UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to ___________.
Commission File Number 0-21863 -
-------
EPIX Medical, Inc.
------------------
(Exact name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
Delaware 04-3030815
- ---------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
71 Rogers Street
Cambridge, Massachusetts 02142
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (617) 499-1400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
--------------------------------------
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of April 1, 1998, 11,274,054 shares of the registrant's Common Stock,
$.01 par value per share, were issued and outstanding.
1
<PAGE>
EPIX MEDICAL, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Balance Sheets--March 31, 1998 and December 31, 1997 3
Statements of Operations--Three Months Ended March 31, 1998 and 1997 4
Statements of Cash Flows--Three Months Ended March 31, 1998 and 1997 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
2
<PAGE>
EPIX Medical, Inc.
(A Company in the Development Stage)
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -----------
<S> <C> <C>
(Unaudited)
Assets:
Current assets:
Cash and cash equivalents $ 1,191,560 $ 1,455,657
Marketable securities 38,498,834 41,356,941
Prepaid expenses 261,142 241,138
Other current assets 11,469 69,772
----------- -----------
Total current assets 39,963,005 43,123,508
Property and equipment, net 1,584,178 1,254,281
Notes receivable from officer 320,684 315,616
Other assets 88,896 81,966
----------- -----------
Total assets $41,956,763 $44,775,371
=========== ===========
Liabilities and Stockholders' Equity:
Current liabilities:
Current portion of capital lease obligations $ 329,069 $ 319,745
Contract advances 828,915 794,346
Accounts payable and accrued expenses 2,140,845 2,336,135
----------- -----------
Total current liabilities 3,298,829 3,450,226
Capital lease obligations, less current portion 447,395 278,966
Common stock, $.01 par value, 15,000,000 shares authorized; 11,274,054 112,741 112,183
and 11,218,264 shares issued and outstanding at March 31, 1998 and
December 31, 1997, respectively
Additional paid-in capital 55,383,754 55,351,091
Deficit accumulated during the development stage (17,285,956) (14,417,095)
----------- -----------
Total stockholders' equity 38,210,539 41,046,179
----------- -----------
Total liabilities and stockholders' equity $41,956,763 $44,775,371
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period from
Three months Three months inception
ended March 31, ended March 31, (November 29, 1988)
1998 1997 to March 31, 1998
--------------- ------------ -------------------
<S> <C> <C> <C>
Revenues $ 423,825 $ 293,180 $ 18,672,599
Operating expenses:
Research and development 2,889,824 1,440,027 27,090,944
General and administrative 843,340 899,791 10,563,571
----------- ----------- ------------
Total operating expenses 3,733,164 2,339,818 37,654,515
----------- ----------- ------------
Operating loss (3,309,339) (2,046,638) (18,981,916)
Interest expense (12,653) (9,944) (660,137)
Interest income 453,131 228,619 2,371,564
----------- ----------- ------------
Net loss $(2,868,861) $(1,827,963) $(17,270,489)
=========== =========== ============
Weighted average shares
Basic 11,261,757 5,911,280
Diluted 11,261,757 5,911,280
Earnings (loss) per common share
Basic $(0.25) $(0.31)
Diluted $(0.25) $(0.31)
</TABLE>
See accompanying notes.
4
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Period
Three Months Three Months from inception
Ended March 31, Ended March 31, (November 12, 1988)
1998 1997 to March 31, 1998
---------------- --------------- ---------------------
<S> <C> <C> <C>
Operating activities:
Net loss $ (2,868,861) $ (1,827,963) $ (17,270,489)
Adjustments to reconcile net loss to cash provided (used) by
operating activities:
Depreciation and amortization 155,476 133,647 2,388,972
Expenses paid with equity instruments 204,342
Change in operating assets and liabilities:
Prepaid expenses and other current assets 26,301 100,780 94,470
Contract advances 34,569 828,915
Accounts payable and accrued expenses (195,290) (512,890) 1,866,921
------------ ------------ -------------
Net cash used by operating activities (2,847,805) (2,106,426) (11,886,869)
Investing activities:
Purchase of fixed assets (485,373) (226,691) (3,709,378)
Purchase of marketable securities (221,849,239) (21,984,451) (591,599,323)
Proceeds from sale or redemption of marketable securities 224,707,346 11,200,000 553,100,489
Issuance of notes receivable from officer (280,000)
------------ ------------ -------------
Net cash provided (used) by investing activities 2,372,734 (11,011,142) (42,488,212)
------------ ------------ -------------
Financing activities:
Lease financing of fixed assets 258,387 1,833,434
Repayment of capital lease obligations (80,634) (58,462) (1,245,690)
Issuance of promissory notes 3,000,000
Issuance of bridge notes 600,000
Sale of Series B redeemable convertible preferred stock 3,941,236
Sale of Series D redeemable convertible preferred stock 4,468,963
Sale of Series E redeemable convertible preferred stock 4,882,372
Sale of Series A convertible preferred stock 1,037,664
Repurchase of stock from officer (270,000)
Sale of common stock 14,268,564 37,124,118
Issuance of stock options and warrants 33,221 29,951 194,544
------------ ------------ -------------
Net cash provided by financing activities 210,974 14,240,053 55,566,641
------------ ------------ -------------
Increase (decrease) in cash and cash equivalents (264,097) 1,122,485 1,191,560
Cash and cash equivalents at beginning of period 1,455,657 2,667,892
------------ ------------ -------------
Cash and cash equivalents at end of period $ 1,191,560 $ 3,790,377 $ 1,191,560
============ ============ =============
Supplemental cash flow information:
Cash paid for interest $ 12,653 $9,944 $ 344,181
============ ============ =============
</TABLE>
See accompanying notes.
5
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
Notes to Condensed Financial Statements
March 31, 1998
(Unaudited)
1. Basis of Presentation
The unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and the rules of the
Securities and Exchange Commission (the "Commission"). Accordingly, they do not
include all of the information and footnotes required to be presented for
complete financial statements. The accompanying condensed financial statements
reflect all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
results for the interim periods presented. The results of the interim period
ended March 31, 1998 are not necessarily indicative of the results expected for
the full fiscal year.
The condensed financial statements and related disclosures have been
prepared with the assumption that users of the interim financial statements have
read or have access to the audited financial statements for the preceding fiscal
year. Accordingly, these condensed financial statements should be read in
conjunction with the audited financial statements and the related notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
2. Earnings Per Share
In February 1997, the Financial Accounting Standard Board (FASB) issued
Financial Standards No. 128, "Earnings Per Share" (FAS 128). SFAS 128 replaces
the calculation for computing primary and diluted earnings per share with basic
and diluted earnings per share. Basic earnings per share excludes any dilutive
effect of options, warrants or convertible securities. Pursuant to the previous
requirements of the Securities and Exchange Commission (SEC), common shares,
common share equivalents and convertible preferred stock issued by the Company
during the twelve month period prior to the initial public offering in February
1997 had been included in the previously reported weighted average shares for
all periods presented, whether or not anti-dilutive. In February 1998, the SEC
issued Staff Accounting Bulletin 98 which, among other things, conformed prior
SEC requirements to SFAS 128 and eliminated inclusion of such shares in the
computation of earnings per share. All earnings (loss) per share amounts for all
periods have been presented, and as appropriate, restated to conform to SFAS 128
and the current SEC requirements. Due to its loss position, diluted earnings per
share for periods reported herein is the same amount as basic earnings per
share.
3. Comprehensive Income
In 1997, the Financial Accounting Standards Board (FASB) issued Financial
Standards No. 130 "Reporting Comprehensive Income." Adoption of the Standard is
required for all periods beginning after December 15, 1997.
Statement 130 establishes the rules for reporting and displaying
"comprehensive income" and its components. In general, comprehensive income
consists of net income and "other comprehensive income". Other comprehensive
income is comprised of non-owner related changes in equity that were excluded
from net income. Examples of other comprehensive income include: certain
unrealized gains or losses on available-for-sale securities, certain foreign
currency translation adjustments, changes in the value of certain futures
contracts and certain changes in pension liabilities.
The Company had no other comprehensive income during the three month
periods ended March 31, 1998 and 1997 and, accordingly, its comprehensive loss
and net loss are the same.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Since commencing operations in 1992, the Company has been engaged principally
in the research and development of its product candidates as well as seeking
various regulatory clearances and patent protection. The Company has had no
revenues from product sales and has incurred losses since its inception through
March 31, 1998 aggregating approximately $17.3 million. The Company has received
revenues in connection with various licensing and collaboration agreements. In
August 1996, the Company entered into a strategic alliance with Mallinckrodt,
Inc. for the development and commercialization of MS-325 worldwide excluding
Japan pursuant to which it received $6.0 million in up-front license fees. The
agreement provided for an additional $2.0 million milestone payment which was
received in July 1997. In March 1996, the Company entered into a strategic
alliance (the "Daiichi Agreement") with Daiichi Radioisotope Laboratories, Ltd.
related to the development and commercialization of MS-325 in Japan. To date,
the Company has received $3.0 million in license fees and $5.0 million from the
sale of shares of the Company's preferred stock pursuant to the Daiichi
Agreement. The Company is also entitled to receive up to $3.3 million in future
payments pursuant to the Daiichi Agreement based upon the Company's achievement
of certain product development milestones. The Company has received $900,000 of
such milestone payments to date.
The Company expects continued operating losses for the next several years as it
incurs expenses to support research, development and efforts to obtain
regulatory approvals.
The Company's initial product candidate, MS-325, is currently the Company's only
product candidate undergoing human clinical trials. The Company filed an IND
application for MS-325 in July 1996 and initiated a Phase I clinical trial in
1996 and a Phase I dose escalation study in 1997, both of which have been
completed. The Company initiated a Phase II trial for peripheral vascular
disease indications in June 1997 and has since commenced feasibility clinical
trials for both cardiac and breast cancer indications.
The Company anticipates fluctuation in its quarterly results of operations due
to several factors, including: the timing of fees and milestone payments
received from strategic partners; the formation of new strategic alliances by
the Company; the timing of expenditures in connection with research and
development activities; the timing of product introductions and associated
launch, marketing and sales activities; and the timing and extent of product
acceptance for different indications and geographical areas of the world.
Results of Operations
Comparison of Three Months Ended March 31, 1998 and 1997
Revenues. First quarter revenues were $424,000 and $293,000 in 1998 and 1997,
respectively, and in both periods were comprised of revenues from product
development contracts with the Company's strategic partners.
Research and development expenses. Research and development expenses for the
three months ended March 31, 1998 were $2.9 million as compared to $1.4 million
for the three months ended March 31, 1997. The increased research and
development expenses were mainly due to the costs of advancing MS-325 through
clinical trials. During the first quarter of 1998, the Company was enrolling
patients in three separate Phase II clinical trials for MS-325 as compared to
the first quarter of 1997 during which two Phase I trials were in progress.
Additional costs for personnel and resources to support research in the area of
thrombus imaging and the enhancement of core technology also contributed to
higher operating expenses in the first quarter of 1998 as compared to the first
quarter of 1997.
General and administrative expenses. General and administrative expenses for the
three months ended March 31, 1998 were $843,000 as compared to $900,000 for the
corresponding period of 1997. The slight decrease was attributable to higher
costs in 1997 associated with the transition to being a publicly held Company.
Also contributing to the decrease were differences in the timing of when various
expenses were incurred in connection with patent activities, travel and supply
purchases.
7
<PAGE>
Interest income and expense. Other income, consisting mainly of interest income,
increased $221,000 in 1998 as compared to 1997 mainly due to higher average
levels of invested cash during the 1998 first quarter.
Liquidity and Capital Resources
The Company financed its operations from inception through March 31, 1998 with
$14.3 million in net proceeds from the Company's initial public offering
completed in February 1997, $22.9 million from a follow-on public offering of
common stock in November 1997, $18.4 million from private sales of equity
securities, $18.0 million received from third parties in connection with
collaboration and license arrangements, $2.1 million of equipment lease
financing and $2.4 million in interest income. From inception through March 31,
1998, the Company has incurred $37.7 million of costs attributable to operating
activities, including $27.1 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 $39.7 million at March 31, 1998, as
compared to $42.8 million at December 31, 1997.
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.
The Company estimates that 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, licensing arrangements, 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.
During the quarter ended March 31, 1998, the Company used approximately $2.8
million of cash for operating activities. 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 entered into a lease for its current principal scientific
facilities which expires on December 31, 2002. The Company also has a short-term
lease for a nearby office space which expires in October 1998 but is renewable
under certain conditions for an additional 12 month period.
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, 1997,
the Company had loss carryforwards of approximately $12.0 million available to
offset future taxable income. These amounts expire at various times through
2011. 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 Sections 382 and 383 of the Code, the change
in ownership resulting from public equity offerings in 1997 and any other future
ownership changes may further limit utilization of losses and credits 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.
8
<PAGE>
Forward-Looking Statements
The discussion included in this section as well as elsewhere in the
Quarterly Report on Form 10-Q contains forward-looking statements based on the
current expectations of the Company's management. Such statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those projected. See "Important Factors Regarding Forward-Looking
Statements" attached as Exhibit 99.1 and incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 as
previously filed with the Commission. Readers are cautioned not to place undue
reliance on the forward-looking statements which speak only as of the date
thereof. The Company undertakes no obligation to release publicly the result of
any revisions to these forward-looking statements which may be made to reflect
events or circumstances occurring after the date hereof or to reflect the
occurrence of unanticipated events.
9
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) EXHIBITS
27.1 Financial Data Schedule for the interim year-to-date period
ended March 31, 1998 (for electronic filing only).
27.2 Financial Data Schedule for the interim year-to-date period
ended March 31, 1997 (for electronic filing only).
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1998.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
EPIX MEDICAL, INC.
Date: May 12, 1998 By: /s/ Jeffrey R. Lentz
--------------------
Jeffrey R. Lentz,
Chief Financial Officer and
Vice President, Finance and
Administration
(Principal Financial Officer and
Accounting Officer)
11
<PAGE>
EXHIBIT INDEX
Page
Number Description Number
- ------ ----------- ------
27.2 Financial data schedule for the interim year-to-date 13
period ended March 31, 1998 (for electronic filing
only).
27.3 Financial data schedule for the interim year-to-date 14
period ended March 31, 1997 (for electronic filing
only).
99.1 Important Factors Regarding Forward-Looking Statements
filed as Exhibit 99.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference.
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF EPIX MEDICAL, INC. MARCH 31, 1998 AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001027702
<NAME> EPIX MEDICAL, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,191,560
<SECURITIES> 38,498,834
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 39,963,005
<PP&E> 8,832,826
<DEPRECIATION> 2,248,648
<TOTAL-ASSETS> 41,956,763
<CURRENT-LIABILITIES> 3,298,829
<BONDS> 0
0
0
<COMMON> 112,741
<OTHER-SE> 38,097,795
<TOTAL-LIABILITY-AND-EQUITY> 41,956,763
<SALES> 0
<TOTAL-REVENUES> 423,825
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,733,164
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,653
<INCOME-PRETAX> (2,868,861)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,868,861)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,868,861)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF EPIX MEDICAL, INC., MARCH 31, 1997 AND FOR THE THREE MONTH PERIOD ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0001027702
<NAME> EPIX MEDICAL, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,790,377
<SECURITIES> 18,780,637
<RECEIVABLES> 293,180
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,031,309
<PP&E> 2,733,189
<DEPRECIATION> 1,645,966
<TOTAL-ASSETS> 24,473,767
<CURRENT-LIABILITIES> 1,922,459
<BONDS> 0
0
0
<COMMON> 86,772
<OTHER-SE> 22,347,794
<TOTAL-LIABILITY-AND-EQUITY> 24,473,767
<SALES> 0
<TOTAL-REVENUES> 293,180
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,339,818
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,944
<INCOME-PRETAX> (1,827,963)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,827,963)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,827,963)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
