As filed with the Securities and Exchange Commission on October 29, 1997
Registration No. 333-38399
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 1
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>
<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>
<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>
SUBJECT TO COMPLETION, DATED OCTOBER 29, 1997
[RED HERRING]
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.
[/RED HERRING]
PROSPECTUS
2,250,000 Shares
[EPIX LOGO]
Common Stock
All of the 2,250,000 shares of Common Stock offered hereby are being sold by
EPIX Medical, Inc. ("EPIX" or the "Company"). The Company's Common Stock is
quoted on the Nasdaq National Market under the symbol EPIX. On October 28, 1997,
the last reported sale price of the Common Stock was $12.00 per share.
See "Price Range of Common Stock."
----------------
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 ...... $ $ $
Total (3) ...... $ $ $
- --------------------------------------------------------------------------------
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company and the Selling Stockholder have granted to the Underwriters a
30-day option to purchase up to 217,500 and 120,000 additional shares of
Common Stock, respectively, on the same terms and conditions as set forth
above, solely to cover over-allotments, if any. If all such shares are
purchased, the total Price to Public, Underwriting Discount, Proceeds to
Company and Proceeds to the Selling Stockholder will be $ , $ , $ and $ ,
respectively. The Company will not receive any of the proceeds from the
sale of shares by the Selling Stockholder. See "Underwriting" and
"Principal and Selling Stockholders."
-----------------
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 , 1997, at the office of the agent of Hambrecht & Quist
LLC in New York, New York.
HAMBRECHT & QUIST
BANCAMERICA ROBERTSON STEPHENS
DAIN BOSWORTH
INCORPORATED
, 1997
<PAGE>
[INSIDE FRONT COVER]
PHASE II PATIENT STUDIES WITH MS-325
- --------------------------------------------------------------------------------
[EPIX LOGO]
EPIX Medical, Inc. is developing targeted contrast agents to improve the
capability of magnetic resonance imaging ("MRI") to diagnose human
disease. 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. EPIX is currently
evaluating MS-325 in Phase II clinical trials. The MRI images below were
obtained from patients in these trials. The Company does not have any
commercially available products at this time.
- --------------------------------------------------------------------------------
Thigh Vessels
(Illustration of thigh vessels)
<TABLE>
<S> <C> <C>
[Photograph: MRI of thigh vessels] -- Photograph: cross-section MRI image |-- Photograph: segmented cross-
-- Photograph: cross-section MRI image |-- Photograph: section MRI of
-- Photograph: cross-section MRI image |-- Photograph: femoral artery
</TABLE>
Left:
Enhanced thigh arteries and veins in a patient with suspected arterial blockage.
Center:
Enhanced cross-section images of thigh arteries and veins at three different
locations.
Right:
Expanded view of isolated enhanced femoral artery shown in
cross-section at three different locations.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Carotid Arteries
(Illustration of carotid arteries)
[Photograph: MRI of [Photograph: Cross-section
carotid arteries] MRI of carotid arteries]
</TABLE>
Left:
Enhanced left carotid arteries.
Right:
Cross-section of enhanced internal and external left carotid arteries.
- --------------------------------------------------------------------------------
Coronary Arteries
(Illustration of coronary arteries)
Enhanced left coronary artery. [Photograph: MRI of coronary artery]
- --------------------------------------------------------------------------------
THE IMAGES ABOVE ARE FROM PHASE II CLINICAL TRIALS 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.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF
1934. SEE "UNDERWRITING."
2
<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 is developing targeted contrast agents both to improve the capability
and expand the use of magnetic resonance imaging ("MRI") as a tool for
diagnosing human disease. 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 also
investigating additional imaging indications for MS-325, including pulmonary
embolism and myocardial perfusion. EPIX has entered into strategic alliances
with Mallinckrodt Inc. ("Mallinckrodt") and Daiichi Radioisotope Laboratories,
Ltd. ("Daiichi") for the development and commercialization of MS-325 and other
vascular contrast agents.
The Company completed a Phase I clinical trial of MS-325 in February 1997
and no clinically significant adverse events were reported. The Phase I clinical
trial yielded images and signal duration and intensity consistent with the
Company's belief that MS-325 enhanced MRI used earlier in the diagnostic pathway
will provide physicians with diagnostic information clinically equivalent to
X-ray angiography. The Company is currently conducting a Phase II clinical trial
to test the safety and preliminary efficacy of MS-325 for the evaluation of PVD
and a Phase II clinical trial to test the safety and feasibility of MS-325 for
the evaluation of CAD. In each of these clinical trials, the Company is
comparing MS-325 enhanced MRI to conventional X-ray angiography, the current
reference standard. In addition, the Company anticipates initiating a Phase II
clinical trial to test the safety and feasibility of MS-325 for detecting breast
cancer before the end of 1997.
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, particularly for
coronary arteries, have had limited success. Unlike most currently available MRI
contrast agents, which are non-specific, MS-325 is a targeted intravascular
contrast agent designed to bind to albumin, the most common blood protein.
Because of its affinity for albumin, MS-325 remains at high concentrations in
the bloodstream throughout the MRI exam and, consequently, provides the image
acquisition time and signal strength needed to obtain a high contrast, high
resolution image of the cardiovascular system. Like most currently available
non-specific contrast agents, MS-325 is designed to be excreted safely through
the kidneys over time. 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
over 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. It is estimated that over 3.3 million diagnostic X-ray angiograms
were performed in the United States in 1996 at an estimated cost of $6.0
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 1996 estimated procedure costs, that potential
savings to the United States healthcare system relating to the diagnosis of CAD
alone could exceed $2.0 billion.
3
<PAGE>
The Offering
<TABLE>
<S> <C>
Common Stock offered by the Company ..................... 2,250,000 shares
Common Stock to be outstanding after the offering ...... 10,938,547 shares (1)
Use of proceeds ....................................... To fund research and development, clinical
trials, facilities expansion and improvements,
working capital requirements and other general
corporate purposes. See "Use of Proceeds."
Nasdaq National Market symbol ........................... EPIX
</TABLE>
Summary Financial Information
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
March 31, Nine Months September 30,
---------------------- Ended Year Ended ----------------------
December 31, December 31,
1994 1995 1995 (2) 1996 1996 1997
-------- ----------- -------------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ..................... $1,700 $ 412 $ 900 $10,010 $9,635 $ 4,021
Operating income (loss) ...... (579) (2,820) (4,770) 269 2,471 (4,533)
Net income (loss) ............ (617) (2,778) (4,893) 268 2,338 (3,743)
Net income (loss) per share (3). (0.70) $ 0.03 $ 0.30 $ (0.45)
Shares used in per share
calculations (3) ............ 6,973 7,711 7,711 8,370
</TABLE>
<TABLE>
<CAPTION>
September 30, 1997
--------------------------
Actual As Adjusted (4)
--------- ----------------
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and marketable securities ...... $20,565 $45,445
Working capital ....................................... 19,219 44,099
Total assets .......................................... 23,265 48,145
Capital lease obligations, less current portion ...... 208 208
Total stockholders' equity ........................... 20,531 45,411
</TABLE>
- ---------------------
(1) Based on the number of shares outstanding at September 30, 1997. Excludes
1,673,104 shares of Common Stock issuable upon exercise of options
outstanding at September 30, 1997 at a weighted average exercise price of
$4.16 per share, of which options to purchase 438,252 shares were
exercisable, and 79,696 shares of Common Stock issuable upon exercise of
warrants outstanding at September 30, 1997 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 net income (loss) per share.
(4) As adjusted to give effect to sale of the 2,250,000 shares of Common Stock
offered by the Company hereby and the application of the net proceeds
thereof. See "Use of Proceeds" and "Capitalization."
---------------------
Except as otherwise noted, all information in this Prospectus assumes (i)
no exercise of the Underwriters' over-allotment option, and (ii) the sale of
2,250,000 shares of Common Stock by the Company. See "Underwriting." The shares
of Common Stock offered hereby involve a high degree of risk. Investors should
carefully consider the information set forth under "Risk Factors."
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 can there be any assurance 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 an initial public offering,
private sales of equity securities, equipment lease financings and license and
milestone 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 can be no assurance 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 MRI hardware and software, there can be no
assurance when, or if, these techniques will enable MS-325 to provide clinically
significant images in cardiac indications currently being pursued and whether
such advancements will be available on a commercially acceptable basis. 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 and market
acceptance both of MRI as an appropriate imaging technique for the
cardiovascular system 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."
5
<PAGE>
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 two of the Company's strategic
partners, are actively developing and marketing products that could 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, computer assisted tomography ("CT"), nuclear
medicine and ultrasound. Other companies are actively developing the
capabilities of the competing modalities to enhance their effectiveness in
imaging of the cardiovascular system. 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 principal 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 can be no assurance 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
6
<PAGE>
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 II 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. To
date, the Company has tested MS-325 in limited numbers of subjects in Phase I
and Phase II clinical trials. Although no clinically significant adverse events
from MS-325 in Phase II 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 trials proceed. 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 achieving promising results in
earlier trials. There can be no assurance that Phase II trials will be completed
or that 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,
the eligibility criteria for the study and the existence of concurrent clinical
trials of potentially competitive products. 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 and were MS-325 and those other products to be held
to fall within the claims of those third-party patents, 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 certain other 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 this third party
or another third party 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
7
<PAGE>
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."
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 Company's European and Japanese allowed patent applications
have been opposed by several parties. These oppositions will likely take several
years to finally resolve. While the Company believes that it will prevail in
these oppositions, there can be no assurance as to the scope of the claims that
will be maintained, if any, or the ultimate benefit, if any, of those claims to
the Company, in protecting its products.
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,
8
<PAGE>
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 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, 1997, the Company had accumulated net losses of approximately
$12.0 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
9
<PAGE>
geographic 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 an initial public
offering of Common Stock in February 1997, private sales of equity securities,
equipment lease financings and license and milestone payments from its strategic
partners. The Company believes that the net proceeds of this offering, together
with existing cash, cash equivalents and marketable securities, will be
sufficient to fund its operations through the second quarter of 1999. The
Company will be required to provide funds to develop MS-325 under its
agreement with Mallinckrodt and believes that it will need to raise 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, 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.
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 in the United States and, possibly, Japan. 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
10
<PAGE>
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 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."
Possible Volatility of Share Price. The market prices of the capital stock
of medical technology companies have historically been very volatile, and the
market price of the shares of the Company's Common Stock has been and may
continue to 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 (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
11
<PAGE>
Restated Certificate provides for staggered terms for the members of the Board
of Directors. A staggered Board of Directors and certain provisions of the
Restated Certificate, 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, is
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 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 42% 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
approval, facilities expansion and improvements 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 10,938,547 shares of Common Stock outstanding, assuming no
exercise of options and warrants outstanding on September 30, 1997. Of these
shares, approximately 4,558,819 shares, including the 2,250,000 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. All of the
remaining shares of Common Stock are currently eligible for sale under Rules 144
and 701 under the Securities Act. Stockholders of the Company, who will hold in
the aggregate 5,538,499 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 90
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. 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. 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. The Company has filed registration
statements under the Securities Act registering 2,099,901 shares of Common Stock
issuable under the Company's Amended and Restated 1992 Equity Incentive Plan and
66,666 Shares of Common Stock issuable under the Company's 1996 Director Stock
Option Plan. In addition, prior to January 1, 1998, the Company expects to file
a registration statement on Form S-8 registering a total of approximately 66,666
shares of Common Stock reserved for issuance under the Company's 1996 Employee
Stock Purchase Plan. 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 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."
12
<PAGE>
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 materially from those projected in any
forward-looking statement for a variety of reasons, including those 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 2,250,000 shares of
Common Stock offered by the Company hereby, at the assumed public offering price
of $12.00 per share and after deducting the underwriting discounts and estimated
offering expenses, are estimated to be $24,880,000 ($27,333,400 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 including, in
particular, to fund its research and development costs under its agreement with
Mallinckrodt, facilities expansion and improvements 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 this offering and its
existing cash, cash equivalents and marketable securities will be sufficient to
fund its operations through the second quarter of 1999. The Company believes
that it will 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 or debt financing, strategic alliances or from other sources,
prior to commercialization of any of its product candidates. 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."
14
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock began trading publicly on the Nasdaq National
Market on January 30, 1997 under the symbol EPIX. The following table sets
forth, for the periods indicated, the range of the high and low closing sale
prices for the Company's Common Stock:
<TABLE>
<CAPTION>
High Low
-------- -------
<S> <C> <C>
1997
First Quarter (from January 30, 1997) ......... $ 9.50 $6.63
Second Quarter ................................. 9.00 6.00
Third Quarter ................................. 12.00 8.25
Fourth Quarter (through October 28, 1997) ...... 14.00 12.00
</TABLE>
On October 28, 1997, the last reported sale price of the Common Stock was
$12.00 per share. As of September 30, 1997, there were approximately 69 holders
of record of the Company's Common Stock.
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.
THE COMPANY
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.
15
<PAGE>
CAPITALIZATION
The following table sets forth, at September 30, 1997, (i) the actual
capitalization of the Company and (ii) the capitalization of the Company on an
as adjusted basis to give effect to the issuance and sale by the Company of
2,250,000 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, 1997
---------------------------
Actual As Adjusted
------------ ------------
(in thousands)
<S> <C> <C>
Capital lease obligations, less current portion ........................ $ 208 $ 208
--------- ---------
Stockholders' equity:
Preferred Stock, $.01 par value; 1,000,000 shares authorized; no shares
issued or outstanding ............................................. -- --
Common Stock, $.01 par value; 15,000,000 shares authorized; 8,688,547
shares issued and outstanding actual; 10,938,547 shares issued and
outstanding as adjusted (1) ....................................... 87 109
Additional paid-in capital .......................................... 32,492 57,350
Accumulated deficit ................................................ (12,048) (12,048)
--------- ---------
Total stockholders' equity .......................................... 20,531 45,411
--------- ---------
Total capitalization ............................................. $ 20,739 $ 45,619
========= =========
</TABLE>
- ---------------------
(1) Excludes (i) 1,673,104 shares of Common Stock issuable upon exercise of
options outstanding at September 30, 1997 at a weighted average exercise
price of $4.16 per share, of which options to purchase 438,252 shares of
Common Stock were exercisable, and (ii) 79,696 shares of Common Stock
issuable upon exercise of warrants outstanding at September 30, 1997 at a
weighted average exercise price of $3.98 per share. See "Dilution,"
"Management--Stock Plans," "Description of Capital Stock" and Notes 8 and 9
to Notes to Financial Statements.
16
<PAGE>
DILUTION
As of September 30, 1997, the Company had a net tangible book value of
approximately $20.5 million, or $2.36 per share of Common Stock. Net tangible
book value per share represents the amount of total tangible assets, less total
liabilities, divided by the 8,688,547 shares of Common Stock then outstanding.
After giving effect to the sale of 2,250,000 shares of Common Stock offered
hereby at the assumed public offering price of $12.00 per share and after
deduction of the underwriting discounts and estimated offering expenses payable
by the Company, the adjusted net tangible book value of the Company as of
September 30, 1997 would have been $45.4 million, or $4.15 per share of Common
Stock. This represents an immediate increase in net tangible book value of $1.79
per share to existing investors and an immediate dilution of $7.85 per share to
new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share ........................... $ 12.00
Net tangible book value per share before the offering ............ $ 2.36
Increase in price per share attributable to new investors ...... 1.79
-------
Adjusted net tangible book value per share after the offering ...... 4.15
--------
Dilution per share to new investors .............................. $ 7.85
========
</TABLE>
The following table summarizes on a pro forma basis as of September 30,
1997 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 ...... 8,688,547 79.4% $34,651,761 56.2% $ 3.99 (1)
New investors ............... 2,250,000 20.6 27,000,000 43.8 $ 12.00
----------- ------ ------------ ------
Total .................. 10,938,547 100.0% $61,651,761 100.0%
=========== ====== ============ ======
</TABLE>
The foregoing computations assume no exercise of warrants or stock options
outstanding at September 30, 1997, at which date there were 1,673,104 shares of
Common Stock issuable upon exercise of outstanding options at a weighted average
exercise price of $4.16 per share, of which options to purchase 438,252 shares
of Common Stock 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," "Management--Stock Plans" and
"Description of Capital Stock."
- ---------------------
(1) Includes the sale of 2,300,000 shares of Common Stock at a price of $7.00
per share at the Company's initial public offering in February 1997.
17
<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, each of the two years in the period ended March 31, 1995 and the year
ended December 31, 1996 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, 1996 and 1995 and for the year ended
December 31, 1996, the nine months ended December 31, 1995 and the year 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,
1997 and 1996 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, 1997 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1997 or any future period. The following data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Financial Statements and the Notes thereto and
other financial information included herein.
<TABLE>
<CAPTION>
Year Ended
Period from inception March 31, Nine Months Nine Months Ended
(November 29, 1988) ------------------- Ended Year Ended September 30,
through March 31, December 31, December 31, -----------------------
1993 1994 1995 1995 (1) 1996 1996 1997
--------------------- -------- -------- ----------- ------------ --------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ........................ $ 1,000 $ 1,700 $ 412 $ 900 $10,010 $ 9,635 $ 4,021
Operating expenses:
Research and development ...... 470 1,382 2,407 4,165 6,879 4,952 6,286
General and administrative ... 841 897 825 1,505 2,862 2,212 2,268
------- ------- -------- -------- -------- ------- --------
Total operating expenses ...... 1,311 2,279 3,232 5,670 9,741 7,164 8,554
------- ------- -------- -------- -------- ------- --------
Operating income (loss) ......... (311) (579) (2,820) (4,770) 269 2,471 (4,533)
Interest income (expense), net 41 (38) 42 (123) (1) (133) 790
------- ------- -------- -------- -------- ------- --------
Net income (loss) ............... $ (270) $ (617) $ (2,778) $ (4,893) $ 268 $2,338 $ (3,743)
======= ======= ======== ======== ======== ======= ========
Net income (loss) per share (2) $ (0.70) $ 0.03 $ 0.30 $ (0.45)
======== ======== ======= ========
Shares used in per share
calculations (2) ............... 6,973 7,711 7,711 8,370
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
-------------------------------- ------------------------ September 30,
1993 1994 1995 1995 (1) 1996 1997
--------- -------- ----------- ----------- ----------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and marketable securities ...... $ 114 $4,154 $ 1,079 $ 150 $ 10,664 $20,565
Working capital (deficit) ........................... (142) 3,574 516 (1,327) 8,299 19,219
Total assets .......................................... 1,118 5,050 2,141 1,211 12,575 23,265
Capital lease obligations, less current portion ...... 13 292 107 342 176 208
Redeemable convertible preferred stock ............... -- 3,941 3,949 3,956 -- --
Total stockholders' equity (deficit) .................. 773 200 (2,552) (7,336) (7,240) 20,531
</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 net income (loss) per share.
18
<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
Since commencing operations in 1992, the Company has been engaged
principally in the research and development of its contrast imaging agent
product candidates as well as seeking various regulatory clearances and patent
protection. The Company has had no revenues from product sales and has incurred
net losses since inception through September 30, 1997 aggregating approximately
$12.0 million. The Company has received revenues only in connection with various
licensing and collaboration agreements.
The Company's initial product candidate, MS-325, an injectable MRI contrast
agent, is currently the Company's only product candidate undergoing human
clinical trials. In 1996, the Company formed a strategic alliance with Daiichi
related to the development and commercialization of MS-325 in Japan. In 1996 the
Company also formed a strategic alliance with Mallinckrodt related to the
development and commercialization of MS-325 worldwide, excluding Japan. The
Company completed a Phase I clinical trial of MS-325 in February 1997 and
commenced Phase II clinical trials of MS-325 in the second quarter of 1997.
During the second quarter of 1997, the Company also formed a strategic alliance
with Dyax Corp. ("Dyax") in which the parties will seek to identify and develop
novel diagnostic agents for imaging blood clots.
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 geographic areas.
Results of Operations
Comparison of Nine Months Ended September 30, 1997 and 1996
Revenues. Revenues for the nine-month period ended September 30, 1997 were
$4.0 million, as compared to $9.6 million for the corresponding period of 1996.
Revenues for the nine-month period ended September 30, 1997 included milestone
payments of $2.0 million received from Mallinckrodt and $900,000 received from
Daiichi. Revenues for the 1997 period also included $1.1 million received from
Mallinckrodt and Daiichi in connection with MS-325 development contracts.
Revenues for the nine-month period ended September 30, 1996 included a $6.0
million license fee received from Mallinckrodt and a $3.0 million license fee
(net of 10% foreign withholding tax) received from Daiichi, each related to the
formation of strategic collaborations to commercialize MS-325 in the respective
territories covered by the collaboration agreements. The 1996 revenues also
included $665,000 of development contract revenue earned from Mallinckrodt.
Research and development expenses. Research and development expenses for
the nine-month period ended September 30, 1997 were $6.3 million, as compared to
$5.0 million for the corresponding period of 1996. The increase primarily
reflected the added costs to support advancement of MS-325 through the
development program. The increased expense was also due to additional personnel
and resources to support research in the area of thrombus imaging and the
advancement of the Company's core technology. Research and development expenses
are expected to increase in future quarters as MS-325 continues in Phase II
clinical trials.
General and administrative expenses. General and administrative expenses
for the nine-month period ended September 30, 1997 were $2.3 million, as
compared to $2.2 million for the corresponding period of 1996. The increase was
primarily due to higher personnel costs associated with additions to senior
management in the
19
<PAGE>
second half of 1996 as well as the increased cost to build the infrastructure
needed to support development of MS-325 and new discovery programs. The
additional expenses of ongoing patent protection activities as well as those of
transitioning to and operating as a publicly held company also contributed to
the increase in general and administrative expenses in 1997 as compared to 1996.
Partially offsetting these increases were $250,000 of nonrecurring expense
incurred in 1996 in connection with the restructuring of a liver agent
development program which was terminated by the Company in 1995. The Company
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 a 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, 1997 was $816,000, as compared to $140,000 for the
corresponding period of 1996. This increase was the result of higher average
cash available for investment which was due largely to the Company's initial
public offering in February 1997. Interest expense for the nine-month period
ended September 30, 1997 was $27,000, as compared to $274,000 for the
corresponding period of 1996. The 1996 period included interest on promissory
notes and bridge loans which were outstanding during the first five months of
1996.
Comparison of Year Ended December 31, 1996 and Nine Months Ended December
31, 1995
Revenues. Revenues for the year ended December 31, 1996 were $10.0 million,
as compared to $900,000 for the nine-month period ended December 31, 1995.
Revenues for the year ended December 31, 1996 included $6.0 million in license
fees and approximately $1.0 million of development contract revenue from
Mallinckrodt. Revenues during 1996 also included $3.0 million in license fees
received from Daiichi for the rights to commercialize MS-325 in Japan. Revenues
for the nine-month period ended December 31, 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 year ended December 31, 1996 were $6.9 million, as compared to $4.2 million
for the nine-month period ended December 31, 1995. This increase was due
primarily to increased MS-325 development costs associated with the commencement
of Phase I clinical trials in September 1996.
General and administrative expenses. General and administrative expenses
for the year ended December 31, 1996 were $2.9 million, as compared to $1.5
million for the nine-month period ended December 31, 1995. The $1.4 million
increase was largely due to increased personnel costs associated with
recruitment and compensation of additional senior management (approximately
$390,000) and increased expenses for strategic consulting and business
development activities. 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 1996 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.
Interest income and expense. Interest income for the year ended December
31, 1996 was $288,000, as compared to $28,000, for the nine-month period ended
December 31, 1995. This increase was due to higher average cash available for
investment during 1996. Interest expense for the year ended December 31, 1996
was $289,000, as compared to $151,000 for the nine-month period ended December
31, 1995. This increase was due to higher borrowings under promissory notes and
bridge loans in 1996.
Liquidity and Capital Resources
The Company financed its operations from inception through September 30,
1997 primarily with $14.3 million in net proceeds from the Company's initial
public offering completed in February 1997, $18.4 million from private sales of
equity securities, $18.0 million received from third parties in connection with
collaboration and license arrangements, $1.4 million of equipment lease
financing and $1.3 million in interest income. From
20
<PAGE>
inception through September 30, 1997, the Company has incurred $30.8 million of
costs attributable to operating activities, including $21.6 million related to
the research and development of technology and new product candidates, including
MS-325.
The Company's principal source of liquidity consists of cash, cash
equivalents and marketable securities which totaled $20.6 million at September
30, 1997, as compared to $10.7 million at December 31, 1996.
The Company is eligible to receive additional payments of $2.4 million from
Daiichi upon the attainment of certain future MS-325 development milestones.
Under the Company's agreement with Mallinckrodt, Mallinckrodt and the Company
will generally share equally in future development costs of MS-325 up to a
specified maximum amount.
During the nine months ended September 30, 1997, the Company used
approximately $8.0 million of cash for operating activities, exclusive of
license fee revenues. The Company expects that its cash needs for operations
will increase significantly in the fourth quarter of 1997 due to planned
clinical trials and other expenses associated with the development of MS-325 and
new research and development programs.
The Company estimates that the net proceeds from this offering, together
with existing cash, cash equivalents and marketable securities, will be
sufficient to fund its operations through the second quarter of 1999. The
Company believes that it will need to raise 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. There can be no assurance that additional financing will be
available on terms acceptable to the Company, or at all. The Company's future
liquidity and capital requirements will depend on 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, 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.
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. In July 1997, the Company reached an
agreement which will enable it to lease its current facilities through December
31, 2002.
The Company has reported only tax losses to date and therefore has not paid
significant federal or state income taxes since inception. At December 31, 1996,
the Company had loss carryforwards of approximately $7.3 million available to
offset future taxable income. These amounts expire at various times through
2010. As a result of ownership changes resulting from sales of equity
securities, the Company's ability to use the loss carryforwards is subject to
limitations as defined in Sections 382 and 383 of the Internal Revenue Code of
1986, as amended (the "Code"). The Company currently estimates that the annual
limitation on its use of net operating losses through May 31, 1996 will be
approximately $900,000. Pursuant to Section 382 of the Code, the change in
ownership resulting from the initial public offering, the offering contemplated
hereby and any other future sale of stock may also limit utilization of losses
in any one year. The Company is also eligible for research and development tax
credits which can be carried forward to offset federal taxable income. The
annual limitation and the timing of attaining profitability may result in the
expiration of net operating loss and tax credit carryforwards before
utilization.
The Company does not believe that inflation has had a material impact on
its operations.
21
<PAGE>
BUSINESS
Overview
EPIX is developing targeted contrast agents both to improve the capability
and expand the use of MRI as a tool for diagnosing human disease. 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 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 also investigating additional
imaging indications for MS-325, including pulmonary embolism and myocardial
perfusion. EPIX has entered into strategic alliances with Mallinckrodt and
Daiichi for the development and commercialization of MS-325 and other vascular
contrast agents.
The Company completed a Phase I clinical trial of MS-325 in February 1997
and no clinically significant adverse events were reported. The Phase I clinical
trial yielded images and signal duration and intensity consistent with the
Company's belief that MS-325 enhanced MRI used earlier in the diagnostic pathway
will provide physicians with diagnostic information clinically equivalent to
X-ray angiography. The Company is currently conducting a Phase II clinical trial
to test the safety and preliminary efficacy of MS-325 for the evaluation of PVD
and a Phase II clinical trial to test the safety and feasibility of MS-325 for
the evaluation of CAD. In each of these clinical trials, the Company is
comparing MS-325 enhanced MRI to conventional X-ray angiography, the current
reference standard. In addition, the Company anticipates initiating a Phase II
clinical trial to test the safety and feasibility of MS-325 for detecting breast
cancer before the end of 1997.
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, particularly for
coronary arteries, have had limited success. Unlike most currently available MRI
contrast agents, which are non-specific, MS-325 is a targeted intravascular
contrast agent designed to bind to albumin, the most common blood protein.
Because of its affinity for albumin, MS-325 remains at high concentrations in
the bloodstream throughout the MRI exam and, consequently, provides the image
acquisition time and signal strength needed to obtain a high contrast, high
resolution image of the cardiovascular system. Like most currently available
non-specific contrast agents, MS-325 is designed to be excreted safely through
the kidneys over time. 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.
Magnetic Resonance Imaging Background
In an MRI exam, 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 less than 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 over 3,900 in 1996, during which year there were over 8.5
million MRI exams performed.
Underlying the economic and clinical advancement of MRI is the consistent
and rapid technological progress achieved by MRI equipment manufacturers such as
General Electric, Philips and Siemens. Over the past 10 years,
22
<PAGE>
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 by
more than 60% over the last five years.
MRI has been established as the imaging 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 currently precludes clinically
significant MRI of the coronary arteries. Several leading MRI manufacturers,
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 exams using the existing non-specific contrast
agents are limited by the rapid diffusion of these agents out of the vascular
system, which reduces the time during which an image can be acquired.
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 widespread clinical use of MRI to image the vascular
system.
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: Cardiac Indications
Background. It is estimated that over 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 1996 over
6.0 million patients in the United States underwent over 11.0 million various
diagnostic tests for the diagnosis of CAD at an estimated cost of over $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.
23
<PAGE>
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 geographic location
of the patient, type of medical setting in which the tests are administered and
physician practice patterns.
It is estimated that over 6.75 million patients enter the CAD diagnostic
pathway in the United States each year 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.
24
<PAGE>
[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. It is
estimated that over 800,000 stress echocardiograms were performed in
the United States in 1996 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. It is estimated that over 2.7 million nuclear stress
perfusion studies were conducted in the United States in 1996 at an
estimated cost of more than $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.
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, it is estimated that approximately
1.4 million such procedures were performed in the United States in
1996 at an approximate cost of more than $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 MRI to perform a noninvasive, integrated cardiac
exam for the diagnosis of CAD. Such a procedure will be designed to provide
information on coronary artery anatomy, including location of arterial
blockages, as well as cardiac perfusion and cardiac function data, 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. The Phase I clinical trial yielded images and signal duration and
intensity consistent with the Company's belief that MS-325 enhanced MRI used
earlier in the diagnostic pathway will provide physicians with diagnostic
information clinically equivalent to X-ray angiography. Although several leading
MRI equipment 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
25
<PAGE>
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 geographic 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 enhanced 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. 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 enhanced MRI 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 MS-325
enhanced MRI exam 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 would 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 1996, for
the over 3.44 million patients in the United States completing the traditional
diagnostic pathway, the total cost of the diagnostic work-up for CAD was more
than $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 MS-325 enhanced MRI exam is expected to provide physicians
with anatomic information early in the CAD work-up, the Company believes that
50% of the patients who undergo coronary X-ray angiography but do not ultimately
require invasive therapy would 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
1996 procedure costs.
26
<PAGE>
Figure 3--Estimated Savings: Traditional CAD diagnostic
pathway versus EPIX diagnostic 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 geographic 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 more than
400,000 PTCAs and 500,000 CABGs were performed in the United States in 1996,
only a small proportion of the patients undergoing these procedures received
follow-up coronary X-ray angiography ("relooks"). The Company estimates that
there are currently over 2.7 million patients who have undergone a CABG and over
2.1 million patients who have undergone a PTCA who are potential candidates for
a periodic relook. 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 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 over 300,000 patients
who are treated with thrombolytic therapy (streptokinase and TPA) each year.
MS-325: Peripheral Vascular 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
27
<PAGE>
are frequently indeterminate. CT can be used for certain peripheral vascular
indications, 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 exams of
the vascular system, which measure blood flow and do not image 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 the ability of MRI to provide a quantitative measurement of stenosis
required for accurate diagnosis. MRI exams 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 peripheral
vascular 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 can 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 1996.
Figure 4 below outlines the traditional diagnostic pathway for various forms of
PVD.
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 ---- Plethysmograph (IPG) | |
- ---------------------- Ankle Brachial Index (ABI) ----| |
| Ultrasound
|
|
|
[GRAPHIC OF HUMAN BODY]
</TABLE>
- --------------------------------------------------------------------------------
28
<PAGE>
The EPIX Approach to PVD Diagnosis. The Company believes that the use of
MS-325 enhanced 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
difficult to obtain detailed anatomic images beyond 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 evaluating PVD.
An MS-325 enhanced MRI exam 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 MS-325 enhanced MRI exam is
intended for use early in the PVD work-up. The Phase I clinical trial yielded
images and signal duration and intensity consistent with the Company's belief
that MS-325 enhanced MRI used earlier in the diagnostic pathway will provide
physicians with diagnostic information clinically equivalent to peripheral X-ray
angiography. Consequently, the Company believes that MS-325 enhanced 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 1996
procedure costs, the Company believes that the use of MS-325 enhanced 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 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 MS-325 enhanced MRI exam 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.
MS-325: Breast Cancer Indication
Background and Current Approach to Breast Cancer Diagnosis. Breast cancer
afflicts approximately 145,000 women in the United States each year and is the
second leading cause of death in women, resulting in over 40,000 deaths
annually. Mammography is currently the primary means of screening for breast
cancer and over 20 million mammograms are performed each year in the United
States. Between 10% and 15% of mammograms, however, are indeterminate and
further testing is required. Furthermore, approximately 20% to 25% of mammograms
provide sub-optimal information either because of dense breast tissue or
fibrocystic disease. The definitive diagnostic tests for breast cancer are
surgical excision or core biopsy, both of which are highly invasive procedures
and cost between $2,000 and $3,000 and between $500 and $1,000 per procedure,
respectively. Only 20% of the excisional and core biopsies indicate malignant
disease, suggesting that as many as 80% of these surgical procedures are
performed unnecessarily.
The EPIX Approach to Breast Cancer Diagnosis. The Company believes that
MS-325 enhanced MRI could provide a non-invasive means of detecting breast
cancer due primarily to the ability of MS-325 enhanced MRI to image
angiogenesis, which is an early indicator of malignant tumors and is
characterized by abnormal growth of blood vessels. In particular, the Company
believes that MS-325 enhanced MRI would assist physicians in diagnosing breast
cancer in the approximately 4.0 million women who have sub-optimal mammograms
each year. Furthermore, the Company believes MS-325 enhanced MRI will enable
physicians to discriminate between benign and malignant tumors in the
approximately 1.0 million women who currently undergo a biopsy.
29
<PAGE>
Business Strategy
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. 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 II clinical trials to test
the safety and preliminary efficacy of MS-325 for the evaluation of PVD and the
safety and feasibility of MS-325 for the evalulation of CAD. In addition, the
Company intends to commence a Phase II clinical trial to test the safety and
feasibility of MS-325 for detecting breast cancer in the fourth quarter of 1997,
after which it intends to conduct additional clinical trials for other
indications. In each of the clinical trials currently underway, the Company is
comparing MS-325 enhanced MRI to X-ray angiography, the current reference
standard.
Achieve market acceptance of MS-325. The Company intends to collect
pharmacoeconomic and clinical data that demonstrates that MS-325 enhanced MRI 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 clinical benefits and cost savings. The Company also intends to
further the market acceptance of MS-325 enhanced MRI by coordinating its
development efforts with the development efforts of leaders in the MRI equipment
industry.
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, imaging agent and MRI equipment 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 and Chief Scientific
Officer, while at Massachusetts General Hospital ("MGH"), allows targeting of a
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.
30
<PAGE>
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 which is engineered with the Company's proprietary RIME
technology and designed to bind to albumin, the most common blood protein. 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. Because of its affinity for albumin, MS-325 remains at high concentrations
in the bloodstream throughout the MRI exam and, consequently, provides the image
acquisition time and signal strength needed to obtain a high contrast, high
resolution image of the cardiovascular system. Like most currently available
non-specific contrast agents, MS-325 is designed to be excreted safely through
the kidneys over time.
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 completed a Phase I clinical trial of MS-325 in February 1997
and no clinically significant adverse events were reported. The Company also
recently completed enrollment in a Phase I dose escalation study. The Company
anticipates that the final audit of the data from the Phase I dose escalation
study will be completed in the first quarter of 1998.
In June 1997, the Company commenced a Phase II clinical trial to test the
safety and preliminary efficacy of MS-325 for the evaluation of PVD in the
carotid, iliac and femoral arteries. This Phase II trial is being conducted at
multiple clinical sites and will involve a blinded administration of several
doses to approximately 75 patients. In the trial, MS-325 enhanced MRI will be
compared to conventional X-ray angiography, the current reference standard, to
determine the location and degree of stenotic lesions. The Company believes,
based on the initial images available from this trial, that MS-325 might aid in
the identification and evaluation of stenotic lesions, although any comparisons
to X-ray angiography will not be available until completion of the trial. The
Company anticipates that the final audit of the Phase II data for the PVD trial
will be completed in the first half of 1998.
In September 1997, the Company commenced a Phase II clinical trial to test
the safety and feasibility of MS-325 for the evaluation of CAD. This Phase II
clinical trial is being conducted at multiple sites and will involve the
administration of a single dose to approximately 105 patients. As with the Phase
II PVD trial, MS-325 enhanced MRI will be compared to X-ray angiography, the
current reference standard, to determine the location and degree of stenotic
lesions. The Company anticipates that the final audit of the Phase II data for
the CAD trial will be completed in 1998.
The Company intends to commence a Phase II clinical trial to test the
safety and feasibility of MS-325 for detecting breast cancer during the fourth
quarter of 1997. The Company 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 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.
31
<PAGE>
Other Research and Development Programs
Thrombosis Imaging. The Company intends to develop novel contrast agents
for imaging thrombosis, commonly referred to as "blood clots." These clots can
occur in the legs, pelvis, or occasionally the arms where they are referred to
as deep vein thrombosis ("DVT") and can migrate to the lungs where they are
referred to as pulmonary emboli ("PE"). 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 PE and DVT. The
Company recently formed a strategic alliance with Dyax Corp. ("Dyax") to develop
novel contrast imaging agents for the diagnosis of severe blood clots in the
lungs and legs. See "--Strategic Alliances--Dyax Corp." 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 such contrast agents 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.
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, diagnostic imaging and MRI equipment 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, and with Dyax to
develop novel contrast agents for the diagnosis of severe blood clots in the
lungs and legs. See "Risk Factors--Dependence on Strategic Partners."
Mallinckrodt 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. 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.
32
<PAGE>
The Company received a $6.0 million license fee upon execution of the
agreement with Mallinckrodt and received an additional $2.0 million milestone
payment in July 1997. 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 independently 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.
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 earned a $900,000 milestone payment in June 1997.
Daiichi will be required to make future payments to EPIX up to an aggregate
amount of $2.4 million upon the achievement of certain MS-325 development
milestones. Daiichi also made a $5.0 million equity investment in the Company
and is required to make royalty payments to the Company on net sales of MS-325
in Japan.
Dyax Corp.
The Company and Dyax have formed a strategic alliance to develop novel
contrast imaging agents for the diagnosis of severe blood clots in the lungs and
legs. The companies will jointly identify and develop compounds that
specifically target PE and DVT for use as in vivo MRI and nuclear medicine
imaging agents for the diagnosis of these disorders.
Under the terms of the agreement, the two companies have agreed to use
Dyax's proprietary phage display technology to identify peptides that
specifically bind to PE and DVT. The Company will fund the phage display
screening program and provide expertise in MRI contrast technology for
development of MRI-specific imaging agents. Dyax will assume primary
responsibility for developing agents for use in nuclear medicine. Dyax will
receive royalties on sales of MRI products, and the Company will receive
royalties on sales of nuclear medicine products resulting from this
collaboration.
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
33
<PAGE>
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 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 two of the Company's
strategic partners, are actively developing and marketing 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 cardiovascular system
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, has been issued a
patent in Europe similar to those United States patents, and has received notice
of allowance for a similar patent application in Japan. The Company's European
patent and Japanese allowed patent application have been opposed by several
parties. These oppositions will likely take several years to finally resolve.
While the Company believes that it will prevail in these oppositions, there can
be no assurance as to the scope of the claims that will be maintained, if any,
or the ultimate benefit, if any, of those claims to the Company in protecting
its products. The Company has exclusively licensed five additional patents in
the United States. These patents have counterpart patent applications pending in
Japan and Europe. The Company has also received an additional United States
patent covering novel metal chelates and has a counterpart patent application
pending in Japan. 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 2006 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.
34
<PAGE>
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, 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 if MS-325 and those
other products were to be held to fall within the claims of those third-party
patents. If the agreement with Mallinckrodt is terminated by either party and
were MS-325 and those other products to be held to fall within the claims of
those third-party patents, 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 from this third party or another
third party 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 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
35
<PAGE>
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 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. MS-325 for use in preclinical and Phase I and II
clinical trials has been manufactured in accordance with GMP by outside
contractors. As part of its strategic alliance with the Company, Mallinckrodt
will serve as primary manufacturer for MS-325 thereafter worldwide except for in
Japan and, possibly, in Japan. 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,
36
<PAGE>
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.
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 investigational new drug
application ("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. FDA
reform bills have recently been passed by both the United States House of
Representatives and Senate and differences between the bills are presently being
discussed in conference committee. The effect, if any, of these bills, if they
were to become law, on the Company, MS-325 and the Company's other product
candidates is not known at this time.
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 completed a Phase I clinical trial for MS-325 in February 1997
and no clinically significant adverse events were reported. The Company also
recently completed enrollment in a Phase I dose escalation
37
<PAGE>
study. The Company anticipates that the final audit of the data from the Phase I
dose escalation trial will be completed in the first quarter of 1998. In June
1997, the Company commenced a Phase II clinical trial to test the safety and
preliminary efficacy of MS-325 for the evaluation of PVD and, in September 1997,
the Company commenced a Phase II clinical trial to test the safety and
feasibility of MS-325 for the evaluation of CAD. The Company anticipates
initiating a Phase II clinical trial to test the safety and feasibility of
MS-325 for detecting breast cancer before the end of 1997. 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 for a particular indication 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
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.
38
<PAGE>
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 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, including Medicare beneficiaries, covered by MCOs is expected to
grow in the United States over the next decade. In addition, a recently enacted
federal law overhauling Medicare may have the effect of increasing the number
and type of managed care plans available to Medicare beneficiaries. 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.
39
<PAGE>
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 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.
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 current
lease runs until December 31, 1997. The Company has entered into a new lease for
the same properties commencing January 1, 1998, terminating December 31, 2002.
The Company believes that its current facilities and currently available space
are adequate to meet its requirements for the foreseeable future.
Employees
As of October 21, 1997 the Company employed 42 persons on a full-time
basis, of which 31 were involved in research and development and 11 in
administration and general management. Eighteen 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.
40
<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 September 30, 1997:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------------------ ----- --------------------------------------------------
<S> <C> <C>
Michael D. Webb ........................ 39 President, Chief Executive Officer, Secretary and
Director
James E. Smith, Ph.D. .................. 54 Executive Vice President, Research and
Development
Randall B. Lauffer, Ph.D. ............... 40 Chief Scientific Officer and Director
E. Kent Yucel, M.D. ..................... 41 Senior Vice President and Chief Medical Officer
Susan M. Flint ........................... 46 Vice President, Regulatory Affairs
Stephen C. Knight, M.D. ............... 37 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) ...... 37 Chairman of the Board
Luke B. Evnin, Ph.D. (1)(2) ............ 34 Director
Stanley T. Crooke, M.D., Ph.D. (1) ...... 52 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.
41
<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 is currently a manager of Deer II & Co. LLC, Deer III & Co.
LLC and Deer IV & Co. LLC, the general partners of Bessemer Venture Partners II
L.P., Bessemer Venture Partners III L.P. and Bessemer Venture Partners IV L.P.,
respectively, related venture capital partnerships, where he has worked since
1986. He is responsible for Bessemer Venture Partners' venture capital
investment activities in healthcare and life sciences. He currently serves on
the boards of directors of Isis Pharmaceuticals, Inc., where he was a
co-founder, and several privately held healthcare companies. Mr. Gabrieli was a
founder, President and Director of GMIS, Inc., which was acquired in December
1996 by HBO & Co. He 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 1989, he has been Chairman and Chief Executive Officer of
Isis Pharmaceuticals, Inc. 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's Restated Certificate 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 2000, 1998 and
1999, respectively, and until their respective successors
42
<PAGE>
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 does not
meet collectively, its members are 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 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.
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.
43
<PAGE>
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, 6,666 of which are subject
to options outstanding as of September 30, 1997. 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.
44
<PAGE>
Executive Compensation
The following table sets forth certain compensation information for the
Chief Executive Officer of the Company and the four other highest paid executive
officers of the Company whose salary and bonus for the year ended December 31,
1996 exceeded $100,000 (together, the "Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------- -------------
Securities
Underlying All Other
Name and Principal Position Year Salary($) Bonus($)(1) Options (#) Compensation($)
- ----------------------------------- ------ ----------------- ----------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Michael D. Webb, ............... 1996 $175,000 $65,000 83,333 --
President and Chief Executive 1995 175,000 -- -- $30,000(2)
Officer
James E. Smith, Ph.D., ......... 1996 192,615(4) 63,000 139,999 --
Executive Vice President, 1995 82,238(5) -- -- --
Research and Development (3)
Randall B. Lauffer, Ph.D., ...... 1996 160,000 -- -- 1,100(6)
Chief Scientific Officer 1995 158,367 -- -- 1,100(6)
E. Kent Yucel, M.D. ............ 1996 132,637(8) 8,750 133,333 --
Senior Vice President and Chief 1995 1,500(9) -- 10,666 --
Medical Officer (7)
Susan M. Flint, (10) ............ 1996 107,500 44,800 16,666 --
Vice President, Regulatory Affairs 1995 98,282(11) -- 46,666 --
</TABLE>
- ---------------------
(1) Bonuses were earned in the year indicated and are generally paid in the
subsequent year.
(2) Consists of payment made upon commencement of employment with the Company.
(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 compensation in the amount of $37,200 paid by the Company for
consulting services.
(5) Consists of compensation paid by the Company for consulting services.
(6) Consists of life insurance premiums paid by the Company on behalf of Dr.
Lauffer on a policy for the benefit of Dr. Lauffer.
(7) Dr. Yucel became an employee of the Company in June 1996. Prior thereto, he
was engaged as a consultant to the Company.
(8) Includes compensation in the amount of $59,720 paid by the Company for
consulting services.
(9) Consists of compensation paid by the Company for consulting services.
(10) Ms. Flint became an employee of the Company in April 1995. Prior thereto,
she was engaged as a consultant to the Company.
(11) Includes compensation in the amount of $26,282 paid by the Company for
consulting services.
45
<PAGE>
Option Grants In Last Fiscal Year
The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 1996 by the Company to the
Named Executive Officers.
<TABLE>
<CAPTION>
Individual Grant
-------------------------------------------------------- Potential Realizable Value
Number of Percent of at Assumed Annual Rates
Securities Total Options of Stock Price Appreciation
Underlying Granted to Exercise or for Option Terms ($)(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
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
Randall B. Lauffer, Ph.D. 0 -- -- -- -- --
E. Kent Yucel, M.D. ...... 133,333(5) 17.7 4.500 6/17/06 377,336 956,243
Susan M. Flint ............ 16,666(6) 2.2 5.250 8/7/06 55,026 139,447
</TABLE>
- ---------------------
(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 each of February 23, 1996 and February 23, 1997. The option also became
exercisable as to 20% of the shares on August 21, 1996 (30 days after the
receipt by the FDA 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 on
February 23 of each of 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.
46
<PAGE>
(5) The option became exercisable with respect to 16,667 shares on July 17,
1996. The option also became exercisable with respect to 16,667 shares on
each of September 13, 1996 and September 13, 1997 and becomes exercisable
with respect to 16,667 shares on September 13 of each of 1998, 1999 and
2000. The option also becomes exercisable with respect to 16,666 shares:
[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) June 13, 2005; and
[bullet] 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) June 13, 2005.
(6) 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.
Aggregated Option Exercises In Last Fiscal Year And Fiscal Year-End Option
Values
The following table sets forth certain information concerning exercisable
and unexercisable stock options held by the Named Executive Officers as of
December 31, 1996:
<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
James E. Smith, Ph.D. ...... -- -- 42,666 97,333 327,462 599,532
Randall B. Lauffer,
Ph.D. ..................... -- -- -- -- -- --
E. Kent Yucel, M.D. ......... -- -- 35,467 108,532 149,707 465,487
Susan M. Flint ............... -- -- 14,667 48,665 118,012 311,632
</TABLE>
- ---------------------
(1) There was no public trading market for the Company's Common Stock as of
December 31, 1996. Values are 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.
47
<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 2,099,901 shares of Common
Stock, subject to adjustment for stock-splits and similar capital changes. The
Board of Directors or, at the election of the Board of Directors, the
Compensation Committee, administers the Equity Plan. Awards under the Equity
Plan can be granted to officers, employees, consultants and other persons
affiliated with the Company. The Board of Directors or Compensation Committee,
as the case may be, 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 September 30, 1997, options to purchase an aggregate of 1,989,819
shares of Common Stock had been granted under the Equity Plan. Options to
purchase 246,392 shares were exercised as of such date and options to purchase
70,323 shares were cancelled. Of the options to purchase an aggregate of
1,673,104 shares of Common Stock that were outstanding as of such date, options
to purchase 438,252 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 Board of Directors or, at the election of the Board of Directors, 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.
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 manager of
the General Partner of Bessemer Venture Partners, a venture capital firm and a
principal stockholder of the Company. See "Certain Transactions" and "Principal
and Selling Stockholders."
48
<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 (13) to the
table set forth under "Principal and Selling Stockholders." Christopher F. O.
Gabrieli, Chairman of the Company, is a manager of Deer III & Co. LLC, the
General Partner of Bessemer Venture Partners III L.P. See footnotes (3) and (12)
to the table set forth under "Principal and Selling 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 converted into an aggregate of 578,886 shares of Common
Stock concurrently with the closing of the initial public offering in February
1997) at a price of $5.76 per share.
In May 1996, the Company sold an aggregate of 1,700,002 shares of Series D
Convertible Preferred Stock (which converted into an aggregate of 1,133,325
shares of Common Stock upon the closing of the initial public offering in
February 1997) 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 converted into an aggregate of 954,872 shares of Common
Stock concurrently with the closing of the initial public offering in February
1997 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;
49
<PAGE>
4,296 shares held by Prosper Partners; 642,837 shares 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 September 30,
1997, the outstanding amounts on these loans were $58,696 and $54,955,
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 September 30, 1997, the outstanding amount on this loan was
$196,720. Each of these loans is subject to acceleration upon the voluntary
termination of Dr. Lauffer's employment, among other events.
In February 1997, Bessemer Venture Partners III L.P. and certain persons
and entities related to Bessemer Venture Partners III L.P. and Accel IV L.P.
purchased an aggregate of 344,740 shares of the Company's Common Stock in
connection with the Company's initial public offering on the same terms as sales
to other investors in the offering at the initial public offering price of $7.00
per share.
50
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table and footnotes set forth certain information regarding
the beneficial ownership of the Company's Common Stock as of September 30, 1997
by (i) persons known by the Company to beneficially own 5% or more of the
Company's Common Stock, (ii) the Named Executive Officers (including the Selling
Stockholder), (iii) each director of the Company and (iv) all current executive
officers and directors as a group:
<TABLE>
<CAPTION>
Percentage of Shares
Number of Shares Beneficially Owned (1)
Beneficially -----------------------
Owned
Prior to Shares Before After
Beneficial Owners Offering (1) Offered Offering Offering
- ---------------------------------------------------- ----------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Accel IV L.P. and certain related persons (2) 1,559,801 -- 17.93% 14.24%
428 University Avenue
Palo Alto, CA 94301
Bessemer Venture Partners III
L.P. and certain related persons (3) ............ 1,596,999 -- 18.35 14.58
Bessemer Venture Partners
1025 Old Country Road
Suite 205
Westbury, NY 11590
Daiichi Radioisotope Laboratories, Ltd. (4) ...... 578,885 -- 6.66 5.29
17-10, Kyobashi 1-chome Chuo-ku
Tokyo, 104 Japan
Affiliates of Advent International Corporation (5) 455,019 -- 5.24 4.16
101 Federal Street
Boston, MA 02110
Michael D. Webb (6) .............................. 171,845 -- 1.96 1.56
Randall B. Lauffer, Ph.D. (7) ..................... 1,261,664 120,000(8) 14.52 11.53
James E. Smith, Ph.D. (9) ........................ 58,666 -- * *
E. Kent Yucel, M.D. (10) ........................ 52,134 -- * *
Susan M. Flint (11) .............................. 22,667 -- * *
Christopher F. O. Gabrieli (12) ................. 1,696,126 -- 19.49 15.49
Luke B. Evnin, Ph.D. (13) ........................ 1,559,801 -- 17.93 14.24
Stanley T. Crooke, M.D., Ph.D. (14) ............... 21,041 -- * *
All current executive officers and directors as
a group (10 persons) (15) ........................ 4,905,373 -- 54.34% 43.50%
</TABLE>
- ---------------------
* Indicates less than 1%.
(1) Assumes no exercise of the over-allotment option. The number of shares of
Common Stock deemed outstanding after this offering assumes 2,250,000
shares of Common Stock are sold by the Company 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 outstanding options that may be exercised within 60 days after September
30, 1997.
(2) Consists of the following shares and warrants exercisable within the
60-day period following September 30, 1997: 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. and 29,885
shares and a warrant to purchase 253 shares held by Accel Keiretsu L.P.
Also includes 17,860 shares owned by Luke B. Evnin. Does not include 9,435
shares and a warrant to purchase 80 shares held by Prosper Partners and
34,604 shares and a warrant to purchase 293 shares held by Ellmore C.
Patterson Partners. Also, does not include 111,880 shares held by persons
associated with Accel IV LP., Accel Investors '93 L.P. and Accel Keiretsu
L.P. 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. Breyer, Paul H.
Klingenstein, Luke B. Evnin, Eugene
51
<PAGE>
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, Breyer, 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.
(3) Includes 31,052 shares held by persons associated with Bessemer Securities
Corporation, the parent of the limited partner of Bessemer Venture Partners
III L.P. ("BVP"), as to which BVP has the power to vote and as to which BVP
and Deer III & Co. LLC ("Deer"), the general partner of BVP, disclaim
beneficial ownership, and 27,094 shares held by BVP III Special Situations
L.P. ("BVP SS"), as to which Deer, as the general partner of BVP SS, has
voting and investment control and as to which BVP disclaims beneficial
ownership and Deer disclaims beneficial ownership except to the extent of
its partnership interest in BVP SS. Also includes a warrant to purchase
13,333 shares exercisable within the 60-day period following September 30,
1997 held by Bessemer Venture Partners III L.P. Does not include 189,331
shares held by members of Deer and persons associated with such members of
Deer.
(4) Junzo Okuda, 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 97,679 shares subject to options exercisable within the 60-day
period following September 30, 1997.
(7) Includes 46,666 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.
(8) The shares are being offered by Randall B. Lauffer, Ph.D., individually as
part of the Underwriters' overallotment option. Assuming full exercise of
the underwriters' over-allotment option, Dr. Lauffer will beneficially own
10.23% of the shares after the offering.
(9) Consists of shares subject to options exercisable within the 60-day period
following September 30, 1997.
(10) Consists of shares subject to options exercisable within the 60-day period
following September 30, 1997.
(11) Consists of shares subject to options exercisable within the 60-day period
following September 30, 1997.
(12) Includes 1,583,666 shares as to which Mr. Gabrieli, as a manager of Deer,
may be deemed to have voting or investment control and as to which Mr.
Gabrieli disclaims beneficial ownership except to the extent of his member
interest in Deer. Also includes a warrant to purchase 13,333 shares
exercisable within the 60-day period following September 30, 1997 held by
Bessemer Venture Partners III L.P.
(13) 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.
(14) Consists of options exercisable within the 60-day period following
September 30, 1997.
(15) See footnotes (2), (3), (6), (7) and (9)--(14) above. Includes an
additional 338,478 shares subject to options exercisable within the 60-day
period following September 30, 1997.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company currently consists of
15,000,000 shares of Common Stock, $.01 par value per share, and 1,000,000
shares of Preferred Stock, $.01 par value per share. As of the date of this
Prospectus, the Company had 69 shareholders of record. Upon the closing of this
offering, the Company will have 10,938,547 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 (which are 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. 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's Board of Directors has 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." No shares of
Preferred Stock are currently outstanding and 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
(collectively, the "Warrants"). Upon the closing of the Company's initial public
offering in February 1997, each of the Warrants automatically became exercisable
for the number of shares of Common Stock into which the shares of Preferred
Stock issuable upon exercise of such Warrants immediately prior to such closing
was convertible. Such Warrants include: (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 are currently exercisable
for an aggregate of 36,618 shares of Common Stock at an exercise price of $3.27,
(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 is currently
exercisable for 7,601 shares of Common Stock at an exercise price of $2.27,
(iii) a warrant exercisable for 13,218 shares of Company's Series C Convertible
Preferred Stock at an exercise price of $4.54 per share which is currently
exercisable for 8,812 shares of Common Stock at an exercise price of $6.81 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 are currently exercisable for an aggregate of 26,665 shares of Common
Stock at an exercise price of $4.50. The Warrants will expire January 31, 2001.
The exercise price of each 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 Warrant is exercisable is subject to adjustment in the
event of a merger or reclassification by the Company.
53
<PAGE>
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 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.
The Company is 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
Limited Partnership.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 10,938,547 shares
of Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option or of any other outstanding options. Of these shares,
approximately 4,558,819 shares including the 2,250,000 shares sold in this
offering, will be freely transferable, without restriction or further
registration under the Securities Act, except for shares purchased or held by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act.
The remaining 6,379,728 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. All of these remaining shares of Common
Stock are currently eligible for sale under Rules 144 and 701. Stockholders of
the Company, holding in the aggregate 5,538,499 shares of Common Stock, have
agreed to enter into the 90-day lock-up agreements described below.
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 one year 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 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 90-day period following the effective date of the
Registration Statement.
The Company has filed registration statements under the Securities Act
registering 2,099,901 shares of Common Stock issuable under the Equity Plan and
66,666 Shares of Common Stock issuable under the Director Plan. In addition, the
Company plans to file a registration statement under the Securities Act to
register approximately 66,666 shares of Common Stock issuable under the Purchase
Plan by January 1, 1998. The shares issuable under the Equity Plan and Director
Plan are and, upon registration, the shares issuable under the Purchase Plan
will be, eligible for immediate resale upon issuance, 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 4,750,289 shares of Common Stock (the "Registrable Shares")
are entitled to certain rights with respect to registration of the Registrable
Shares under the Securities Act. 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, 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 have waived their right to have shares of
Common Stock registered under the Securities Act as part of this offering.
55
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC
and BancAmerica Robertson Stephens have severally agreed to purchase from the
Company the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
Number of
Name Shares
- --------------------------------------------- ----------
<S> <C>
Hambrecht & Quist LLC ...............
BancAmerica Robertson Stephens ......
Dain Bosworth Incorporated ...........
Total .............................. 2,250,000
=========
</TABLE>
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 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 $. per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $. per share to certain other dealers. After the
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 and the Selling Stockholder have granted to the Underwriters an
option, exercisable no later than 30 days after the date of this Prospectus, to
purchase up to 217,500 and 120,000 additional shares of Common Stock,
respectively, on the same terms and conditions as 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 5,538,499 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 90-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 90-day period following the date of this
Prospectus.
56
<PAGE>
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Company's Common Stock at levels above those which might otherwise prevail
in the open market, including by entering stabilizing bids or effecting
syndicate covering transactions. A stabilizing bid means the placing of any bid
or effecting of any purchase, for the purpose of pegging, fixing or maintaining
the price of the Company's Common Stock. A syndicate covering transaction means
the placing of any bid on behalf of the underwriting syndicate or the effecting
of any purchase to reduce a short position created in connection with the
offering. 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.
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. 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, 1996 and December
31, 1995 and for the year ended December 31, 1996, the nine months ended
December 31, 1995 and the year 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.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Exchange Act and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the Commission's following Regional Offices: Chicago Regional
Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and New York Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549. Such reports and other
information can also be reviewed through the Commission's Web site
(http://www.sec.gov).
Additional information regarding the Company is contained in the
Registration Statement on Form S-1 (the "Registration Statement") and the
exhibits and schedules thereto filed with the Commission 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.
57
<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-9
Notes to Financial Statements ......................................................... F-11
</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, 1996 and 1995, and the
related statements of operations, redeemable convertible preferred stock and
stockholders' equity (deficit), and cash flows for the year ended December 31,
1996, the nine months ended December 31, 1995 and the year 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.
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, 1996 and 1995, and the results of its operations and its cash flows
for the year ended December 31, 1996, the nine months ended December 31, 1995
and the year ended March 31, 1995, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Boston, Massachusetts
January 11, 1997, except for Note 15,
which the date is February 13, 1997
F-3
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------- September 30,
1995 1996 1997
--------------- -------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents ................................. $ 149,686 $ 2,667,892 $ 826,428
Marketable securities ....................................... 7,996,186 19,738,450
Receivables ................................................ 854,614
Prepaid expenses .......................................... 58,940 57,135 315,187
Other current assets ....................................... 13,178 12,221 10,887
------------ ------------ -------------
Total current assets .................................... 221,804 10,733,434 21,745,566
Property and equipment, net ................................. 856,912 994,179 1,157,094
Notes receivable from officer .............................. 51,878 295,344 310,371
Other assets ................................................ 80,171 551,610 51,914
------------ ------------ -------------
Total assets .......................................... $ 1,210,765 $12,574,567 $ 23,264,945
============ ============ =============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of capital lease obligations ............... $ 304,416 $ 208,571 $ 300,131
Accounts payable and accrued expenses ..................... 1,244,201 2,225,713 2,226,025
------------ ------------ -------------
Total current liabilities .............................. 1,548,617 2,434,284 2,526,156
Capital lease obligations, less current portion ............ 342,256 176,269 208,183
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 December 31, 1995 and
December 31, 1996 ($6,416,368 liquidation value at
December 31, 1996) ....................................... 3,955,505 3,963,682
Series C, $.01 par value, 1,445,536 shares authorized;
1,432,318 shares issued and outstanding at December 31,
1996 ($3,565,063 liquidation value at December 31,
1996) ................................................... 3,251,444
Series D, $.01 par value, 1,740,002 shares authorized;
1,700,002 shares issued and outstanding at December 31,
1996 ($5,641,777 liquidation value at December 31,
1996) ................................................... 5,072,575
Series E, $.01 par value, 868,329 shares authorized; 868,329
shares issued and outstanding at December 31, 1996
($4,916,106 liquidation value at December 31, 1996) ...... 4,916,106
Stockholders' equity (deficit):
Series A convertible preferred stock, $.01 par value, 104,388 shares
authorized; 93,691 shares issued and outstanding at December 31,
1995 and December 31, 1996 ................................ 1,037,664 1,037,664
Preferred stock, $.01 par value, 0, 0 and 1,000,000 shares
authorized at December 31, 1995, December 31, 1996 and
September 30, 1997. None issued and outstanding ............
Common stock, $.01 par value, 15,000,000 shares authorized;
1,563,808, 1,564,451 shares and 8,688,547 issued and outstanding
at December 31, 1995, December 31, 1996 and
September 30, 1997 ................................... 15,638 15,644 86,885
Additional paid-in capital ................................. 198,418 112,960 32,491,919
Accretion of redeemable convertible preferred stock to
redemption value .......................................... (14,269) (101,059)
Deficit accumulated during the development stage ............ (8,573,064) (8,305,002) (12,048,198)
------------ ------------ -------------
Total stockholders' equity (deficit) .................. (7,335,613) (7,239,793) 20,530,606
------------ ------------ -------------
Total liabilities and stockholders' equity (deficit) .. $ 1,210,765 $12,574,567 $ 23,264,945
============ ============ =============
</TABLE>
See accompanying notes.
F-4
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine months
Year ended ended Year ended
March 31, December 31, December 31,
1995 1995 1996
--------------- -------------- --------------
<S> <C> <C> <C>
Revenues ........................ $ 411,509 $ 900,000 $10,009,739
Operating expenses
Research and development ......... $ 2,407,113 4,164,940 6,878,666
General and administrative ...... 824,769 1,504,811 2,861,906
------------ ------------ -----------
Total operating expenses ...... 3,231,882 5,669,751 9,740,572
------------ ------------ -----------
Operating income (loss) ......... (2,820,373) (4,769,751) 269,167
Interest expense .................. (78,672) (151,057) (288,776)
Interest income .................. 120,845 27,880 287,671
------------ ------------ -----------
Net income (loss) ............... $ (2,778,200) $(4,892,928) $ 268,062
============ ============ ===========
Earnings per share:
Net income (loss) per share ...... $ (0.70) $ $0.03
============ ===========
Weighted-average common stock
and stock equivalents ............ 6,973,000 7,711,000
============ ===========
<CAPTION>
Period from
Inception
Nine months ended (November 29,
September 30, 1988) to
----------------------------- September 30,
1996 1997 1997
------------- --------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenues ........................ $9,635,088 $ 4,021,343 $ 18,042,591
Operating expenses
Research and development ......... 4,951,652 6,286,198 21,588,121
General and administrative ...... 2,212,086 2,267,923 9,197,932
---------- ------------ -------------
Total operating expenses ...... 7,163,738 8,554,121 30,786,053
---------- ------------ -------------
Operating income (loss) ......... 2,471,350 (4,532,778) (12,743,462)
Interest expense .................. (273,640) (26,807) (612,288)
Interest income .................. 140,122 816,390 1,323,020
---------- ------------ -------------
Net income (loss) ............... $2,337,832 $ (3,743,195) $ (12,032,730)
========== ============ =============
Earnings per share:
Net income (loss) per share ...... $ 0.30 $ (0.45)
========== ============
Weighted-average common stock
and stock equivalents ............ 7,711,000 8,370,000
========== ============
</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 Convertible
Preferred Stock Convertible Preferred 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
<CAPTION>
Accretion of Deficit
Dividends on Accumulated Total
Additional Redeemable in the Stockholders'
Paid in Convertible Development Equity
Capital Preferred 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)
</TABLE>
F-6
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Redeemable Convertible
Preferred Stock Convertible Preferred Common Stock
-------------------------- ---------------------- ----------------------
Shares Amount Shares Amount Shares Amount
----------- ------------- -------- ------------ ----------- ---------
<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 ..................... 67,309 673
Issuance of Series C preferred stock
upon conversion of convertible
notes and interest thereon in May
1996, net of issuance costs of
$12,560 ................................. 1,432,318 3,210,177
Issuance of warrants in conjunction
with financing ........................
Issuance of Series D preferred stock
for cash in May 1996, net of
issuance costs of $31,043 ............... 1,500,002 4,468,963
Issuance of Series D preferred stock
upon conversion of Bridge Notes in
May 1996 .............................. 200,000 600,000
Issuance of Series E preferred stock in
May and August 1996, net of
issuance costs of $117,628............... 868,329 4,882,372
Issuance of compensatory stock option
grants .................................
Repurchase of common stock from
officer in May 1996 ..................... (66,666) (667)
Accretion of redeemable convertible
preferred stock to redemption value 86,790
Net income ..............................
--------- --------- ------ --------- --------- ------
Balance at December 31, 1996 ............ 6,644,385 $17,203,807 93,691 $1,037,664 1,564,451 $15,644
<CAPTION>
Accretion of Deficit
Dividends on Accumulated Total
Additional Redeemable in the Stockholders'
Paid in Convertible Development Equity
Capital Preferred Stock Stage (Deficit)
------------- ----------------- ---------------- --------------
<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 ..................... 38,313 38,986
Issuance of Series C preferred stock
upon conversion of convertible
notes and interest thereon in May
1996, net of issuance costs of
$12,560 .................................
Issuance of warrants in conjunction
with financing ........................ 78,236 78,236
Issuance of Series D preferred stock
for cash in May 1996, net of
issuance costs of $31,043 ...............
Issuance of Series D preferred stock
upon conversion of Bridge Notes in
May 1996 ..............................
Issuance of Series E preferred stock in
May and August 1996, net of
issuance costs of $117,628...............
Issuance of compensatory stock option
grants ................................. 67,326 67,326
Repurchase of common stock from
officer in May 1996 ..................... (269,333) (270,000)
Accretion of redeemable convertible
preferred stock to redemption value (86,790) (86,790)
Net income .............................. 268,062 268,062
------------ ------------
--------- ---------- ------------ ------------
Balance at December 31, 1996 ............ $ 112,960 $ (101,059) $ (8,305,002) $(7,239,793)
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
Redeemable Convertible
Preferred Stock Convertible Preferred Common Stock
----------------------------- ------------------------- ---------------------
Shares Amount Shares Amount Shares Amount
------------- -------------- ---------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock upon
exercise of options (unaudited) ... 73,818 738
Accretion of redeemable convertible
preferred stock to redemption value
(unaudited) ........................
Issuance of common stock upon initial
public offering in February, 1997
(unaudited) ........................ 2,300,000 23,000
Conversion of preferred stock to
common stock upon initial public
offering in February 1997
(unaudited) ........................ (6,644,385) (17,203,807) (93,691) (1,037,664) 4,750,278 47,503
Issuance of compensatory stock option
grants (unaudited) ...............
Net loss (unaudited) ...............
---------- ----------- ------- ---------- --------- ------
Balance at September 30, 1997
(unaudited) ........................ 0 0 0 0 8,688,547 86,885
=========== ============ ======== =========== ========== =======
<CAPTION>
Accretion of Deficit
Dividends on Accumulated Total
Additional Redeemable in the Stockholders'
Paid in Convertible Development Equity
Capital Preferred Stock Stage (Deficit)
------------ ----------------- ---------------- --------------
<S> <C> <C> <C> <C>
Issuance of common stock upon
exercise of options (unaudited) ... 37,093 37,831
Accretion of redeemable convertible
preferred stock to redemption value
(unaudited) ........................ 101,059 101,059
Issuance of common stock upon initial
public offering in February, 1997
(unaudited) ........................ 14,245,564 14,268,564
Conversion of preferred stock to
common stock upon initial public
offering in February 1997
(unaudited) ........................ 18,092,909 17,102,748
Issuance of compensatory stock option
grants (unaudited) ............... 3,393 3,393
Net loss (unaudited) ............... (3,743,196) (3,743,196)
---------- -------- ------------ -----------
Balance at September 30, 1997
(unaudited) ........................ $32,491,919 0 $(12,048,198) $20,530,606
============ ======== ============ ===========
</TABLE>
F-8
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months
Year ended ended Year ended
March 31, December 31, December 31,
1995 1995 1996
---------------- -------------- ---------------
<S> <C> <C> <C>
Operating activities
Net income (loss) ............... $ (2,778,200) $(4,892,928) $ 268,062
Adjustments to reconcile
net income (loss) to cash
provided (used) by
operating activities:
Depreciation and
amortization ............... 285,515 396,673 549,241
Expenses paid with
equity instruments ......... 67,816 136,526
Change in operating
assets and liabilities:
Accounts receivable ..........
Prepaid expenses, other
current assets and other
assets ................... (2,769) 16,411 14,517
Accounts payable and
accrued expenses ............ (36,009) 872,018 707,588
------------ ------------ -------------
Net cash provided (used)
by operating activities ...... (2,531,463) (3,540,010) 1,675,934
Investing activities
Purchase of fixed assets ......... (367,830) (324,429) (694,893)
Proceeds from lease
financing of fixed assets ...... 41,468 511,145 17,173
Purchase of marketable
securities ..................... (7,996,186)
Proceeds from sale of
marketable securities ......... 2,356,510
Issuance of notes receivable
from officer .................. (50,000) (230,000)
------------ ------------ -------------
Net cash provided (used)
by investing activities ...... 2,030,148 136,716 (8,903,906)
------------ ------------ -------------
<CAPTION>
Period
from inception
(November 28,
Nine months ended 1988) to
September 30, September 30,
1996 1997 1997
------------ ----------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Operating activities
Net income (loss) ............... $2,337,832 $ (3,743,195) $ (12,032,730)
Adjustments to reconcile
net income (loss) to cash
provided (used) by
operating activities:
Depreciation and
amortization ............... 406,169 408,173 2,060,818
Expenses paid with
equity instruments ......... 136,526 204,342
Change in operating
assets and liabilities:
Accounts receivable .......... (665,088) (854,614) (854,614)
Prepaid expenses, other
current assets and other
assets ...................... 32 227,951 88,302
Accounts payable and
accrued expenses ............ 341,110 312 1,952,101
---------- --------------- ---------------
Net cash provided (used)
by operating activities ...... 2,556,581 (3,961,373) (8,581,781)
Investing activities
Purchase of fixed assets ......... (542,812) (571,089) (2,954,141)
Proceeds from lease
financing of fixed assets ...... 17,173 302,365 1,425,218
Purchase of marketable
securities ..................... (141,970,964) (152,323,660)
Proceeds from sale of
marketable securities ......... 130,228,700 132,585,210
Issuance of notes receivable
from officer .................. (230,000) (280,000)
------------ ------------ -------------
Net cash provided (used)
by investing activities ...... (755,639) (12,010,988) (21,547,373)
---------- --------------- ---------------
</TABLE>
F-9
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
STATEMENTS OF CASH FLOWS--(Continued)
<TABLE>
<CAPTION>
Period
Nine months ended from inception
Nine months September 30, (November 12,
Year ended ended Year ended ------------------------------- 1988) to
March 31, December 31, December 31, September 30,
1995 1995 1996 1996 1997 1997
------------- -------------- -------------- -------------- --------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Financing activities:
Repayment of capital lease
obligations .................. $ (245,399) $ (245,489) $ (274,143) (217,173) (178,891) $ (1,105,625)
Proceeds from issuance of
promissory notes ............ 2,700,000 300,000 300,000 3,000,000
Proceeds from issuance of
bridge notes ............... 600,000 600,000 600,000
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 4,468,963
Proceeds from sale of Series
E redeemable convertible
preferred stock ............ 4,882,372 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) (270,000)
Sale of common stock ......... 28,084 18,514 38,986 14,268,564 14,268,564
Proceeds from issuance of
stock options and
warrants ..................... 600 19,768 41,224 132,408
---------- ---------- ---------- ----------- ------------- ------------
Net cash provided (used) by
financing activities ......... (217,315) 2,473,625 9,746,178 9,783,930 14,130,897 30,955,582
---------- ---------- ---------- ----------- ------------- ------------
Increase (decrease) in cash
and cash equivalents ......... (718,630) (929,669) 2,518,206 11,584,872 (1,841,464) 826,428
Cash and cash equivalents
at beginning of period ...... 1,797,985 1,079,355 149,686 149,686 2,667,892
---------- ---------- ---------- ----------- ------------- ------------
Cash and cash equivalents
at end of period ............ $1,079,355 $ 149,686 $2,667,892 $11,734,558 $ 826,428 $ 826,428
========== ========== ========== =========== ============= ============
Supplemental cash flow
information
Cash paid for interest ...... $ 78,672 $ 51,441 $ 96,455 $ 81,319 $ 26,807 $ 320,351
========== ========== ========== =========== ============= ============
</TABLE>
F-10
<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 tool for diagnosing human
disease. 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.
As more fully described in Note 15, the Company completed an initial public
offering of 2,300,000 shares of its Common Stock at a price of $7.00 per share.
The net proceeds, after underwriter discounts and offering expenses, aggregated
approximately $14.3 million which the Company expects to use for research and
development and funding of clinical trials in support of regulatory approvals
and for general corporate purposes.
Change of Year End
Subsequent to March 31, 1995, the Company elected to change its fiscal year
end from March 31 to December 31.
Reverse Stock Split
A reverse stock split was approved by the Board of Directors and
Stockholders of the Company 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.
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
For the year ended December 31, 1996, one source represented 70% of
revenues and another source represented 30% of revenues. All of the revenues
received during the nine-month period ended December 31, 1995 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.
2. SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Statements
The balance sheet as of September 30, 1997 and the related statements of
operations, redeemable convertible preferred stock and stockholders' equity
(deficit) and cash flows for the nine months ended September 30, 1996 and 1997
and the period from inception (November 29, 1988) to September 30, 1997, 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, 1997 are not
necessarily indicative of the results to be expected for the entire year.
F-11
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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, "Disclosure About the Fair Value
of Financial Instruments," which requires the disclosure of the fair value of
financial instruments. At December 31, 1996 and 1995, the Company's financial
instruments consist of cash, cash equivalents, marketable securities, 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. The fair
value of available-for-sale securities at December 31, 1996 approximates cost.
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
Revenues from non-refundable license fees are recognized upon execution of
the underlying license agreement. Option, license and milestone payments under
collaborative agreements are recorded as earned based upon the provisions of
each agreement. 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.
F-12
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
123, "Accounting for Stock-Based Compensation." ("SFAS 123"). The Company will
provide the required disclosures as put forth in SFAS 123. 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.
Net Income (Loss) Per Share
Net loss per share for the nine month period ended September 30, 1997 is
computed using the weighted-average number of outstanding shares of common stock
assuming all convertible preferred stock were converted into common stock at the
beginning of the period. Common stock equivalents, consisting of options and
warrants, are excluded from the calculation because they are anti-dilutive.
Net income per share for the nine month period ended September 30, 1996 and
the nine and twelve month periods ended December 31, 1996 and 1995 are computed
using the weighted-average number of outstanding shares of common stock and
common stock equivalents, assuming conversion of convertible stock into common
stock (as of their original date of issuance). For these periods common stock
equivalents are excluded from the 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 pro
forma purposes, whether or not they are anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Financial
Standards No. 128, "Earnings Per Share" (FAS 128), which simplifies the
calculation of earnings per share and creates a standard of comparability to the
recently issued International Accounting Standard No. 33, "Earnings Per Share".
Since early application is not permitted, the Company will adopt this standard
in the fourth quarter of 1997. The earnings per share calculations required
under FAS 128 are not materially different from the net loss per share
calculation for the nine month period ended September 30, 1997 as presented
herein.
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. MARKETABLE SECURITIES
Marketable Securities consist of the following:
<TABLE>
<CAPTION>
December 31,
1996
-------------
<S> <C>
Available-for-sale securities:
Federal agency obligations ...... $ 7,496,886
Bank obligations ............... 499,300
------------
$ 7,996,186
============
</TABLE>
The fair value of available-for-sale securities at December 31, 1996
approximates cost. The above marketable securities all mature within one year or
less.
F-13
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31
--------------------------
1996 1995
------------ -----------
<S> <C> <C>
Laboratory equipment ................................. $1,520,170 $1,163,370
Leasehold improvements .............................. 516,160 462,099
Furniture, fixtures and other equipment ............ 470,169 215,869
----------- -----------
2,506,499 1,841,338
Less accumulated depreciation and amortization ...... 1,512,320 984,426
----------- -----------
$ 994,179 $ 856,912
=========== ===========
</TABLE>
5. LEASES
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
$1,382,350 and $1,320,994 at December 31, 1996 and 1995, respectively.
Accumulated amortization relating to assets under capital leases was $993,437
and $661,257 at December 31, 1996 and 1995, respectively. In December 1996 the
Company arranged a new lease facility which provides for additional lease
financing up to an aggregate of $1 million.
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, 1996:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
---------- ----------
<S> <C> <C>
1997 ....................................... $252,161 $197,556
1998 ....................................... 186,555
1999 ....................................... 10,761
--------- ---------
Total minimum lease payments ............... 449,477 $197,556
=========
Less amounts representing interest ......... 64,637
---------
Present value minimum lease payments ...... 384,840
Less amounts due within one year ......... 208,571
---------
$176,269
=========
</TABLE>
Rent expense amounted to approximately $174,666, $86,100 and $94,600 for
the twelve months ended December 31, 1996, the nine months ended December 31,
1995 and the twelve months ended March 31, 1995, respectively.
F-14
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31
--------------------------
1996 1995
------------ -----------
<S> <C> <C>
Accounts payable ................................. $ 428,746 $ 615,174
Accrued development expenses ..................... 963,447 435,562
Accrued interest expense ........................ 99,616
Accrued legal expense ........................... 176,209
Accrued public offering costs ..................... 294,893
Accrued license restructuring cost ............... 250,000
Other accrued expenses ........................... 112,418 93,849
----------- -----------
Total accounts payable and accrued expenses ...... $2,225,713 $1,244,201
=========== ===========
</TABLE>
7. PROMISSORY NOTES
During 1995, the Company issued 10% Promissory Notes ("Promissory Notes")
in an aggregate amount of $2,700,000 which became due upon demand on or after
February 15, 1996.
In January 1996, the Company issued convertible promissory notes for an
aggregate amount of $3,015,862 ("Convertible Notes") in exchange for $300,000 of
cash and cancellation of the Promissory Notes and accrued interest thereon. The
Convertible Notes were issued at an annual interest rate of 10% and became due
upon demand on or after February 15, 1996.
In February 1996, the Company issued additional convertible promissory
notes for an aggregate amount of $600,000 ("Bridge Notes") which became due upon
demand, with interest at a rate of 10% per year.
In May 1996 the Promissory Notes and Bridge Notes were converted to
Redeemable Convertible Preferred Stock (see Note 8). Because it was contemplated
that the Convertible Notes for which the Promissory Notes were subsequently
exchanged would be converted during 1996, the Promissory Notes were classified
as long-term at December 31, 1995.
8. CAPITAL STOCK
In addition to the sale of its Common Stock, the Company has authorized and
issued one series of convertible preferred stock ("Series A Preferred Stock")
and four series of redeemable, convertible preferred stock ("Series B, Series C,
Series D and Series E Preferred Stock").
In May 1996, the Convertible Notes (see Note 7) and accrued interest
thereon were converted at a conversion price of $2.25 into 1,432,318 shares of
the Company's 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 cancellation of the
Bridge Notes (see Note 7) and accrued interest thereon.
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 at a price of $5.76 per share.
Conversion Rights of Preferred Stockholders
The following table shows the number of shares of Common Stock into which
outstanding shares of each Series of Preferred Stock are convertible at December
31, 1996:
F-15
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. CAPITAL STOCK (Continued)
<TABLE>
<S> <C>
Series A ...... 320,723
Series B ...... 1,762,484
Series C ...... 954,872
Series D ...... 1,133,325
Series E ...... 578,885
----------
Total ......... 4,750,289
==========
</TABLE>
The number of shares of Common Stock into which shares of Preferred Stock
are convertible is subject to adjustment upon the occurrence of certain events
principally related to changes in the capital structure, such as stock splits,
stock dividends, business combination or other recapitalization or
reorganization affecting such shares. All shares of Preferred Stock
automatically convert to Common Stock upon an initial public offering meeting
certain criteria related to size and share price.
Redemption Rights
Under the Company's Restated Certificate of Incorporation adopted in May
1996, at any time 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 December 31, 1996, to the original
purchase price of each such series) plus any undeclared 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 $.05 per share annual dividend if,
when and as declared by the Board of Directors which must be paid prior to
payment of any other dividends.
Voting Rights and Election of Directors
Each holder of Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which the Preferred Stock is
convertible. The Series A Preferred Stockholders with the Common Stockholders,
voting as a single class, have the right to elect two directors of the Company.
The holders of Series B and Series C Preferred Stock, voting as a single class,
are also entitled to elect two directors. All other directors are elected by the
Preferred Stockholders and Common Stockholders voting together as a single
class.
Liquidation Preferences
In the event of a liquidation, dissolution or winding up of the Company the
holders of Preferred Stock are entitled to receive a specified per share amount
(in each case subject to adjustment, in the event of any stock dividends, stock
split, combination or other similar recapitalization affecting such shares) plus
any other declared but unpaid dividends thereon. In addition, holders of Series
B, Series C, Series D and Series E Preferred Stock are entitled to receive a
preferential, cumulative cash dividend of 18% per annum, compounded annually
from the date of issuance. In the event of liquidation, the holders of Series D
Preferred Stock rank senior to all other Series of Preferred Stock. The
following table shows, by Series, the specified per share amount and accrued
dividends payable to Preferred Stockholders upon liquidation as of December 31,
1996:
F-16
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. CAPITAL STOCK (Continued)
<TABLE>
<CAPTION>
Per share Total
Liquidation Accumulated
Price ($) Dividends ($)
------------- ------------
<S> <C> <C>
Series A ...... $11.21
Series B ...... 1.51 $22,446
Series C ...... 2.25 41,267
Series D ...... 3.00 3,612
Series E ...... 5.76 33,734
</TABLE>
On December 10, 1996, the Company filed a registration statement with the
Securities and Exchange Commission in order to permit the Company to sell shares
of its Common Stock to the public. Upon consummation of the offering, all of the
Preferred Stock issued and outstanding will automatically convert into 4,750,289
shares of Common Stock. Immediately following such conversion, all currently
outstanding shares of Preferred Stock will be canceled, retired and eliminated
from the Company's authorized shares of capital stock and the number of
authorized shares of Preferred Stock will be decreased to 1,000,000 shares.
9. WARRANTS
In connection with a master lease line (see Note 5), the Company has issued
warrants to purchase shares of Series A, Series B and Series C Preferred Stock.
In connection with the issuance of Bridge Notes and the sale of Series D
preferred stock, the Company issued warrants to purchase shares of Series D
Preferred Stock (see Note 6). Information on warrants issued through and
outstanding as of December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Exercisable Warrants Exercised Warrants
---------------------- --------------------------
Shares of Shares of Warrant
Preferred Stock Common Stock Exercise
Description Reserved Reserved Price ($)
- ------------------- ---------------------- -------------- ---------
<S> <C> <C> <C>
Series A ...... 10,697 36,618 $11.21
Series B ...... 11,402 7,601 1.51
Series C ...... 13,218 8,812 4.54
Series D ...... 40,000 26,665 3.00
</TABLE>
Warrants for the purchase of 9,365 and 1,332 shares of the Company's Series
A Preferred Stock expire the earlier of five years from the date of an initial
public offering or on December 21, 2002 and August 5, 2002, respectively.
Warrants to purchase 11,402 shares of the Company's Series B Preferred Stock and
13,218 shares of the Company's Series C Preferred Stock expire on the earlier of
five years from the date of an initial public offering or June 6, 2004 and
August 2, 2005, respectively.
The value ascribed to the warrants aggregating $79,019 has been accounted
for as additional paid in capital.
10. EQUITY PLANS
Equity Incentive Plan
On July 1, 1992, the Company adopted the 1992 Equity Incentive Plan, which
provides stock awards to purchase shares of Common Stock to be granted to
employees and consultants under incentive and non-statutory stock option
agreements. In December 1996, the Company amended the 1992 Equity Incentive Plan
(as amended, "the Equity Plan") to, among other things, increase the number of
shares reserved for issuance pursuant to grants. The Equity Plan provides for
the grant of stock options (incentive and non-statutory), stock appreciation
rights, performance shares, restricted stock or stock units for the purchase of
an aggregate of
F-17
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. EQUITY PLANS (Continued)
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 Board of
Directors, or at the election of the Board of Directors, the Compensation
Committee which administers the Equity Plan. The Board of Directors or the
Compensation Committee, as the case may be, 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.
Stock option information relating to the Equity Incentive Plan is as
follows:
<TABLE>
<CAPTION>
Weighted
Weighted average
Options Option price average Available for exercisable
Outstanding range per share exercise price Grant Exercisable price
------------- ----------------- ---------------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1993 ............ 107,976 $0.42 $0.42 725,259 6,975 $0.42
Granted .................. 142,648 $0.42 $0.42
---------
March 31, 1994 ............ 250,624 $0.42 $0.42 582,611 34,592 $0.42
Granted .................. 359,131 $0.45 $0.43
Exercised ............... (66,866) $0.42 $0.42
Canceled .................. (1,400) $0.42 $0.42
---------
March 31, 1995 ............ 541,489 $0.42-$0.45 $0.43 224,880 143,207 $0.43
Granted .................. 133,993 $0.45-$0.83 $0.55
Exercised ............... (38,399) $0.42-$0.45 $0.45
Canceled .................. (40,933) $0.42-$0.45 $0.45
---------
December 31, 1995 ......... 596,150 $0.42-$0.83 $0.47 131,820 200,631 $0.44
Granted .................. 753,896 $0.83-$8.50 $3.59
Exercised ............... (67,309) $0.42-$0.83 $0.58
Canceled .................. (4,934) $0.42-$0.45 $0.45
---------
December 31, 1996 ......... 1,277,803 $0.42-$8.50 $2.30 149,524 392,933 $1.21
Granted (unaudited) ...... 492,175 $6.50-$12.00 $8.58
Exercised (unaudited) ... (73,818) $0.42-$4.50 $0.51
Cancelled (unaudited) ... (23,056) $2.25-$8.50 $7.13
---------
September 30, 1997
(unaudited) ............... 1,673,104 $0.42-$12.00 $4.16 180,405 438,252 $1.69
=========
</TABLE>
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 Board of Directors or, at the election of the
Board of Directors, 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
F-18
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. EQUITY PLANS (Continued)
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.
1996 Directors Stock Option Plan
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 option holder 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 fair value at
the date of grant. The exercise price may be paid in cash or shares of Common
Stock or combination of both.
FAS 123 Pro Forma Information
The pro forma information as required by FAS 123 is presented below and has
been determined as if the Company accounted for its employee stock options under
the fair value method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model. For
pro forma purposes the fair value of the options is amortized over the options'
vesting period:
<TABLE>
<CAPTION>
Nine Months
Year ended ended
December 31, December 31,
1996 1995
-------------- ----------------
<S> <C> <C>
Assumptions:
Risk free interest rates ........................... 6.34% 5.85%
Dividend yields ....................................
Volatility factors ................................. 0.60 0.60
Weighted average option life (in years) ............ 5.53 4.92
Pro forma amounts
Weighted average fair value of options granted ...... $2.16 $0.31
Weighted average contractual life (in years) ......... 8.59 8.53
Net income (loss) .................................... $48,866 $(4,896,608)
Net income (loss) per share ........................ $0.01 $(0.70)
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition option valuation models require the use
of highly subjective assumptions. Because the Company's stock options have
characteristics that are significantly different from traded options and because
changes in the valuation assumptions can materially affect the fair value
estimate, in Management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
11. 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 December 31, 1996 and 1995:
F-19
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
11. INCOME TAXES (Continued)
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
Deferred tax assets .................................
Net operating loss carryforwards .................. $ 2,921,000 $ 3,137,000
Research and development tax credits ............ 400,000 300,000
Book over tax depreciation and amortization ...... 383,000 113,400
Other ............................................. 18,000 19,900
------------ ------------
Total deferred tax assets ........................... 3,722,000 3,570,300
Valuation allowances ................................. (3,722,000) (3,570,300)
------------ ------------
Deferred income taxes, net ........................... $ -0- $ -0-
============ ============
</TABLE>
As of December 31, 1996, the Company has net operating loss carryforwards
for income tax purposes of approximately $7.3 million, which expire through the
year 2010. The valuation allowance increased by $151,700 during the twelve
months ended December 31, 1996, $2,088,700 during the nine months ended December
31, 1995 and $1,212,900 during the twelve months ended March 31, 1995, 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.
As a result of an ownership change occurring in May 1996 (see Note 8), 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 $300,000
cannot be utilized until such tax loss carryforwards are fully utilized.
12. DEFINED CONTRIBUTION PLAN
During the year ended March 31, 1995, the Company began a defined
contribution 401(k) plan which covers substantially all employees. The plan
permits participants to make contributions from 1% to 15% of their compensation
(as defined).
13. RELATED PARTY TRANSACTION
During 1995 and 1996 the Company received promissory notes from one
executive officer and director. These transactions are summarized below:
<TABLE>
<CAPTION>
Shares of
Interest Company Common Stock
Date of Note Term Amount ($) Rate (%) Provided as Collateral
- ------------------------ ---------- ---------- ---------- ----------------------
<S> <C> <C> <C> <C>
June 26, 1995 ...... 10 years $50,000 7.31% 14,814
April 5, 1996 ...... 10 years 50,000 6.51 14,814
May 31, 1996 ...... 10 years 230,000 6.83 44,444
</TABLE>
The notes are subject to certain acceleration clauses. In May 1996, 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.
14. 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
F-20
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
14. SIGNIFICANT AGREEMENTS (Continued)
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, Sumitomo 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. 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, 1996, the Company had received an aggregate of $2.7
million in revenues (net of withholding tax) under this agreement.
In December 1996, the Company and the Japanese Manufacturer and Distributor
agreed to restructure the existing agreement. 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.
In March 1996, the Company entered into marketing, development and license
agreements with Daiichi Radioisotope Laboratories Ltd., a Japanese
pharmaceutical company ("Daiichi") covering the Company's vascular MRI contrast
agent. During 1996, the Company received a license fee of $3.0 million (net of
withholding tax) upon execution of the agreement and proceeds from the issuance
of 868,329 shares of Series E Preferred Stock at price of $5.76 per share (see
Note 8). In addition, the Company is entitled to receive future milestone
payments of up to $3.3 million (net of withholding tax) The agreements also
provide for the Company to supply product to Daiichi and to receive royalties
for sales made by Daiichi in Japan.
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, Mallinckrodt and the Company will share equally in
funding a portion of the cost of developing MS-325. Mallinckrodt will have the
right to manufacture MS-325 and to market the product worldwide except Japan.
During 1996, the Company received a $6.0 million license fee payment upon
execution of the agreement and is eligible to receive a future additional $2.0
million upon the earlier of the completion of a specified milestone or a
designated date. Under the agreement, the Company will share in future operating
profits from the sale of products covered under the agreement.
F-21
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS--(Continued)
15. SUBSEQUENT EVENTS
On February 4, 1997 the Company completed an initial public offering of
2,000,000 shares of its Common Stock at a price of $7.00 per share. On February
13, 1997 the Company issued an additional 300,000 shares of its Common Stock at
a price of $7.00 per share to cover an underwriters over-allotment option. The
net proceeds, after underwriter discounts and offering expenses, aggregated
approximately $14.3 million which the Company expects to use for research and
development and funding of clinical trials in support of regulatory regulatory
and reimbursement approvals and for general corporate purposes. In connection
with the initial public offering, all shares of previously outstanding Preferred
Stock were converted to Common Stock and cancelled, retired and eliminated from
the Company's authorized capital stock and the number of authorized shares of
Preferred Stock was decreased to 1,000,000 shares.
F-22
<PAGE>
[INSIDE BACK COVER]
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 human disease.
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] Over 3.3 million diagnostic
X-ray angiograms are performed
annually in the U.S.
[Photograph of X-ray angiography]
[bullet] X-ray angiography is highly
invasive (i.e., more invasive
than a peripheral intravenous [Photograph of X-ray angiogram]
injection ("I.V.") up to and
including a surgical
procedure), painful and
expensive.
[Photograph of X-ray angiography]
[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.
- -------------------------------------------------------------------------------
THE EPIX [bullet] EPIX is developing MS-325 to
SOLUTION provide physicians with a
clinically superior,
noninvasive (i.e., no more
invasive than a peripheral
I.V.) and cost-effective
diagnostic procedure.
[Photograph of MRI exam]
[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 II clinical trial
to test the safety and
preliminary efficacy of
MS-325 for the evaluation of
peripheral vascular disease
began in June 1997.
[bullet] A Phase II clinical trial
to test the safety and feasibility
of MS-325 for the evaluation of
coronary artery disease began in
September 1997.
- --------------------------------------------------------------------------------
MS-325 IS CURRENTLY BEING EVALUATED IN PHASE II 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
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
<TABLE>
<CAPTION>
Page
----------
<S> <C>
Prospectus Summary ..................... 3
Risk Factors ........................... 5
Use of Proceeds ........................ 14
Price Range of Common Stock ............ 15
Dividend Policy ........................ 15
The Company .............................. 15
Capitalization ........................... 16
Dilution ................................. 17
Selected Financial Data .................. 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ........................ 19
Business ................................. 22
Management .............................. 41
Certain Transactions ..................... 49
Principal and Selling Stockholders ...... 51
Description of Capital Stock ............ 53
Shares Eligible for Future Sale ......... 55
Underwriting ........................... 56
Legal Matters ........................... 57
Experts ................................. 57
Available Information .................. 57
Index to Financial Statements ............ F-1
</TABLE>
================================================================================
2,250,000 Shares
[EPIX MEDICAL LOGO]
Common Stock
------------------------------
PROSPECTUS
------------------------------
HAMBRECHT & QUIST
BANCAMERICA ROBERTSON STEPHENS
DAIN BOSWORTH
INCORPORATED
, 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:
<TABLE>
<S> <C>
SEC registration fee ........................... $ 10,194
Nasdaq listing fee .............................. $ 17,500
NASD filing fee ................................. $ 3,864
Blue Sky fees and expenses ..................... $ 10,000
Printing, engraving and mailing expenses ...... $100,000
Accounting fees and expenses .................. $ 75,000
Legal fees and expenses ........................ $185,000
Transfer Agent and Registrar fees ............ $ 5,500
Miscellaneous expenses ........................ $ 92,942
--------
Total ....................................... $500,000
</TABLE>
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 has entered 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
converted into shares of Common Stock on a 1-for-1.5 basis concurrently with 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 became
exercisable for 7,601 shares of Common Stock with an exercise price of $2.27 per
share concurrently with 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 became exercisable for
8,812 shares of Common Stock with an exercise price of $6.81 per share
concurrently with 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 converted into shares of Common Stock on a
1-for-1.5 basis concurrently with 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 became exercisable for an aggregate of 26,665 shares of Common Stock
with an exercise price of $4.50 per share concurrently with 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 converted
into shares of Common Stock on a 1-for-1.5 basis concurrently with 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 converted into
shares of Common Stock on a 1-for-1.5 basis concurrently with 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 converted into
shares of Common Stock on a 1-for-1.5 basis concurrently with 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. Between January 1,
1997 and June 30, 1997, options to purchase 64,999 shares of Common Stock were
exercised.
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>
<S> <C>
1.1* Form of Underwriting Agreement.
3.1* Restated Certificate of Incorporation of the Registrant. Filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (File No. 333-30531) and incorporated herein by
reference.
3.2* Amended and Restated By-Laws of the Registrant, as amended. Filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-8 (File No. 333-30531) and incorporated
herein by reference.
4.1* Specimen certificate for shares of Common Stock of the Registrant. Filed as Exhibit 4.1 to
the Company's Registration Statement on Form S-1 (File No. 333-17581) and incorporated
herein by reference.
5.1* Opinion of Palmer & Dodge LLP.
10.1+* Agency Agreement between the Registrant and Sumitomo Corporation dated
March 13, 1992. Filed as Exhibit 10.1 to the Company's Registration Statement on
Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.2+* Amendment to the Agency Agreement between the Registrant and Sumitomo Corporation
dated June 26, 1992. Filed as Exhibit 10.2 to the Company's Registration Statement on
Form S-1 (File No. 333-17581) and incorporated herein by reference.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.3* Short Form Lease from Trustees of the Cambridge East Trust to the Registrant dated
July 1, 1992. Filed as Exhibit 10.3 to the Company's Registration Statement on Form S-1
(File No. 333-17581) and incorporated herein by reference.
10.4* Form of Warrant to Purchase Shares of Series A Convertible Preferred Stock dated
December 21, 1992. Filed as Exhibit 10.4 to the Company's Registration Statement on
Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.5* Dominion Ventures Master Lease Agreement No. 8050 dated December 21, 1992. Filed as
Exhibit 10.5 to the Company's Registration Statement on Form S-1 (File No. 333-17581)
and incorporated herein by reference.
10.6* First Amendment to Master Lease Agreement No. 8050 dated May 14, 1993. Filed as
Exhibit 10.6 to the Company's Registration Statement on Form S-1 (File No. 333-17581)
and incorporated herein by reference.
10.7* Second Amendment to Master Lease Agreement No. 8050 dated August 5, 1993. Filed as
Exhibit 10.7 to the Company's Registration Statement on Form S-1 (File No. 333-17581)
and incorporated herein by reference.
10.8* First Amendment Lease From Trustees of the Cambridge Trust to the Registrant dated
October 20, 1993. Filed as Exhibit 10.8 to the Company's Registration Statement on Form
S-1 (File No. 333-17581) and incorporated herein by reference.
10.9* Warrant to Purchase Shares of Series B Convertible Preferred Stock dated June 6, 1994.
Filed as Exhibit 10.9 to the Company's Registration Statement on Form S-1 (File No.
333-17581) and incorporated herein by reference.
10.10* Second Amendment to Master Lease Agreement No. 8050 dated June 6, 1994. Filed as
Exhibit 10.10 to the Company's Registration Statement on Form S-1 (File No. 333-17581)
and incorporated herein by reference.
10.11+* Amendment Agreement to the Agency Agreement between the Registrant and Sumitomo
Corporation dated September 15, 1994. Filed as Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.12* Second Amendment Lease From Trustees of the Cambridge East Trust to the Registrant
dated September 17, 1994. Filed as Exhibit 10.12 to the Company's Registration Statement
on Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.13* Convertible Promissory Note Purchase Agreement by and among the Registrant and certain
purchasers named therein dated May 26, 1995. Filed as Exhibit 10.13 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.14+* Amended and Restated License Agreement between the Registrant and The General
Hospital Corporation dated July 10, 1995. Filed as Exhibit 10.14 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.15* Warrant to Purchase Shares of Series C Convertible Preferred Stock dated August 2, 1995.
Filed as Exhibit 10.15 to the Company's Registration Statement on Form S-1 (File No.
333-17581) and incorporated herein by reference.
10.16* Third Amendment to the Master Lease Agreement No. 8050 dated August 2, 1995. Filed as
Exhibit 10.16 to the Company's Registration Statement on Form S-1 (File No. 333-17581)
and incorporated herein by reference.
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. Filed as Exhibit
10.17 to the Company's Registration Statement on Form S-1 (File No. 333-17581) and
incorporated herein by reference.
10.18+* Extension Agreement to Agency Agreement between the Registrant and Sumitomo
Corporation dated March 5, 1996. Filed as Exhibit 10.18 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.19+* Development and License Agreement dated March 29, 1996 by and among the Registrant
and Daiichi Radioisotope Laboratories, Ltd. Filed as Exhibit 10.19 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
10.20* Third Amendment Lease From Trustees of the Cambridge East Trust to the Registrant dated
May 1, 1996. Filed as Exhibit 10.20 to the Company's Registration Statement on Form S-1
(File No. 333-17581) and incorporated herein by reference.
10.21* Series D Convertible Preferred Stock Purchase Agreement by and among the Registrant and
certain purchasers named therein dated May 29, 1996. Filed as Exhibit 10.21 to the
Company's Registration Statement on Form S-1 (File No. 333-17581) and incorporated
herein by reference.
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. Filed as Exhibit 10.22
to the Company's Registration Statement on Form S-1 (File No. 333-17581) and
incorporated herein by reference.
10.23* Form of Warrant to Purchase Shares of Series D Preferred Stock dated May 29, 1996. Filed
as Exhibit 10.23 to the Company's Registration Statement on Form S-1 (File No. 333-
17581) and incorporated herein by reference.
10.24* Amendment No. 1 to Third Amended and Restated Stockholders' Rights Agreement dated
May 31, 1996. Filed as Exhibit 10.24 to the Company's Registration Statement on Form
S-1 (File No. 333-17581) and incorporated herein by reference.
10.25* Series E Convertible Preferred Stock Purchase Agreement dated May 31, 1996 between the
Registrant and Daiichi Radioisotope Laboratories, Ltd. Filed as Exhibit 10.25 to the
Company's Registration Statement on Form S-1 (File No. 333-17581) and incorporated
herein by reference.
10.26+* Strategic Collaboration Agreement between the Registrant and Mallinckrodt Medical, Inc.
and Mallinckrodt Group Inc. dated August 30, 1996. Filed as Exhibit 10.26 to the
Company's Registration Statement on Form S-1 (File No. 333-17581) and incorporated
herein by reference.
10.27* Amendment No. 2 to Third Amended and Restated Stockholders' Rights Agreement dated
December 6, 1996. Filed as Exhibit 10.27 to the Company's Registration Statement on
Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.28* Amended and Restated 1992 Equity Incentive Plan. Filed as Exhibit 99.1 to the Company's
Registration Statement on Form S-8 (File No. 333-30531) and incorporated herein by
reference.
10.29* Form of Incentive Stock Option Certificate. Filed as Exhibit 10.29 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.30* Form of Nonstatutory Stock Option Certificate. Filed as Exhibit 10.30 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.31* 1996 Director Stock Option Plan. Filed as Exhibit 10.31 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.32* 1996 Employee Stock Purchase Plan. Filed as Exhibit 10.32 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.33* Form of Consulting and Confidentiality Agreement between the Registrant and certain
consultants of the Registrant. Filed as Exhibit 10.33 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.34* Form of Invention and Non-disclosure Agreement between the Registrant and certain
employees of the Registrant. Filed as Exhibit 10.34 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.35* Form of Non-Competition and Non-Solicitation Agreement between the Registrant and
certain employees of the Registrant. Filed as Exhibit 10.35 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.36* Form of Common Stock Purchase Agreement. Filed as Exhibit 10.36 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.37* Form of Stock Purchase and Right of First Refusal Agreement. Filed as Exhibit 10.37 to the
Company's Registration Statement on Form S-1 (File No. 333-17581) and incorporated
herein by reference.
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
10.38* Collaboration Agreement effective as of June 20, 1997 between Dyax
Corp. and the Registrant. Filed as Exhibit 10.1 to the Company's
Quarterly report on Form 10-Q for the period ended September 30, 1997
(File No. 000-21863) and incorporated herein by reference.
10.39* Short Form Lease from Trustees of the Cambridge East Trust to the
Registrant with a commencement date of January 1, 1998.
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 (set forth on the Signature Page herein).
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.
(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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 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 October 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. 1 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
- ------------------------------ and Director (Principal Executive
Michael D. Webb Officer October 29, 1997
* Chief Financial Officer, and Vice
- ------------------------------ President, Finance and
Jeffrey R. Lentz Administration (Principal Financial
Officer and Principal Accounting
Officer) October 29, 1997
* Director and Chairman of the
- ------------------------------ Board
Christopher F. O. Gabrieli October 29, 1997
* Director
- ------------------------------
Stanley T. Crooke, M.D., Ph.D. October 29, 1997
* Director
- ------------------------------
Luke B. Evnin, Ph.D. October 29, 1997
* Director
- ------------------------------
Randall B. Lauffer, Ph.D. October 29, 1997
* By: /s/ Michael D. Webb
-----------------------
Michael D. Webb
Attorney-in-Fact
</TABLE>
II-7
<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. Filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-8 (File No. 333-30531) and
incorporated herein by reference.
3.2* Amended and Restated By-Laws of the Registrant, as amended. Filed as Exhibit 4.2
to the Company's Registration Statement on Form S-8 (File No. 333-30531) and
incorporated herein by reference.
4.1* Specimen certificate for shares of Common Stock of the Registrant. Filed as Exhibit
4.1 to the Company's Registration Statement on Form S-1 (File No. 333-17581)
and incorporated herein by reference.
5.1* Opinion of Palmer & Dodge LLP.
10.1+* Agency Agreement between the Registrant and Sumitomo Corporation dated
March 13, 1992. Filed as Exhibit 10.1 to the Company's Registration Statement on
Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.2+* Amendment to the Agency Agreement between the Registrant and Sumitomo
Corporation dated June 26, 1992. Filed as Exhibit 10.2 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.3* Short Form Lease from Trustees of the Cambridge East Trust to the Registrant
dated July 1, 1992. Filed as Exhibit 10.3 to the Company's Registration Statement
on Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.4* Form of Warrant to Purchase Shares of Series A Convertible Preferred Stock dated
December 21, 1992. Filed as Exhibit 10.4 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.5* Dominion Ventures Master Lease Agreement No. 8050 dated December 21, 1992.
Filed as Exhibit 10.5 to the Company's Registration Statement on Form S-1 (File
No. 333-17581) and incorporated herein by reference.
10.6* First Amendment to Master Lease Agreement No. 8050 dated May 14, 1993. Filed
as Exhibit 10.6 to the Company's Registration Statement on Form S-1 (File No.
333-17581) and incorporated herein by reference.
10.7* Second Amendment to Master Lease Agreement No. 8050 dated August 5, 1993.
Filed as Exhibit 10.7 to the Company's Registration Statement on Form S-1 (File
No. 333-17581) and incorporated herein by reference.
10.8* First Amendment Lease From Trustees of the Cambridge Trust to the Registrant
dated October 20, 1993. Filed as Exhibit 10.8 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.9* Warrant to Purchase Shares of Series B Convertible Preferred Stock dated June 6,
1994. Filed as Exhibit 10.9 to the Company's Registration Statement on Form S-1
(File No. 333-17581) and incorporated herein by reference.
10.10* Second Amendment to Master Lease Agreement No. 8050 dated June 6, 1994. Filed
as Exhibit 10.10 to the Company's Registration Statement on Form S-1 (File No.
333-17581) and incorporated herein by reference.
10.11+* Amendment Agreement to the Agency Agreement between the Registrant and
Sumitomo Corporation dated September 15, 1994. Filed as Exhibit 10.11 to the
Company's Registration Statement on Form S-1 (File No. 333-17581) and
incorporated herein by reference.
10.12* Second Amendment Lease From Trustees of the Cambridge East Trust to the
Registrant dated September 17, 1994. Filed as Exhibit 10.12 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- --------- ----------------------------------------------------------------------------------- -----
<S> <C> <C>
10.13* Convertible Promissory Note Purchase Agreement by and among the Registrant and
certain purchasers named therein dated May 26, 1995. Filed as Exhibit 10.13 to
the Company's Registration Statement on Form S-1 (File No. 333-17581) and
incorporated herein by reference.
10.14+* Amended and Restated License Agreement between the Registrant and The General
Hospital Corporation dated July 10, 1995. Filed as Exhibit 10.14 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.15* Warrant to Purchase Shares of Series C Convertible Preferred Stock dated August 2,
1995. Filed as Exhibit 10.15 to the Company's Registration Statement on Form
S-1 (File No. 333-17581) and incorporated herein by reference.
10.16* Third Amendment to the Master Lease Agreement No. 8050 dated August 2, 1995.
Filed as Exhibit 10.16 to the Company's Registration Statement on Form S-1 (File
No. 333-17581) and incorporated herein by reference.
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. Filed as Exhibit 10.17 to the Company's Registration Statement on Form
S-1 (File No. 333-17581) and incorporated herein by reference.
10.18+* Extension Agreement to Agency Agreement between the Registrant and Sumitomo
Corporation dated March 5, 1996. Filed as Exhibit 10.18 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.19+* Development and License Agreement dated March 29, 1996 by and among the
Registrant and Daiichi Radioisotope Laboratories, Ltd. Filed as Exhibit 10.19 to
the Company's Registration Statement on Form S-1 (File No. 333-17581) and
incorporated herein by reference.
10.20* Third Amendment Lease From Trustees of the Cambridge East Trust to the
Registrant dated May 1, 1996. Filed as Exhibit 10.20 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.21* Series D Convertible Preferred Stock Purchase Agreement by and among
the Registrant and certain purchasers named therein dated May 29,
1996. Filed as Exhibit 10.21 to the Company's Registration Statement
on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
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.
Filed as Exhibit 10.22 to the Company's Registration Statement on Form S-1 (File
No. 333-17581) and incorporated herein by reference.
10.23* Form of Warrant to Purchase Shares of Series D Preferred Stock dated May 29,
1996. Filed as Exhibit 10.23 to the Company's Registration Statement on Form
S-1 (File No. 333-17581) and incorporated herein by reference.
10.24* Amendment No. 1 to Third Amended and Restated Stockholders' Rights Agreement
dated May 31, 1996. Filed as Exhibit 10.24 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.25* Series E Convertible Preferred Stock Purchase Agreement dated May 31, 1996
between the Registrant and Daiichi Radioisotope Laboratories, Ltd. Filed as
Exhibit 10.25 to the Company's Registration Statement on Form S-1 (File No.
333-17581) and incorporated herein by reference.
10.26+* Strategic Collaboration Agreement between the Registrant and Mallinckrodt
Medical, Inc. and Mallinckrodt Group Inc. dated August 30, 1996. Filed as
Exhibit 10.26 to the Company's Registration Statement on Form S-1 (File No.
333-17581) and incorporated herein by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- -------- --------------------------------------------------------------------------------------- -----
<S> <C> <C>
10.27* Amendment No. 2 to Third Amended and Restated Stockholders' Rights Agreement
dated December 6, 1996. Filed as Exhibit 10.27 to the Company's Registration
Statement on Form S-1 (File No. 333-17581) and incorporated herein by
reference.
10.28* Amended and Restated 1992 Equity Incentive Plan. Filed as Exhibit 99.1 to the
Company's Registration Statement on Form S-8 (File No. 333-30531) and
incorporated herein by reference.
10.29* Form of Incentive Stock Option Certificate. Filed as Exhibit 10.29 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.30* Form of Nonstatutory Stock Option Certificate. Filed as Exhibit 10.30 to the
Company's Registration Statement on Form S-1 (File No. 333-17581) and
incorporated herein by reference.
10.31* 1996 Director Stock Option Plan. Filed as Exhibit 10.31 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.32* 1996 Employee Stock Purchase Plan. Filed as Exhibit 10.32 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.33* Form of Consulting and Confidentiality Agreement between the Registrant and
certain consultants of the Registrant. Filed as Exhibit 10.33 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.34* Form of Invention and Non-disclosure Agreement between the Registrant and
certain employees of the Registrant. Filed as Exhibit 10.34 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.35* Form of Non-Competition and Non-Solicitation Agreement between the Registrant
and certain employees of the Registrant. Filed as Exhibit 10.35 to the Company's
Registration Statement on Form S-1 (File No. 333-17581) and incorporated herein
by reference.
10.36* Form of Common Stock Purchase Agreement. Filed as Exhibit 10.36 to the
Company's Registration Statement on Form S-1 (File No. 333-17581) and
incorporated herein by reference.
10.37* Form of Stock Purchase and Right of First Refusal Agreement. Filed as Exhibit
10.37 to the Company's Registration Statement on Form S-1 (File No. 333-17581)
and incorporated herein by reference.
10.38* Collaboration Agreement effective as of June 20, 1997 between Dyax
Corp. and the Registrant. Filed as Exhibit 10.1 to the Company's
Quarterly report on Form 10-Q for the period ended September 30, 1997
(File No. 000-21863) and incorporated herein by reference.
10.39* Short Form Lease from Trustees of the Cambridge East Trust to the
Registrant with a commencement date of January 1, 1998.
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 (set forth on the Signature Page herein).
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.
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 January 11,
1997 (except for Note 15, which the date is February 13, 1997) in the Amendment
1 to the Registration Statement (Form S-1 Registration No. 333-38399) and
the related Prospectus of EPIX Medical, Inc. for the registration of 2,587,500
shares of its common stock.
/s/ Ernst & Young LLP
Ernst & Young LLP
Boston, Massachusetts
October 27, 1997
