing business as
Massachusetts General Hospital ("MGH"), pursuant to an Amended and Restated
License Agreement dated July 10, 1995 between Metasyn and MGH (the "MGH
License"), a copy of which is attached as Appendix I;

         WHEREAS, Metasyn is developing a proprietary compound coded as MS-325
("Compound MS-325") which is intended for use as an enhancer for magnetic
resonance imaging, which compound is covered by said MGH patents and patent
applications as well as by Metasyn patent applications;

         WHEREAS, MKG is interested in entering into a collaboration with
Metasyn for the development of blood pool magnetic resonance imaging agents and
desires to obtain an exclusive license to develop and sell Compound MS-325 and
all other blood pool magnetic resonance imaging agents worldwide excluding Japan
with respect to compounds licensed by Metasyn from time to time to Daiichi
Radioisotope Laboratories Ltd. ("DRL"), Metasyn's collaborator in Japan, in
accordance with the principles set forth herein; and

         WHEREAS, Metasyn is willing to enter into such a collaboration and to
grant MKG such a license upon the terms and conditions set forth below.

         NOW THEREFORE, in consideration of the premises and of the covenants
herein contained, the Parties hereto mutually agree as follows:


                             ARTICLE 1. DEFINITIONS

         For purposes of this Agreement, the terms defined in this Article shall
have the meanings specified below:

         1.1.     "Additional Compounds" shall mean magnetic resonance imaging
agents other than Blood Pool Magnetic Resonance Contrast Agents.


<PAGE>



         1.2. "Affiliate" shall mean any corporation or other entity which
directly or indirectly controls, is controlled by or is under common control
with a Party to this Agreement. A corporation or other entity shall be regarded
as in control of another corporation or entity if it owns or directly or
indirectly controls more than fifty percent (50%) of the voting stock or other
ownership interest of the other corporation or entity, or if it possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of the corporation or other entity or the power to elect
or appoint fifty percent (50%) or more of the members of the governing body of
the corporation or other entity.

         1.3. "Applicable Interest Rate" shall mean the prime rate as published 
by the Wall Street Journal on the last day of the month in which a loan is made 
as applicable to such loan based on the term of the loan.

         1.4. "Base Case Scenario Model" shall mean the Base Case Scenario Model
dated May 17, 1996 previously reviewed by the Parties and described in the
documents attached hereto as Exhibit A, as it may be amended by the Joint
Steering Committee from time to time pursuant to Section 6.1.

         1.5. "Blood Pool Magnetic Resonance Contrast Agents" shall mean blood
pool persistent compounds with, as its primary application, clinical utility in
improving magnetic resonance imaging of arteries and veins, assessing organ
perfusion and organ blood volume with magnetic resonance imaging and identifying
tissue pathologies where increased vascular permeability is found (i.e., tumors,
inflammatory lesions).

         1.6. "Costs of Goods Sold" shall mean all direct and indirect
manufacturing costs incurred by MKG and Metasyn specifically allowable to the
production of the Licensed Products, together with royalties payable to MGH and
other Third Parties and including Launch Costs and excluding the costs of the
syringe or other delivery system utilized with respect to and invoiced as part
of the price for any Licensed Product, as more fully described in Appendix II
hereto.

         1.7. "Development Costs" shall mean all external costs and direct
internal costs incurred by Metasyn and MKG in connection with the Development
Program plus indirect costs allocated to the Development Program pursuant to the
terms agreed to by the Parties, as more fully described in Appendix III hereto.
Development Costs will include, but not be limited to, process development,
clinical work (Phase I - Phase III trials), overhead charges within agreed upon
standards, preclinical work, validation batches, stability batches and testing,
regulatory filings, production of compound for clinical work (Phase I - Phase
III trials), and all production of Licensed Compound related to regulatory
filings in the Territory. Development Costs shall specifically not include any
such costs to the extent attributable to development of any compounds and their
corresponding Licensed Products for use, sale or distribution exclusively in
Japan, it being understood that such costs shall be entirely the responsibility
and liability of Metasyn and/or DRL; provided, however, that if DRL is not
granted a license in accordance with Section 2.4.1 hereof with respect to any
compound for Japan prior to the IND filing with the FDA for such compound by the
Parties, the Development Costs shall include all such costs relative to any such
compound for all


                                        2

<PAGE>



purposes hereof. Costs for Licensed Products or Compounds that are to be sold or
distributed on a worldwide basis (including any case where such Licensed
Products or Compounds are licensed to DRL in accordance with Section 2.4.1
hereof prior to the filing of an IND with the FDA) will be apportioned to the
Parties to reflect the fact that Japan represents [ ]* the worldwide
market for such Licensed Products or Compounds.

         1.8. "Development Phase" shall mean, with respect to the Licensed
Compound, any Second Generation Compound, Outside Compound or Replacement
Compound, the period commencing on the Effective Date of the Agreement and
continuing until final marketing approval for the Licensed Products has been
obtained in all Major Market Countries.

         1.9. "Development Program" shall mean the development program described
generally in the Annual Development Plan attached as Exhibit F, as such plan may
be amended from time to time as provided in this Agreement.

         1.10. "Effective Date" shall mean the date first written above.

         1.11. "FDA" shall mean the United States Food and Drug Administration.

         1.12. "Field" shall mean all indications comprehended by the definition
of the term "Blood Pool Magnetic Resonance Contrast Agents" above.

         1.13. "First Commercial Sale" of any Licensed Product shall mean the
first sale for use or consumption by the general public of such Licensed Product
in a country when such sale has been made with the required marketing and
pricing approval granted by the governing health authority of such country.

         1.14. "IND" shall mean an investigational new drug application or its
equivalent filed with the FDA and necessary for beginning clinical trials in
humans, or any comparable application filed with the regulatory authorities of a
country other than the United States prior to beginning clinical trials in
humans in such country, with respect to the Licensed Products.

         1.15. "Launch Costs" shall mean non-recurring direct and indirect costs
incurred in connection with (i) the design, engineering, test and scale up of
the manufacturing process used to produce any Licensed Product for commercial
sale, (ii) introductory promotion and marketing of any Licensed Product and
(iii) registration or other similar costs to be incurred in other countries
where any Licensed Product is to be sold.

         1.16. "Licensed Compound" shall mean Compound MS-325, a copy of the
chemical structure of which compound is attached hereto as Exhibit B.

         1.17. "Licensed Product" shall mean any product comprising the Licensed
Compound, any Second Generation Compounds or the Replacement Compound, and shall
also include any Outside Compounds.



*Confidential information omitted and filed with the Commission.


                                        3

<PAGE>



         1.18. "Major Market Countries" shall mean the United States, the United
Kingdom, Germany, France, Spain, Italy and, with respect to compounds and their
corresponding Licensed Products for which the Territory has been expanded as
provided in Section 1.37 hereof to include Japan, if any, Japan.

         1.19. "MGH Patent Rights" shall mean the United States patents and
patent applications and the international patent applications identified in
Exhibit C and any division, continuation or continuation-in-part thereof, any
foreign patent applications corresponding to any such patent applications and
any United States or foreign patents or the equivalent thereof issuing thereon
or any reissue, reexamination or extension thereof.

         1.20. "MKG Patent Rights" shall mean any patent rights of MKG
identified in Exhibit D and such other patent rights of MKG that the Parties may
mutually agree from time to time are necessary for or useful in the making,
using or selling of Licensed Products in the Territory. MKG Patent Rights shall
not include the [ ]*.

         1.21. "Metasyn Patent Rights" shall mean the United States and foreign
patent applications set forth in Exhibit E hereto and any division, continuation
or continuation-in-part thereof, any foreign patent applications corresponding
to any such patent applications and any United States or foreign patents or the
equivalent thereof issuing thereon or any reissue, reexamination or extension
thereof.

         1.22. "Metasyn Technology" shall mean and include all present and
future inventions, trade secrets, copyrights, know-how, data, regulatory
submissions and other intellectual property of any kind (but not including
Metasyn Patent Rights) owned or controlled by, or licensed (with the right to
sublicense) to, Metasyn necessary or useful for the manufacture, use or sale of
the Licensed Compound and the Licensed Products in the Territory.

         1.23. "NDA" shall mean a new drug application filed with the FDA or,
with respect to countries other than the United States, the Governing health
authority of such country, after completion of human clinical trials to obtain
marketing approval for a Licensed Product in such country.

         1.24. "Net Sales" shall mean the invoiced sales price per unit for each
of the Licensed Products billed by a Party or its Affiliates or any distributor
of either who is not an Affiliate, or, to the extent permitted in Section 3.1.2
hereof, by permitted sublicensees of MKG to independent customers, less, to the
extent such amounts are included in the invoiced sales price, actual (a)
credited allowances to such independent customers for such Licensed Products
which were spoiled, damaged, out-dated or returned; (b) freight and insurance
costs charged to such customers; (c) quantity and promotional discounts actually
allowed and taken; (d) sales, use, value added and other taxes or governmental
charges incurred in connection with the sale, exportation or importation of the
Licensed Products in finished packaged form; (e) charge back payments and/or
rebates provided to distributors, wholesalers, or other purchasers and managed
health care organizations or federal, state and local governments, their
agencies, purchasers and reimbursers, including reimbursements to social
security organizations; and (f) that amount of the invoiced sales price per unit


*Confidential information omitted and filed with the Commission.

                                        4

<PAGE>



attributable to the syringe or other delivery system utilized with respect to
and invoiced as part of the price for any Licensed Product. The transfer of any
Licensed Product by a Party or one of its Affiliates to another Affiliate of
such Party shall not be considered a sale; in such cases, Net Sales shall be
determined based on the invoiced sales price by the Affiliate to its customer,
less the deductions allowed under this Section. Every other commercial use or
disposition of a Licensed Product by a Party or its Affiliates or any
distributor of such Party who are not Affiliates, or, to the extent permitted in
Section 3.1.2 hereof, by permitted sublicensees of MKG, other than a bona fide
sale to a bona fide customer, shall be considered a sale of such Product at the
weighted average Net Sales price then being invoiced by the seller in arm's
length transactions.

         A Party or its sublicensees shall be deemed to have sold a "Bundled
Product" if the Licensed Products are sold by a Party or its permitted
sublicensees pursuant to an agreement with an independent customer specifying,
for a combination of products and/or services, (i) a single price, (ii) other
terms of purchase not separately identifying either a price per product or the
effective deductions referred to above per product or (iii) a price for units of
the Licensed Products which is discounted below such Party's or its permitted
sublicensees' standard invoice price per unit of the Licensed Products by at
least five (5) percentage points more than the amount that any other product or
service in the Bundled Product is discounted below such other product's or
service's standard invoice price (i.e., average selling price for all Licensed
Products that are not bundled). In order to calculate the Net Sales of the
Licensed Products included in a Bundled Product (a) in the case of the foregoing
clauses (i) and (ii), the total Net Sales of the Bundled Product shall be
multiplied by a fraction, the numerator of which shall be the product of the
number of units of the Licensed Products sold multiplied by the standard invoice
price per unit of the Licensed Products, and the denominator of which shall be
the sum, for all products or services included in the Bundled Product, of the
products of the number of units sold for each product or service in the Bundled
Product multiplied by the standard invoice price per unit for each such product
or service and (b) in the case of the foregoing clause (iii), the Parties will
determine whether an adjustment to Net Sales is appropriate and, if so, a
mutually agreeable method of calculation.

         1.25. "Operating Margin" shall mean for a particular quarter, the
aggregate Net Sales of and any other revenues relating to Licensed Products for
such quarter including, without limitation, royalties and any other payments
from sublicensees, less (i) Cost of Goods Sold and (ii) Sales and Marketing
Costs.

         1.26. "Outside Compounds" shall mean any Blood Pool Magnetic Resonance
Contrast Agents or products comprising Blood Pool Magnetic Resonance Agents that
may be acquired or licensed by either or both of the Parties from any Third
Party with the approval and at the direction of the Joint Steering Committee.

         1.27. "Party" shall mean Metasyn or MKG.

         1.28. "Patent Rights" shall mean MGH Patent Rights and Metasyn Patent
Rights, collectively.


                                        5

<PAGE>



         1.29. "Program" shall mean the collaboration between Metasyn and MKG
contemplated by this Agreement.

         1.30. "Replacement Compound" shall mean a Blood Pool Magnetic Resonance
Contrast Agent other than Compound MS-325 discovered by Metasyn or MKG that is
selected by the Joint Steering Committee as a replacement for the Licensed
Compound pursuant to Section 4.1.3 hereof. In appropriate cases, Replacement
Compounds may be any one or more Outside Compounds.

         1.31. "Research Costs" shall mean all external costs and direct
internal costs incurred by Metasyn or MKG in connection with the Research
Program plus indirect costs allocated to the Research Program pursuant to the
terms agreed to by the Parties, as more fully described in Appendix IV hereto.
Research Costs shall specifically not include any such costs to the extent
attributable to research in connection with any compounds and their
corresponding Licensed Products to be utilized, sold or distributed exclusively
in Japan, it being understood that such costs shall be entirely the
responsibility and liability of Metasyn and/or DRL; provided, however, that if
DRL is not granted a license in accordance with Section 2.4.1 hereof with
respect to any compound for Japan prior to the IND filing with the FDA for such
compound by the Parties, the Research Costs shall include all such costs
relative to any such compound for all purposes hereof. Costs for Licensed
Products or Compounds that are to be sold or distributed on a worldwide basis
(including any case where such Licensed Products or Compounds are licensed to
DRL in accordance with Section 2.4.1 hereof prior to the filing of an IND with
the FDA) will be apportioned to the Parties to reflect the fact that Japan
represents [ ]* the worldwide market for such Licensed Products or Compounds.

         1.32. "Research Phase" shall mean the period commencing on the date the
first Research Program is approved by the Joint Steering Committee pursuant to
Section 5.1 hereof and ending upon the termination or expiration of the final
research program approved by the Joint Steering Committee, during which period
the Parties will attempt to identify candidates for Second Generation Compounds,
as more fully described in Article 5 hereof.

         1.33. "Research Program" shall mean the research program(s) described
generally in the Annual Research Plan, if any, to be developed by the Joint
Steering Committee as provided in Section 5.2.2 hereof.

         1.34. "Sales and Marketing Costs" shall mean all direct and indirect
costs of MKG and Metasyn (including without limitation, cost associated with
receivables and inventory) specifically allocable to the sale and marketing of
the Licensed Products and Launch Costs, as more fully described in Appendix V
hereto.

         1.35. [ ]* shall mean the [ ]* dated as of [ ]* between MKG and [ ]*.

         1.36. "Second Generation Compounds" shall mean Blood Pool Magnetic
Resonance Contrast Agents selected by the Joint Steering Committee pursuant to
Section 4.1.4 hereof, including those discovered by either of the Parties
hereto.


*Confidential information omitted and filed with the Commission.

                                        6

<PAGE>



         1.37. "Territory" shall mean the world excluding Japan with respect to
and only to the extent of compounds licensed by Metasyn to DRL from time to time
pursuant to the terms of any existing written or oral agreement as provided in
Section 2.4.1 hereof. It is understood that the "Territory" will include Japan
with respect to any compound and its corresponding Licensed Products for which
DRL is not granted a license pursuant to Section 2.4.1 hereof prior to the IND
filing with the FDA for such compound.

         1.38. "Third Party" shall mean any entity other than Metasyn or MKG and
their respective Affiliates.


               ARTICLE 2. SCOPE AND STRUCTURE OF THE COLLABORATION

         2.1. General. Metasyn and MKG wish to establish a collaborative
alliance to develop and discover Blood Pool Magnetic Resonance Imaging Agents,
including Compound MS-325. The collaboration will include a Development Program
for Compound MS-325, any Replacement Compound, any Second Generation Compounds
(as well as, if and when deemed necessary by the Parties, the acquisition of
rights to Outside Compounds and the conduct of a Research Program) and the
commercialization of the corresponding Licensed Products in the Territory.
During the course of this collaboration, Metasyn and MKG shall communicate
regularly and shall assume different rights and responsibilities for the
development and commercialization of the Licensed Products, based on the phase
of development and commercialization and the territory involved, all as more
specifically described below.

          2.2. [ ]*. In the event that during the term of this Agreement Metasyn
[ ]*. In such event, Metasyn shall [ ]*. Metasyn shall [ ]* Metasyn and MKG
shall [ ]*. If, [ ]*, Metasyn and MKG are [ ]* then, unless the Parties [ ]*,
Metasyn shall [ ]*.

          2.3. Non-Competition; Third Party Products Obtained by MKG. During the
term of this Agreement, MKG agrees that it will not develop market or sell any
Blood Pool Magnetic Resonance Contrast Agents other than the Licensed Products
without the approval of the Joint Steering Committee; provided, however, that
MKG may continue to develop market and sell magnetic resonance imaging agents
which have primary applications outside the Field;


*Confidential information omitted and filed with the Commission.


                                        7

<PAGE>



provided further, that MKG may continue to develop, market and sell magnetic
resonance imaging agents of any kind (including, without limitation, Blood Pool
Magnetic Resonance Contrast Agents) outside the Territory, including any
compounds or products of its own or that it may acquire. If the Joint Steering
Committee approves the development, marketing or sale of an Outside Compound,
the acquisition or licensing costs associated with such compound and the
Development Costs and Operating Margin for any Licensed Product deriving
therefrom will be shared equally by Metasyn and MKG in accordance with the
terms set forth herein. In any such event, a development plan and budget will be
approved by the Joint Steering Committee, and the appropriate amendments to this
Agreement will be executed by the Parties.

         2.4. Japan.

                  2.4.1. Acknowledgement of DRL Arrangement. MKG acknowledges
that Metasyn has granted a license to DRL to use the Licensed Compound and to
use, manufacture, have manufactured, distribute for sale and sell the Licensed
Products in Japan for medical application of contrasting and/or enhancement
agents for magnetic resonance imaging in humans. MKG acknowledges that, pursuant
to existing written and/or oral agreements between Metasyn and DRL, Metasyn may
also offer DRL rights with respect to Replacement Compounds and Second
Generation Compounds and their respective corresponding Licensed Products for
Japan at any time prior to the respective IND filings with the FDA for such
compounds. For this reason, MKG's territory consists of the world excluding
Japan with respect to any compounds and their corresponding Licensed Products as
to which Metasyn has granted or may grant DRL a license in accordance with this
Section 2.4.1. Thus, it is understood that, if any such license with respect to
any compound and its corresponding Licensed Products has not been granted by
Metasyn to DRL prior to the IND filing with the FDA with respect to any such
compound, then DRL shall have no right to any license with respect to such
compound thereafter.

                  2.4.2. Costs. The Parties agree that MKG shall not bear any
portion of the Research and Development Costs attributable to development of
compounds for Japan or attributable to development of compounds or products not
falling within the scope of this Agreement, which costs shall be Metasyn's or
DRL's responsibility and liability; provided, however, that if DRL is not
granted a license with respect to any compound for Japan prior to the IND filing
with the FDA for such compound, the total Research and Development Costs for
such compound shall be borne equally by the Parties, in accordance with the
applicable provisions of Article 8 hereof and the Territory for such compound
will include Japan. The Parties have agreed that, with respect to compounds
licensed to DRL for Japan, only sixty-six and six-tenths percent (66.6%) of the 
total pre-IND Research and Development Costs for such compound shall be borne by
the Parties pursuant to this Agreement.


                                        8

<PAGE>



          ARTICLE 3. LICENSE GRANTS; MANUFACTURING AND MARKETING RIGHTS

         3.1.     Grant of License Rights by Metasyn to MKG.

                  3.1.1. License Grant. Metasyn hereby grants MKG the exclusive
right and license under the Patent Rights and Metasyn Technology to (a) use,
make and have made the Licensed Compound, any Second Generation Compounds and
any Replacement Compound in the Territory for use in the Field, (b) use, make
and have made, distribute for sale and sell the Licensed Products in the
Territory for use in the Field and (c) provide the Licensed Compound, any Second
Generation Compounds and any Replacement Compound to permitted sublicensees for
the purpose of permitting such sublicensees to manufacture or have manufactured
Licensed Products in the Territory for use in the Field, all subject to Sections
3.1.3 and 3.1.4 below.

                  3.1.2. Sublicenses. MKG shall have the right to grant
sublicenses under the licenses set forth in Section 3.1.1 hereof to Affiliates
of MKG and, subject to the prior approval of the Joint Steering Committee, to
Third Parties.

                  3.1.3. Reserved Rights of MGH and the U.S. Government. MKG
acknowledges that the license granted herein to the Patent Rights is dependent
upon the rights and licenses obtained by Metasyn under the MGH License and are
subject to certain rights reserved to MGH and the United States Government in
the MGH License, as set forth in the MGH License attached hereto as Appendix I.
In the event that the MGH License is terminated due to Metasyn's failure to
comply with the due diligence obligations imposed on Metasyn pursuant to
Paragraph 3.1 (b) of the MGH License or any other obligation therein, such
failure shall constitute a material breach by Metasyn and MKG may terminate this
Agreement in accordance with Section 13.4.1 hereof.

                  3.1.4. Reserved Rights of Metasyn. Notwithstanding the rights
granted or to be granted to MKG pursuant to this Article 3, Metasyn at all times
reserves the right under the Patent Rights and the Metasyn Technology to (a) use
the Licensed Compound, any Second Generation Compounds and any Replacement
Compound for research and development purposes only in the Territory subject to
the requirements of Article 5 hereof, (b) distribute for sale and sell the
Licensed Products in the Territory pursuant to any rights it may have under
Sections 6.2 and 6.6 hereof and (c) make and have made the Licensed Compound,
any Second Generation Compounds, any Replacement Compound and any Outside
Compound and their respective Licensed Products co-exclusively with MKG in the
Territory only as provided in Section 3.2.

                  3.1.5. Third Party Patent Rights. In the event that the Joint
Steering Committee determines that a license under a Third Party patent or other
intellectual property right is necessary for the use, development, manufacture,
distribution for sale or sale of the Licensed Compound, any Second Generation
Compounds, any Replacement Compound, any Outside Compound or a Licensed Product,
the costs of obtaining such license will be treated as Development Costs if such
costs are incurred during the Development Phase and shall be treated as Costs of
Goods Sold if incurred thereafter.


                                        9

<PAGE>



         3.2. Manufacturing and Supply of Licensed Compounds and Licensed
Products.

                  3.2.1. Manufacture and Supply by Metasyn During the
Development Phase. Metasyn shall be responsible for (i) manufacturing the
Licensed Compound and the corresponding Licensed Product at the required quality
and in quantities sufficient for preclinical and clinical development of the
Licensed Compound and the corresponding Licensed Product during the Development
Phase through completion of Phase II trials and (ii) providing documentation to
MKG regarding the manufacture of the Licensed Compound and the corresponding
Licensed Product which is needed to register the Licensed Product in the
Territory. The Joint Steering Committee shall determine which of the Parties
shall be responsible for performing the obligations described in clauses (i) and
(ii) of the immediately preceding sentence with respect to any Second Generation
Compound, the Replacement Compound(s) and any Outside Compounds and the
corresponding Licensed Products.

                  3.2.2. Manufacture and Supply by MKG. Promptly after execution
of this Agreement, MKG shall begin making preparations necessary to ensure that
sufficient quantities of the Licensed Compound are available to conduct Phase
III trials and complete validation of the manufacturing process of the Licensed
Products on schedule. Upon completion of Phase II trials of the Licensed
Compound and any Second Generation Compounds, any Replacement Compounds or any
Outside Compounds, as applicable, MKG shall become responsible for (i)
manufacturing the respective Licensed Products at the required quality and in
quantities sufficient for development of the Licensed Compound and any Second
Generation Compounds, Replacement Compounds or Outside Compounds, as applicable,
after completion of Phase II trials thereof, including validation batches, and
for commercial sale of the respective Licensed Products in the Territory, (ii)
providing documentation, other than that provided by Metasyn, regarding the
manufacture of the respective Licensed Products needed to register such Licensed
Products in the Territory and to sell the respective Licensed Products under the
relevant governmental approval in the Territory and (iii) arranging for
pre-approval and/or routine establishment inspections with respect to the
respective Licensed Products made by MKG. In the event that MKG designates a
Third Party manufacturer, it shall enter into a reasonable confidentiality
agreement with such manufacturer, such agreement to be subject to the approval
of the Joint Steering Committee.

                  3.2.3. Assistance by Metasyn to MKG for Manufacturing License.
Metasyn shall disclose to MKG, free of charge, all information related to the
manufacture of any Licensed Products, and Metasyn will cooperate with MKG to
provide such technical assistance and characterization work as may be necessary
in connection with the manufacture and production of any Licensed Products in
the Territory. Such assistance and any out-of-pocket costs incurred by Metasyn
personnel if required to travel away from Metasyn's premises shall be treated as
Development Costs. Metasyn will provide such assistance to MKG as is consistent
with the capacity and capabilities of Metasyn.

          3.2.4. Right to Manufacture for the Japanese. Subject to any
applicable requirements of the [ ]* possibly covering the Licensed Compound,
Metasyn agrees that MKG will have the right to manufacture, at a price equal to
[ ]*, the Licensed Compound and/or corresponding


*Confidential information omitted and filed with the Commission.

                                       10

<PAGE>



Licensed Products for Metasyn for use by Metasyn's Japanese licensee. In the
event that MKG is not permitted to do so under the [ ]*, MKG shall promptly
notify Metasyn and the Parties shall make every good faith effort necessary to
make any changes in the rights or structure of the transaction outlined herein
as they shall mutually deem appropriate to allow MKG to exercise the right to
manufacture the Licensed Compound and corresponding Licensed Products for
Metasyn for use by Metasyn's Japanese licensee. If Metasyn and MKG are unable or
willing to cure such disqualification or such disqualification is not, in the
first instance, curable, then Metasyn shall be free to make other arrangements
for supplying such licensee.

         3.3. No Other Technology Rights. Except as otherwise expressly provided
in this Agreement, under no circumstances shall a Party hereto, as a result of
this Agreement, obtain any ownership interest in or other right to any
technology, know-how, patents, pending patent applications, products or
biological materials of the other Party, including items owned. controlled or
developed by the other Party, or transferred by the other Party to said Party,
at any time pursuant to this Agreement.


                       ARTICLE 4. THE DEVELOPMENT PROGRAM

         4.1. Conduct of the Development Program.

                  4.1.1. General. During the Development Phase with respect to
any compound, Metasyn and MKG will use their respective best efforts to develop
the Licensed Compound, Replacement Compounds, Second Generation Compounds,
Outside Compounds (as appropriate) and the corresponding Licensed Products. The
Development Program shall be supervised by the Joint Steering Committee to be
formed pursuant to Article 7 hereof. The Joint Steering Committee will work with
designated individuals at Metasyn and MKG to coordinate the conduct of the
Development Program. The Development Program shall consist of the preparation
and filing of regulatory submissions and the clinical development of the
Licensed Compound and the Licensed Products until final marketing approval for a
compound and the corresponding Licensed Products is obtained in all of the Major
Market Countries for use in the Field. The Joint Steering Committee will
coordinate non-clinical and clinical testing of a compound and the corresponding
Licensed Products and prepare regulatory filings for a compound and the
corresponding Licensed Products.

                  4.1.2. Annual Development Plan. The Development Program shall
be conducted under an annual research and development plan (the "Annual
Development Plan") which shall reasonably describe the work to be pursued by the
Joint Steering Committee and to be conducted by Metasyn and MKG with respect to
the development of the Licensed Compound, any Second Generation Compounds, the
Replacement Compounds and any Outside Compounds and the corresponding Licensed
Products. The Annual Development Plan shall contain a budget including estimates
of the aggregate Development Costs of both Parties to be incurred during the
applicable year. The Annual Development Plan will incorporate the Base Case
Scenario Model (as the model may have been amended by the Joint Steering
Committee in accordance with Section 6.1 hereof and as it may be applicable).
The first Annual Development Plan describing the expenses and activities
anticipated for the period between the Effective Date and December



*Confidential information omitted and filed with the Commission.

                                       11

<PAGE>



31, 1996 is attached hereto as Exhibit F. Thereafter, the Annual Development
Plan will be prepared by the Joint Steering Committee no later than sixty (60)
days prior to the beginning of each calendar year. Any changes to any Annual
Development Plan shall be subject to approval by the Joint Steering Committee.

                  4.1.3. Selection of Replacement Compound. If the Joint
Steering Committee decides to halt development of the Licensed Compound for
safety or any other reasons, it shall have the right to evaluate and select for
development any one or more other Metasyn Blood Pool Magnetic Resonance Agents
as the Replacement Compound(s). The Replacement Compound(s) will be a substitute
for the Licensed Compound for use in the Field. In such event, all provisions of
this Agreement applicable to the Licensed Compound shall be deemed to refer to
the selected Replacement Compound(s).

                  4.1.4. Selection of Second Generation Compounds or Outside
Compounds for Development. If the Joint Steering Committee determines that any
Metasyn or MKG Blood Pool Magnetic Resonance Agent has been shown to have
significant performance advantages (with respect to marketing, technical or
other requirements) over any compound then in development (including, without
limitation, the Licensed Compound) then the Joint Steering Committee may
designate such compound a Second Generation Compound. At such time, such
compound will become part of the Development Program and the Joint Steering
Committee will amend the Annual Development Plan then in effect as appropriate
to cover such Second Generation Compound including new product objectives for
each of the Parties. If the Parties have acquired rights to any Outside Compound
and the Joint Steering Committee determines that such compound has been shown to
have significant performance advantages (with respect to marketing, technical or
other requirements) over any compound then in development (including, without
limitation, the Licensed Compound) then the Joint Steering Committee will amend
the Annual Development Plan then in effect as appropriate to cover such Outside
Compound including new product objectives for each of the Parties.

         4.2.     Product Objectives.

                  4.2.1. Metasyn Product Objectives. With respect to the
Licensed Compound, Metasyn agrees to diligently attempt to achieve the following
objectives:

                  (a)      Phase I. Commence Phase I trials of the Licensed
                           Products by September 3, 1996 but in no event later
                           than March 1, 1997.

                  (b)      Phase II. Commence Phase II trials of the Licensed
                           Products by [ ]* but in no event later
                           than [ ]*.

                  4.2.2. MKG Product Objectives. Subject to Metasyn's meeting
all of its product objectives set forth in Section 4.2.1 above, with respect to
the Licensed Compound MKG agrees to diligently attempt to achieve the following
requirements:

                  (a)      Phase III. Commence Phase III trials of the Licensed
                           Products by [ ]* but in no event later
                           than [ ]*.


*Confidential information omitted and filed with the Commission.

                                       12

<PAGE>



                  (b)      NDA. File an NDA package for the Licensed Products
                           with the FDA, acceptable for review by the FDA, by
                           [ ]* but in no event later than [ ]*.

                  4.2.3. Extensions. If either Party is unable to achieve an
objective set forth in this Section 4.2 or in the Annual Development Plan on
time due to circumstances beyond its control, the other Party will not
unreasonably withhold consent to an extension of the time for achievement of the
objective. If either Party's failure to achieve an objective on time is due to
the other Party's failure to perform its obligations under this Article 4 or the
Annual Development Plan, the time for performance will be appropriately
extended.

         4.3. Attendance at Regulatory Meetings. MKG or Metasyn, as the case may
be, will provide the other Party with reasonable prior notice of all meetings
between its representatives and regulatory authorities regarding marketing
approval of the Licensed Products. The recipient of such notice shall have the
right to have a representative present at all meetings. Each of MKG and Metasyn
will furnish, at the other's request, a representative to attend regulatory
meetings of the other regarding marketing approval of the Licensed Products.

         4.4. Development Information; Reports. During the Development Phase and
thereafter, each Party shall keep the other informed as to its progress related
to the Licensed Compound, Second Generation Compounds, Replacement Compounds and
any Outside Compounds and their respective corresponding Licensed Products
developed or acquired by either Party or its Affiliates, licensees or
sublicensees, including but not limited to any information on adverse reactions
and copies of all preclinical or clinical studies or tests performed by such
Party. In a timely manner during the Development Phase and thereafter, each
Party shall provide the other Party with a reasonably detailed report which
shall describe the reporting Party's progress with respect to its efforts under
this Agreement. Each Party will provide the other with a copy of a master
dossier as the basis for all submissions to be made by such Party to regulatory
authorities on or prior to the date of such submissions as well as promptly
provide the results of all studies and trials conducted by or under the
supervision of such Party with respect to the Licensed Compound, Second
Generation Compounds, Replacement Compounds and any Outside Compounds and/or the
corresponding Licensed Products. Each Party will have the right to use all such
information received from the other Party, subject to applicable confidentiality
restrictions. Within thirty (30) days after the end of each calendar quarter
during the Development Phase with respect to the Licensed Compound, each Party
shall provide the other Party with a reasonably detailed report which shall
describe the reporting Party's progress with respect to its product objectives
set forth under Section 4.2 and the expenses incurred by such Party during the
preceding calendar quarter.

         4.5. Availability of Employees. Each Party agrees to make its employees
and non-employee consultants reasonably available at their respective places of
employment to consult with the other Party on issues arising during the
Development Phase and in connection with any request from any regulatory agency,
including regulatory, scientific, technical and clinical testing issues.


*Confidential information omitted and filed with the Commission.

                                       13

<PAGE>



         4.6. Visit of Facilities. Representatives of Metasyn and MKG may, with
the other Party's prior approval, which approval shall not be unreasonably
withheld or delayed, visit the sites of any clinical trials or other experiments
being conducted by such other Party in connection with the Development Program
and, subject to any necessary approvals of the relevant Third Party,
manufacturing sites used for the Licensed Compound, any Second Generation
Compound, Replacement Compound or Outside Compound and the corresponding
Licensed Products. If requested by the other Party, Metasyn and MKG shall cause
appropriate individuals working thereon to be available for meetings at the
location of the facilities where such individuals are employed at times
reasonably convenient to the Party responding to such request.

         4.7. Core Laboratory. During Phase I and Phase II trials of the
Licensed Products, Metasyn shall serve as the core laboratory for quantitative
as well as blind-read analysis. The Parties shall thereafter reach agreement on
which of the Parties will serve as the core laboratory during Phase III trials
of the Licensed Products derived from the Licensed Compound.


                           ARTICLE 5. RESEARCH PROGRAM

         5.1. Additional Research Programs. In the event that either Party,
during the term of this Agreement, has what it believes is a valid concept for
discovering potential Second Generation Compounds that are reasonably likely to
have successful commercial application, such Party shall promptly report such
concept to the Joint Steering Committee together with a recommended specific
research program pursuant to which any such concept could be added to the
Program. Such recommendation shall include a proposed research plan and budget.
The Joint Steering Committee shall make a determination with respect to each
such recommendation as soon as practicable after such recommendation is made but
in no event later than ninety (90) days. In the event that the Joint Steering
Party fails or declines to approve any recommended research program as an
addition to the Program within the aforementioned ninety (90)-day period (or
such longer period as the Parties may mutually agree), then the Party which
recommended such research program shall be free to develop, market and sell any
compounds developed in such research program itself or with a Third Party, free
of any restrictions under this Agreement, including but not limited to those set
forth in Article 2 hereof.

         5.2.     Conduct of Research Program.

                  5.2.1. General. The Joint Steering Committee will determine
the allocation of responsibility between the Parties for the conduct of each
approved Research Program. Each of the Parties will attempt to achieve
efficiently and expeditiously the objectives assigned to it by the Joint
Steering Committee as described in the Annual Research Plan (defined below) and
will proceed diligently with the work described therein by using its good faith
efforts.

                  5.2.2. Annual Research Plan. Each approved Research Program
shall be conducted under an Annual Research Plan that describes the work to be
pursued by the Parties during each calendar year. The first Annual Research Plan
describing the expenses and activities anticipated for the then-current calendar
year shall be developed by the Joint Steering Committee no later than sixty (60)
days after the first Research Program has been approved. Thereafter, the

                                       14

<PAGE>



Annual Research Plan (if there is any active and approved Research Program) will
be prepared by the Joint Steering Committee no later than sixty (60) days prior
to the start of each calendar year. The Annual Research Plan shall be amended to
include any additional Research Programs approved by the Joint Steering
Committee within sixty (60) days of such approval. Any amendments to the Annual
Research Plan shall be subject to approval by the Joint Steering Committee.

                  5.2.3. Data. Each of the Parties shall maintain records in
sufficient detail and in good scientific manner appropriate for patent purposes
and as will properly reflect all work done and results achieved in the
performance of the Research Program (including all data in the form required to
be maintained under any applicable governmental regulations). Such records shall
include books, records, reports, research notes, charts, graphs, comments,
computations, analyses, recordings, photographs, computer programs and
documentation thereof, computer information storage means, samples of materials
and other graphic or written data generated in connection with the Research
Program. Each Party shall provide the other Party the right to inspect such
records, and shall provide copies of all requested records, to the extent
reasonably required for the performance of the other Party's obligations under
this Agreement; provided, however, that each Party shall maintain such records
and the information of the other Party contained therein in confidence in
accordance with Article 10 below and shall not use such records or information
except to the extent otherwise permitted by this Agreement.

                  5.2.4. Sources of Compounds. Either Party may, subject to the
prior approval of the Joint Steering Committee, screen compounds obtained from
any Third Party with a view to identifying and developing Second Generation
Compounds, so long as such Third Party would not thereby obtain rights to
commercialize any products in the Field.

                  5.2.5. Semi-Annual Reports. Within thirty (30) days following
the end of each six (6)-month period of each calendar year, each Party shall
provide to the members of the Joint Steering Committee a written report which
shall summarize in reasonable detail the work it has performed under the Annual
Research Plan during the preceding six (6)-month period.


                              ARTICLE 6. MARKETING

         6.1. Sales and Marketing Plan. The Joint Steering Committee shall
develop an annual sales and marketing plan (an "Annual Marketing Plan") which
shall reasonably describe the sales and marketing activities to be conducted by
MKG with regard to the Licensed Products and which shall include an annual
budget. The Annual Marketing Plan will incorporate the Base Case Scenario Model
(as the Model may have been amended by the Joint Steering Committee in
accordance with this Section and as it may be applicable). The Joint Steering
Committee shall develop the first Annual Marketing Plan at least thirty (30)
days prior to the date upon which approval of the first NDA in the Territory is
expected by the Joint Steering Committee to occur, which plan will cover the
remainder of the calendar year in which such NDA approval occurs. Thereafter,
the Annual Marketing Plan shall be prepared no later than thirty (30) days prior
to the beginning of each calendar year in which sales and marketing activities
will occur or are expected to occur. Any changes to the Annual Marketing Plan
shall be subject to the reasonable

                                       15

<PAGE>



approval of the Joint Steering Committee and, in particular, the Joint Steering
Committee may amend the Base Case Scenario Model from time to time as necessary
to reflect market conditions; provided that neither Party's representatives
shall be required to approve any amendment to the Annual Marketing Plan or the
Base Case Scenario Model not based on actual or anticipated circumstances in the
marketplace. The Joint Steering Committee shall amend the Annual Marketing Plan
to reflect the selection of any Replacement Compound and/or Second Generation
Compounds and/or Outside Compounds.

         6.2. Exclusive Right. MKG shall have the exclusive right to market and
distribute (by itself or through others) the Licensed Products in the Territory
subject to Metasyn's right to co- promote set forth in Section 6.6 below.

         6.3. Diligence. MKG agrees to diligently seek to obtain approval to
commence commercial sale of the Licensed Products in each Major Market Country,
and, following such approval, MKG agrees to use diligent efforts to market the
Licensed Products in each such country consistent with those efforts used for
other MKG products with similar market potential; provided, however, that in any
event MKG's efforts shall be not less than those contemplated by the Base Case
Scenario Model, as it may be amended pursuant to Section 6.1 hereof. MKG also
agrees to use diligent efforts to obtain approval to market the Licensed
Products in all other countries in the Territory where MKG sells other products
and where a commercially viable market for the Licensed Products exists, and to
market the Licensed Products in such countries using efforts consistent with
those efforts used in marketing other MKG products with similar commercial
potential.

         6.4. Labeling and Packaging. Subject to applicable laws and
regulations, the labelling and packaging for the Licensed Products shall bear
Metasyn's name, in a form to be mutually agreed upon by the Parties, in addition
to MKG's name and trademark.

         6.5. Participation by Metasyn Employees in Field Sales Activities. MKG
shall permit Metasyn technical employees (but not sales and marketing personnel)
to participate with MKG's field sales force in field sales activities as
technical specialists for the Licensed Products. Such Metasyn employees shall be
under the direction and management of MKG's field sales management. The direct
and indirect costs specifically allocable to Metasyn employees who participated
in MKG's field sales activities pursuant to this Section 6.5 for any year or
portion thereof that such employees so participate shall be included in Sales
and Marketing Costs. The number of such Metasyn technical employees will,
subject to the approval of the Joint Steering Committee, be up to twenty-five
(25).

         6.6. Co-Promotion Option. If, during any twelve-month period ending
before the [ ]* the First Commercial Sale of any Licensed Product, Net Sales
exceed [ ]*, then Metasyn shall have no right to co-promote Licensed Products in
the Territory at any time hereunder. However, if, after the [ ]* the First
Commercial Sale of the Licensed Products in the Territory and subject to Metasyn
obtaining any necessary licenses or consents, Net Sales have not exceeded [ ]*
in any twelve-month period ending prior to such anniversary, then Metasyn shall
have the right, but not the obligation, to co-promote the Licensed Products
alongside MKG in the


*Confidential information omitted and filed with the Commission.



                                       16

<PAGE>



Territory, in which case Metasyn will have the right to purchase Licensed
Products from MKG at [ ]*, and to resell the Licensed Products under Metasyn's
trademark. Such co-promotion may be accomplished by Metasyn only through the use
of its own personnel and not with any assistance of any kind from any agent or
distributor. In such event, (i) MKG shall, to the extent legally permissible,
grant Metasyn a non-exclusive right and license to use any technology, know-how
or other intellectual property rights developed by MKG or its Third Party
manufacturer, if any, that is necessary or useful in the manufacture of such
Licensed Product, (ii) MKG shall provide Metasyn with reasonable assistance as
may be requested from time to time by Metasyn [ ]* and (iii) each Party shall
retain all profits from its sale of such Licensed Products.


                   ARTICLE 7. MANAGEMENT OF THE COLLABORATION

         7.1. Joint Steering Committee.

                  7.1.1. General. A steering committee comprised of three (3)
named representatives of MKG and three (3) named representatives of Metasyn (the
"Joint Steering Committee") shall be appointed and shall meet as needed but not
less than once each calendar quarter. Such meetings shall be at times and places
or in such form as the members of the Joint Steering Committee shall agree. At
such meetings, the Joint Steering Committee will discuss and oversee the
Development Program (including but not limited to, the clinical testing of the
Licensed Compound, Outside Compounds, Second Generation Compounds and the
Licensed Products and the preparation of a core registration package for the
Licensed Products) and the marketing of the Licensed Products in the Territory.
The Joint Steering Committee will allocate responsibilities between the Parties
in such a manner as to minimize the time to market for the Licensed Products
taking into consideration the objectives set forth in Section 4.2 hereof. In the
event that at any time the Parties believe that either one or both of them is
required to obtain licenses or rights to patents or intellectual property not
included in the Patent Rights, the Metasyn Technology or the [ ]* during the
term of this Agreement, the cost of obtaining such licenses or rights and the
necessity therefor will be determined by the Joint Steering Committee and, if
the Joint Steering Committee determines that obtaining such licenses or rights
is appropriate, the costs therefor shall be treated as Development Costs.

         A Party may change one or more of its representatives to the Joint
Steering Committee at any time. Members of the Joint Steering Committee may be
represented at any meeting by another member of the Joint Steering Committee, or
by an authorized designee. Any approval, determination or other action agreed to
by all members of the Joint Steering Committee or their authorized designees
present at the relevant Joint Steering Committee meeting shall be the approval,
determination or other action of the Joint Steering Committee, provided at least
two representatives of each Party are present at such meeting.

                  7.1.2. Chair. The Joint Steering Committee shall initially be
chaired by a Metasyn representative to the committee. The Metasyn representative
shall serve as the Chair of the Joint Steering Committee through and including
December 31, 1997. On January 1, 1998, a MKG representative shall become the
Chair of the Joint Steering Committee. Thereafter, the


*Confidential information omitted and filed with the Commission.


                                       17

<PAGE>



Chair of the Joint Steering Committee shall rotate between representatives of
MKG and Metasyn, with each Chair serving for one calendar year.

                  7.1.3. Minutes. The Joint Steering Committee shall keep
accurate minutes of its deliberations which record all proposed decisions and
all actions recommended or taken. The Chair shall be responsible for the
preparation of draft minutes. Draft minutes shall be sent to all members of the
Joint Steering Committee within ten (10) working days after each meeting. The
draft minutes shall be edited by the Chair based on comments from the members of
the Joint Steering Committee and shall be distributed to the members prior to
the next meeting of the Joint Steering Committee for review and final approval
at such meeting. All records of the Joint Steering Committee shall at all times
be available to both Parties.

         7.2. Disagreements. All disagreements within the Joint Steering
Committee shall be subject to the following:

         (a) The representatives to the committee will negotiate in good faith
for a period of not more than sixty (60) days to attempt to resolve the dispute,

         (b) If the representatives to the Committee are unable to resolve the
dispute, then the representatives of the committee shall promptly present the
disagreement to the Chief Executive Officer of Metasyn and the Chief Operating
Officer of MKG or their respective designees,

         (c) Such executives shall meet or discuss in a telephone or video
conference each Party's view and explain the basis for such disagreement,

         (d) If such executives cannot promptly resolve such disagreement within
sixty (60) days after such issue has been referred to them, then the matter
shall be referred to arbitration as described in Section 14.6.2 hereof.


                               ARTICLE 8. PAYMENTS

         8.1. Fee. Upon approval of this Agreement by the Mallinckrodt Group
Inc. Board of Directors, MKG will pay Metasyn six million dollars ($6,000,000)
in United States dollars by wire transfer as the license fee for the license
rights granted to MKG pursuant to Section 3.1.1 above.

          8.2. Milestone Payment. MKG shall make a two million dollar
($2,000,000) milestone payment to Metasyn (i) within ten (10) days business days
following the [ ]* or (ii) on [ ]*, whichever is earlier. The payment to be made
pursuant to this Section 8.2 shall be made in the United States dollars and
shall be non-refundable.



*Confidential information omitted and filed with the Commission.


                                       18

<PAGE>



         8.3. Funding of the Development Program.

                  8.3.1. Sharing of Development Costs. Each of the Parties shall
bear fifty percent (50%) of the Development Costs incurred by either Party after
the Effective Date as well as fifty percent (50%) of the aggregate amount of all
advances made by Metasyn prior to the Effective Date with respect to the Phase I
trial of the Licensed Compound; provided, however, that with respect to any
compound included in the Program as to which DRL has a license or obtains a
license for Japan prior to the date of the IND filing with the FDA for such
compound, (i) MKG shall bear thirty-three and three-tenths percent (33.3%) of
the Development Costs for such compound incurred on and after the IND filing
date for such compound and Metasyn and/or DRL shall bear the balance of such
costs, as such costs may be apportioned in the agreement between Metasyn and
DRL, and (ii) Metasyn shall reimburse MKG for sixteen and seven-tenths percent
(16.7%) of the Development Costs for such compound incurred prior to the IND
filing date.

                  8.3.2. Previously Incurred Production Costs. As Licensed
Products are consumed in Phase I and Phase II trials, the Direct Costs incurred
by Metasyn for the manufacture of the inventory of the Licensed Products in
existence as of the Effective Date will be included in the Development Costs and
will be shared in accordance with Section 8.3.1 above. "Direct Cost" for
purposes of the preceding sentence shall mean (i) Metasyn's cost of materials,
including costs payable by Metasyn to Third Parties relating to production of
the Licensed Compound, any Replacement Compound, Second Generation Compound or
Outside Compound and/or their corresponding Licensed Products and (ii) Metasyn's
direct labor costs incurred in the manufacture of the Licensed Compound, any
Replacement Compound, Second Generation Compound or Outside Compound and/or
their corresponding Licensed Products; provided that "Direct Cost" shall not
include any portion of pre-clinical cost incurred by Metasyn prior to the
Effective Date which will be recovered as a consequence of the payment by MKG of
the license fee payable by MKG in accordance with Section 8.1 above.

                  8.3.3. Advances. In the event that the Development Costs to be
initially borne by Metasyn under any approved Annual Development Plan are
greater than Metasyn's assigned percentage of the aggregate Development Costs
under such budget as determined pursuant to Section 8.3.1 above, MKG agrees to
advance to Metasyn within thirty (30) days after the beginning of each calendar
quarter an amount equal to the difference between Metasyn's estimated initial
share of the total Development Costs and Metasyn's assigned percentage of such
aggregate Development Costs as determined pursuant to Section 8.3.1 hereof for
such calendar quarter.

                  8.3.4. Annual Reconciliation. Within forty-five (45) days of
the close of each calendar year, Metasyn will provide to MKG a report setting
forth Metasyn's actual Development Costs for such year. MKG will, within one
hundred and twenty (120) days after the end of each calendar year, provide
Metasyn with a written report setting forth the total actual Development Costs
of the Parties for such calendar year, and reconciling the amounts of
Development Costs paid by each Party during such year (including any advance
paid by MKG to Metasyn) with the amounts due from each Party. Together with said
report, MKG will either make a payment to Metasyn or issue to Metasyn an invoice
for any balance due.



                                       19

<PAGE>



                  8.3.5. Notwithstanding any other provision hereof, it is
understood that, without prior written consent, neither Party shall be liable to
pay an amount in Development Costs hereunder with respect to the Licensed
Compound and any Replacement Compounds and their corresponding Licensed Products
of more than twenty million dollars ($20,000,000).

         8.4. Funding of the Research Program.


                  8.4.1. Sharing of Research Costs. Each of the Parties shall
bear fifty percent (50%) of the Research Costs with respect to any approved
Research Program incurred after the Effective Date; provided, however, that with
respect to any compound included in any approved Research Program as to which
DRL obtains a license for Japan prior to the date of the IND filing with the FDA
for such compound, (i) MKG shall bear thirty-three and three-tenths percent
(33.3%) of the Research Costs for such compound incurred on and after the IND
filing date for such compound and Metasyn and/or DRL will bear the balance of
such costs, as such costs may be apportioned between Metasyn and DRL in the
agreement between Metasyn and DRL, and Metasyn shall reimburse MKG for sixteen
and seven-tenths percent (16.7%) of the Research Costs for such compound
incurred prior to the IND filing date. MKG or Metasyn, as the case may be, will
reimburse the Party who recommended an approved Research Program to the Joint
Steering Committee for the appropriate percentage of the Research Costs incurred
by such Party (prior to approval) with respect to such approved Research Program
within thirty (30) days of such approval.

                  8.4.2. Advances. MKG agrees to advance to Metasyn within
thirty (30) days after the beginning of each calendar quarter an amount equal to
MKG's assigned percentage of the total Research Costs for such calendar quarter.

                  8.4.3. Annual Reconciliation. Within forty-five (45) days of
the close of each calendar year, Metasyn will provide to MKG a report setting
forth Metasyn's actual Research Costs for such year. MKG will, within one
hundred and twenty (120) days after the end of each calendar year, provide
Metasyn with a written report setting forth the total actual Research Costs of
the Parties for such calendar year, and reconciling the amounts of Research
Costs paid by each Party during such year (including any advance paid by MKG to
Metasyn) with the amounts due from each Party. Together with said report,
Metasyn will either make a payment to MKG or issue to MKG an invoice for any
balance due.

         8.5. Cash Flow Provisions. Metasyn shall use its reasonable efforts to
maintain an amount of cash and cash equivalents sufficient to cover its
anticipated operating expenses, including its estimated amount of the
Development Costs as set forth in the Annual Development Plan for such year and
Research Costs as set forth in the Annual Research Plan of such year, if any. If
at any time Metasyn's cash reserves are not sufficient to cover its anticipated
operating expenses, MKG shall, to the extent of actual cash shortfall, loan
Metasyn the amount required to cover Metasyn's portion of the Development Costs
and Research Costs, if any, which amounts shall bear interest at the Applicable
Interest Rate and shall be repayable in full as soon as Metasyn's cash reserves
are restored, but not later than thirty (30) days after of the First Commercial
Sale of the first Licensed Product in the Territory. Metasyn may request
payments from MKG from time to time pursuant to this Section 8.5 provided that
each such request shall


                                       20

<PAGE>



be made no earlier than ninety (90) days prior to the due date of the earliest
obligation for which such request is being made. MKG shall make each such loan
no later than twenty (20) days prior to the date on which Metasyn's earliest
obligation is due.


         8.6. Share of Operating Margins. Commencing upon the First Commercial
Sale of a Licensed Product, MKG agrees to pay Metasyn [ ]* of its Operating
Margin payable quarterly in United States dollars (in accordance with such
principles and procedures relative to exchange rates as the Parties shall agree)
within thirty (30) days of the close of each calendar quarter (each such payment
hereinafter referred to as a "Profit Payment"), subject to adjustment in
accordance with the audit provisions set forth in Section 8.8 below. It is also
the Parties intent that, should there be no distributable Operating Margin in
any given quarter but instead losses for that quarter, such losses shall be
borne solely by MKG.

         8.7. Operating Margin Reports. During the term of this Agreement
following the First Commercial Sale of the Licensed Products in the Territory,
MKG shall within sixty (60) days after each calendar quarter furnish to Metasyn
a written quarterly report showing: (i) the gross sales of the Licensed Products
sold by MKG, its Affiliates, and its sublicensees during the reporting period
and the calculation of Net Sales from such gross sales; (ii) any other revenues
relating to the Licensed Products, including but not limited to royalties and
any other payments from sublicensees; (iii) the Costs of Goods Sold for the
reporting period; (iv) the Sales and Marketing Costs for the reporting period;
(v) the exchange rates used in determining the amount of United States dollars;
and (vi) the Profit Payment payable for such period. MKG shall keep complete and
accurate records in sufficient detail to properly reflect all gross sales, Net
Sales, Costs of Goods Sold and Sales and Marketing Costs, and to enable the
Profit Payments payable hereunder to be determined.

         8.8. Audits by Metasyn. Upon the written request of Metasyn, MKG shall
permit an independent public accountant selected by Metasyn and acceptable to
MKG, which acceptance shall not be unreasonably withheld or delayed, to have
access during normal business hours to such records of MKG as may be reasonably
necessary to verify the accuracy of the reports of Development Costs and
Research Costs made by MKG pursuant to Sections 8.3.4 and 8.4.3 hereto,
respectively, and the Operating Margin reports described in Section 8.7 hereof,
in respect of any fiscal year ending not more than twelve (12) months prior to
the date of such request. All such verifications shall be conducted at Metasyn's
expense and not more than once in each calendar year. In the event such Metasyn
representative concludes that additional Profit Payments were owed to Metasyn
during such period, the additional Profit Payments, plus accrued interest at the
Applicable Interest Rate, shall be paid by MKG within thirty (30) days of the
date Metasyn delivers to MKG such representative's written report so concluding,
unless MKG shall have a good faith dispute as to the conclusions set forth in
such written report, in which case MKG shall provide written notice to Metasyn
within such thirty (30) day period of the nature of its disagreement with such
written report. The Parties shall thereafter, for a period of sixty (60) days,
attempt in good faith to resolve such dispute and if they are unable to do so
then the matter will be submitted to arbitration in accordance with Section
14.6.2. The fees charged by such representative shall be paid by Metasyn unless
the audit discloses that the Profit Payments payable by MKG for the audited
period are incorrect by more than ten percent (10%), in which case MKG shall pay
the reasonable fees and expenses charged by such representative. MKG

*Confidential information omitted and filed with the Commission.


                                       21

<PAGE>



shall include in each Third Party sublicense granted by it pursuant to this
Agreement a provision requiring the sublicensee to make reports to MKG, to keep
and maintain records of sales made pursuant to such sublicense and to grant
access to such records by Metasyn's representatives to the same extent required
of MKG under this Agreement. Metasyn agrees that all information subject to
review under this Section 8.8 or under any sublicense agreement is confidential
and that it shall cause its representatives to retain all such information in
confidence in accordance with the requirements of Article 10 below.

         8.9. Audits by MKG. Upon the written request of MKG, Metasyn shall
permit an independent public accountant selected by MKG and acceptable to
Metasyn, which acceptance shall not be unreasonably withheld or delayed, to have
access during normal business hours to such records of Metasyn as may be
reasonably necessary to verify Metasyn's Direct Costs under Section 8.3.2 hereof
and the reports of Development Costs and Research Costs made by Metasyn pursuant
to Sections 8.3.4 and 8.4.3 hereof, respectively, in respect of any fiscal year
ending not more than twelve (12) months prior to the date of such request. All
such verifications shall be conducted at MKG's expense and not more than once in
each calendar year. In the event that MKG's representative concludes that
adjustments should be made in MKG's favor with respect to such period, then any
appropriate payments shall be paid by Metasyn within thirty (30) days of the
date MKG delivers to Metasyn such representative's written report so concluding,
unless Metasyn shall have a good faith dispute as to the conclusions set forth
in such written report, in which case Metasyn shall provide written notice to
MKG within such thirty (30) day period of the nature of its disagreement with
such written report. The Parties shall thereafter, for a period of sixty (60)
days, attempt in good faith to resolve such dispute and if they are unable to do
so then the matter will be submitted to arbitration in accordance with Section
14.6.2 hereof. The fees charged by such representative shall be paid by MKG
unless the audit discloses that adjustments for the period are greater than ten
percent (10%), in which case Metasyn shall pay the reasonable fees and expenses
charged by such representative. MKG agrees that all information subject to
review under this Section 8.9 is confidential and that it shall cause its
representatives to retain all such information in confidence in accordance with
the requirements of Article 10 below.


                        ARTICLE 9. INTELLECTUAL PROPERTY

         9.1. Filing, Prosecution and Maintenance of MGH Patent Rights.

                  9.1.1. Responsibility and Costs. Metasyn shall, in
coordination with MGH, be responsible for the preparation, filing, prosecution
and maintenance of all patent applications and patents included in MGH Patent
Rights in the Territory, keeping MKG informed. All costs ("Costs") incurred by
Metasyn for the preparation, filing, prosecution and maintenance of all patents
and patent applications included in MGH Patent Rights in the Territory shall be
the responsibility of Metasyn.

                  9.1.2. Abandonment. If MGH notifies Metasyn of its intention
to abandon the prosecution of any patent applications under the MGH Patent
Rights or of its intention to refrain from making any payment or taking any
other action necessary to obtain or maintain a patent

                                       22

<PAGE>



under the MGH Patent Rights, Metasyn will thereafter, at its expense, take all
action necessary or appropriate to prosecute and/or maintain such MGH Patent
Rights in the Territory.

                  9.1.3. Notice of Infringement. MKG shall inform Metasyn
promptly in writing of any alleged infringement of MGH Patent Rights licensed
hereunder to MKG in the Territory by a Third Party of which it shall have
knowledge and provide any available evidence of such infringement to Metasyn and
Metasyn, in turn, shall promptly inform MGH of such alleged infringement of the
MGH Patent Rights.

                  9.1.4. Prosecution by MGH or Metasyn of MGH Patent Rights.
Under the MGH License, MGH has the first right to prosecute at its own expense
any infringements in the Territory of MGH Patent Rights in the Field. In the
event that MGH chooses not to prosecute such infringement of the MGH Patent
Rights in the Territory or, within six (6) months of receiving notice of such
infringement, is unsuccessful in causing the alleged infringer to desist and
shall not have brought or is not diligently enforcing an infringement action,
Metasyn has the right to bring such suit at Metasyn's expense. In such event,
Metasyn will so inform the Joint Steering Committee and it shall be the
responsibility of the Joint Steering Committee to determine which Party shall
bring such suit.

                  9.1.5. Prosecution Under the Direction of the Joint Steering
Committee. In the event that the Joint Steering Committee makes a determination
as to the appropriate Party to prosecute any infringement of which it is
informed pursuant to Section 9.1.4 above, the prosecution will be conducted
using counsel approved by the Joint Steering Committee, and no settlement,
consent judgment or other voluntary final disposition of the suit may be entered
into by either of the parties without the consent of the Joint Steering
Committee, which consent shall not unreasonably be withheld or delayed. In such
event, the costs of such prosecution will be considered Development Costs if
incurred during the Development Phase of any Licensed Product and Costs of Goods
Sold if incurred thereafter. Any recoveries will, after sharing with MGH as
provided in the MGH License, be treated as Net Sales. The Joint Steering
Committee will determine which Party will prosecute said infringement unless
both Parties agree it is in their best interest hereunder not to prosecute such
action.

                  9.1.6. Declaratory Actions. In the event that a declaratory
judgment action alleging invalidity or non-infringement of any of the MGH Patent
Rights in the Territory shall be brought against either Party, the Party against
which such action is brought shall notify the other Party and MGH in writing,
and the Parties shall consult concerning the action to be taken. MGH, at its
option, shall have the right within thirty (30) days after commencement of such
action to intervene and take over the sole defense of the action at its expense.
If MGH does not exercise the said option, the Parties shall have the right,
which they shall exercise, within sixty (60) days after commencement of such
action, to intervene, take over and duly prosecute the sole defense of the
action. No settlement, consent judgment or other voluntary final disposition of
the action may be entered into by the Parties without the consent of the Joint
Steering Committee. The costs of such defense will be considered Development
Costs if incurred during the Development Phase of any Licensed Product and Costs
of Goods Sold if incurred thereafter.

                                       23

<PAGE>



         9.2. Filing, Prosecution and Maintenance of Metasyn Patent Rights.

                  9.2.1. Prosecution and Maintenance. Metasyn shall be
responsible for maintenance of the Metasyn Patent Rights in the Territory in its
own name and at its own expense, keeping MKG informed.

                  9.2.2. Abandonment; Failure to Pay. Metasyn agrees that it
will not abandon the prosecution of any patent applications included within the
Metasyn Patent Rights nor shall it fall to make any payment or fail to take any
other action necessary to maintain a patent under the Metasyn Patent Rights.

                  9.2.3. Infringement by Others; Prosecution Under the Direction
of the Joint Steering Committee. Metasyn and MKG shall each promptly notify the
other in writing of any alleged or threatened infringement of patents or patent
applications included in the Metasyn Patent Rights licensed hereunder to MKG of
which they become aware, and the Joint Steering Committee shall consider the
action to be taken. In the event that the Joint Steering Committee elects to
prosecute the said infringement, it will determine which Party shall do so using
counsel approved by the Joint Steering Committee, and no settlement, consent
judgment or other voluntary final disposition of the suit may be entered into by
either of the Parties without the consent of the Joint Steering Committee. The
costs of such prosecution will be considered Development Costs if incurred
during the Development Phase of any Licensed Product and Costs of Goods Sold if
incurred thereafter. Any recoveries or damages derived from such action will be
treated as Net Sales.

                  9.2.4. Cooperation in Infringement Actions. In any
infringement suit instituted to enforce the Metasyn Patent Rights pursuant to
this Agreement, each Party shall cooperate in all respects and, to the extent
possible, have its employees testify when requested and make available relevant
records, papers, information, samples and the like.

                  9.2.5. Declaratory Actions. In the event that a declaratory
judgment action alleging invalidity or non-infringement of any of the Metasyn
Patent Rights in the Territory shall be brought against either Party, the Party
against which such action is brought shall notify the other Party in writing.
The Party against which such action is brought will defend said action using
counsel approved by the Joint Steering Committee, and no settlement, consent
judgment or other voluntary final disposition of the action may be entered into
by the Parties without the consent of the Joint Steering Committee. The costs of
such defense will be considered Development Costs if incurred during the
Development Phase of a Licensed Product and Costs of Goods Sold if incurred
thereafter.

         9.3. Infringement Action Against Either Party. In the event that a suit
or action is brought against either Party alleging infringement of any Third
Party patent right as a result of the exercise of MKG's rights under Section
3.1, such Party shall so notify the Joint Steering Committee. The Joint Steering
Committee determine which Party will defend said action, using counsel approved
by the Joint Steering Committee, and no settlement, consent judgment or other
voluntary final disposition of the action may be entered into by either Party
without the consent of the Joint Steering Committee. The costs of such defense
will be considered Development

                                       24

<PAGE>



Costs if incurred during the Development Phase of any Licensed Product and Costs
of Goods Sold if incurred thereafter.

         9.4. MKG Patent Rights.

                  9.4.1. Maintenance of MKG Patent Rights. MKG shall be
responsible for maintenance of the MKG Patent Rights at its own expense, keeping
Metasyn informed. MKG further hereby covenants to maintain the [ ]* in effect
during the term of this Agreement.

                  9.4.2. Abandonment; Failure to Pay. MKG agrees that it will
not abandon the prosecution of any patent application included within the MKG
Patent Rights nor shall it fail to make any payment or fail to take any other
action necessary to maintain any patent under the MKG Patent Rights. Further,
MKG covenants to make all payments with respect to and to perform all
obligations under the [ ]* to the extent necessary to ensure that
the [ ]* and all of MKG's rights thereunder will remain in full
force and effect.

                  9.4.3. Infringement by Others; Prosecution Under the Direction
of the Joint Steering Committee. Metasyn and MKG shall each promptly notify the
other in writing of any alleged or threatened infringement of patents or patent
applications included in the MKG Patent Rights of which they become aware, and
the Joint Steering Committee shall consider the action to be taken. In the event
that the Joint Steering Committee elects to prosecute the said infringement, it
will determine which Party will do so using counsel approved by the Joint
Steering Committee, and no settlement, consent judgment or other voluntary final
disposition of the suit may be entered into by either of the Parties without the
consent of the Joint Steering Committee. The costs of such prosecution will be
considered Development Costs if incurred during the Development Phase of any
Licensed Product and Cost of Goods Sold if incurred thereafter. Any recoveries
or damages derived from such action will be treated as Net Sales.

                  9.4.4. Cooperation in Infringement Actions. In any
infringement suit instituted to enforce the MKG Patent Rights pursuant to this
Agreement, each Party shall cooperate in all respects and, to the extent
possible, have its employees testify when requested and make available relevant
records, papers, information, samples and the like.

                  9.4.5. Declaratory Actions. In the event that a declaratory
judgment action alleging invalidity or non-infringement of any of the MKG Patent
Rights in the Territory shall be brought against either Party, the Party against
which such action is brought shall notify the other Party in writing. The Joint
Steering Committee will determine which Party will defend said action using
counsel approved by the Joint Steering Committee, and no settlement, consent
judgment or other voluntary final disposition of the action may be entered into
by either of the Parties without the consent of the Joint Steering Committee.
The costs of such defense will be considered Development Costs if incurred
during the Development Phase of a Licensed Product and Costs of Goods Sold if
incurred thereafter.

         9.5. Cooperation in Infringement Actions. In any infringement suit
either Party may institute to enforce or defend the Patent Rights or in which
either Party defend claims of


*Confidential information omitted and filed with the Commission.

                                       25

<PAGE>



infringement of Third Party patents pursuant to this Agreement, the other Party
hereto shall, at the request of the Party initiating or defending such suit,
cooperate in all respects and, to the extent possible, have its employees
testify when requested and make available relevant records, papers, information,
samples and the like.

         9.6. Cooperation. Each Party shall make available to the other Party
(or to the other Party's authorized attorneys, agents or representatives), its
employees, agents or consultants (at the former Party's reasonable expense) to
the extent reasonably necessary or appropriate to enable the appropriate Party
to file, prosecute and maintain patent applications and resulting patents as set
forth in this Article 9 for periods of time reasonably sufficient for such Party
to obtain the assistance it needs from such personnel. Where appropriate, each
Party shall sign or cause to have signed all documents relating to said patent
applications or patents at no charge to the other Party.


                           ARTICLE 10. CONFIDENTIALITY

         10.1. Nondisclosure Obligations.

                  10.1.1. General. Except as otherwise provided in this Article
9, during the term of this Agreement and for a period of ten (10) years
thereafter, both Parties shall maintain in confidence and use only for purposes
specifically authorized under this Agreement (i) information and data received
from the other Party resulting from or related to the development of the
Licensed Compound and the Licensed Products and (ii) all information and data
not described in clause (i) but supplied by the other Party under this Agreement
marked "Confidential." For purposes of this Article 10, information and data
described in clause (i) or (ii) shall be referred to as "Information."

                  10.1.2. Limitations. To the extent it is reasonably necessary
or appropriate to fulfil its obligations or exercise its rights under this
Agreement, a Party may disclose Information it is otherwise obligated under this
Section 10.1 not to disclose to its Affiliates, sublicensees, consultants,
outside contractors and clinical investigators, on a need-to-know basis on
condition that such entities or persons agree to keep the Information
confidential for the same time periods and to the same extent as such Party is
required to keep the Information confidential. In addition a Party or its
Affiliates or sublicensees may disclose such Information to government or other
regulatory authorities to the extent that such disclosure is reasonably
necessary to obtain patents or authorizations to conduct clinical trials of, and
to commercially market, the Licensed Compound, any Replacement Compounds, Second
Generation Compounds or Outside Compounds and their corresponding Licensed
Products. The obligation not to disclose Information shall not apply to any part
of such Information that: (i) is or becomes part of the public domain other than
by unauthorized acts of the Party obligated not to disclose such Information or
those of its Affiliates or sublicensees; (ii) can be shown by written documents
to have been disclosed to the receiving Party or its Affiliates or sublicensees
by a Third Party, provided such Information was not obtained by such Third Party
directly or indirectly from the other Party under this Agreement pursuant to a
confidentiality agreement; (iii) can be shown by competent evidence, prior to
disclosure under this Agreement, to already have been in the

                                       26

<PAGE>



possession of the receiving Party or its Affiliates or sublicensees, provided
such Information was not obtained directly or indirectly from the other Party
under this Agreement pursuant to a confidentiality agreement; (iv) can be shown
by written documents to have been independently developed by the receiving Party
or its Affiliates without breach of any of the provisions of this Agreement; or
(v) is disclosed by the receiving Party pursuant to interrogatories, requests
for information or documents, subpoena, civil investigative demand issued by a
court or governmental agency or as otherwise required by law, provided that the
receiving Party notifies the other Party immediately upon receipt thereof so
that such other Party (with the cooperation of the receiving Party) can seek a
protective order or other order limiting or preventing disclosure and provided
further that the disclosing Party furnishes only that portion of the Information
which it is advised by counsel is legally required under the circumstances.

         10.2. Samples. Samples of the Licensed Compound, Outside Compounds,
Second Generation Compounds and/or any Replacement Compound provided by either
Party to the other Party in the course of the Program shall not be supplied or
sent by either party to any Third Party, other than to regulatory agencies,
except pursuant to a written materials transfer and/or confidentiality agreement
in a form typical of that utilized by the appropriate party in its ordinary and
normal course of business.

         10.3. Terms of this Agreement. Except as provided in Section 10.4
hereof, Metasyn and MKG each agree not to disclose any terms or conditions of
this Agreement to any Third Party without the prior consent of the other Party,
except as required by applicable law. If either Party determines that it is
required to file this Agreement with the Securities and Exchange Commission or
other governmental agency for any reason, such Party shall request confidential
treatment of such portions of this Agreement as the Parties shall together
determine is appropriate. Notwithstanding the foregoing, prior to execution of
this Agreement, Metasyn and MKG have agreed upon the substance of information
that can be used as a routine reference in the usual course of business to
describe the terms of this transaction, and Metasyn and MKG may disclose such
information, as modified by mutual agreement from time to time, without the
other Party's consent as may be necessary from time to time.

         10.4. Publications.

                  10.4.1. Procedure. Each Party recognizes the mutual interest
in obtaining patent protection for inventions which arise under this Agreement.
In the event that either Party, its employees or consultants or any other Third
Party under contract to such Party wishes to make a publication (including any
oral disclosure made without obligation of confidentiality) relating to work
performed under this Agreement (the "Publishing Party"), such Party shall
transmit to the other Party (the "Reviewing Party") a copy of the proposed
written publication at least forty-five (45) days prior to submission for
publication, or an abstract of such oral disclosure at least thirty (30) days
prior to submission of the abstract or the oral disclosure, whichever is
earlier. The Reviewing Party shall have the right (a) to propose modifications
to the publication for patent reasons, (b) to request a delay in publication or
presentation in order to protect patentable information, or (c) to request that
the information be maintained as a trade secret and, in such case, the
Publishing Party shall not make such publication.


                                       27

<PAGE>



                  10.4.2. Delay. If the Reviewing Party requests a delay as
described in Section 10.4.1(b), the Publishing Party shall delay submission or
presentation of the publication for a period of ninety (90) days to enable
patent applications protecting each Party's rights in such information to be
filed.

                  10.4.3. Resolution. Upon the receipt of written approval of
the Reviewing Party, the Publishing Party may proceed with the written
publication or the oral presentation.

         10.5. Injunctive Relief. The Parties hereto understand and agree that
remedies at law may be inadequate to protect against any breach of any of the
provisions of this Article 10 by either Party or their employees, agents,
officers or directors or any other person acting in concert with it or on its
behalf. Accordingly, each Party shall be entitled to the granting of injunctive
relief or other equitable relief by a court of competent jurisdiction against
any action that constitutes any such breach of this Article 10, in addition to
any monetary damages to which a Party may be entitled.

                   ARTICLE 11. REPRESENTATIONS AND WARRANTIES

         11.1. Patent Validity. Nothing in this Agreement shall be construed as
a warranty or representation by Metasyn as to the validity or scope of any
Metasyn Technology or Patent Rights or that the exercise of the Patent Rights
will not infringe upon the rights of any Third Party. Notwithstanding the
immediately preceding sentence, except as may have been previously disclosed to
MKG, Metasyn is not aware that the Metasyn Technology or Patent Rights infringe
upon or in any manner interfere with the patent rights or intellectual property
rights of any Third Party.

         11.2. Accuracy of Exhibits C and E. Metasyn represents and warrants
that Exhibits C and E list all Patent Rights which are relevant to the
manufacture, use and sale of the Licensed Compound and its corresponding
Licensed Products in the Territory as of the Effective Date. To Metasyn's
knowledge, each of the Patent Rights set forth on Exhibit C and E is properly
issued and is not invalid (for reasons of fraud, inequitable conduct, over
breadth or for any other reason) and Metasyn is not aware of any facts and
circumstances that would provide an argument that any of such patents are
invalid due to obviousness, overbreadth or for any other reason.

         11.3. Authorization. Metasyn represents and warrants, to its actual
knowledge, it has all licenses or other rights to patents or intellectual
property that may be required to perform its obligations as contemplated
hereunder except as may have been previously disclosed to MKG.

         11.4. [ ]*. MKG represents and warrants that it has a license from
[ ]* under certain patents of [ ]* as previously disclosed by MKG to Metasyn,
that such license is in full force and effect as of the effective date of this
Agreement and, to its actual knowledge and not based on any investigation or
inquiry, that such license is valid and enforceable.


*Confidential information omitted and filed with the Commission.


                                       28

<PAGE>



                              ARTICLE 12. INDEMNITY

         12.1. MKG Indemnity Obligations. Subject to the provisions of Section
12.3, MKG agrees to defend, indemnify and hold Metasyn, its Affiliates and their
respective directors, officers, employees and agents harmless from all costs,
judgments, liabilities and damages arising from claims asserted by a Third Party
against Metasyn, its Affiliates or their respective directors, officers,
employees or agents arising in connection with or as a result of: (a) actual or
asserted violations of any applicable law or regulation by MKG, its Affiliates,
sublicensees or Third Party manufacturer by virtue of which the Licensed
Products manufactured, distributed or sold by MKG shall be alleged or determined
to be adulterated, misbranded, mislabeled or otherwise not in compliance with
such applicable law or regulation; (b) claims for bodily injury, death or
property damage attributable to a recall ordered by a governmental agency, or
required by a confirmed failure, of Licensed Products to the extent caused by
any act or omission to act by MKG or its Affiliates or agents in connection with
the manufacture, distribution, or sale of Licensed Products hereunder; or (c)
any negligent or willful or intentional act or omission to act by MKG, its
Affiliates or agents in any manner in connection with performance hereunder.

         12.2. Metasyn Indemnity Obligations. Subject to the provisions of
Section 12.3, Metasyn agrees to defend, indemnify and hold MKG, its Affiliates
and their respective directors, officers, employees and agents harmless from all
costs, judgments, liabilities and damages arising from claims asserted by a
Third Party against MKG, its Affiliates or their respective directors, officers,
employees or agents arising in connection with or as a result of: (a) actual or
asserted violations of any applicable law or regulation by Metasyn, its
Affiliates, sublicensees or Third Party manufacturer, if any, by virtue of which
the Licensed Products manufactured, distributed or sold by Metasyn shall be
alleged or determined to be adulterated, misbranded, mislabeled or otherwise not
in compliance with such applicable law or regulation; (b) claims for bodily
injury, death or property damage attributable to a recall ordered by a
governmental agency, or required by a confirmed failure, or Licensed Products to
the extent caused by any act or omission to act by Metasyn or its Affiliates or
agents in connection with the manufacture, distribution or sale of Licensed
Products hereunder; or (c) any negligent or willful or intentional act or
omission to act by Metasyn, its Affiliates or agents in any manner in connection
with performance hereunder.

         12.3. Product Liability. MKG and Metasyn understand and agree that,
because of the nature of the collaborative effort set forth in this Agreement,
should any Third Party claims be asserted against either or both of them or any
of their Affiliates that are in the nature of product liability claims, the
Parties will cooperate to ensure that such claims are defended, settled and
compromised in a manner that best protects the interests of both Parties
hereunder. Unless and until the other Party can demonstrate otherwise (which it
may do by a preponderance of competent evidence), it shall be presumed that any
Third Party claims relating to toxicology shall primarily be the responsibility
and liability of Metasyn to defend and any Third Party claims relating to the
manufacture of Licensed Products shall primarily be the responsibility and
liability of MKG to defend. The Party presumed responsible for defending such
claim shall select counsel to defend any such claim, subject to the approval of
the Joint Steering Committee, and will have the daily responsibility for
managing the defense of such claim, keeping the other Party informed of any
developments, issues or decisions that arise as a consequence of such claim. As

                                       29

<PAGE>



the Joint Steering Committee shall determine, the Parties may wish to procure
and maintain product liability insurance with responsible carriers in such
amounts and with such coverages and deductibles as the Joint Steering Committee
may deem appropriate under the circumstances.

         12.4. Contribution. Notwithstanding any other provision of this Article
12, to the extent it is possible to determine with accuracy, each Party shall
only be responsible hereunder for and shall only have the duty to indemnify and
hold harmless the other Party hereunder (as applicable) for that portion of any
loss, cost, damages or expense attributable to its acts or omissions to act. If,
in connection with any Third Party claim for which both Parties have
responsibility for any loss, cost, damage or expense, it is impossible to
determine with accuracy the relative proportion of responsibility of the
Parties, they shall each be responsible for an equal share of any such loss,
cost, damage or expense. In the event there is any dispute between the Parties
concerning their relative proportion of responsibility with respect to any Third
Party claim the Parties shall attempt to resolve such dispute within sixty (60)
days of the date it arises but, if they are unable to do so, the matter shall be
referred to arbitration for resolution pursuant to Section 14.6.2.

         12.5. Procedure. A Party or any of its Affiliates (the "Indemnitee")
that intends to claim indemnification under this Article 12 shall promptly
notify the other Party (the "Indemnitor") of any loss, claim, damage, liability
or action in respect of which the Indemnitee intends to claim such
indemnification, and the Indemnitor shall assume the defense thereof with
counsel mutually satisfactory to the Parties; provided, however, that an
Indemnitee shall have the right to retain its own counsel, with the fees and
expenses to be paid by the Indemnitor, if representation of such Indemnitee by
the counsel retained by the Indemnitor, in the opinion of an independent counsel
chosen by the Joint Steering Committee which counsel has not represented either
party, would be inappropriate due to actual or potential differing interests
between such Indemnitee and any other Party represented by such counsel in such
proceedings. An Indemnitee shall not be entitled to indemnification under this
Article 12 if any settlement or compromise of a claim is effected by the
Indemnitee without the consent of the Indemnitor, which consent shall not be
unreasonably withheld or delayed. The failure to deliver notice to the
Indemnitor within a reasonable time after the commencement of any such action,
if prejudicial to its ability to defend such action, shall relieve such
Indemnitor of any liability to the Indemnitee under this Article 12. The
Indemnitee under this Article 12, its employees and agents, shall cooperate
fully with the Indemnitor and its legal representatives in the investigation of
any action, claim or liability covered by this indemnification.


                     ARTICLE 13. EXPIRATION AND TERMINATION

         13.1. The Development Phase.

                  13.1.1. Expiration of the Development Phase. Unless this
Agreement is sooner terminated in accordance with the provisions of this Article
13, the term of the Development Phase shall expire with respect to a particular
compound upon receipt of final marketing approval and all required registration
of Licensed Products comprising such compound in all Major Market Countries.

                                       30

<PAGE>



                  13.1.2. Termination of Development Phase. The Development
Phase as to any compound may be terminated (a) at any time by the mutual consent
of the Parties or (b) by either Party upon written notice to the other if the
Joint Steering Committee has been unable to agree on the budget or scope of an
Annual Development Plan for a compound pursuant to Section 4.1.2 and, after the
matter has been submitted for arbitration pursuant to Section 7.2 hereof, the
terminating Party determines in good faith that it is unable to proceed with
development of such compound based on the determination of the arbitrator.

                  13.1.3. Existing Obligations. The expiration or termination of
the Development Phase with respect to any compound shall not relieve the Parties
of any obligation that accrued with respect thereto prior to such expiration or
termination.

                  13.1.4. Effect of Termination of the Development Program. In
the event that the Development Phase is terminated with respect to any compound
pursuant to Section 13.1.2, then such compound may not be designated as a Second
Generation Compound or a Replacement Compound by the Joint Steering Committee.
In such event, (a) all rights with respect to the use, manufacture, distribution
for sale and sale of such compound shall revert to the Party who was responsible
for adding such compound to the Program (the "Originating Party"), except that,
to the extent such compound has been jointly acquired through license, purchase
or otherwise, both Parties will have the right to use, manufacture, distribute
for sale and sell such compound on a non-exclusive basis, (b) to the extent
legally permissible, all additional action reasonably necessary shall be taken
by the Parties to assign all right, title and interest in and transfer
possession and control of the regulatory filings and regulatory approvals
relating to such compound to such Party and (c) the Originating Party shall be
free to develop or grant licenses to Third Parties with respect to such
compound. In the event that the Originating Party enters into an agreement with
a Third Party pursuant to clause (c) hereof and such Third Party will use data
generated during the Program, then the Originating Party shall provide in such
agreement that such Third Party shall reimburse the non-Originating Party for
the perceived value of such data, such value to be negotiated in good faith by
MKG and Metasyn taking into account the financial contributions of both Parties
to the generation of such data.

         13.2. The Research Program.

                  13.2.1. Expiration of Research Phase. Unless this Agreement is
sooner terminated in accordance with the provisions of this Article 13, the
Research Phase with respect to a particular compound shall expire upon the
designation of such compound as a Second Generation Compound in accordance with
Section 4.1.4 hereof.

                  13.2.2. Termination of the Research Program. Unless this
Agreement is sooner terminated in accordance with the provisions of this Article
13, the Research Program with respect to any compound may be terminated (a) at
any time upon the mutual consent of the Parties or (b) by either Party upon
written notice to the other if the Joint Steering Committee has been unable to
agree on the budget or scope of an Annual Research Plan for a compound pursuant
to Section 5.2.2 and, after the matter has been submitted for arbitration
pursuant to Section 7.2 hereof, the terminating Party determines in good faith
that it is unable to proceed with development of such compound based on the
determination of the arbitrator.

                                       31

<PAGE>



                  13.2.3. Existing Obligations. The expiration of the Research
Phase or termination of the Research Program with respect to any compound shall
not relieve the Parties of any obligation that accrued with respect thereto
prior to such expiration or termination.

                  13.2.4. Effect of Termination of the Research Program. In the
event that the Research Program is terminated with respect to any compound
pursuant to Section 13.2.2, then such compound may not be designated as a Second
Generation Compound or a Replacement Compound by the Joint Steering Committee.
In such event, (a) all rights with respect to the use, manufacture, distribution
for sale and sale of such compound shall revert to the Originating Party, except
that, to the extent such compound has been jointly acquired through license,
purchase or otherwise, both Parties will have the right to use, manufacture,
distribute for sale and sell such compound on a non-exclusive basis, (b) to the
extent legally permissible, all additional action reasonably necessary shall be
taken by the Parties to assign all right, title and interest in and transfer
possession and control of the regulatory filings and regulatory approvals
relating to such compound and (c) the Originating Party shall be free to develop
or grant licenses as Third Parties with respect to such compound. In the event
that the Originating Party enters into an agreement with a Third Party pursuant
to clause (c) hereof and such Third Party will use data generated during the
Program, then the Originating Party shall provide in such agreement that such
Third Party shall reimburse the non-Originating Party for the perceived value of
such data, such value to be negotiated in good faith by MKG and Metasyn taking
into account the financial contributions of both Parties to the generation of
such data.

         13.3. Expiration of this Agreement. Unless this Agreement is sooner
terminated in accordance with the provisions of this Article 13 hereof, this
Agreement shall remain in effect for so long as Licensed Products are being sold
anywhere in the Territory.


         13.4. Termination of this Agreement.

                  13.4.1. Termination by Either Party. This Agreement may be
terminated by either Party upon thirty (30) days notice (i) by reason of a
material breach (other than as provided in clauses (ii), (iii) or (iv) below) if
the breaching Party fails to remedy such breach within ninety (90) days after
written notice thereof by the non-breaching Party, (ii) if the other Party fails
to make any Profit Payment or any other payment of any kind as and when due in
accordance with the terms and procedures set forth herein and such failure is
not remedied within thirty (30) days after written notice thereof by the
nonbreaching party, (iii) if the other Party fails, for reasons within its
reasonable control, to meet one of its assigned product objectives listed in
Section 4.2 hereof within the specified period of time for such objective
(including any extensions granted pursuant to Section 4.2.3 hereof) or (iv) upon
bankruptcy, insolvency, dissolution or winding up of the other Party, except, in
the case of a petition in bankruptcy filed involuntarily against a Party, if
such petition is dismissed within sixty (60) days of the date of its filing.

                  13.4.2. Termination by Metasyn. This Agreement may be
terminated by Metasyn effective immediately if this Agreement is not approved
by the Mallinckrodt Group Inc. Board of Directors on or prior to September 24,
1996 (or such later date as the Parties may mutually agree upon). In the event
that Metasyn terminates this Agreement pursuant to this Section 13.4.2,


                                       32

<PAGE>



MKG shall [ ]* in the event of such termination.

         13.5. Effect of Expiration or Termination of This Agreement.

                  13.5.1. Existing Obligations. The expiration or termination of
this Agreement for any reason shall not relieve the Parties of any obligation
that accrued prior to such expiration or termination.

                  13.5.2. Effect of Termination by Metasyn. In the event that
this Agreement is terminated by Metasyn pursuant to Section 13.4, Metasyn shall
be entitled to claim from MKG in a court of competent jurisdiction all damages
or other relief which would otherwise be available to Metasyn at law or in
equity and (i) if Metasyn terminated pursuant to Section 13.4.1 above,
subsections (a)-(e) below shall apply and (ii) if Metasyn terminated pursuant to
Section 13.4.2 above, subsections (a)(i) and (d)(iv) below shall apply:

         (a) Termination of Licenses. (i) All licenses and rights granted to MKG
hereunder shall terminate and (ii) except as provided in clauses (b) and (d)
below, MKG will immediately cease to manufacture and sell the Licensed Compound,
any Replacement Compounds, any Second Generation Compounds and any Outside
Compounds and/or the corresponding Licensed Products;

         (b) Disposition of Inventory of Licensed Products. (i) MKG may dispose
of its inventory of Licensed Products on hand as of the effective date of
termination, and may fill any orders for Licensed Products accepted prior to the
effective date of termination, for a period of twelve (12) months after the
effective date of termination and (ii) within thirty (30) days after disposition
of such inventory and fulfillment of such orders (and in any event within
thirteen (13) months after termination) MKG will forward to Metasyn a final
report containing the details required by Section 8.7 hereof and pay Metasyn all
Profit Payments payable for such period;

         (c) Assignment of Trademark. MKG shall take all action reasonably
necessary to assign all of its right, title and interest in any trademark which
MKG shall have marketed or sold the Licensed Products, together with the
goodwill associated therewith, to Metasyn; provided, however, that Metasyn shall
thereafter identify to any Third Parties Metasyn as the supplier of any Licensed
Products;

         (d) Assignment of Regulatory Approvals; Manufacturing Rights; Clinical
Data; MKG Patent Rights. MKG shall, (i) to the extent legally permissible, take
all additional action reasonably necessary to assign all of its right, title and
interest in and transfer possession and control to Metasyn of the regulatory
filings prepared by MKG, and regulatory approvals received by MKG, to the extent
that such filings and approvals relate to the Licensed Compound, any Replacement
Compounds, Second Generation Compounds or Outside Compounds and/or their
corresponding Licensed Products, (ii) to the extent legally or contractually
permissible, grant Metasyn a worldwide, perpetual, exclusive, fully paid and
royalty-free right and license to use in


*Confidential information omitted and filed with the Commission.

                                       33

<PAGE>



the manufacture of the Licensed Products any technology or know-how developed by
MKG and/or its Third-Party manufacturer, if any, that is necessary or useful in
the manufacture of the Licensed Products, (iii) deliver to Metasyn any and all
documents containing data relating to preclinical or clinical trials of the
Licensed Compound, any Replacement Compounds, Second Generation Compounds or
Outside Compounds and/or their corresponding Licensed Products not previously
delivered by MKG to Metasyn pursuant to Sections 4.4 and 5.2.5 hereof and (iv)
to the extent legally or contractually permissible, grant to Metasyn a
nonexclusive, worldwide, royalty-free license to the MKG Patent Rights; and

         (e) Continuation of Manufacture. Subject to Metasyn having the
appropriate license rights or other consents, MKG shall continue to manufacture
Licensed Products and their respective compounds for Metasyn for a period of one
(1) year after such termination at [ ]* and thereafter at [ ]*; provided,
however, that in no event shall MKG be required to provide manufacturing of
Licensed Products and their respective compounds for Metasyn for a period beyond
the third anniversary of such termination by Metasyn. Metasyn agrees to use its
best efforts, subject to regulatory restraints, in transferring the manufacture
of Licensed Products and their respective compounds to a Third Party as soon
after any such termination as possible. For purposes of this Section 13.5.2(e),
Metasyn shall grant to MKG a nonexclusive, royalty-free worldwide sublicense
under the regulatory approvals and filings assigned to Metasyn pursuant to
Section 13.5.2(d)(i) and the right and license granted to Metasyn pursuant to
Section 13.5.2(d)(ii), which sublicense shall automatically terminate upon
Metasyn's written notice to MKG of the termination of MKG's manufacturing rights
hereunder.

                  13.5.3. Effect of Termination by MKG. In the event that this
Agreement is terminated by MKG pursuant to Section 13.4, MKG shall be entitled
to claim from Metasyn in a court of competent jurisdiction all damages or other
relief which would otherwise be available to MKG at law or in equity. Further,
in the event of any such termination by MKG pursuant to Section 13.4.1(i), (ii)
or (iii), and subject only to the provisions of Section 3.1.3, MKG's license
rights under Section 3.1 hereof shall (notwithstanding the provisions of Section
3.1) be considered to be exclusive, fully paid up and irrevocable, and shall not
otherwise be restricted or limited in any manner from the license grant and
related obligations set forth therein, and Metasyn shall grant to MKG a fully
paid up and irrevocable non-exclusive license in the Territory to the MGH Patent
Rights to the extent legally and contractually permissible.

                  13.5.4. Termination due to Termination of MGH License. In the
event this Agreement is terminated by MKG in accordance with Section 13.4 hereof
as a result of the termination of the MGH License, MKG shall have the rights
provided under Paragraph 10.7 of the MGH License to cause the licenses to the
MGH Patent Rights granted to it hereunder to remain in full force and effect.

                  13.5.5. Survival. The provisions of Articles 8 (with respect
only to payments accrued at the time of expiration or termination but not yet
paid) 9, 10 and 12, Section 14.10 and this Section 13.5 shall survive the
expiration or termination of this Agreement.


*Confidential information omitted and filed with the Commission.



                                       34

<PAGE>



                            ARTICLE 14. MISCELLANEOUS

         14.1. Force Majeure. Neither Party shall be held liable or responsible
to the other Party nor be deemed to have defaulted under or breached this
Agreement for failure or delay in fulfilling or performing any term of this
Agreement when such failure or delay is caused by or results from causes beyond
the reasonable control of the affected Party, including but not limited to fire,
floods, embargoes, war, acts of war (whether war is declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, acts of God or acts, omissions or delays in acting by any
governmental authority or the other Party; provided, however, that the Party so
affected shall use reasonable commercial efforts to avoid or remove such causes
of nonperformance, and shall continue performance hereunder with reasonable
dispatch whenever such causes are removed. Either Party shall provide the other
Party with prompt written notice of any delay or failure to perform that occurs
by reason of force majeure. The Parties shall mutually seek a resolution of the
delay or the failure to perform as noted above.

         14.2. Assignment. This Agreement may not be assigned or otherwise
transferred by either Party without the prior written consent of the other
Party; provided, however, that either Metasyn or MKG may, without such consent,
assign its rights and obligations under this agreement (i) in connection with a
corporate reorganization, to any Affiliate, all or substantially all of the
equity interest of which is owned and controlled by such Party or its direct or
indirect parent corporation, or (ii) in connection with a merger, consolidation
or sale of substantially all of such Party's assets to an unrelated Third Party
(which shall include, in the case of MKG, a sale of substantially all of the
assets of MKG's Medical Imaging division); provided, however, that such Party's
rights and obligations under this Agreement shall be assumed in writing by its
successor in interest in any such transaction and shall not be transferred
separate from all or substantially all of its other business assets, including
those business assets that are the subject of this Agreement. Any purported
assignment in violation of the preceding sentence shall be void. Any permitted
assignee shall assume all obligations of its assignor under this Agreement.

         14.3. Severability. Each Party hereby agrees that it does not intend,
by its execution hereof, to violate any public policy, statutory or common laws,
rules, regulations, treaty or decision of any government agency or executive
body thereof of any country or community or association of countries. Should one
or more provisions of this Agreement be or become invalid, the Parties hereto
shall substitute, by mutual consent, valid provisions for such invalid
provisions which valid provisions in their economic and other effects are
sufficiently similar to the invalid provisions that it can be reasonably assumed
that the Parties would have entered into this Agreement with such valid
provisions. In case such valid provisions cannot be agreed upon, the invalidity
of one or several provisions of this Agreement shall not affect the validity of
this Agreement as a whole or the validity of any portions hereof, unless the
invalid provisions are of such essential importance to this Agreement that it is
to be reasonably assumed that the Parties would not have entered into this
Agreement without the invalid provisions.

         14.4. Notices. Any consent, notice or report required or permitted to
be given or made under this Agreement by one of the Parties hereto to the other
shall be in writing, delivered personally or by facsimile (and promptly
confirmed by telephone, personal delivery or courier) or courier, postage
prepaid (where applicable), addressed to such other Party at its address
indicated

                                       35

<PAGE>



below, or to such other address as the addressee shall have last furnished in
writing to the addressor and shall be effective upon receipt by the addressee.

         If to Metasyn:          Metasyn, Inc.
                                 71 Rogers Street
                                 Cambridge, Massachusetts 02142-1118
                                 Attention: President
                                 Telephone:  1-617-499-1400
                                 Telecopy:   1-617-499-1414

         with a copy to:                 Palmer & Dodge LLP
                                 One Beacon Street
                                 Boston, Massachusetts 02108
                                 Attention:  F. Andrew Anderson, Esq.
                                 Telephone:  1-617-573-0100
                                 Telecopy:   1-617-227-4420

         If to MKG:                      Mallinckrodt Medical, Inc.
                                 675 McDonnell Boulevard
                                 St. Louis, Missouri 63134
                                 Attention:  President, Medical Imaging Division
                                 Telephone:  1-314-895-2249
                                 Telecopy:   1-314-895-7265

         with a copy to:                 Mallinckrodt Group Inc.
                                 7733 Forsyth Boulevard
                                 Attention:  General Counsel
                                 Clayton, Missouri 63105
                                 Telephone:  1-314-530-2040
                                 Telecopy:   1-314-530-2486

         14.5. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
the choice of laws provisions thereof.

         14.6. Dispute Resolution.

                  14.6.1. The Parties hereby agree that they will attempt in
good faith to resolve any controversy or claim arising out of or relating to
this Agreement promptly by negotiations. If a controversy or claim should arise
hereunder, the representatives of the Parties will confer at least once and will
attempt to resolve the matter. Except as provided in Article 7 hereof, if the
matter has not been resolved within fourteen (14) days of their first meeting,
the representatives shall refer the matter to the Chief Executive Officer of
Metasyn and the Chief Operating Officer of MKG. If the matter has not been
resolved within thirty (30) days of the first meeting of the Chief Executive
Officer of Metasyn and the Chief Operating Officer of MKG (which period may be
extended by mutual agreement), subject to rights to injunctive relief and
specific performance,

                                       36

<PAGE>



and unless otherwise specifically provided for herein, any controversy or claim
arising out of or relating to this Agreement, or the breach thereof, will be
settled as set forth in Section 14.6.2.

                  14.6.2. All disputes, controversies or differences which may
arise between the Parties out of or in relation to this Agreement or any default
or breach thereof may be resolved by arbitration in accordance with the American
Arbitration Association by one or more arbitrators appointed in accordance with
the said Rules. The arbitration shall take place in Chicago, Illinois. Any
decision or award resulting from the arbitration provided for herein shall be
final and binding on the Parties hereto. Notwithstanding the above, without
resort to arbitration in the first instance, either Party has the right to bring
suit in a court of competent jurisdiction against the other Party for (i) any
breach of such other Party's duties of confidentiality pursuant to Article 10 of
this Agreement and (ii) any infringement of its own proprietary rights by the
other Party. Judgment upon the arbitrator's award may be entered in any court of
competent jurisdiction. The award of the arbitrator may include compensatory
damages against either Party, but under no circumstances will the arbitrator be
authorized to, nor shall he, award punitive damages or multiple damages against
either Party. The Parties agree not to institute any litigation or proceedings
against each other in connection with this Agreement unless they have complied
with the provisions of this Section 14.6.2, as they may be applicable, unless
otherwise provided herein.

         14.7. Public Announcements. The Parties agree that press releases and
other announcements to be made by either of them in relation to this Agreement
shall be subject to the written consent of the other Party, which consent shall
not be unreasonably withheld or delayed, except to the extent that any such
press release is required to be made by law and the consent of the other Party
is not obtained after reasonable efforts to do so. The Parties will agree to
issue a joint press release immediately following the execution of this
Agreement, the form and content of which shall be reasonably satisfactory to
both Parties.

         14.8. Entire Agreement. This Agreement, together with the exhibits and
appendices hereto, contains the entire understanding of the Parties with respect
to the subject matter hereof. All express or implied agreements and
understandings, either oral or written, heretofore made are expressly merged in
and made a part of this Agreement. This Agreement may be amended, or any term
hereof modified, only by a written instrument duly executed by both Parties
hereto.

         14.9. Headings. The captions to the several Articles and Sections
hereof are not a part of this Agreement, but are merely guides or labels to
assist in locating and reading the several Articles and Sections hereof.

         14.10. Agreement Not to Solicit Employees. During the term of this
Agreement and for a period of two (2) years following the expiration pursuant to
Section 13.3 or termination pursuant to Section 13.4 of this Agreement, Metasyn
and MKG agree not to seek to persuade or induce any employee of the other
company to discontinue his or her employment with that company in order to
become employed by or associated with any business, enterprise or effort that is
associated with its own business.


                                       37

<PAGE>



         14.11. Exports. The Parties acknowledge that the export of technical
data, materials or products is subject to the exporting Party receiving any
necessary export licenses and that the Parties cannot be responsible for any
delays attributable to export controls which are beyond the reasonable control
of either Party. Metasyn and MKG agree not to export or reexport, directly or
indirectly, any information, technical data, the direct product of such data,
samples or equipment received or generated under this Agreement in violation of
any applicable export control laws or governmental regulations. Metasyn and MKG
agree to obtain similar covenants from their licensees, sublicensees and
contractors with respect to the subject matter of this Section 14.11.

         14.12. Waiver. The waiver by either Party hereto of any right hereunder
or the failure to perform or of a breach by the other Party shall not be deemed
a waiver of any other right hereunder or of any other breach or failure by said
other Party whether of a similar nature or otherwise.

         14.13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.



                                       38

<PAGE>



         IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first set forth above.


METASYN, INC.


By: /s/ Michael D. Webb
   --------------------------
Name:  Michael D. Webb

Title: President and Chief Executive Officer


MALLINCKRODT MEDICAL, INC.


By: /s/ Jim Carlile
   --------------------------
Name:  Jim Carlile

Title: President, Medical Imaging Division


MALLINCKRODT GROUP INC.


By: /s/ Mack G. Nichols
   --------------------------
Name:  Mack G. Nichols

Title: President and Chief Operating Officer


                                       39

<PAGE>




                                                                       EXHIBIT A



                            Base Case Scenario Model


                                      [ ]*


Addendum to Base Case Scenario Model:

Nothing in the Base Case Scenario Model will be construed to replace or
supersede the provisions in the Agreement. Where conflict exists between the
provisions of the Agreement and the Base Case Scenario Model contained in this
Exhibit A, the provisions of the Agreement will prevail. It is specifically
acknowledged and agreed by the Parties that the following modifications will be
made to the Base Case Scenario Model as soon as practicable after the Effective
Date of the Agreement:

         1. Japanese sales and operating margin will be modified to reflect the
         provisions of Section 3.2.4 of the Agreement; and

         2. The Base Case Scenario Model will be modified to exclude finance
         charges.


* Confidential information omitted and filed with the Commission.

                                       A-1

<PAGE>



                                                                       EXHIBIT B



                      Chemical Structure of Compound MS-325

                                      [ ]*


*Confidential information omitted and filed with the Commission.


                                       B-1

<PAGE>



                                                                       EXHIBIT C



                                                 MGH Patent Rights


1)       U.S. Patent No. 4,899,755, "Hepatobiliary NMR Contrast Agents," Randall
         B. Lauffer and Thomas J. Brady, Ser. No. 731,841, filed May 8, 1985,
         issued February 13, 1990.

2)       U.S. Patent No. 4,880,008, "In Vivo Enhancement of NMR Relaxivity,"
         Randall B. Lauffer, Ser. No. 860,540, filed May 7, 1986, issued
         November 14, 1989.

3)       Canadian Patent No. 1,264,663, "Hepatobiliary NMR Contrast Agents,"
         Randall B. Lauffer and Thomas J. Brady, Ser. No. 508,749, filed May 8,
         1986, issued January 23, 1990.

4)       European Patent Application, "Hepatobiliary NMR Contrast Agents,"
         Randall B. Lauffer and Thomas J. Brady, Ser. No. 86903806.7
         (Publication No. EP 0222886), filed May 8, 1986.

5)       Japanese Patent Application, "Hepatobiliary NMR Contrast Agents,"
         Randall B. Lauffer and Thomas J. Brady, Ser. No. 503050/86, filed
         May 8, 1986.

6)       European Patent Application, "Hepatobiliary NMR Contrast Agents,"
         Randall B. Lauffer and Thomas J. Brady, Ser. No. 95120005.4, filed
         December 18, 1995; a division of Ser. No. 86903806.7 (Publication No.
         EP 0222886), filed May 8, 1986.



                                       C-1

<PAGE>



                                                                       EXHIBIT D

                                MKG Patent Rights


         United States Patent No. 5,078,986 filed August 13, 1990 entitled
"Method For Enhancing Magnetic Resonance Imaging Using An Image Altering Agent
Containing An Excess of Chelating Agent" and issued January 7, 1992

by       Mark E. Bosworth
         Ronald M. Hopkins


Serial #567,850

                                       D-1

<PAGE>



                                                                       EXHIBIT E

                              Metasyn Patent Rights


1)       [ ]*

2)       [ ]*



*Confidential information omitted and filed with the Commission.

                                       E-1

<PAGE>



                                                                       EXHIBIT F



                          First Annual Development Plan


<TABLE>
<CAPTION>
                                         Quarter 3          Quarter 4          Quarter 1          Quarter 2
                                      (Jul-Sep 1996)      (Oct-Dec 1996)     (Jan-Mar 1997)      (Apr-Jun 1997)     Total
                                      --------------      --------------     --------------      --------------     -----
<S>                                   <C>                 <C>                <C>                 <C>                <C>
Metasyn:
- -------

Compounded prod. costs                [ ]*                [ ]*               [ ]*                [ ]*               [ ]*
Phase I Clinical costs
Toxicology Studies
Phase II Clinical costs
Miscellaneous costs
Investigators Meeting
Overhead (1)
Personnel costs
- ---------------

Total


MKG:

Direct Supplies                       [ ]*                [ ]*               [ ]*                [ ]*               [ ]*
Direct Chemicals
Medical & Regulatory
Travel
Outside Personnel
Overhead (1)
Depreciation (Building 50)(2)
Personnel costs

Total


Project Total


</TABLE>

(1) [ ]* Personnel Costs
(2) Subject to approval by joint steering committee



*Confidential information omitted and filed with the Commission.


                                       F-1

<PAGE>



                                                                      APPENDIX I



                                   MGH License



                        Filed herewith as Exhibit 10.14.

                                       I-1

<PAGE>



                                                                     APPENDIX II


                               Cost of Goods Sold


Cost of Goods Sold includes the following direct costs: direct materials,
inbound freight and freight between manufacturing sites and distribution
centers, direct labor including payroll taxes and reasonable fringe benefits,
containers and packaging materials and Launch Costs. Cost of Goods Sold excludes
the cost of syringes and delivery systems to the extent excluded from Net Sales.

Cost of Goods Sold also includes any royalties payable to MGH and other Third
Parties. The Parties hereby represent that there are currently no known Third
Parties other than MGH to whom royalties are or will be payable as of the
Effective Date of this Agreement.

It is the intent of the Parties that:

         (a) Costs of Goods Sold will include only overhead that is ordinary and
         necessary for the production of the Licensed Products;

         (b) Cost of Goods Sold will not include overhead cost or variances
         resulting from excess plant capacity, however, a reasonable allowance
         may be made for the production of Licensed Products during the first
         year of production; and

         (c) Cost of Goods Sold will exclude all group level expenses and
         allocations thereof.

Cost of Goods Sold includes a cost for overhead calculated as follows:

Overhead Related to the Production of Bulk Drug:
Allowable overhead includes costs for: indirect salaries and wages, payroll
taxes and fringe benefits, utilities, supplies and materials, outside services,
maintenance and repairs and depreciation; to the extent such costs are ordinary
and necessary for the manufacture of the Licensed Products.

The method of calculating and allocating overhead cost at the bulk production
facility will be determined and approved by the Joint Steering Committee at a
time a production facility is selected.

A standard product unit cost for the bulk drug manufacturing of Licensed Product
will be determined each fiscal year in conjunction with MKG budget process and
submitted for approval by the Joint Steering Committee. This standard product
cost will be used to cost units produced and sold. Variances from standard
related to the manufacturing of the Licensed Products will be allocated to Cost
of Goods Sold and Inventory, however unfavorable overhead variances caused by
decreases in plant capacity utilization are specifically excluded from Cost of
Goods Sold.


                                      II-1

<PAGE>



Overhead Related to Formulation of Bulk Drug:
Allowable overhead includes indirect salaries and wages, payroll taxes and
fringe benefits, freight, utilities, supplies and materials, outside services,
maintenance and repairs, and depreciation to the extent such costs are ordinary
and necessary for the manufacture of the Licensed Products.

Annual budget units produced X Labor hours per
100 units =  Total facility labor hours
                    required.

              Total allowable overhead costs
              Total facility labor hours required = Overhead rate per hour

Overhead rate per hour X Hours required to produce one unit = Overhead costs per
unit

A standard product cost for the formulation of Licensed Product will be
determined each fiscal year in conjunction with MKG budget process and submitted
for approval by the Joint Steering Committee. This standard product cost will be
used to cost units produced and sold. Variances from standard will be included
in Cost of Goods Sold if related to the manufacturing of the Licensed Product.
Unfavorable overhead variances caused by decreases in plant capacity utilization
are specifically excluded from Cost of Goods Sold.

Account Specification
The Parties agree to use their respective best efforts to specify within thirty
(30) days of the Effective Date of this Agreement the general ledger account
numbers of each Party that will be designated as either direct costs or overhead
costs.

Annual Review
The method overhead calculation allocation for both bulk drug production and
formulation will be reviewed annually and approved by the Joint Steering
Committee.

                                      II-2

<PAGE>



                                                                    APPENDIX III


                                Development Costs


Allowable Development Costs will include the following direct costs to the
extent they are ordinary and necessary for the development of the Licensed
Products:

         Direct salary and wages based upon budgeted personnel at actual hours
            and actual rates pursuant to the Annual Development Plan as amended
            from time to time by the Joint Steering Committee
         Payroll taxes and fringe benefits at a specified rate not to exceed
            [ ]* of direct salary and wages
         Travel
         Direct materials and direct supplies, including specialized software
         Direct costs for production of compound for clinical work or regulatory
         filings Regulatory filing costs Costs for outside services contracted
         with third parties related to performance
            of clinical trials
         External costs for consultants, temporary help and special studies.

It is the intent of the Parties that Development Costs will include only
overhead costs that are ordinary and necessary for the development of the
Licensed Products. Overhead costs will be charged by each Party to Development
Costs based on allowable cost items and an allocation method to be determined
and approved by the Joint Steering Committee. In no event will overhead,
exclusive of Building 50 depreciation, charged by the Parties to Development
Costs exceed [ ]* of their respective direct salaries and wages. Building 50
depreciation charged to Development Costs for the year ended June 30, 1997 will
not exceed [ ]*.

The Parties will use their respective best efforts to specify within thirty (30)
days of the Effective Date of this Agreement the general ledger account numbers
of each Party which will be designated as either direct costs or overhead costs.

Development Costs for any annual period will not exceed those budgeted under the
Annual Development Plan, unless approved by the Joint Steering Committee.


*Confidential information omitted and filed with the Commission.


                                      III-1

<PAGE>



                                                                     APPENDIX IV


                                 Research Costs


Research Costs will include the following direct costs to the extent they are
ordinary and necessary to conduct approved Research Program(s) (including such
costs incurred by a Party in connection with an approved Research Program prior
to approval by the Joint Steering Committee):

         Direct salary or wages
         Payroll taxes
         Fringe benefits
         Travel
         Direct supplies and direct materials
         Regulatory filings costs
         Costs for outside services contracted with third parties External costs
         for consultants and special studies.

It is the intent of the Parties that Research Costs will include only overhead
costs that are ordinary and necessary for research related to approved Research
Programs. Overhead costs will charged by each Party to Research Costs based on
allowable cost items and an allocation method to be determined and approved by
the Joint Steering Committee.

Research Costs for any annual period will not exceed those budgeted in the
approved Annual Research Plan, unless approved by the Joint Steering Committee.


                                      IV-1

<PAGE>


                                                                      APPENDIX V



                            Sales and Marketing Costs


Direct Sales Costs include ordinary and necessary: salaries, bonus, other
incentive compensation, payroll taxes, fringe benefits, supplies, telephone,
postage, automobile lease, insurance, automobile travel costs, airfare, meals,
hotels, tips, entertainment, conventions, employee recruiting, training, and
product samples.

Allowable Indirect Sales Costs, including the costs associated with selling
activities combined with other non-licensed product lines, will be allocated on
a percentage of Net Sales to total Net Sales basis. Such costs include:
salaries, payroll taxes, fringe benefits, national accounts sales, customer
service, order entry, customer invoicing, invoice collections, outside services,
sales training, depreciation, and distribution costs to the extent they are
ordinary and necessary for the sale of the Licensed Products.

Direct Marketing Costs include ordinary and necessary: salaries, bonus, payroll
taxes, fringe benefits, supplies, telephone, software, hardware, postage,
travel, meals, entertainment, training, employee recruiting, consulting, market
research, conventions, product samples, journal advertising, promotions,
premiums, educational material, brochures, sales aids, direct mail, and
seminars.

Allowable Indirect Marketing Costs will be allocated on a percentage of Net
Sales to total Net Sales basis. Such costs include: marketing administration
salaries, bonus, payroll taxes, fringe benefits, reimbursement services,
convention costs, legal, and shared promotions, to the extent they are ordinary
and necessary for sale of the Licensed Products.

Sales and Marketing Costs specifically exclude any and all costs and cost
allocations of corporate (Mallinckrodt Group level) selling, marketing general
and general expenses, divisional level general and administrative expenses, and
any other expenses that are not ordinary and necessary for the sale and
marketing of the Licensed Products.

Sales and Marketing Costs for any annual period will not exceed amounts budgeted
under the Annual Marketing Plan unless approved by the Joint Steering Committee.

                                       V-1




                                                                    Exhibit 23.2

                       Consent of Independent Auditors 

  We consent to the reference to our firm under the captions "Selected 
Financial Data" and "Experts" and to the use of our report dated April 12, 
1996 (except for Note 14, as to which the date is August 30, 1996) in the 
Amendment No. 3 to the Registration Statement (Form S-1 No. 333-17581) and 
the related Prospectus of EPIX Medical, Inc. for the registration of 
2,300,000 shares of its common stock. 

                                             /s/ Ernst & Young LLP

                                                 Ernst & Young LLP 

Boston, Massachusetts 
January 29, 1997 


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