SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 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.
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(Exact name of Registrant as Specified in its Charter)
Delaware 04-3030815
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
71 Rogers Street
Cambridge, Massachusetts 02142
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 250-6000
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
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(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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value, based upon the closing sale price of the shares as
reported by the Nasdaq National Market, of voting stock held by non-affiliates
(without admitting that any person whose shares are not included in such
calculation is an affiliate) at March 18, 1999 was $111,815,077.
As of March 18, 1999, 11,468,213 shares of the registrant's Common Stock, $.01
par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
General
EPIX Medical, Inc. ("EPIX" or the "Company") is developing targeted contrast
agents both to improve the capability and expand the use of magnetic resonance
imaging ("MRI") as a diagnostic tool for a variety of diseases. The Company was
incorporated in Delaware in 1988 and commenced operations in 1992.
Overview
The Company 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, AngioMARK (MS-325), is an
injectable vascular contrast agent designed for multiple vascular imaging
indications, including peripheral vascular disease ("PVD") and coronary artery
disease ("CAD"). The Company believes that AngioMARK 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 also believes that AngioMARK 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 AngioMARK, including
breast cancer, thromboembolic disease 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 AngioMARK and other future vascular contrast agents. See
"-Strategic Alliances."
The Company completed a Phase I clinical trial of AngioMARK in February 1997
with no clinically significant adverse events reported. The Phase I clinical
trial yielded images and signal duration and intensity consistent with the
Company's belief that AngioMARK-enhanced MRI used earlier in the diagnostic
pathway could provide physicians with diagnostic information clinically
equivalent to X-ray angiography. The Company completed a Phase II clinical trial
in June 1998 to test the safety and preliminary efficacy of AngioMARK-enhanced
MR angiography ("MRA") for the evaluation of PVD and is currently conducting a
Phase II feasibility trial to test the safety and feasibility of
AngioMARK-enhanced MRA for the evaluation of CAD. Each of these trials was
designed to compare AngioMARK-enhanced MRA to conventional X-ray angiography,
the current reference standard for these indications. In December 1998, the
Company filed a proposed protocol application with the Food and Drug
Administration ("FDA") to initiate a Phase III clinical trial of PVD. In
addition, in January 1998, the Company initiated a Phase II clinical trial to
test the safety and feasibility of AngioMARK for detecting breast cancer.
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 utility of MRI, particularly for coronary arteries, have had
limited success. Unlike most currently available MRI contrast agents, which are
non-specific, AngioMARK is a targeted intravascular contrast agent designed to
bind to albumin, the most common blood protein. Because of its affinity for
albumin, AngioMARK 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, AngioMARK is designed to be excreted safely through the kidneys over
time. EPIX believes that the advantages of AngioMARK, 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.
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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, 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, one measure of image quality, 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 PVD and CAD, the inability of current MRI
to provide sufficient contrast between the arteries and the surrounding tissue
limits its clinical utility in imaging the arterial anatomy. 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 AngioMARK will significantly expand the use of
currently available MRI equipment in diagnosing PVD. The Company also believes
that AngioMARK, together with the anticipated hardware and software solutions to
the cardiac motion problem, will enable widespread clinical use of MRI to
diagnose CAD. AngioMARK 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.
AngioMARK: Peripheral Vascular Indications
Background. PVD affects arteries throughout the body and results in significant
morbidity and mortality. There are approximately 600,000 vascular operations,
600,000 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 computed tomography (CT), frequently do
not provide definitive diagnostic information. For example, ultrasound and renal
nuclear scans have poor image quality, leading to exams which are frequently
indeterminate. CT can be used for certain 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.
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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.
The EPIX Approach to PVD Diagnosis. The Company believes that the use of
AngioMARK-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. AngioMARK 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 AngioMARK will
enable MRI to overcome the principal problem that has limited its clinical
effectiveness in evaluating PVD.
An AngioMARK-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 AngioMARK-enhanced MRI exam is
intended for use early in the PVD work-up. The Company's Phase I clinical trial
yielded images and signal duration and intensity consistent with the Company's
belief that AngioMARK enhanced MRI used earlier in the diagnostic pathway could
provide physicians with diagnostic information clinically equivalent to
peripheral X-ray angiography. Consequently, the Company believes that
AngioMARK-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
AngioMARK-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 avoid 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 AngioMARK-enhanced MRI exam has the potential to
noninvasively provide diagnostic information in selected cases that is
clinically equivalent to peripheral X-ray angiography for the diagnosis of blood
clots.
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AngioMARK: 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
million patients in the United States underwent over 11 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 AngioMARK
would simplify the process of diagnosing CAD, significantly improving patient
outcomes and lowering total medical costs.
Traditional Approach to CAD Diagnosis. The current diagnostic process for CAD is
complex, expensive and can involve multiple, often inconclusive, tests. While
the specific diagnostic pathway may vary for any given patient, several
appointments for multiple diagnostic exams may be necessary prior to formulation
of a treatment plan.
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:
o 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.
o 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.
o 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.
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o 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.
o 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 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 AngioMARK, 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 would 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 would be able to make a more
informed diagnosis, and arrange for appropriate patient treatment, sooner than
would otherwise be possible, thereby potentially 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
AngioMARK-enhanced MRI used earlier in the diagnostic pathway could 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 AngioMARK to provide
clinically relevant images in cardiac indications currently being pursued.
The Company believes that the use of AngioMARK-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 proposed 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 invasive coronary X-ray
angiography, an AngioMARK procedure would simply require the patient to receive
a single injection of AngioMARK into a vein in the arm prior to entering the MR
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 AngioMARK-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 AngioMARK-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 likely be
reduced or eliminated. 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.
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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, the Company believes both
stress echocardiograms and nuclear stress perfusion studies could be eliminated.
In addition, because an AngioMARK-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.
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 AngioMARK may lead to an increase in follow-up exams using MRI.
Furthermore, the Company believes that AngioMARK would enable noninvasive
cardiologists to visualize the coronary arteries of the over 300,000 patients
who are treated with thrombolytic therapy (streptokinase and tissue Plasminogen
Activator) each year.
AngioMARK: Breast Cancer Indication
Background and Current Approach to Breast Cancer Diagnosis. Breast cancer
afflicts approximately 179,000 women in the United States each year and is the
second leading cause of death in women, resulting in over 43,000 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; in these
cases, 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
that 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
AngioMARK could provide a non-invasive means of detecting breast cancer due
primarily to the ability of AngioMARK-enhanced MRI to image angiogenesis, an
early indicator of malignant tumors characterized by abnormal growth of blood
vessels. In particular, the Company believes that AngioMARK-enhanced MRI could
assist physicians in diagnosing breast cancer in the approximately 4 million
women who have sub-optimal mammograms each year. Furthermore, the Company
believes AngioMARK-enhanced MRI may enable physicians to discriminate between
benign and malignant tumors in the approximately 1 million women who currently
undergo a biopsy.
Business Strategy
The Company's objective is to become a worldwide leader in MRI contrast agents
by pursuing a strategy based on commercializing AngioMARK and developing new
applications for its proprietary technology platform. The Company's key business
objectives are to:
o Establish the safety and clinical utility of AngioMARK for multiple vascular
imaging indications. In June 1998, the Company completed a Phase II clinical
trial to test the safety and preliminary efficacy of AngioMARK-enhanced MRA
for the evaluation of PVD. The Company continued to enroll patients in its
Phase II trial to assess the safety and feasibility of AngioMARK-enhanced
MRA for the evaluation of CAD. In each of these clinical trials, the Company
compares AngioMARK-enhanced MRA to X-ray angiography, the current reference
standard for these indications. In addition, in January 1998 the Company
commenced a Phase II clinical trial to test the safety and feasibility of
AngioMARK-enhanced MRI for detecting breast cancer. The Company intends to
conduct additional clinical trials for other indications in the future.
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o Achieve market acceptance of AngioMARK. The Company intends to collect
pharmacoeconomic and clinical data that demonstrates that AngioMARK-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 AngioMARK
because of its potential for substantial clinical benefits and cost savings.
The Company also intends to further the market acceptance of
AngioMARK-enhanced MRI by coordinating its development efforts with the
development efforts of leaders in the MRI equipment industry. Toward this
end, in 1998 the Company entered into collaboration agreements with General
Electric Medical Systems and Philips Medical Systems. The primary objective
of these collaborations is to develop technologies and protocols that
improve and expand the use of MRI for cardiovascular imaging.
o Develop new targeted MRI contrast agents. In addition to evaluating the use
of AngioMARK in diagnosing thrombosis, the Company is developing
thrombosis-specific MRI contrast agents based on its proprietary technology
platform.
o Maximize the value of strategic alliances. As of the end of 1998, the
Company had established collaborations with Mallinckrodt, Daiichi, Dyax
Corp. ("Dyax"), NeoGenesis Pharmaceuticals, Inc. ("NeoGenesis"), General
Electric Medical Systems, Philips Medical Systems, and Pfizer Inc.
("Pfizer"). 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. See "-Strategic
Alliances."
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 the sense 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. This technology 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
the targeted receptor molecules. Moreover, the binding of agent to receptor
reduces the rate at which the agent rotates, or tumbles, in solution. This
relaxation in tumbling rate leads to a complex magnetic effect whereby the
agent's signal-enhancing characteristics are substantially increased, resulting
in a stronger signal during MR scans.
Enzyme Sensing Technology
Developed by EPIX scientists, enzyme sensing technology is an extension of the
RIME technology which potentially 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. In the presence of these enzymes, such an agent
would bind to a target receptor and express its full RIME signal enhancement
capabilities. 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.
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EPIX Products and Development Programs
AngioMARK
The Company's lead product candidate, AngioMARK, is a targeted vascular contrast
agent intended for use with MRI. AngioMARK 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 AngioMARK images
using standard MRI techniques, the blood gives off a strong magnetic signal and
appears bright against the dark background of surrounding tissue. Because of its
affinity for albumin, AngioMARK remains at high concentrations in the
bloodstream throughout the MRI exam and therefore 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, AngioMARK is designed to be excreted safely through the kidneys
over time.
While AngioMARK is based on the Company's proprietary technology platform, its
chemical composition is similar to several currently available MRI contrast
agents which have established a strong safety record and are known to cause few
side effects. Due to the increased magnetic signal elicited by AngioMARK, the
Company expects it to be used at a similar or lower dose than these contrast
agents. As a result of these factors, the Company believes that AngioMARK will
have a safety profile comparable to currently available MRI contrast agents.
The Company has completed two Phase I clinical trials to date; the first was
completed in February 1997, and the second in February 1998. No clinically
significant adverse events were reported for these Phase I trials.
In June 1998, the Company completed a Phase II clinical trial to test the safety
and preliminary efficacy of AngioMARK for the evaluation of PVD in the carotid,
iliac and femoral arteries. This Phase II trial was conducted at multiple
clinical sites and involved the blinded administration of AngioMARK at several
dosing levels in a total of 81 patients. In the trial, AngioMARK-enhanced MRA
was compared to conventional X-ray angiography, the current reference standard,
to determine the location and degree of stenotic lesions. The results for
identification of stenoses, combining all doses, indicate that AngioMARK
demonstrated 82% accuracy, 80% sensitivity and 82% specificity in the peripheral
vasculature relative to X-ray angiography. The 95% confidence intervals for
accuracy, sensitivity and specificity were 73-90%, 68-92% and 70-95%,
respectively. The study also demonstrated that the accuracy for determining the
location of stenoses for carotid, iliac and femoral arteries was 100%, 72% and
86%, respectively. In this study, AngioMARK was well tolerated by patients at
all dose levels, with no serious side effects reported. In December 1998, the
Company filed a proposed protocol application with the FDA to initiate a Phase
III clinical trial.
In September 1997, the Company commenced a Phase II clinical trial to test the
safety and feasibility of AngioMARK for the evaluation of CAD. This Phase II
clinical trial is being conducted at multiple sites and involves the
administration of AngioMARK to approximately 105 patients. As with the Phase II
PVD trial, AngioMARK-enhanced MRA is being 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
feasibility data for the CAD trial will be completed in 1999.
In January 1998, the Company commenced a Phase II clinical trial to test the
safety and feasibility of AngioMARK for detecting breast cancer. The Company
believes that, based on the physical properties of AngioMARK and preclinical
studies, AngioMARK has potential utility as part of a noninvasive imaging
procedure that would assist physicians in identifying breast cancer in patients
who are at high risk or who have had indeterminant mammograms. Another potential
application for AngioMARK-enhanced MRI involves the precise determination of
tumor size in cases of malignant breast cancer.
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Other Research and Development Programs
Thrombosis Imaging. The Company is currently developing novel contrast agents
for imaging thrombosis, commonly referred to as "blood clots." These clots can
occur in the legs, pelvis and 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. Such a
product could potentially change the diagnostic pathway for many of the
conditions associated with thromboembolic disease, including PE and DVT. The
Company has entered into a strategic alliance with Dyax to develop novel
contrast imaging agents for the diagnosis of severe blood clots in the lungs and
legs. See "-Strategic Alliances." The Company believes that use of this new
approach could lead to better medical outcomes due to earlier definitive
diagnosis. Early diagnosis is especially important for clots in the pelvis and
vena cava because of their increased likelihood of migrating to the lungs once
inside the pulmonary vasculature, these clots can be fatal. The Company believes
that such contrast agents could eliminate the need for the ultrasound and
nuclear medicine studies currently used to identify thrombotic disease, and
could potentially provide a noninvasive but clinically equivalent alternative to
pulmonary angiography.
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, Daiichi,
Dyax, NeoGenesis, General Electric Medical Systems, Philips Medical Systems and
Pfizer.
Mallinckrodt
In August 1996, the Company and Mallinckrodt entered into a collaboration
agreement pursuant to which the Company granted Mallinckrodt an exclusive
license to develop and commercialize AngioMARK 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 AngioMARK 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 AngioMARK worldwide, excluding Japan. The agreement imposes
certain development due diligence obligations on both of the parties and certain
marketing due diligence obligations on Mallinckrodt.
The Company and Mallinckrodt will generally share equally in the worldwide,
excluding Japan, development and manufacturing scale-up and product launch costs
of AngioMARK as well as any future MRI vascular agents which may be covered by
the agreement. The parties' current obligations with respect to AngioMARK
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 EPIX-Mallinckrodt
steering committee.
In September 1998, Mallinckrodt agreed to increase its financial commitment to
the original EPIX-Mallinckrodt collaboration. The amended agreement provides
EPIX and Mallinckrodt with the opportunity to broaden the scope of their
clinical program for AngioMARK and commits additional resources for the research
and development of novel MR imaging technologies.
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Daiichi
In March 1996, the Company and Daiichi entered into a development and license
agreement pursuant to which the Company granted Daiichi an exclusive license to
develop and commercialize AngioMARK in Japan. Under this arrangement, Daiichi
will assume primary responsibility for clinical development, regulatory
approval, marketing and distribution of AngioMARK in Japan. The Company retained
the right and obligation to manufacture AngioMARK for development activities and
commercial sale under the agreement. However, Daiichi may, under certain
circumstances, elect to formulate AngioMARK 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 AngioMARK 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 AngioMARK 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 AngioMARK in Japan.
Dyax
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 MR-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.
NeoGenesis
In October 1998, the Company and NeoGenesis announced the initiation of a
collaboration for the discovery of novel compounds for use in diagnostic
imaging. Under the terms of this agreement, the Company received access to
NeoGenesis' proprietary combinatorial chemistry libraries. By rapidly screening
these libraries with NeoGenesis' mass-coded drug discovery platform, EPIX hopes
to identify potential candidates for its drug discovery programs.
General Electric Medical Systems
In January 1998, the Company and General Electric Medical Systems announced the
formation of a collaboration to accelerate the development of cardiovascular
MRI. In particular, the collaboration focuses on reducing the effects of cardiac
motion on MR images, providing user-friendly computer tools as a means of
visualizing arteries and veins in 3-dimensional space, and optimizing MRI
sequences for intravascular MRI contrast agents, including AngioMARK. Under the
terms of this non-exclusive agreement, research is performed at several centers
in addition to the Company's facilities, including General Electric's corporate
research facility in Schenectady, NY; General Electric Medical Research in
Milwaukee, WI; the National Institute of Health and several academic centers.
Philips Medical Systems
The Company and Philips Medical Systems agreed in November 1998 to collaborate
in advancing the development of contrast-based cardiovascular MRI technologies.
Under the terms of this non-exclusive collaboration agreement, the companies
will combine their resources to optimize imaging technology and improve
3-dimensional visualization of arteries and veins in patients undergoing MR
angiography. Research and development is to be carried out at several
international Philips research centers and as well as EPIX facilities.
Pfizer
In September 1998, the Company and Pfizer entered into an agreement to explore
the efficacy of AngioMARK-enhanced MRI in the diagnosis and monitoring of female
sexual arousal dysfunction.
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Sumitomo Corp.
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.
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 in
certain foreign markets that are likely to compete with the Company's products
for certain applications. Magnevist(R) by Schering-AG, Dotarem(R) by Guerbet,
S.A., Omniscan(R) by Nycomed Imaging ASA ("Nycomed"), and ProHance(R) by Bracco
S.p.A. are all such products. The Company is aware of two agents under
development, Nycomed's NC100150 and Schering AG's Gadomer-17, that are being
evaluated for use in vascular imaging using MRI. 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.
The Company has many competitors, including pharmaceutical, biotechnology and
chemical companies. A number of competitors, 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
AngioMARK 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.
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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. These two United States patents are
involved in an interference proceeding with an application owned by
Mallinckrodt. The parties are in the process of terminating the interference in
favor of EPIX. If, despite the agreement of the parties to resolve the
interference, the interference is continued, it may take several years to
conclude. While the Company believes that it will prevail in this interference,
there can be no assurance as to 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's European patent and Japanese allowed patent application
have been opposed by several parties. In addition, third parties have also
sought in an Italian court, a declaration of non-infringement of the Company's
European patent. Those third parties seek transborder application of that
declaration in those European countries where the Company's European patent is
in force. Further, those third parties have also sought to invalidate the
Italian portion of that patent. The European Patent Office has issued a
preliminary opinion confirming the validity of the European patent. The Japanese
Patent Office has issued a final rejection of the Japanese patent application. A
Notice of Appeal has been filed in the Japanese Patent Office. These
oppositions, appeals relating thereto and the Italian proceeding, will likely
take several years to finally resolve. While the Company believes that it will
prevail in these proceedings in Japan, Italy and the European Patent Office,
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 has received a notice of allowance for a United States patent
application covering the process by which AngioMARK is manufactured. The
Company's patent protection for AngioMARK currently extends to 2006 in the
United States and Europe. If the currently pending patent applications issue,
this protection will be extended until 2015, with protection for the
manufacturing process extended until 2017, in the United States, and until 2016
in Europe and Japan.
An issued patent grants to the owner the right to exclude others from practicing
inventions claimed therein. In the United States, a patent filed before June 8,
1995 is enforceable for 17 years from the date of issuance or 20 years from the
deemed date of filing the underlying patent applications, whichever is longer.
Patents based on applications filed from June 8, 1995 expire 20 years from the
deemed date. The General Agreement on Tariffs and Trade provides that patents
whose applications were filed on or after June 8, 1995 are effective for 20
years from filing. This new rule is generally regarded as unfavorable to
pharmaceutical companies, where the time period between patent filing and
commercialization of the patented product may be extended many years because of
the lengthy development cycle and regulatory process.
The patent positions of pharmaceutical and biopharmaceutical firms involve
complex legal and factual questions. There can be no assurance that the
Company's issued patents, or any patents that may be issued in the future, will
effectively protect the Company's technology or provide a competitive advantage.
There can be no assurance that any of the Company's patents or patent
applications will not be challenged, invalidated or circumvented in the future.
The Company's commercial success will also depend on its ability to operate
without infringing upon the patents of others in the United States and abroad.
If any third-party patents are upheld as valid and enforceable in any judicial
or administrative proceeding, the Company could be prevented from practicing the
subject matter claimed in such patents, or would be required to obtain licenses
from the patent owners of each such patent, or to redesign its products or
processes, to avoid infringement. There can be no assurance that such licenses
would be available or, if available, would be available on terms acceptable to
the Company or that the Company would be successful in any attempt to redesign
its products or processes to avoid infringement. Accordingly, an adverse
determination in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent the Company from manufacturing and selling its
products, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
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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 AngioMARK.
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 AngioMARK and other products
developed pursuant to the collaboration agreement between the Company and
Mallinckrodt if AngioMARK 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 AngioMARK 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 AngioMARK 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. One of the Japanese patents of this third party will expire in
2007. The Company has filed an appeal in the Japanese Patent Office requesting
that this patent be declared invalid. This appeal will likely take several years
to finally resolve. While the Company believes that it will prevail in this
proceeding, there can be no assurance as to the scope of the claims that the
third party will maintain. The remaining 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 AngioMARK 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 the Company
does not prevail in its appeal to the Japanese Patent Office or Daiichi
commercializes AngioMARK 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 and/or on sale by the third party
referred to above and others which it believes may infringe certain of the
Company's exclusively licensed patents. The Company has commenced and/or expects
to commence litigation in various European countries against other third parties
for infringing the Company's European patent. These litigations will likely take
several years to finally resolve. The Company is pursuing license or
cross-license arrangements with or, if necessary and appropriate, is continuing
infringement proceedings against, these parties. While the Company believes that
it will prevail in these litigations, there can be no assurance as to the
outcome or the scope of any injunctive or monetary relief it may recover. The
Company also 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.
Many of the Company's competitors are continuing to actively pursue patent
protection for activities and discoveries similar to the Company's. There can be
no assurance that these competitors, many of which have substantially greater
resources than the Company and have made substantial investments in competing
technologies, will not in the future seek to assert that the Company's products
or chemical processes infringe their existing patents and/or will not seek new
patents that claim to cover aspects of the Company's technology. Furthermore,
patent applications in the United States are maintained in secrecy until patents
issue, and patent applications in foreign countries are maintained in secrecy
for a specified period after filing. Publication of discoveries in the
scientific or patent literature tends to lag behind actual discoveries and the
filing of related patent applications. In addition, patents issued and patent
applications filed relating to biopharmaceuticals are numerous. Therefore, there
can be no assurance that the Company is aware of all competitive patents, either
pending or issued, that relate to products or processes used or proposed to be
used by the Company.
The Company and MGH have entered into a license agreement pursuant to which MGH
has granted the Company an exclusive worldwide license to the patents and patent
applications which relate to the Company's only product candidate, AngioMARK.
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
AngioMARK 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.
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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. 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.
Manufacturing
The Company currently manufactures, as part of its ongoing development efforts,
small non-GMP (good manufacturing practices as promulgated by the FDA) batches
of AngioMARK in its laboratories located in Cambridge, Massachusetts. AngioMARK
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 AngioMARK
thereafter worldwide except for Japan and, possibly, for Japan. If Mallinckrodt
is unable to produce AngioMARK 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
AngioMARK. 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 AngioMARK
from a broad variety of vendors and, wherever possible, maintains relationships
with multiple vendors for each component. There are a number of components of
AngioMARK 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 AngioMARK available for sale to the Company, it could have a
material adverse effect on the Company's ability to commercialize AngioMARK and
on the Company's business, financial condition and results of operations. See
"-Strategic Alliances."
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.
15
<PAGE>
In order to undertake clinical trials and market pharmaceutical products for
diagnostic or therapeutic use in humans, the procedures and safety standards
established by the FDA and comparable agencies in foreign countries must be
followed. In the United States, a company seeking approval to market a new
pharmaceutical must obtain FDA approval of a new drug application ("NDA").
Before an NDA may be filed, however, a certain procedure is typically followed.
This includes: (i) performance of preclinical laboratory and animal studies;
(ii) submission to the FDA of an application for an 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 use; (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. In November
1997, the Food and Drug Administration Modernization Act of 1997 was passed and
signed into law (the "Act"). The Act, most of which became effective in February
1998, promises, among other things, to streamline the approval process for drugs
and enable patients with serious diseases to more easily access experimental
products. The effect, if any, of the Act on the Company, AngioMARK 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 has completed two Phase I clinical trials to date; the first was
completed in February 1997, and the second in February 1998. No clinically
significant adverse events were reported for these Phase I trials. In June 1998,
the Company completed a Phase II clinical trial to test the safety and
preliminary efficacy of AngioMARK-enhanced MRA for the evaluation of PVD.
Phase II trials to assess the safety and feasibility of AngioMARK-enhanced MR
imaging in the diagnosis of CAD and breast cancer, respectively, are currently
ongoing. 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, further 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."
16
<PAGE>
After an NDA is approved, the Company would continue to be subject to pervasive
and continuing regulation by the FDA, including record keeping requirements,
reporting of adverse experience from the use of the agent and other requirements
imposed by the FDA. FDA regulations also require FDA approval of an NDA
supplement for certain changes if they affect the safety and efficacy of the
pharmaceutical, including, but not limited to, new indications for use, labeling
changes, the use of a different facility to manufacture, process or package the
product, changes in manufacturing methods or quality control systems and changes
in specifications for the product. Failure by the Company to receive approval of
an NDA supplement could have a material adverse effect on the Company's
business, financial condition and results of operations.
The advertising of most FDA-regulated products is subject to FDA and Federal
Trade Commission jurisdiction, but the FDA has sole jurisdiction over
advertisements for prescription drugs. The Company is and may be subject to
regulation under state and Federal law regarding occupational safety, laboratory
practices, handling of chemicals, environmental protection and hazardous
substance control. The Company also will be subject to other present and
possible future local, state, federal and foreign regulation. Failure to comply
with regulatory requirements could have a material adverse effect on the
Company's business, financial conditions and results of operations.
Approval and marketing of pharmaceutical products outside of the United States
are subject to regulatory requirements that vary widely from country to country.
In the European Union ("EU"), the general trend has been towards coordination of
common standards for clinical testing of new agents, leading to changes in
various requirements imposed by each EU country. The level of regulation in the
EU and other foreign jurisdictions varies widely. The time required to obtain
regulatory approval from comparable regulatory agencies in each foreign country
may be longer or shorter than that required for FDA approval. In addition, in
certain foreign markets the Company may be subject to governmentally mandated
prices for its products.
Regulations regarding the approval, manufacture and sale of the Company's
product candidates are subject to change. The Company cannot predict what
impact, if any, such changes might have on its business, financial condition or
results of operations.
The Company's research, development and manufacturing processes require the use
of hazardous substances and testing on certain laboratory animals. As a result,
the Company is also subject to federal, state, and local laws, regulations and
policies governing the use, generation, manufacture, storage, air emission,
effluent discharge, handling and disposal of certain materials and waste as well
as the use of and care of laboratory animals. These laws and regulations are all
subject to change. The Company cannot predict what impact, if any, such changes
might have on its business, financial condition or results of operations.
Reimbursement
The Company expects that sales volumes and prices of its products will be
dependent in large measure on the availability of reimbursement from third-party
payors and that individuals seldom would be willing or able to pay directly for
all the costs associated with procedures which in the future may incorporate the
use of the Company's products. The Company expects that its products will be
purchased by hospitals, clinics, doctors and other users that bill various
third-party payors, such as Medicare, Medicaid and other government insurance
programs, and private payors including indemnity insurers, Blue Cross Blue
Shield plans and managed care organizations ("MCOs") such as health maintenance
organizations. Most of these third-party payors provide coverage for MRI for
some indications when it is medically necessary, but the amount that a
third-party payor will pay for MRI may not include a separate payment for a
contrast imaging agent that is used with MRI. Reimbursement rates vary depending
on the procedure performed, the third-party payor, the type of insurance plan
and other factors. For example, Medicare pays hospitals a prospectively
determined amount for an in-patient stay based on a Medicare beneficiary's
discharge diagnosis related group ("DRG"). This payment includes payment for any
procedure, including MRI, that is performed while a beneficiary is in the
hospital. No additional payment is made for contrast agents used during the
procedure. Other third-party payors may pay a hospital an additional amount for
an MRI procedure performed on an in-patient according to another methodology
such 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.
17
<PAGE>
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. The Company believes that the
managed care approach to healthcare and the growth in capitated arrangements and
other arrangements under which the providers are at financial risk for the
services that are provided to their patients will facilitate the market
acceptance of its products, as it believes that the use of its products will
significantly lower the overall costs and improve the effectiveness of managing
patient populations. There can be no assurance, however, that the Company's
products will be available, will lower costs of care for any patients or that
providers will choose to utilize them even if they do, or if reimbursement will
be available.
In foreign markets, reimbursement is obtained from a variety of sources,
including governmental authorities, private health insurance plans and labor
unions. In most foreign countries, there are also private insurance systems that
may offer payments for alternative therapies. Although not as prevalent as in
the United States, health maintenance organizations are emerging in certain
European countries. The Company may need to seek international reimbursement
approvals, although there can be no assurance that any such approvals will be
obtained in a timely manner or at all. Failure to receive international
reimbursement approvals could have a material adverse effect on market
acceptance of the Company's product candidates in the international markets in
which such approvals are sought.
The Company believes that reimbursement in the future will be subject to
increased restrictions such as those described above, both in the United States
and in foreign markets. The Company believes that the overall escalating cost of
medical products and services has led to, and will continue to lead to,
increased pressures on the health care industry, both foreign and domestic, to
reduce the cost of products and services, including products offered by the
Company. There can be no assurance, in either the United States or foreign
markets, that third party reimbursement and coverage will be available or
adequate, that current reimbursement amounts will not be decreased in the future
or that future legislation, regulation, or reimbursement policies of third-party
payors will not otherwise adversely affect the demand for the Company's product
candidates or its ability to sell its product candidates on a profitable basis,
particularly if MRI exams enhanced with the Company's contrast agents are more
expensive than competing vascular imaging techniques that are equally effective.
The unavailability or inadequacy of third-party payor coverage or reimbursement
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Product Liability Insurance
The clinical and commercial development of pharmaceuticals, including contrast
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 AngioMARK 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.
Employees
As of December 31, 1998 the Company employed 72 persons on a full-time basis, of
which 54 were involved in research and development and 18 in administration and
general management. Twenty-four 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.
Research and Development
During the years ended December 31, 1998, 1997, and 1996, the Company incurred
research and development expenses of $13,349,337, $8,899,197, and $6,878,666,
respectively, and $37,550,457 for the period from inception (November 29, 1988)
to December 31, 1998.
18
<PAGE>
ITEM 2. PROPERTIES
The Company leases a total of 17,050 square feet of space at 71 Rogers Street
and adjacent locations, and 13,310 square feet at 161 First Street, all in
Cambridge, Massachusetts. The current lease at 71 Rogers Street and adjacent
locations runs until December 31, 2002 but may be terminated by the Company in
1999, subject to a termination fee. The current lease at 161 First Street runs
until December 31, 1999 and can be extended under certain conditions for up to
three years. The Company will be required to pay a termination fee if it does
not exercise its option to extend the lease. The Company believes that its
current facilities and currently available space are adequate to meet its
requirements for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings that would have a
negative impact on the financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers, directors and key employees of the Company as of December 31, 1998:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael D. Webb 40 President, Chief Executive Officer and Secretary
James E. Smith, Ph.D. 55 Executive Vice President, Research & Development
Randall B. Lauffer, Ph.D. 41 Chief Scientific Officer
Stephen C. Knight, M.D. 38 Chief Financial Officer, Senior Vice President,
Finance and Business Development
E. Kent Yucel, M.D. 42 Senior Vice President and Chief Medical Officer
Susan M. Flint 47 Vice President, Regulatory Affairs and Clinical
Operations
</TABLE>
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 a MM 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. in inorganic chemistry from the University of Washington.
Dr. Randall B. Lauffer 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. in inorganic chemistry
from Cornell University.
19
<PAGE>
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 a MPPM from the Yale School of Organization and
Management.
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. 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. in pharmacology from Northeastern
University.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock commenced trading on the Nasdaq Stock Market on
January 30, 1997 under the symbol "EPIX", and is listed on NASDAQ's National
Market. The following table sets forth, for the periods indicated, the range of
the high and low closing bids 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 14.00 10.00
1998
First Quarter $15.00 $11.88
Second Quarter 13.44 9.50
Third Quarter 11.00 4.88
Fourth Quarter 10.38 6.13
1999
First Quarter (through March 18, 1999) $11.50 $ 9.00
</TABLE>
On March 18, 1999 the last reported bid for the Common Stock was $9.75 per
share. As of March 18, 1999 there were approximately 98 holders of record of the
Company's Common Stock and approximately 1,000 beneficial holders. To date the
Company has neither declared nor paid any cash dividends on shares of its Common
Stock and does not anticipate doing so for the foreseeable future.
A Registration Statement on Form S-1 (File No. 333-17581) registering 2,300,000
shares of the Company's Common Stock, filed in connection with the Company's
Initial Public Offering ("IPO"), was declared effective by the Securities and
Exchange Commission on January 30, 1997. The primary offering of 2,000,000
shares closed on February 4, 1997 and the underwriters exercised a 300,000 share
overallotment in full on February 13, 1997. The aggregate offering price to the
public was $16,100,000 before underwriter discounts and the costs of the
offerings. The managing underwriters of the IPO were Hambrecht & Quist LLC and
Wessels Arnold and Henderson, LLC. In connection with the IPO the Company
incurred expenses from February 4, 1997 to December 31, 1997 of $1,831,000
including underwriting discounts of $1,127,000 and other expenses of
approximately $704,000. After such expenses the Company's net proceeds from the
IPO were approximately $14,269,000. From February 4, 1997 to December 31, 1998,
the Company had utilized all the net proceeds from the IPO to fund research and
development costs, the AngioMARK clinical trial program and for working capital
and general corporate purposes.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from the Company's audited
financial statements and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Financial Statements, related Notes and other financial information included
herein.
<TABLE>
<CAPTION>
Nine Months Year Ended
Year Ended Ended ----------------------------------------------
March 31, December 31, December 31, December 31, December 31,
(In thousands, except per share data) 1995 1995 (2) 1996 1997 1998
---- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $412 $900 $10,010 $4,228 $1,781
Operating income (loss) (2,820) (4,770) 269 (7,462) (15,825)
Net income (loss) (2,778) (4,893) 268 (6,112) (13,998)
Earnings (loss) per share (1):
Basic -- $(3.27) $0.12 $(0.73) $(1.23)
Diluted -- $(3.27) $0.03 $(0.73) $(1.23)
Weighted average common shares outstanding:
Basic -- 1,498 1,561 8,333 11,354
Diluted -- 1,498 7,732 8,333 11,354
March 31, December 31,
--------- ---------------------------------------------------
Balance Sheet Data: 1995 1995 1996 1997 1998
---- ---- ---- ---- ----
Cash, cash equivalents and short-term $1,079 $150 $10,664 $42,813 $29,101
investments
Working capital (deficit) 516 (1,327) 8,299 39,673 25,593
Total assets 2,141 1,211 12,575 44,775 32,903
Capital lease obligations, less current 107 342 176 279 602
portion
Redeemable convertible preferred stock 3,949 3,956 17,204 -- --
Total stockholders' equity (deficit) (2,552) (7,336) (7,240) 41,046 27,503
</TABLE>
(1) See Note 11 to Notes to Financial Statements for a description of the
calculation of earnings (loss) per share. Reflects a 1-for-1.5 reverse stock
split effected on December 6, 1996.
(2) In 1995 the Company changed its fiscal year end from March 31 to December
31.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Since commencing operations in 1992, the Company has been engaged principally in
the research and development of its product candidates as well as seeking
various regulatory clearances and patent protection. The Company has had no
revenues from product sales and has incurred losses since inception through
December 31, 1998 aggregating approximately $28.4 million. The Company has
received revenues in connection with various licensing and collaboration
agreements. In August 1996, the Company entered into a strategic alliance with
Mallinckrodt pursuant to which it received $6.0 million in up-front license
fees. The agreement 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 with Daiichi. Under this agreement, the Company received $3.0
million in license fees and $5.0 million from the sale of shares of the
Company's preferred stock, and was entitled to receive up to $3.3 million in
future payments based upon the Company's achievement of certain product
development milestones. The Company received $900,000 of such milestone payments
in July 1997.
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.
21
<PAGE>
The Company's initial product candidate, AngioMARK, is currently the Company's
only product candidate undergoing human clinical trials. The Company filed an
IND application for AngioMARK in July 1996. The Company 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 completed a Phase II clinical trial in
June 1998 to test the safety and preliminary efficacy of AngioMARK-enhanced MRA
for the evaluation of PVD and is currently conducting a Phase II feasibility
trial to test the safety and feasibility of AngioMARK-enhanced MRA for the
evaluation of CAD. In December 1998, the Company filed a proposed protocol
application with the FDA to initiate a Phase III clinical trial of PVD. In
addition, in January 1998, the Company initiated a Phase II clinical trial to
test the safety and feasibility of AngioMARK for detecting breast cancer.
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 Year Ended December 31, 1998 and Year Ended December 31, 1997
Revenues
For the year ended December 31, 1998, revenues totaled $1.8 million and were
derived from work performed in connection with product development contracts.
Revenues for the year ended December 31, 1997 totaled $4.2 million and included
milestone payments of $2.0 million received from Mallinckrodt and $900,000
received from Daiichi pursuant to collaboration agreements covering the
Company's lead product, AngioMARK. Revenues in 1997 also included $1.3 million
for work performed in connection with product development contracts.
Research and Development Expenses
Research and development expenses for the year ended December 31, 1998 were
$13.3 million as compared to $8.9 million for 1997. The increased operating
expenses resulted from higher research and development costs associated with
advancing AngioMARK through clinical trials and the addition of personnel and
resources to support research in the area of thrombus imaging and further
development of the Company's core technology.
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 1998 were
$4.3 million as compared to $2.8 million for 1997. The increase was partially
due to additional marketing activities, which included the hiring of personnel
and development of marketing communication programs. Also contributing to the
increase were higher legal costs related to ongoing patent activities and the
hiring of additional support personnel.
Interest Income and Expense
Interest income for the year ended December 31, 1998 was $1.9 million as
compared to $1.4 million for 1997. The $500,000 increase was primarily due to
higher average levels of invested cash during 1998. Interest expense for the
year ended December 31, 1998 was $61,000 as compared to $62,000 in 1997.
Interest expense was unchanged due to the timing of the note payable proceeds,
which were received in December 1998.
Comparison of Year Ended December 31, 1997 and Year Ended December 31, 1996
Revenues
Revenues for the year ended December 31, 1997 included milestone payments of
$2.0 million received from Mallinckrodt and $900,000 received from Daiichi
pursuant to collaboration agreements covering the Company's lead product
candidate, AngioMARK. Revenues for the year ended December 31, 1996 consisted
principally of a $6.0 million license fee received from Mallinckrodt and a $3.0
million licensee fee from Daiichi, each related to the formation of the
collaboration agreements covering AngioMARK. Annual revenues also include $1.3
million and $1.0 million of AngioMARK development contract revenue earned from
strategic partners in 1997 and 1996, respectively.
22
<PAGE>
Research and Development Expenses
Research and development expenses for the year ended December 31, 1997 were $8.9
million as compared to $6.9 million for 1996. The increase resulted principally
from additional costs for personnel and resources to support research in the
area of thrombus imaging and the development of core technology. Higher costs
associated with advancing AngioMARK through clinical trials also contributed to
higher research and development expenses in 1997.
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 1997 were
$2.8 million as compared to $2.9 million for 1996. Higher expenses in 1996 were
largely the result of the costs associated with the formation of two major
strategic collaborations. In addition, 1996 general and administrative expenses
included a $250,000 non-recurring expense related to the restructuring of a
licensing arrangement under a liver agent development program that was
terminated in 1995. Partially offsetting these items were higher expenses in
1997 for ongoing patent protection activities, and the additional costs of
becoming and operating as a publicly-held company.
Interest Income and Expense
Interest income for the year ended December 31, 1997 was $1.4 million as
compared to $288,000 for 1996. The $1.1 million increase was primarily due to
higher average levels of invested cash during 1997. Interest expense for the
year ended December 31, 1997 was $62,000 as compared to $289,000 in 1996. The
1996 period included interest on borrowings under promissory notes and bridge
loans which were outstanding during the first five months of 1996.
Year 2000
The Year 2000 issue results from computer programs and systems that were created
to accept only two digit dates. Such systems may not be able to distinguish 20th
century dates from 21st century dates. This could result in miscalculations and
system failures that could inhibit the Company's ability to engage in normal
business activities.
The Company's State of Readiness and Risk
The Company is conducting both internal and external reviews to address the Year
2000 issue. Internally, the Company has been reviewing information technology
("IT") systems, and non-IT systems such as scientific instruments and other
electronic devices that could be affected by this issue. If required, the
Company will utilize both internal and external resources to reprogram, or
replace, and test the software and systems for Year 2000 modifications.
Externally, the Company has made initial contact with all of its significant
external business partners (including vendors, suppliers and strategic partners)
to determine the extent to which the Company is vulnerable to their failures and
to ascertain Year 2000 compliance and risk. If any of the Company's business
partners do not, or if the Company itself does not, successfully deal with the
Year 2000 issue, the Company could experience delays in its receipt of funding,
materials and other resources which could adversely affect the conduct of its
research and development operations. The severity of these possible problems
would depend on the nature of the problem and how quickly it could be corrected
or an alternative implemented, which is unknown at this time. Although the
Company expects to have obtained Year 2000 compliance before the Year 2000, the
inability of the Company or its business partners to remedy the Year 2000 issue
could have a significant impact on the Company's business, financial position or
results of operations.
The Company estimates that the inventory and assessment of IT systems,
scientific instruments, and material third parties will be completed during the
second quarter of 1999. The Company expects to complete remediation efforts by
the end of the second quarter of 1999, and to complete the validation phase by
the end of the third quarter of 1999.
23
<PAGE>
The Company's Costs of Year 2000 Remediation
While management has not specifically determined the costs of its Year 2000
efforts, the total cost to obtain Year 2000 compliance is currently projected to
be less than $100,000. Such costs will include direct and indirect costs
incurred through monitoring and managing the Year 2000 issue. Direct costs
include potential charges by third-party software and hardware vendors for
product enhancements, costs involved in testing software products for Year 2000
compliance and any resulting costs for developing and implementing contingency
plans for critical software products which are not enhanced. Indirect costs will
principally consist of the time devoted by existing employees in monitoring
software vendor progress, testing enhanced software products and implementing
any necessary contingency plans. The Company believes such costs will not have a
material effect on the Company's business, financial position, or results of
operations.
The Company's Contingency Plans
At this time the Company has not initiated the formulation of contingency plans.
The determination of the necessity for contingency plans will be made by the end
of the third quarter of 1999. Some risks of the Year 2000 issue, however, are
beyond the control of the Company and its business partners.
Liquidity and Capital Resources
The Company has financed its operations from inception through December 31, 1998
primarily 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, $2.4 million of equipment lease
financing and $3.8 million in interest income. From inception through December
31, 1998, the Company has incurred $51.5 million of costs attributable to
operating activities, including $37.6 million related to the research and
development of technology and new product candidates, including AngioMARK.
The Company's principal source of liquidity consists of cash, cash equivalents
and marketable securities, which totaled $29.1 million at December 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 AngioMARK development milestones.
Daiichi is responsible for funding development of AngioMARK in Japan. Under the
Company's agreement with Mallinckrodt, Mallinckrodt and the Company generally
will share equally in future development costs of AngioMARK up to a specified
maximum amount.
During the year ended December 31, 1998, the Company used approximately $13.2
million of cash for operating activities, exclusive of license fee revenues. The
Company expects that its cash needs for operations will increase significantly
in future periods due to planned clinical trials and other expenses associated
with the development of AngioMARK and new research and development programs.
The Company estimates that existing cash, cash equivalents and marketable
securities, will be sufficient to fund its operations through the first quarter
of 2000. 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 AngioMARK 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 AngioMARK. 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 that will enable it to lease its current principal scientific
facilities through December 31, 2002. The Company also has a short-term lease
for a nearby office space, which expires in December 1999 but can be extended by
the Company for up to three years.
24
<PAGE>
The Company has incurred tax losses to date and therefore has not paid
significant federal or state income taxes since inception. At December 31, 1998,
the Company had loss carryforwards of approximately $26.0 million available to
offset future taxable income. These amounts expire at various times through
2018. 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 also is eligible for research and development tax credits that
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.
The discussion included in this section as well as elsewhere in the Annual
report on Form 10-K may contain forward-looking statements based on current
expectations of the Company's management. Such statements are subject to risks
and uncertainties which could cause actual results to differ from those
projected. See "Factors Regarding Forward Looking Statements" attached hereto as
Exhibit 99.1 and incorporated by reference into this Form 10-K. Readers are
cautioned not to place undue reliance on the forward looking statements which
speak only as the date hereof. The Company undertakes no obligation to publicly
release 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rates. The Company invests its cash in a variety of financial
instruments, including bank time deposits, and taxable and tax-advantaged
variable rate and fixed rate obligations of corporations, municipalities, and
local, state and national governmental entities and agencies. These investments
are denominated in U.S. dollars.
Interest income on the Company's investments is recorded as "Interest income."
The Company accounts for its investment instruments in accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS"). All of the cash equivalents and
short-term investments are treated as available-for-sale under SFAS 115.
Investments in both fixed rate and floating rate interest earning instruments
carry a degree of interest rate risk. Fixed rate securities may have their fair
market value adversely impacted due to a rise in interest rates, while floating
rate securities may produce less income than expected if interest rates fall.
Due in part to these factors, the Company's future investment income may fall
short of expectations due to changes in interest rates or the Company may suffer
losses in principal if forced to sell securities that have seen a decline in
market value due to changes in interest rates. A hypothetical 10% increase or
decrease in interest rates, however, would not have a material adverse effect on
the Company's financial condition. The Company's investment securities are held
for purposes other than trading. While certain of the investment securities had
maturities in excess of one year, the Company may liquidate such securities
within one year. The weighted-average interest rate on investment securities at
December 31, 1998 was 5.6%. The fair market value of securities held at December
31, 1998 was $28,731,747.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and supplementary data appear at pages F-1 through F-22 of
this report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors. The information required under this item is incorporated herein
by reference to the section entitled "Election of Directors" in the Company's
definitive Proxy Statement for its Annual Meeting of Stockholders to be held
June 2, 1999 (the "1999 Proxy Statement") to be filed with the Commission not
later than April 30, 1999.
(b) Executive Officers. See Item 4A. of Part I above.
25
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by reference to
the section entitled "Executive Compensation" in the 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item is incorporated herein by reference to
the section entitled "Security Ownership of Certain Beneficial Owners And
Management" in the 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item is incorporated herein by reference to
the section entitled "Certain Transactions" in the 1999 Proxy Statement.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. Documents filed as part of this Report:
1. Financial Statements:
Index to Financial Statements:
Report of Independent Auditors F-2
Financial Statements:
Balance Sheets F-3
Statements of Operations F-4
Statements of Redeemable Convertible
Preferred Stock and Stockholders' Equity F-5
Statements of Cash Flows F-8
Notes to Financial Statements F-9
2. 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.
b. Reports on Form 8-K
No reports on form 8-K were filed during the fourth quarter of 1998.
c. Exhibits
3.1 Restated Certificate of Incorporation of the Company. 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 Form of Amended and Restated By-Laws of the Company. 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 Company. Filed
as Exhibit 4.1 to the Company's Registration Statement on Form S-1
(File No. 333-17581) and incorporated herein by reference.
10.1+ Agency Agreement between the Company 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.
26
<PAGE>
10.2+ Amendment to the Agency Agreement between the Company 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
Company 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
Company 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 Company 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 Company 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
Company 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 Company 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 Company 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 Company 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 Company 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.
27
<PAGE>
10.20 Third Amendment Lease From Trustees of the Cambridge East Trust to the
Company 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 Company 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 Company 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 Company 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 Company 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 Company
and certain consultants of the Company. 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 Company and
certain employees of the Company. 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
Company and certain employees of the Company. 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.
28
<PAGE>
10.38 Collaboration Agreement effective as of June 20, 1997 between Dyax
Corp. and the Company. 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 Trust to the Company
with a commencement date of January 1, 1998. Filed as Exhibit 10.39 to
the Company's Registration Statement on Form S-1 (File No. 333-38399)
and incorporated herein by reference.
10.40 Sublease dated as of October 31, 1997 between the Company and SatCon
Technology Corporation. Filed herewith.
10.41 First Amendment to Sublease dated as of July 15, 1998 between the
Company and SatCon Technology Corporation. Filed herewith.
10.42++ Amendment No. 1 dated as of September 10, 1998 to the Strategic
Collaboration Agreement between the Company and Mallinckrodt Medical,
Inc. and Mallinckrodt Group Inc. dated August 30, 1996. Filed
herewith.
10.43 Promissory Note dated December 21, 1998 between the Company and Finova
Technology Finance, Inc. Filed herewith.
23.1 Consent of Ernst & Young LLP. Filed herewith.
24.1 Power of Attorney. Contained on signature page hereto.
27.1 Financial Data Schedule. Filed herewith.
99.1 Important Factors Regarding Forward-Looking Statements. Filed
herewith.
+ 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 of 1933, as
amended.
# Identifies a management contract or compensatory plan or agreement in
which an executive officer or director of the Company participates.
++ Certain confidential material contained in the document has been
omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
29
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors F-2
Financial Statements
Balance Sheets F-3
Statements of Operations F-4
Statements of Redeemable Convertible Preferred
Stock and Stockholders' Equity F-5
Statements of Cash Flows F-8
Notes to Financial Statements F-9
</TABLE>
F-1
<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, 1998 and 1997, and the related
statements of operations, redeemable convertible preferred stock and
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998, and the period from inception (November 29, 1988) to
December 31, 1998. 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, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, and the period from
inception (November 29, 1988) to December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 3, 1999
F-2
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 369,454 $ 1,455,657
Available-for-sale marketable securities 28,731,747 41,356,941
Prepaid expenses and other current assets 517,701 310,910
------------- -------------
Total current assets 29,618,902 43,123,508
Property and equipment, net 2,861,277 1,254,281
Notes receivable from officer 335,888 315,616
Other assets 87,152 81,966
------------- -------------
Total assets $32,903,219 $44,775,371
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $2,681,137 $2,336,135
Contract advances 611,038 794,346
Current portion of capital lease obligations 384,976 319,745
Current portion of note payable 349,009 -
------------- -------------
Total current liabilities 4,026,160 3,450,226
Capital lease obligations, less current portion 602,407 278,966
Note payable, less current portion 771,647 -
Stockholders' equity:
Common stock, $.01 par value, 15,000,000 shares authorized; 11,458,401 and
11,218,264 shares issued and outstanding at December 31, 1998 and 1997,
respectively 114,584 112,183
Additional paid-in capital 55,839,411 55,351,091
Loans to stock option holders (123,119) -
Deficit accumulated during the development stage (28,415,324) (14,417,095)
Unrealized gains on available-for-sale marketable securities 87,453 -
------------- -------------
Total stockholders' equity 27,503,005 41,046,179
------------- -------------
Total liabilities and stockholders' equity $32,903,219 $44,775,371
============= =============
</TABLE>
See accompanying notes.
F-3
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
Year ended Year ended Year ended Inception to
December 31, December 31, December 31, December 31,
1998 1997 1996 1998
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 1,780,985 $ 4,227,526 $10,009,739 $ 20,029,759
Operating expenses:
Research and development 13,349,337 8,899,197 6,878,666 37,550,457
General and administrative 4,256,557 2,790,222 2,861,906 13,976,788
-------------- ------------- -------------- --------------
Total operating expenses 17,605,894 11,689,419 9,740,572 51,527,245
-------------- ------------- -------------- --------------
Operating income (loss) (15,824,909) (7,461,893) 269,167 (31,497,486)
Interest income 1,887,812 1,411,803 287,671 3,806,245
Interest expense (61,132) (62,003) (288,776) (708,616)
-------------- ------------- -------------- --------------
Net income (loss) $(13,998,229) $(6,112,093) $ 268,062 $(28,399,857)
============== ============= ============== ==============
Weighted average shares:
Basic 11,354,200 8,333,294 1,561,045
Diluted 11,354,200 8,333,294 7,732,477
Earnings (loss) per common share:
Basic $(1.23) $(0.73) $0.12
Diluted $(1.23) $(0.73) $0.03
</TABLE>
See accompanying notes.
F-4
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Accretion
of
Dividends
on Loans
Redeemable Redeemable to
Convertible Convertible Additional Convertible Stock
Preferred Stock Preferred Stock Common Stock Paid in Preferred Option
Shares Amount Shares Amount Shares Amount Capital Stock Holders
---------- ----------- ---------- ---------- ----------- ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
in May 1989 333,330 $ 3,333 $ 1,667
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 1,667
Issuance of common stock
in April 1992 as
payment for consulting
services received 5,186 52 26
Net loss
---------- ----------- ---------- ---------- ----------- ---------- ------------ ----------- --------
Balance at March 31, 1993 93,691 1,037,664 338,516 3,385 1,693
Issuance of common stock
in February 1994 as
payment for consulting
services received 5,186 52 26
Three-for-one stock
dividend declared and
paid in March 1994 1,031,118 10,311 5,156
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 43,391
Net loss
---------- ----------- ---------- ---------- ----------- ---------- ------------ ----------- --------
Balance at March 31, 1994 2,643,736 3,941,236 93,691 1,037,664 1,374,820 13,748 50,266
Issuance of common stock
upon exercise of
options 66,866 669 27,415
Issuance of warrants in
conjunction with
financing 6,925
Accretion of redeemable
convertible preferred
stock to redemption
value 8,147 $(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 84,606 (8,147)
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated Total
Other in the Stockholders'
Comprehensive Development Equity
Income Stage (Deficit)
--------------- --------------- ---------------
<S> <C> <C> <C>
Issuance of common stock
in May 1989 $ 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)
--------------- --------------- ---------------
(27,911) 1,014,753
Balance at March 31, 1992
Issuance of common stock
in April 1992 as
payment for consulting
services received 78
Net loss (242,078) (242,078)
--------------- --------------- ---------------
Balance at March 31, 1993 (269,989) 772,753
Issuance of common stock
in February 1994 as
payment for consulting
services received 78
Three-for-one stock
dividend declared and
paid in March 1994 (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
Net loss (616,480) (616,480)
--------------- --------------- ---------------
Balance at March 31, 1994 (901,936) 199,742
Issuance of common stock
upon exercise of
options 28,084
Issuance of warrants in
conjunction with
financing 6,925
Accretion of redeemable
convertible preferred
stock to redemption
value (8,147)
Net loss (2,778,200) (2,778,200)
--------------- --------------- ---------------
Balance at March 31, 1995 (3,680,136) (2,551,596)
</TABLE>
F-5
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Accretion
of
Dividends
on Loans
Redeemable Redeemable to
Convertible Convertible Additional Convertible Stock
Preferred Stock Preferred Stock Common Stock Paid in Preferred Option
Shares Amount Shares Amount Shares Amount Capital Stock Holders
---------- ----------- ---------- ---------- ----------- ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
upon exercise of
options 38,399 384 16,874
Issuance of common stock
in July 1995 under
license Agreement 83,723 837 68,235
Accretion of redeemable
convertible preferred
stock to redemption
value 6,122 (6,122)
Issuance of warrants in
conjunction with
financing 28,703
Net loss
---------- ----------- ---------- ---------- ----------- ---------- ------------ ----------- ---------
Balance at December 31,
1995 2,643,736 3,955,505 93,691 1,037,664 1,563,808 15,638 198,418 (14,269)
Issuance of common stock
upon exercise of
options 67,309 673 38,313
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 78,236
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 67,326
Repurchase of common stock
from officer in May
1996 (66,666) (667) (269,333)
Accretion of redeemable
Convertible preferred
stock to redemption
value 86,790 (86,790)
Net income
---------- ----------- ---------- ---------- ----------- ---------- ------------ ----------- ---------
Balance at December 31,
1996 6,644,385 17,203,807 93,691 1,037,664 1,564,451 15,644 112,960 (101,059)
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated Total
Other in the Stockholders'
Comprehensive Development Equity
Income Stage (Deficit)
--------------- --------------- ---------------
<S> <C> <C> <C>
Issuance of common stock
upon exercise of
options 17,258
Issuance of common stock
in July 1995 under
license Agreement 69,072
Accretion of redeemable
convertible preferred
stock to redemption
value (6,122)
Issuance of warrants in
conjunction with
financing 28,703
Net loss (4,892,928) (4,892,928)
--------------- --------------- ---------------
Balance at December 31,
1995 (8,573,064) (7,335,613)
Issuance of common stock
upon exercise of
options 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
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
Repurchase of common stock
from officer in May
1996 (270,000)
Accretion of redeemable
Convertible preferred
stock to redemption
value (86,790)
Net income 268,062 268,062
--------------- --------------- ---------------
Balance at December 31,
1996 (8,305,002) (7,239,793)
</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>
Accretion
of
Dividends
on
Redeemable
Redeemable Convertible Convertible Additional Convertible
Preferred Stock Preferred Stock Common Stock Paid in Preferred
Shares Amount Shares Amount Shares Amount Capital Stock
---------- -------------- ---------- ---------- ----------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
upon exercise of
options 99,394 994 65,753
Issuance of common stock
upon Initial Public
Offering, net of
offering costs of
$1,831,436 in
February 1997 2,300,000 23,000 14,245,564
Conversion of preferred
stock to common
stock upon initial
public offering in
February 1997 (6,644,385) (17,203,807) (93,691) (1,037,664) 4,750,278 47,503 18,092,909 101,059
Issuance of compensatory
stock option grants 3,393
Issuance of common stock
upon Follow-on
Public Offering, net
of offering costs of
$1,819,447 in
November 1997 2,467,500 24,675 22,830,879
Issuance of common stock
upon Conversion of
warrants 36,641 367 (367)
Net loss
---------- -------------- ---------- ---------- ----------- --------- ------------- ------------
Balance at December 31,
1997 0 0 0 0 11,218,264 112,183 55,351,091 0
Issuance of common stock
upon exercise of
options 221,793 2,218 249,922
Issuance of common stock
under employee stock
purchase plan 18,344 183 151,992
Issuance of compensatory
stock option loan
Compensatory stock
option loan expense 86,406
Net loss
Available-for-sale
marketable
securities
unrealized gain
Comprehensive loss
---------- -------------- ---------- ---------- ----------- --------- ------------- ------------
Balance at December 31,
1998 0 $0 0 $0 11,458,401 $114,584 $55,839,411 $0
========== ============== ========== ========== =========== ========= ============= ============
</TABLE>
<TABLE>
<CAPTION>
Deficit
Loans to Accumulated Accumulated Total
Stock Other in the Stockholders'
Option Comprehensive Development Equity
Holders Income Stage (Deficit)
---------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Issuance of common stock
upon exercise of
options 66,747
Issuance of common stock
upon Initial Public
Offering, net of
offering costs of
$1,831,436 in
February 1997 14,268,564
Conversion of preferred
stock to common
stock upon initial
public offering in
February 1997 17,203,807
Issuance of compensatory
stock option grants 3,393
Issuance of common stock
upon Follow-on
Public Offering, net
of offering costs of
$1,819,447 in
November 1997 22,855,554
Issuance of common stock
upon Conversion of
warrants
Net loss (6,112,093) (6,112,093)
---------- --------------- --------------- --------------
Balance at December 31,
1997 (14,417,095) 41,046,179
Issuance of common stock
upon exercise of
options 252,140
Issuance of common stock
under employee stock
purchase plan 152,175
Issuance of compensatory
stock option loan (123,119) (123,119)
Compensatory stock
option loan expense 86,406
Net loss (13,998,229) (13,998,229)
Available-for-sale
marketable
securities
unrealized gain 87,453 87,453
--------------
Comprehensive loss (13,910,776)
---------- --------------- --------------- --------------
Balance at December 31,
1998 $(123,119) $87,453 $(28,415,324) $27,503,005
========== =============== =============== ==============
</TABLE>
See accompanying notes.
F-7
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Inception
Year ended Year ended Year ended (November 28,
December 31, December 31, December 31, 1988) to
1998 1997 1996 December 31, 1998
------------------ --------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss) $(13,998,229) $(6,112,093) $ 268,062 $(28,399,857)
Adjustments to reconcile net income (loss) to cash
provided (used) by operating activities:
Depreciation and amortization 778,221 580,852 549,241 3,011,717
Expenses paid with equity instruments - - 136,526 204,342
Stock compensation expense 86,406 - - 86,406
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (232,249) 207,818 14,517 (164,081)
Accounts payable and accrued expenses 345,002 110,422 707,588 3,018,251
Contract advances (183,308) 794,346 - -
------------------ --------------- ----------------- --------------------
Net cash provided (used) by operating activities (13,204,157) (4,418,655) 1,675,934 (22,243,222)
Investing activities:
Purchases of fixed assets (2,385,213) (840,953) (694,893) (5,609,216)
Purchases of marketable securities (410,500,904) (359,397,388) (7,996,186) (780,250,988)
Sales or redemptions of marketable securities 423,213,550 326,036,634 - 751,606,693
Issuance of notes receivable from officer - - (230,000) (280,000)
------------------ --------------- ----------------- --------------------
Net cash provided (used) by investing activities 10,327,433 (34,201,707) (8,921,079) (34,533,511)
------------------ --------------- ----------------- --------------------
Financing activities:
Proceeds from lease financing 816,740 452,193 17,173 2,391,786
Repayment of capital lease obligations (428,068) (238,323) (274,143) (1,593,124)
Issuance of promissory notes - - 300,000 3,000,000
Issuance of note payable 1,120,656 - - 1,120,656
Issuance of bridge notes - - 600,000 600,000
Sale of Series B redeemable convertible preferred
stock - - - 3,941,236
Sale of Series D redeemable convertible preferred
stock - - 4,468,963 4,468,963
Sale of Series E redeemable convertible preferred
stock - - 4,882,372 4,882,372
Sale of Series A convertible preferred stock - - - 1,037,664
Repurchase of stock from officer - - (270,000) (270,000)
Proceeds from Employee Stock Purchase Plan 152,175 - - 152,175
Proceeds from sale of common stock, net - 37,124,118 38,986 37,124,118
Proceeds from stock options and warrants 129,018 70,139 - 290,341
------------------ --------------- ----------------- --------------------
Net cash provided by financing activities 1,790,521 37,408,127 9,763,351 57,146,187
------------------ --------------- ----------------- --------------------
Net increase (decrease) in cash and cash equivalents (1,086,203) (1,212,235) 2,518,206 369,454
Cash and cash equivalents at beginning of period 1,455,657 2,667,892 149,686 -
------------------ --------------- ----------------- --------------------
Cash and cash equivalents at end of period $ 369,454 $1,455,657 $ 2,667,892 $ 369,454
================== =============== ================= ====================
Supplemental disclosure of noncash investing and financing
activities:
Issuance of stock option loan for exercise of
stock options $ 123,120 - - $ 123,120
================== =============== ================= ====================
Supplemental cash flow information:
Cash paid for interest $ 61,131 $ 37,984 $ 96,455 $ 392,659
================== =============== ================= ====================
</TABLE>
See accompanying notes.
F-8
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Business
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, AngioMARK (MS-325),
is an injectable vascular contrast agent designed for multiple vascular imaging
indications, including peripheral vascular disease ("PVD") and coronary artery
disease ("CAD").
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.
Significant Revenues
For the year ended December 31, 1998, one source represented 80% of revenues and
one source represented 20% of revenues. For the year ended December 31, 1997,
one source represented 73% of revenues and one source represented 27% of
revenues. For the year ended December 31, 1996, one source represented 70% of
revenues and another source represented 30% of revenues.
2. Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all investments with original maturities of three months
or less when purchased to be cash equivalents. Cash equivalents consist of money
market accounts and short-term investments.
Property and Equipment
Property and Equipment are recorded at historical cost. Depreciation on
laboratory equipment and furniture, fixtures and other equipment is determined
using the straight-line method over the estimated useful lives of the related
assets, ranging from 3 to 5 years. Leasehold improvements are amortized using
the straight-line method over the shorter of the asset life or the remaining
life of the lease. Expenditures for maintenance and repairs are charged to
expense; betterments are capitalized.
Capital Lease Obligations
Assets and liabilities relating to capital leases are recorded at the present
value of the future minimum rental payments using interest rates appropriate at
the inception of the lease.
F-9
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Significant Accounting Policies (continued)
Income Taxes
The Company provides for income taxes under Statement of Financial Accounting
Standards ("SFAS") 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
At December 31, 1998 and 1997, the Company's financial instruments consist of
cash and cash equivalents, available-for-sale marketable securities, notes
receivable from an officer, accounts payable and accrued expenses and a note
payable.
The fair value of cash and cash equivalents and accounts payable and accrued
expenses approximate cost due to their short-term maturities. The fair value of
the available-for-sale marketable securities, note receivable and note payable
are discussed in Notes 3, 14, and 6, respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of available-for-sale marketable securities. The
Company restricts investments of available-for-sale marketable securities to the
Federal Government and financial institutions with investment grade credit
ratings.
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 contract advances.
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.
Technology, License and Patent Costs
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 SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). The Company has provided 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.
F-10
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Significant Accounting Policies (continued)
Earnings (Loss) Per Share
The Company computes net income (loss) per share in accordance with the
provisions of SFAS No. 128, "Earnings per Share." Net income per share is based
upon the weighted-average number of common shares outstanding and excludes the
effect of dilutive potential common stock issuable upon exercise of stock
options. Net income per share, assuming dilution, includes the effect of
dilutive potential common stock issuable upon exercise of stock options using
the treasury stock method.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements for periods
beginning after December 15, 1997. Comprehensive income, as defined, includes
all changes in equity (net assets) during a period from nonowner sources.
Examples of items to be included in comprehensive income which are excluded from
net income include cumulative translations adjustments resulting from
consolidation of foreign subsidiaries' financial statements and unrealized gains
and losses on available-for-sale securities. Reclassifications of financial
statements for earlier periods for comparative purposes is required. The Company
adopted SFAS 130 in 1998 and reported unrealized gains on available-for-sale
marketable securities in other comprehensive income amounting to $87,453.
Recent Accounting Pronouncements
During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS 133 is effective beginning in
2000. The adoption of SFAS 133 is not expected to have a material impact on the
financial position or results of operations of the Company.
Reclassifications
Certain prior year balances have been reclassified to conform to current year
presentations.
3. Available-for-sale Marketable Securities
Available-for-sale Marketable Securities' cost and fair value consist of the
following:
<TABLE>
<CAPTION>
Fair Value Cost
---------- ----
December 31, December 31,
1998 1997 1998 1997
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Federal agency obligations $12,011,729 $28,840,543 $11,985,231 $28,840,543
U.S. Treasury obligations 2,045,322 1,526,335 2,030,630 1,526,335
Bank obligations 6,082,364 10,990,063 6,081,140 10,990,063
Corporate Obligations 8,592,332 - 8,547,294 -
--------------- --------------- --------------- --------------
$28,731,747 $41,356,941 $28,644,295 $41,356,941
=============== =============== =============== ==============
</TABLE>
F-11
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. Available-for-sale Marketable Securities (continued)
Maturities of marketable securities classified as available-for-sale at December
31, 1998 and 1997 by contractual maturity are shown below:
<TABLE>
<CAPTION>
December 31,
1998 1997
--------------- --------------
<S> <C> <C>
Marketable securities available-for-sale:
Due within one year $19,424,490 $38,815,803
Due after one year through three years 9,307,257 2,541,138
--------------- --------------
$28,731,747 $41,356,941
=============== ==============
</TABLE>
4. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
--------------- -------------
<S> <C> <C>
Laboratory equipment $2,766,857 $1,989,251
Leasehold improvements 2,094,027 730,010
Furniture, fixtures and other equipment 871,783 628,191
--------------- -------------
5,732,667 3,347,452
Less accumulated depreciation and amortization (2,871,390) (2,093,171)
--------------- -------------
$2,861,277 $1,254,281
=============== =============
</TABLE>
5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
-------------- ---------------
<S> <C> <C>
Accounts payable $ 779,678 $ 750,897
Accrued development expenses 827,733 1,006,469
Accrued legal expense 158,603 38,076
Accrued compensation 602,402 383,149
Other accrued expenses 312,721 157,544
-------------- ---------------
$2,681,137 $2,336,135
============== ===============
</TABLE>
6. Note Payable
In December 1998, the Company borrowed $1,120,656 in the form of a 34-month note
payable that bears annual interest at 13.17% and is due in 2001. The proceeds
from this note payable were used to finance certain leasehold improvements at
both of the Company's facilities. The fair value of the note payable
approximates cost as the interest rate as of December 31, 1998 approximates
market.
Maturities for the three years succeeding December 31, 1998 are $349,009 in
1999, $397,865 in 2000 and $373,782 in 2001.
F-12
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. 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
$2,651,715 and $1,834,543 at December 31, 1998 and 1997, respectively. During
the years ended December 31, 1998, 1997, and 1996, the Company incurred
amortization expenses relating to assets under capital leases of $433,548,
$261,010, and $332,180, respectively, and $1,687,995 for the period from
inception (November 29, 1988) to December 31, 1998. Accumulated amortization
relating to assets under capital leases was $1,687,995 and $1,254,448 at
December 31, 1998 and 1997, respectively.
In addition, the Company leases office space under operating lease arrangements.
The lease for one of two principal facilities expires in December 2002. The
lease for the other principal facility expires in 1999, but may be extended for
up to three years.
Future minimum commitments under leases with non-cancelable terms of one or more
years are as follows at December 31, 1998:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
----------- --------------
<S> <C> <C>
1999 $ 449,784 $ 597,212
2000 387,133 614,262
2001 230,649 631,312
2002 32,280 648,362
2003 - -
----------- --------------
Total minimum lease payments 1,099,846 $2,491,148
==============
Less amounts representing interest (112,463)
-----------
Present value minimum lease payments 987,383
Less amounts due within one year (384,976)
-----------
$ 602,407
===========
</TABLE>
Rent expense amounted to approximately $546,866, $266,644, and $174,666 for
1998, 1997 and 1996, respectively, and $1,300,510 for the period from inception
(November 29, 1988) to December 31, 1998.
8. Capital Stock
During 1997, the Company completed an initial public offering of 2,300,000
shares of its Common Stock at a price of $7.00 per share and a follow-on public
offering of 2,467,500 shares of Common Stock at a price of $10.00 per share. The
net proceeds, after underwriter discounts and offering expenses, aggregated
approximately $37.1 million, which the Company is using for research and
development and funding of clinical trials in support of regulatory approvals
and for general corporate purposes.
In February 1997, the Company completed its initial public offering and all of
the Preferred Stock issued and outstanding as of that date converted into
4,750,278 shares of Common Stock. Each share of Series A Preferred Stock
converted into 3.4 shares of Common Stock. All other shares of Preferred Stock
converted into .67 shares of Common Stock. The former holders of the Preferred
Stock had certain voting and redemption rights and liquidation preferences which
were relinquished upon the conversion of the Preferred Stock into Common Stock.
Immediately following conversion, all currently outstanding shares of Preferred
Stock were canceled, retired and eliminated from the Company's authorized shares
of capital stock and the number of authorized shares of Preferred Stock was
decreased to 1,000,000 shares.
F-13
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. Capital Stock (continued)
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 previously issued 10% Promissory Notes ("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 Convertible
Notes 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 and accrued
interest thereon. A sale of 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. In March 1994, 2,643,736 shares of
Series B Preferred Stock were sold at a price of $11.51 and in March 1992,
93,691 shares of Series A Convertible Preferred Stock were issued at a price of
$11.21.
9. Warrants
In connection with a master lease agreement, the Company issued warrants to
purchase shares of Series A, Series B and Series C Preferred Stock. In October
1997, the holders of the Series A, B and C Warrants (the Warrants) elected to
surrender the Warrants and receive Common Stock equivalent to the difference
between the deemed fair market value of the Common Stock (ranging from
$11.81-$12.15/share) and the exercise price of the Warrants (ranging from $2.27
to $6.81/share) multiplied by the outstanding Warrants (53,031). The resulting
difference converted into 36,641 shares of Common Stock which were issued in
exchange for the Warrants.
In connection with the issuance of Bridge Notes and the sale of Series D
preferred stock (see Note 8), the Company issued warrants to purchase 40,000
shares of Series D preferred stock. Effective with the initial public offering
and the conversion of Series D preferred stock into Common Stock, the holders of
the warrants are entitled to convert the warrants to an aggregate of 26,665
shares of common stock at a cost equal to $4.50 per common share. These warrants
were still outstanding as of December 31, 1998.
F-14
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 May 1998, June 1997 and 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 2,349,901 shares of Common
Stock, subject to adjustment for stock-splits and similar capital changes.
Awards under the Equity Plan can be granted to officers, employees and other
individuals as determined by the committee of the Board of Directors, which
administers the Equity Plan. The Compensation Committee selects the participants
and establishes the terms and conditions of each option or other equity right
granted under the Equity Plan, including the exercise price, the number of
shares subject to options or other equity rights and the time at which such
options become exercisable. Stock option information relating to the Equity
Incentive Plan is as follows:
<TABLE>
<CAPTION>
Exercisable
---------------------------
Option Price Weighted Weighted
Options Range Per Average Available Number of Average
Outstanding Share Exercise Price for Grant Options Exercise 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 133,994 $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 596,151 $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 1,277,804 $0.42-$8.50 $2.30 149,524 392,933 $1.21
Granted 517,974 $6.50-$13.50 $8.70
Exercised (99,394) $0.42-$6.63 $0.67
Canceled (29,670) $0.45-$8.50 $5.72
------------- --------------- ---------------
December 31, 1997 1,666,714 $0.42-$13.50 $4.33 161,219 562,704 $2.04
Granted 328,344 $5.38-$13.88 $9.68
Exercised (221,793) $0.42-$8.75 $1.14
Canceled (35,673) $0.45-$13.88 $9.87
------------- --------------- ---------------
December 31, 1998 1,737,592 $0.42-$13.88 $5.64 118,548 559,631 $3.04
=============
</TABLE>
F-15
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. Equity Plans (continued)
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"). In May
1998, the Company amended the Director Plan to increase the number of shares for
issuance pursuant to grants and to increase the number of shares granted upon
election or reelection. All of the directors who are not employees of the
Company (the "Eligible Directors") are currently eligible to participate in the
Director Plan. At December 31, 1998 there are 100,000 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 15,000 shares of Common Stock (the "Option"). Each Option becomes
exercisable with respect to 5,000 shares on each anniversary date of grant for a
period of three years, provided that the option holder 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 fair value at the date
of grant. The exercise price may be paid in cash or shares of Common Stock or
combination of both. Stock option information relating to the Director Plan is
as follows:
<TABLE>
<CAPTION>
Exercisable
---------------------------
Option Price Weighted Weighted
Options Range Per Average Available Number of Average
Outstanding Share Exercise Price for Grant Options Exercise Price
------------- --------------- --------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997 6,666 $8.50 $ 8.50 60,000 - -
Granted 38,334 $11.00-$13.25 $12.37
Exercised - - -
Canceled - - -
------------- --------------- ---------------
December 31, 1998 45,000 $8.50-$13.25 $11.80 55,000 15,000 $12.83
============= ============ ========
</TABLE>
Combined Option Plan
The following table summarizes information about options outstanding at December
31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Exercisable
- --------------------------------------------------------------------------------------- ----------------------------------
Options
Options Weighted Average Exercisable at Weighted
Range of Exercise Prices Outstanding at Remaining Weighted Average December 31, Average
December 31, 1998 Contractual Life Exercise Price 1998 Exercise Price
--------------------------- ------------------ ------------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C> <C>
$0.42-$0.83 441,863 6.13 $0.60 284,197 $0.58
$2.25-$4.50 359,243 7.43 $4.34 191,371 $4.44
$5.25-$8.50 297,360 8.42 $5.83 35,007 $6.50
$8.75-$8.75 364,805 8.62 $8.75 24,819 $8.75
$8.88-$13.88 319,321 9.17 $11.20 39,237 $11.17
------------------ ------------------- ------------------ ---------------- -----------------
$0.42-$13.88 1,782,592 7.83 $5.79 574,631 $3.30
================== ================
</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 at specified dates. There are 66,666
shares of Common Stock reserved for issuance under the Purchase Plan. Employees
purchased 18,344 in 1998 for $152,175. At December 31, 1998, 48,322 common
shares remained available for issuance under the Purchase Plan. The Purchase
Plan is intended to qualify as an employee stock purchase plan within the
meaning of Section 423 of the code. Rights to purchase Common Stock under the
Purchase Plan are granted at the discretion of the Compensation Committee, which
determines the frequency and duration of individual offerings under the Purchase
Plan and the dates when stock may be purchased. Eligible employees participate
voluntarily and may withdraw from any offering at any time before stock is
purchased. Participation terminates automatically upon termination of
employment. The purchase price per share of Common Stock in an offering is 85%
of the lesser of its fair market value at the beginning of the offering period
or on the applicable exercise date and are paid through payroll deductions. The
Purchase Plan terminates in December 2006.
F-16
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. Equity Plans (continued)
FAS 123 Pro Forma Information
The pro forma information required by FAS 123 is presented below and has been
determined as if the Company accounted for its stock based awards under the fair
value method of the Statements. The fair value of the Company's stock-based
awards to employees was estimated using a Black-Scholes option-pricing model.
The fair value of the Company's stock-based awards to employees was estimated
assuming no expected dividends and the following weighted average assumptions:
<TABLE>
<CAPTION>
Options
------------------------------------------------------------------- ESPP
Year Ended Nine Months ------------------
---------------------------------------------------- Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
1998 1997 1996 1995 1998
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Weighted-average life (Years) 4.75 3.75 5.53 4.92 0.50
Weighted-average contractual life (Years) 7.83 8.27 8.59 8.53 -
Expected stock price volatility 0.74 0.60 0.60 0.60 0.74
Risk-free interest rate 6.00% 6.00% 6.34% 5.85% 6.00%
</TABLE>
The following is a summary of weighted average grant date values generated by
the application of the Black-Scholes model:
<TABLE>
<CAPTION>
Weighted Average Grant Date Value
---------------------------------------------------------------------
Year Ended Nine Months
---------------------------------------------------- Ended
December 31, December 31, December 31, December 31,
1998 1997 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Stock option plans $5.73 $3.83 $2.16 $0.31
ESPP $4.06 - - -
</TABLE>
As required under FAS 123, the reported net income (loss) and diluted earnings
per share have been presented to reflect the impact had the Company been
required to include the amortization of the Black-Scholes option value as
expense. For purposes of this disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
Year Ended Nine Months
---------------------------------------------------- Ended
December 31, December 31, December 31, December 31,
1998 1997 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Pro forma net income (loss) $(15,160,591) $(6,684,788) $48,866 $(4,896,608)
Pro forma diluted earnings per share $ (1.34) $ (0.80) $ 0.01 $ (3.27)
</TABLE>
The effects on pro forma disclosures of applying FAS 123 are not likely to be
representative of the effects on pro forma disclosures of future years. Because
FAS 123 is applicable only to options granted subsequent to April 1, 1995, the
pro forma effect will not be fully reflected until 2000.
F-17
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
Year Ended
December 31, December 31, December 31,
1998 1997 1996
----------------- ----------------- ----------------
<S> <C> <C> <C>
Numerator:
Net income (loss) $(13,998,229) $(6,112,093) $268,062
----------------- ----------------- ----------------
Accretion on redeemable convertible preferred stock (86,790)
----------------- ----------------- ----------------
Numerator for basic earnings (loss) per
share--income available to common stockholders $(13,998,229) $(6,112,093) $181,272
Effect of dilutive securities:
Accretion on redeemable convertible preferred stock - - 86,790
----------------- ----------------- ----------------
Numerator for diluted earnings (loss) per share--income
available to common stockholders after assumed
conversions $(13,998,229) $(6,112,093) $268,062
================= ================= ================
Denominator:
Weighted average shares
11,354,200 8,333,294 1,561,045
Effect of dilutive securities:
Employee stock options - - 1,364,826
Warrants - - 56,317
Convertible preferred stock - - 4,750,289
----------------- ----------------- ----------------
Dilutive potential common shares - - 6,171,432
----------------- ----------------- ----------------
Denominator for diluted earnings (loss) per
share--adjusted weighted average shares and assumed
conversions 11,354,200 8,333,294 7,732,477
================= ================= ================
Basic earnings (loss) per share $(1.23) $(0.73) $0.12
Diluted earnings (loss) per share $(1.23) $(0.73) $0.03
</TABLE>
F-18
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. Income Taxes
The Company has reported 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, 1998 and 1997:
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 10,519,000 $ 4,827,000
Research and development tax credits 725,000 543,000
Book over tax depreciation and amortization 750,000 538,000
Other 148,000 247,000
------------- ------------
Total deferred tax assets 12,142,000 6,155,000
Valuation allowances (12,142,000) (6,155,000)
------------- ------------
Deferred income taxes, net $ 0 $ 0
============= ============
</TABLE>
As of December 31, 1998, the Company has net operating loss carryforwards for
income tax purposes of approximately $26.0 million, which expire through the
year 2018 and 2003, for Federal and State, respectively. The valuation allowance
increased by $5,987,000 during the twelve months ended December 31, 1998, due
primarily to the additional allowance for the net operating losses incurred. 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 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.
F-19
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. Defined Contribution Plan
The Company offers 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.
14. Related-Party Transactions
During 1995 and 1996 the Company received promissory notes from one employee who
is also an executive officer and director. These transactions are summarized
below:
<TABLE>
<CAPTION>
Shares of Company Common
Interest Stock Provided as
Date of Note Term Amount Rate 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 180,000 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.
During 1998, the Company received a promissory note from an employee pursuant to
an employee stock option financing program available to all employees. The
proceeds from this loan were used to exercise certain stock options by the
employee. The difference between the exercise price and the fair market value of
the stock was recorded as stock compensation expense during 1998. The loan
amount plus accrued interest was recorded as a loan to stock option holder in
the financial statements. This transaction is summarized below:
<TABLE>
<CAPTION>
Shares of Company Common
Interest Stock Provided as
Date of Note Term Amount Rate Collateral
- ------------------------------------ ------------- ------------ ----------- ---------------------------------
<S> <C> <C> <C> <C>
April 2, 1998 21 months $118,068 5.70% 17,402
</TABLE>
The note is subject to certain acceleration clauses.
The cost of both notes receivable approximates fair market value.
15. Significant Agreements
In October 1998, the Company and NeoGenesis Pharmaceuticals, Inc. ("NeoGenesis")
announced the initiation of a collaboration for the discovery of novel compounds
for use in diagnostic imaging. Under the terms of this agreement, the Company
received access to NeoGenesis' proprietary combinatorial chemistry libraries. By
rapidly screening these libraries with NeoGenesis' mass-coded drug discovery
platform, the Company hopes to identify potential candidates for its drug
discovery programs.
F-20
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
15. Significant Agreements (continued)
In January 1998, the Company and General Electric Medical Systems announced the
formation of a collaboration to accelerate the development of cardiovascular
MRI. In particular, the collaboration focuses on reducing the effects of cardiac
motion on MR images, providing user-friendly computer tools as a means of
visualizing arteries and veins in 3-dimensional space, and optimizing MRI
sequences for intravascular MRI contrast agents, including AngioMARK. Under the
terms of this non-exclusive agreement, research is performed at several centers,
including the Company's facilities, General Electric Medical System's corporate
research facility in Schenectady, NY; General Electric Medical Research in
Milwaukee, WI; the National Institute of Health, and several academic centers.
In June 1997, the Company and Dyax Corp. ("Dyax") 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 seek to 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. The Company will
partially fund the program and provide expertise in MRI contrast technology for
development of MRI-specific imaging agents. Dyax will assume primary
responsibilities 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 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 August 1996, the Company entered into a strategic collaboration agreement
with Mallinckrodt Inc. ("Mallinckrodt"), a U.S. pharmaceutical company,
involving research, development and marketing of AngioMARK and future MRI
vascular contrast agents developed or in-licensed by either party. Under the
terms of the agreement, each party is obligated to fund a portion of the
development cost of AngioMARK up to a specified maximum amount. Mallinckrodt
will have the right to manufacture AngioMARK 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 in 1997 received a $2.0 million
milestone payment. Under the agreement, the Company will share in future
operating profits from the sale of products covered under the agreement. In
September 1998, Mallinckrodt exercised its option to expand the original
EPIX-Mallinckrodt collaboration. The new agreement provides the Company and
Mallinckrodt with the opportunity to broaden the scope of their clinical program
for AngioMARK and commits additional resources for the research and development
of novel MR imaging technologies.
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. A
further $900,000 was received from Daiichi in 1997. In addition, the Company is
entitled to receive future milestone payments of up to $2.4 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.
F-21
<PAGE>
EPIX MEDICAL, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
15. Significant Agreements (continued)
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, 1998, the Company had received an aggregate of $2.7 million in
revenues (net of withholding tax) under this agreement.
Also 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 in March 1997, 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 under
arrangements made pursuant to the Agency Agreement.
The Company has a license agreement with Massachusetts General Hospital ("MGH")
for the exclusive license of a number of patents and patent applications on
which the Company's research and development efforts are significantly based. In
exchange, the Company will remit royalties based on a specified percentage of
revenues. Under this agreement, the Company is required to pay for all patent
application costs related to the licensed technology. On July 10, 1995, the
Company issued and sold to the MGH 83,723 shares of the Company's Common Stock
for $1,256 as consideration for certain modifications to the license. The
Company expensed the difference between proceeds received and fair value of the
common stock at the time of issuance, approximately $68,000.
F-22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
EPIX MEDICAL, INC.
Date: March 30, 1999 By: /s/ Michael D. Webb
-------------------
Michael D. Webb
President and Chief Executive Officer
We the undersigned officer and directors of EPIX Medical, Inc., hereby severally
constitute Michael D. Webb, Stephen C. Knight, M.D., and William T. Whelan, and
each of them singly, our true and lawful attorneys, with full power to them and
each of them to sign for use, in our names and in the capacity indicated below,
any and all amendments to this annual report on this Form 10-K for the fiscal
year ended December 31, 1998, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each said attorneys-in-fact
may cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Company and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Michael D. Webb President, Chief Executive Officer March 30, 1999
- ------------------- and Director (Principal Executive
Michael D. Webb Officer)
/s/ Stephen C. Knight, M.D. Chief Financial Officer, Senior Vice March 30, 1999
- --------------------------- President, Finance and Business
Stephen C. Knight, M.D. Development (Principal
Finance and Accounting Officer)
/s/ Christopher F. O. Gabrieli Chairman of the Board and Director March 30, 1999
- -------------------------------
Christopher F. O. Gabrieli
/s/ Stanley T. Crooke, M.D., Ph.D. Director March 30, 1999
- ----------------------------------
Stanley T. Crooke, M.D., Ph.D.
/s/ Luke B. Evnin, Ph.D. Director March 30, 1999
- ------------------------
Luke B. Evnin, Ph.D.
/s/ Randall B. Lauffer, Ph.D. Director March 30, 1999
- -----------------------------
Randall B. Lauffer, Ph.D.
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit Description
Number
3.1 Restated Certificate of Incorporation of the Company. 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 Form of Amended and Restated By-Laws of the Company. 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 Company. Filed
as Exhibit 4.1 to the Company's Registration Statement on Form S-1
(File No. 333-17581) and incorporated herein by reference.
10.1+ Agency Agreement between the Company 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 Company 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
Company 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
Company 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 Company 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 Company 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
Company 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 Company 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 Company 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 Company 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.
<PAGE>
10.19+ Development and License Agreement dated March 29, 1996 by and among
the Company 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
Company 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 Company 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 Company 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 Company 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 Company 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 Company
and certain consultants of the Company. 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 Company and
certain employees of the Company. 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
Company and certain employees of the Company. 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 Company. 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 Trust to the Company
with a commencement date of January 1, 1998. Filed as Exhibit 10.39 to
the Company's Registration Statement on Form S-1 (File No. 333-38399)
and incorporated herein by reference.
10.40 Sublease dated as of October 31, 1997 between the Company and SatCon
Technology Corporation. Filed herewith.
<PAGE>
10.41 First Amendment to Sublease dated as of July 15, 1998 between the
Company and SatCon Technology Corporation. Filed herewith.
10.42++ Amendment No. 1 dated as of September 10, 1998 to the Strategic
Collaboration Agreement between the Company and Mallinckrodt Medical,
Inc. and Mallinckrodt Group Inc. dated August 30, 1996. Filed
herewith.
10.43 Promissory Note dated December 21, 1998 between the Company and Finova
Technology Finance, Inc. Filed herewith.
23.1 Consent of Ernst & Young LLP. Filed herewith.
24.1 Power of Attorney. Contained on signature page hereto.
27.1 Financial Data Schedule. Filed herewith.
99.1 Important Factors Regarding Forward-Looking Statements. Filed
herewith.
+ 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 of 1933, as
amended.
# Identifies a management contract or compensatory plan or agreement in
which an executive officer or director of the Company participates.
++ Certain confidential material contained in the document has been
omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
SUBLEASE
ARTICLE I
REFERENCE DATA
1.1 Subjects Referred To.
Each reference in this Sublease to any of the following subjects shall be
construed to incorporate the data stated for that subject in this Section 1.1:
Date of Sublease: October 31, 1997.
Sublandlord: SatCon Technology Corporation, a Delaware corporation
Sublandlord's Address: 161 First Street, Cambridge, Massachusetts 02142
Subtenant: EPIX Medical, Inc.
Subtenant's Address: 71 Rogers Street, Cambridge, Massachusetts 02142
Overlandlord: Gunwyn/First Street Limited Partnership, a Massachusetts limited
partnership
Overlandlord's Address: 47 Thorndike Street, Cambridge, Massachusetts 02141
Overlease: Lease dated October 21, 1993 between Overlandlord as landlord and
Sublandlord as tenant, as amended by exercise of expansion option by
letter dated September 30, 1994, copies of which are attached hereto
as Exhibit A. Capitalized terms used but not defined herein shall
have the meaning set forth in the Overlease.
Overleased Premises: The premises situated at 161 First Street, Cambridge,
Massachusetts, as described in the Overlease, containing
approximately 45,820 rentable square feet of space.
Premises: The Premises are that portion of the Overleased Premises shown on
Exhibit B attached hereto.
Rentable Floor Area
of Premises: 8,930 Square Feet consisting of the entire third floor of the
Building.
Commencement Date: November 5, 1997, provided Sublandlord has vacated and
delivered the Premises in accordance with Section 8.6 below.
<PAGE>
Term Expiration Date: October 31, 1998, subject to extension as hereinafter
provided.
Monthly Fixed Rent: $16,371.67 per month.
Permitted Uses: All uses permitted in the Overlease.
Security Deposit: $16,371.67
1.2 Exhibits.
The exhibits listed below in this section are incorporated in this Sublease
by reference and are to be construed as part of this Sublease:
EXHIBIT A Overlease
EXHIBIT B Floor Plan of Premises.
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ARTICLE II
PREMISES AND TERM
2.1 Premises. Subject to and with the benefit of the provisions of this
Sublease, Sublandlord hereby subleases the Premises to Subtenant, and Subtenant
subleases the Premises from Sublandlord.
Subject to Subtenant's inspection right set forth in Section 8.6 below, the
Premises are subleased in their condition "as is" on the Commencement Date and
Subtenant accepts the Premises in such condition.
Sublandlord further grants Subtenant the right to use, as appurtenant to
the Premises and in common with Sublandlord, Overlandlord, and all others now or
hereafter entitled thereto such lobbies, hallways, stairways, elevators and
common areas and facilities and appurtenant rights in the Building as set forth
in Section 2.1 of the Overlease. During the term of this Sublease, Sublandlord
also grants the right to use two (2) unreserved parking spaces in the parking
area shown on Exhibit A to the Overlease at a total monthly cost of $125 per
space in addition to the Monthly Fixed Rent paid hereunder. Subtenant shall also
have the right to use up to eleven (11) parking spaces in Sublandlord's Rogers
Street Parking lot at a charge, payable as Additional Rent hereunder, of $100
per space per month. Subtenant acknowledges that Sublandlord leases such spaces
on a month to month basis and that Subtenant's right to use such parking spaces
shall be subject to the continued availability thereof to Sublandlord; provided,
however, that if the lease of such spaces is terminated as a result of
Sublandlord's default under such lease or as a result of Sublandlord's
termination of such lease, Sublandlord shall provide to Tenant the right to use
an additional eleven (11) unreserved parking spaces in the parking area shown on
Exhibit A to the Overlease at a total monthly cost of $1,375 in addition to the
Monthly Fixed Rent paid hereunder.
2.2 Term. To have and to hold beginning on the Commencement Date and
continuing until the Term Expiration Date (the "Term"). In the event the
Sublandlord extends the term of the Overlease as it pertains to the Premises
beyond October 31, 1998, the Term of this Sublease shall automatically be
extended through January 31, 1999 on all of the terms and conditions set forth
herein, except that the Monthly Fixed Rent payable to Sublandlord hereunder
subsequent to October 31, 1998 shall equal the per square foot rent payable by
Sublandlord under the Overlease for each such month multiplied by the rentable
area of the Premises. In addition, in the event the term of the Overlease is
extended with respect to the Premises as aforesaid, and provided Subtenant is
not in default of any of its obligations hereunder beyond applicable grace or
cure periods, Subtenant shall have the right to further extent the Term of this
Sublease on all of the terms and conditions set forth herein through October 31,
1999 by written notice given to Sublandlord on or before August 1, 1998
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at the Monthly Fixed Rent payable by Subtenant subsequent to October 31, 1998,
as set forth above. In addition to such Monthly Fixed Rent, Subtenant shall also
pay to Sublandlord all actual, third party transaction costs incurred by
Sublandlord in connection with the extension of the term of the Overlease as it
pertains to the Premises. Such transaction costs shall be limited to (i)
brokerage fees payable to Meredith & Grew Incorporated in the amount of
$2,455.75, in the event Subtenant exercises its three-month extension right
described above, and $7,367.25, in the event Subtenant exercises its nine-month
extension right described above, and (ii) reasonable attorney's fees.
ARTICLE III
RENT
3.1 Monthly Fixed Rent. Subtenant shall pay Sublandlord the Monthly Fixed
Rent in advance on the first calendar day of each month included in the Term;
and for any portion of a calendar month at the beginning of or end of the Term,
the corresponding fraction of the Monthly Fixed Rent in advance.
3.2 Operating Expense Escalation. Under Section 4.2.1 of the Overlease,
Sublandlord is required to pay Tenant's Percentage of Taxes and under Section
4.2.3 of the Overlease Sublandlord is required to pay Tenant's Percentage of
Operating Costs (collectively, the "Expense Pass Throughs"). Subtenant shall pay
Sublandlord as Additional Rent hereunder 19.49% of the increase in Expense Pass
Throughs in excess of the Expense Pass Throughs (i) for calendar year 1997 in
the case of Operating Costs, and (ii) for fiscal year 1997 in the case of Taxes,
in each case allocable to periods of time included in the Term and on a basis
that accounts for allocation based on the provision of services between
Sublandlord and Subtenant such that each party pays for services consistent with
receipt and disproportionate services are allocated accordingly. Subtenant shall
receive a proportionate share of any rebates, credits or refunds obtained by
Overlandlord and/or Sublandlord relating to the Term of this Sublease. Subtenant
shall pay such amount within 30 days of billing by Sublandlord, which bills
shall include, where applicable, copies of the applicable statements from
Overlandlord. Any surplus shall be promptly refunded to Subtenant and any
deficit in such payment shall be promptly paid by Subtenant after the
Overlandlord finally determines the amounts payable by the Sublandlord under the
Overlease.
3.3 Payment. All payments of Monthly Fixed Rent and Expense Pass Throughs
shall be made to Sublandlord at Sublandlord's Address set forth in Section 1.1
or to such other address as Sublandlord may designate by notice to Subtenant
from time to time.
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ARTICLE IV
SUBLANDLORD'S COVENANTS AND WARRANTIES
4.1 Sublandlord's Obligations. Sublandlord shall use commercially
reasonable efforts to cause Overlandlord to fulfill its obligations set forth in
the Overlease with respect to the Premises. With respect to those undertakings
of Sublandlord in this Sublease which correspond to those of the Overlandlord in
the Overlease, Sublandlord covenants with Subtenant that, upon written notice
from Subtenant of default in the performance or observance of any such
undertakings by Sublandlord or Overlandlord, as the case may be, Sublandlord
will seasonably enforce its rights against Overlandlord under the Overlease and
this covenant shall be enforceable by an action for specific performance.
4.2 Overlease. The copy of the Overlease attached hereto as Exhibit A is
true and accurate. Except as shown on Exhibit A, the Overlease has not been
modified, amended or terminated and is in full force and effect. Sublandlord is
not in default under the Sublease, nor has Sublandlord done or failed to do
anything which with notice, the passage of time or both could ripen into a
default. To the best of Sublandlord's knowledge, Overlandlord is not in default
under any of its obligations under the Overlease and the Overlease is in full
force and effect.
4.3 Quiet Enjoyment. Upon payment of the rent and performance of and
compliance with the covenants, terms and conditions upon Subtenant's part to be
performed and complied with hereunder, Subtenant shall lawfully, peacefully and
quietly have, hold, occupy and enjoy the Premises during the Term without
hindrance or molestation by Sublandlord or any persons lawfully claiming by,
through or under Sublandlord, subject to the terms and conditions of this
Sublease and the Overlease.
4.4 Violations. Sublandlord represents and warrants that it has not
received any written notice that the Premises or the Building violates any
applicable law, ordinance, code, regulation, license, permit, variance or
governmental order.
ARTICLE V
SUBTENANT'S COVENANTS
Subtenant covenants during the Term and such further time as Subtenant
occupies any part of the Premises:
5.1 Subtenant's Payments. Subtenant shall pay all Monthly Fixed Rent and
Expense Pass Throughs when due. Subtenant shall also pay all costs of
electricity furnished and used by Subtenant at the Premises. To the extent
electricity is not
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separately metered to the Premises, Subtenant shall pay to Sublandlord, as
Additional Rent, 19.49% of electricity charged to Sublandlord; provided,
however, that if Subtenant reasonably believes that the electricity charge
reflects disproportionate usage, it may hire a reputable electrical engineer
reasonably acceptable to Sublandlord to survey the electrical demands of the
Premises in relation to the Building. If such survey determines that the
electricity usage is disproportionate then Subtenant shall pay its electricity
charge based on the relative usage determined by such survey and the cost of
such survey shall be equally split between Sublandlord and Subtenant. In all
other cases, Subtenant shall bear the cost of such survey.
5.2 Maintenance and Repair. Subtenant shall maintain the Premises in the
condition required by the Overlease.
5.3 Occupancy and Use. Subtenant shall not use the Premises for any uses
other than the Permitted Uses, and shall not make any use of the Premises which
is prohibited by any applicable law, ordinance, code, regulation, license,
permit, variances or governmental order.
5.4 Assignment and Subletting. Subtenant shall not assign, transfer,
mortgage or pledge this Sublease, or sublease (which term shall be deemed to
include the granting of concessions and licenses and the like) all or any part
of the Premises, or suffer or permit this Sublease or the leasehold estate
hereby created or any other rights arising under this Sublease to be assigned,
transferred or encumbered, in whole or in part, whether voluntarily,
involuntarily or by operation of law, or permit the occupancy of the Premises by
anyone other than Subtenant, without obtaining, in each instance, Sublandlord's
and Overlandlord's prior written consent which, in the case of Sublandlord,
shall not be unreasonably withheld, conditions or delayed. Any attempted
assignment, transfer, mortgage, pledge, sublease or encumbrance shall be void.
Notwithstanding anything to the contrary contained in this Section 5.4, but
subject only to Overlandlord's approval, Subtenant shall have the right, without
Sublandlord's consent, to assign this Sublease or sublet the whole or any part
of the Premises (i) to any entity which is affiliated with, or owned or
controlled by Subtenant, or which owns or controls Subtenant, or which is owned
or controlled by an entity owning Tenant, (ii) in connection with the sale or
transfer of substantially all of the assets of Subtenant or the sale or transfer
of substantially all of the outstanding ownership interests in Subtenant, or
(iii) in connection with a merger, consolidation or other corporate
reorganization of Subtenant.
ARTICLE VI
CASUALTY AND TAKING
6.1 Termination of Overlease. In the event that during the Term, all or
any part of the Premises or the Overleased Premises are destroyed or damaged by
fire or
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<PAGE>
other casualty or taken by eminent domain, and either Sublandlord or
Overlandlord terminates the Overlease pursuant to its terms because of such
damage, destruction or taking, then this Sublease shall likewise terminate on
the same date that the Overlease terminates. Sublandlord shall give Subtenant
prompt notice of such termination and the date on which it shall occur.
6.2 Repair and Restoration. In the event any such damage, destruction or
taking of the Premises occurs and this Sublease is not terminated pursuant to
Section 6.1 above, then Sublandlord shall cause Overlandlord to repair and
restore the Premises as required by the terms of the Overlease. A just
proportion of the Monthly Fixed Rent, Expense Pass Throughs and any other
additional rent hereunder shall be abated until Overlandlord shall have put the
Premises or what may remain thereof into proper condition for use and occupancy,
and in the case of a taking which permanently reduces the area of the Premises,
a just proportion of such rent shall be abated for the remainder of the Term.
Notwithstanding anything to the contrary contained in this Section 6.2 or in
Section 6.1 above, if (i) the Premises is not restored or repaired in or within
six (6) months from the date of such casualty or taking, or (ii) if the square
footage of the Premises is reduced by more than ten percent (10%), then
Subtenant shall have the right upon ten (10) days written notice to terminate
this Sublease, whereupon this Sublease and all rights and obligations hereunder
shall terminate and be of no further force or effect (except for obligations
accruing on or before such termination).
6.3 Reservation of Award. Any and all rights to receive awards made for
damages to the Premises and the leasehold hereby created accruing by reason of
exercise of eminent domain or by reason of anything lawfully done in pursuance
of public or other authority, are reserved to Sublandlord and Overlandlord.
Subtenant hereby releases and assigns to Sublandlord and Overlandlord all
Subtenant's rights to such award and covenants to deliver such further
assignments and assurances thereof as Sublandlord or Overlandlord may from time
to time request.
ARTICLE VII
OVERLEASE
7.1 Sublease Subject to Overlease. This Sublease is subject to the
Overlease. Subject to this Section 7.1, all terms and conditions of the
Overlease (except for Sections 1.1, 2.2, 2.3, 2.4, Article 3, Sections 4.1,
4.2.1, 4.2.3, 4.4, 5.5, 6.2.1, Article 7, Sections 9.3, 10.1 and 10.7) are
incorporated into and made a part of this Sublease as if Sublandlord were the
landlord thereunder and Subtenant were the tenant. In case of conflict between
the incorporated provisions of the Overlease and the remaining provisions of
this Sublease, the latter shall control. Subtenant assumes and agrees to perform
the tenant's obligations under the Overlease, with respect to the Premises only,
during the Term, except that the obligation to pay rent or other amounts to
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Overlandlord under the Overlease shall not be an obligation of Subtenant, and
Subtenant shall instead pay the rent under this Sublease. Subtenant shall not
commit or suffer any act or omission that will violate any of the provisions of
the Overlease. Overlandlord has covenanted under the Overlease to perform
repairs and maintenance and provide services pursuant to the Overlease.
Sublandlord shall use commercially reasonable efforts in attempting to cause
Overlandlord to perform its obligations under the Overlease for the benefit of
Subtenant. In addition, if Overlandlord defaults in its obligations under the
Overlease to maintain the Premises or to furnish services to the Premises and
such default materially interferes with Subtenant's use and enjoyment of the
Premises, Sublandlord authorizes Subtenant to deal directly with Overlandlord
regarding such default. During the Term of the Sublease, Sublandlord will, upon
Subtenant's request, use commercially reasonably efforts in attempting to obtain
rent abatement from Overlandlord when such abatement is available under the
terms of the Overlease. Subtenant shall be entitled to rent abatement under this
Sublease in proportion to the amount of such rent abatement received by
Sublandlord under the Overlease and the portion of the Overleased Premises
effected by such interruption in services.
If the Overlease terminates as a result of a default or breach of
Sublandlord or Subtenant under this Sublease and/or the Overlease, then the
defaulting party shall be liable to the nondefaulting party for the direct
damage suffered as a result of such termination. Sublandlord covenants not to
commit or suffer any act or omission that will violate the Overlease and
Sublandlord agrees to defend and hold harmless and indemnify Subtenant from and
against any and all liability, loss, damage or claim arising out of or in
connection with any act or failure caused by Sublandlord which constitutes a
default under the Overlease. Neither Sublandlord nor Subtenant shall be liable
to the other under this Section 7.1 of any indirect, special or consequential
damages, including business interruption or lost profits.
7.2 Excluded Obligations. Notwithstanding anything to the contrary
herein, the incorporated provisions of the Overlease are amended or qualified as
follows:
i. Sublandlord shall not be liable under any circumstances for a loss of
or injury to property, or interference with Subtenant's business, however
occurring, incidental to any failure to furnish any utilities or services unless
caused by Sublandlord's gross negligence or willful misconduct.
ii. Sublandlord shall have no responsibility to perform or construct (or
to pay the cost of performing or constructing) any repair, maintenance or
improvement in or to the Premises unless caused by Sublandlord's gross
negligence or willful misconduct.
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iii. Rent shall be abated under this Sublease only to the extent that
Sublandlord receives a corresponding rent abatement under the Overlease.
iv. Wherever the Overlease grants to Sublandlord a grace or cure period,
the corresponding grace or cure period under this Sublease shall be two (2)
business days shorter in duration.
The parties acknowledge that Sublandlord's ability to satisfy certain of
its obligations to Subtenant under this Sublease is contingent upon the full and
timely performance of Overlandlord's obligations under the Overlease. The
parties further acknowledge that, while Sublandlord will use commercially
reasonable efforts to cause Overlandlord to perform its obligations under the
Overlease, Sublandlord will not be liable to Subtenant for any breach of
Sublandlord's obligations under this Sublease, nor shall such breach diminish
Sublandlord's rights hereunder, where the same is caused by or attributable to
the failure of Overlandlord to perform its obligations under the Overlease.
7.3 Overlandlord's Rights. Overlandlord shall have all rights with
respect to the Premises which it has reserved to itself as landlord under the
Overlease.
7.4 Termination of Overlease. In the event that Overlandlord terminates
the Overlease pursuant to its terms or the Overlease otherwise terminates or
expires, this Sublease shall likewise and simultaneously terminate.
ARTICLE VIII
MISCELLANEOUS
8.1 Notices from One Party to the Other. All notices required or
permitted hereunder shall be in writing and addressed, if to the Subtenant, at
Subtenant's Address Attention: Chief Financial Officer with copies to: William
F. McCall, McCall & Almy, Inc., One Post Office Square, Suite 3740, Boston, MA
02109 and Kenneth J. Mickiewicz, Esq., Sherin and Lodgen LLP, 100 Summer Street,
Boston, MA 02110 or such other address as Subtenant shall have last designated
by notice in writing to Sublandlord and, if to Sublandlord, at Sublandlord's
Address or such other address as Sublandlord shall have last designated by
notice in writing to Subtenant. Any notice shall be deemed duly given when
mailed to such address postage prepaid, registered or certified mail, return
receipt requested, or when delivered to such address by hand or recognized
overnight courier.
8.2 Estoppel Certificate. Upon not less than 20 days prior notice by the
requesting party, either party shall execute, acknowledge and deliver to the
other a statement in writing, addressed to such person as the requesting party
shall
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designate, certifying (a) that this Sublease is unmodified and in full force and
effect, (b) the dates to which Monthly Fixed Rent, Expense Pass Throughs and
additional rent have been paid, and (c) that the requesting party is not in
default hereunder (or, if in default, specifying the nature of such default in
reasonable detail). Any such certificate may be relied upon by the person to
which it is addressed as to the facts stated therein.
8.3 Brokerage. Subtenant and Sublandlord mutually represent and warrant
that they have dealt with no broker in connection with this transaction except
for Meredith & Grew and McCall and Almy (the "Brokers"). Each agrees to defend,
indemnify and save the other harmless from and against any and all cost, expense
or liability for any compensation, commissions or charges claimed by any broker
or agent other than the Brokers, with respect to the indemnifying party's
dealings in connection with this Sublease. Sublandlord shall pay the commission
due to the Brokers.
8.4 Applicable Law and Construction. This Sublease shall be governed by
and construed in accordance with the laws of the State of Massachusetts. If any
term, covenant, condition or provision of this Sublease or the application
thereof to any person or circumstances shall be declared invalid or
unenforceable by the final ruling of a court of competent jurisdiction having
final review, the remaining terms, covenants, conditions and provisions of this
Sublease and their application to persons or circumstances shall not be affected
thereby and shall continue to be enforced and recognized as valid agreements of
the parties.
There are no oral or written agreements between Sublandlord and Subtenant
affecting this Sublease. This Sublease may be amended, and the provisions hereof
may be waived or modified, only by instruments in writing executed by
Sublandlord and Subtenant.
The titles of the several Articles and Sections contained herein are for
convenience only and shall not be considered in construing this Sublease.
Unless repugnant to the context, the words "Sublandlord" and "Subtenant"
appearing in this Sublease shall be construed to mean those named above and
their respective heirs, executors, administrators, successor and assigns, and
those claiming through or under them respectively. If there be more than one
tenant, the obligations imposed by this Sublease upon Subtenant shall be joint
and several.
8.5 Consent by Overlandlord. This Sublease is conditioned upon procuring
the consent of Overlandlord to (i) this Sublease in accordance with the
Overlease; and (ii) to the removal of the cubicles located in the center of the
Premises; provided that Subtenant shall replace or repair the carpeting in and
around the removed cubicles, as needed, and further provided that Subtenant
shall restore the cubicles on either the
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north side or the south side of the Premise at the expiration of the term of the
Sublease if so requested by Sublandlord (the "Consent"), and the Sublandlord and
Subtenant shall cooperate with each other in seeking Overlandlord's Consent. If
Consent is withheld, this Sublease shall terminate upon the delivery of written
notice to Sublandlord and Subtenant that Overlandlord's Consent will not be
given. If Sublandlord has not obtained the Consent in or within sixty (60) days
from the date hereof, Subtenant may elect to terminate this Sublease by written
notice to Sublandlord. If this Sublease is so terminated: (i) all consideration
previously paid by Subtenant to Sublandlord on account of this Sublease shall be
returned to Subtenant; and (ii) the parties thereupon shall be relieved of any
further liability or obligation under this Sublease, except for those
liabilities or obligations which have accrued and remain unperformed as of the
date this Sublease is so terminated.
8.6 Sublandlord's Work; Inspection Right. The Premises shall be deemed to
be ready for Subtenant's occupancy as soon as Sublandlord shall have completed
Sublandlord's Work (as defined below). The term "Sublandlord's Work," as used
herein, shall mean that Sublandlord shall have removed all of its property
(excluding the built in furniture which is being demised with the Premises),
disconnected the intercom system serving the Premises, and left the Premises in
broom clean condition and otherwise in substantially the same condition the
Premises were in as of the date of Subtenant's prior inspection thereof. On or
before the Commencement Date, Tenant shall have the right to inspect the
Premises for space planning purposes and to ensure that Sublandlord's Work has
been completed.
8.7 Security Deposit. Upon execution of this Sublease, Subtenant shall
pay to Sublandlord the security deposit amount set forth in Section 1.1 above,
which amount shall be held as security for Subtenant's performance as herein
provided. In the event of any default by the Subtenant, the Sublandlord may
apply or retain all or any part of such security deposit to cure the default or
to reimburse the Sublandlord for any sum which the Sublandlord may expend by
reason of the default. At the end of the Term of this Sublease or any extension
thereof, the security deposit, without interest, shall be returned within thirty
(30) days to the Subtenant less only such amounts as may be necessary to repair
damage to the Premises for which the Subtenant is responsible, if any, or any
monetary charges owed by the Subtenant and not paid.
8.8 Signs; Reception; Access. Subtenant shall be free to place a sign and
lettering in the Lobby of the Premises near the elevator, and on the exterior
door glass side light equivalent in size to Sublandlord's present sign with
Sublandlord's approval, not to be unreasonably withheld. Sublandlord covenants
to cause its reception staff to direct Subtenant's visitors and invitees to the
Premises. Subtenant shall have the access rights to the Premises set forth in
Section 5.4 of the Overlease. Sublandlord shall provide Subtenant with card-key
access cards to the front and rear doors of Building and a password or
passnumber security system to the Premises.
-11-
<PAGE>
EXECUTED as a sealed instrument in two or more counterparts on the day and
year first above written.
Sublandlord:
SatCon Technology Corporation
By: /s/ M.C. Turmelle
------------------------------------
Title: VP, CFO
Subtenant:
EPIX Medical, Inc.
By: /s/ Jeffrey R. Lentz
-------------------------------------
Title: Treasurer, CFO,
Vice President Finance & Administration
-12-
FIRST AMENDMENT TO SUBLEASE
This First Amendment to Sublease is dated as of July 15, 1998 by and between
SatCon Technology Corporation, a Delaware corporation having a place of business
at 161 First Street, Cambridge, Massachusetts 02142 ("Sublandlord") and EPIX
Medical, Inc., a Delaware corp. having a place of business at 161 First Street,
Cambridge, Massachusetts 02142 ("Subtenant").
BACKGROUND
A. Sublandlord and Subtenant are parties to a certain Sublease dated as of
October 31, 1997 (the "Sublease") with respect to certain premises located at
161 First Street, Cambridge, Massachusetts (the "Premises").
B. Sublandlord and Subtenant desire to amend the Sublease to, among other
matters, extend the term thereof and to add additional space to the Premises.
AGREEMENT
In consideration of the foregoing, and for other good and valuable
consideration, Sublandlord and Subtenant hereby agree as follows:
1. Capitalized terms used herein and not defined herein shall have the meaning
given to them in the Sublease.
2. Effective as of July 15, 1998: (i) the Premises shall mean the Premises
demised under the Sublease (the "Third Floor Premises") as well as 3,952
rentable square feet of space located on the first floor of the Building and
shown on Exhibit A attached hereto (the "First Floor Premises") and (ii) the
Monthly Fixed Rent shall be $23,617.00.
3. Effective as of July 15, 1998, all references in Sections 3.2 and 5.1 to
"19.49%" shall be deleted and the words "Subtenant's Proportionate Share" shall
be inserted in lieu thereof. Effective as of July 15, 1998, Subtenant's
Proportionate Share shall mean 28.11%.
4. Sublandlord has entered into an amendment to the Overlease, a copy of which
is attached hereto as Exhibit B. All references in the Sublease to the Overlease
shall mean the Overlease as so amended.
5. Notwithstanding the provisions of Section 2.2 of the Overlease, the Term
shall be extended from November 1, 1998 through December 31, 1999 (the "First
Extension Term"). All of the terms and conditions of the Sublease shall continue
in full force
<PAGE>
and effect during the First Extension Term, except that (i) the Monthly Fixed
Rent with respect to the Third Floor Premises shall be $20,860.54, (ii) the
rentable area of the Third Floor Premises shall be 9,358 (to correct an error in
the calculation thereof set forth in the Sublease) and the Monthly Fixed Rent
with respect to the First Floor Premises shall be $5,928.00, (iii) the
Subtenant's Proportionate Share shall be 29.05%, and (iv) the second sentence of
Section 3.2 of the Sublease is amended in its entirety to read as follows:
"Subtenant shall pay Sublandlord, as Additional Rent, Subtenant's Proportionate
Share of Expense Pass Throughs allocable to periods of time included in the
First Extension Term and on a basis that accounts for allocation based on the
provision of services between Sublandlord and Subtenant such that each party
pays for services consistent with receipt and disproportionate services are
allocated accordingly." In addition, provided Subtenant shall not be in default
of its obligations hereunder beyond applicable grace or cure periods, Subtenant
shall have the right to extend the Term of the Sublease for an additional period
of one, two or three years by notice given to Sublandlord on or before July 1,
1999, time being of the essence (the "Second Extension Term"). Subtenant's
notice to Sublandlord exercising its right to extend the Term shall specify the
period of such extension and failure to specify such a period shall be deemed a
failure to have exercised such extension right. All of the terms and conditions
of the Sublease shall remain in full force and effect during the Second
Extension Term, except that Subtenant shall have no further extension options
and notwithstanding the provisions of Section 2.1 of the Sublease, the rate for
parking in Sublandlord's Rogers Street Parking Lot shall be $100 per month
through October 31, 2000, and thereafter shall be at the rate payable by
Sublandlord under its lease for such spaces.
6. In the event Subtenant fails to exercise its option for the Second Extension
Term in the manner set forth in Section 5 above, Subtenant shall pay Sublandlord
a termination fee of $50,000 on or before December 1, 1999.
7. Section 8.8 of the Sublease is amended by adding the following sentence to
the end of the existing provisions: "Subject to receipt of Overlandlord's
consent, Subtenant shall be permitted to install an exterior sign on the left
side of the front entrance to the Building which is symmetrical and to and
similar in design to the Sublandlord's sign which is located on the right side
of the front entrance to the Building."
8. Subtenant shall bear one half of the legal fees and costs incurred by
Sublandlord in connection with the preparation of this First Amendment to
Sublease, Subtenant's share of which shall not exceed $2500.
9. Sublandlord warrants and represents to Subtenant and Subtenant represents and
warrants to Sublandlord that neither party has dealt with any broker or other
person (including, without limitation, with respect to Subtenant, McCall and
Almy) entitled to a broker's commission or finder's fee in connection with the
negotiation or
- 2 -
<PAGE>
execution of this Agreement or the consummation of the transaction contemplated
hereby, and Sublandlord and Subtenant each agree to, at its own sole cost and
expense, defend the other and hold the other harmless and indemnify the other
from and against all damages, claims, losses and liabilities, including legal
fees, incurred by the other, arising out of or resulting from the breach of its
representation and warranty.
10. Sublandlord and Subtenant hereby acknowledge and agree that this Sublease
shall be deemed terminated and of no further force or effect unless Landlord
shall have consented to this Sublease (such consent to be reasonably acceptable
to both Sublandlord and Subtenant) on or before August 14, 1998.
11. Sublandlord represents and warrants that: (i) the Overlease has not been
modified, amended or terminated except as set forth herein and is in full force
and effect; (ii) Sublandlord is not in default of any of its obligations under
the Overlease nor has Sublandlord done or failed to do anything which with
notice, the passage of time, or both, could ripen into a default under the
Overlease; (iii) to the best of Sublandlord's knowledge, Overlandlord is not in
default under any of its obligations under the Overlease nor, to the best of
Sublandlord's knowledge, has Overlandlord done or failed to do anything which
with notice, the passage of time, or both, could ripen into a default under the
Overlease.
12. Except as amended hereby, the Sublease is in all other respect ratified and
confirmed.
EXECUTED as a sealed instrument in two or more counterparts on the day
and year first above written.
Sublandlord:
SatCon Technology Corporation
By: /s/ M.C. Turmelle
------------------------
Title: VP, CFO
Subtenant:
EPIX Medical, Inc.
By: /s/ M.D. Webb
-------------------------
Title: CEO
- 3 -
EPIX Medical, Inc. has omitted from this Exhibit 10.42 portions of the
agreement for which EPIX Medical, Inc. has requested confidential treatment from
the Securities and Exchange Commission. The portions of the agreement for which
confidential treatment has been requested are marked [*] and such confidential
portions have been filed separately with the Securities and Exchange Commission.
AMENDMENT NO. 1
This Amendment No. 1 dated as of September 10, 1998, is made by and
among EPIX MEDICAL, INC., a Delaware corporation having its principal place of
business at 71 Rogers Street, Cambridge, Massachusetts 02142-1118 U.S.A.
("Epix"), MALLINCKRODT MEDICAL, INC., a Delaware corporation having its
principal place of business at 675 McDonnell Boulevard, St. Louis, Missouri
63134, and MALLINCKRODT INC., (under its prior corporate name MALLINCKRODT GROUP
INC.) a New York corporation having its principal place of business at 7733
Forsyth Boulevard, St. Louis, Missouri 63105, by and through its unincorporated
Medical Imaging division (together with Mallinckrodt Medical, Inc., "MKG").
RECITALS
WHEREAS, Epix (under its prior corporate name Metasyn, Inc.) and MKG
are parties to a Strategic Collaboration Agreement dated as of August 30, 1996
(the "Collaboration Agreement"); and
WHEREAS, Epix and MKG desire to amend the Collaboration Agreement to
clarify the rights and obligations of the parties with respect to certain third
party arrangements, as set forth herein.
NOW THEREFORE, in consideration of the premises Epix and MKG mutually
agree as follows:
ARTICLE I. AMENDMENT
1. Epix and MKG hereby agree to amend Article 4 of the Collaboration Agreement
by adding the following new Section 4.8:
4.8 Collaboration Agreements with Third Parties:
4.8.1 General. In the event that either Party, during the term
of the Development Phase or thereafter, determines that a
research, development or collaboration agreement with a Third
Party would further the objectives of this Agreement (a "Third
Party Collaboration"), such Party (the "Collaborating Party")
shall so notify the Joint Steering Committee, which notice
shall include reasonable details concerning the terms of the
proposed Third Party Collaboration, including its objectives,
term, proposed budget, and the manner in which intellectual
property rights arising therefrom are to be made available to
the Collaborating Party. The Joint Steering Committee shall
make a determination as soon as practicable after such notice,
but in no event later than ninety (90) days thereafter, as to
whether to approve the proposed Third Party Collaboration,
Page 1 of 6
September 10, 1998
<PAGE>
and to treat the costs of the Third Party Agreement (as
defined below) as Development Costs to be borne equally by the
parties hereunder.
4.8.2. Amendment to Development Plan and Budget. Upon approval
by the Joint Steering Committee of a Third Party
Collaboration, the current Development Plan and Budget will be
amended to reflect the additional anticipated costs of the
Third Party Agreement, and the Parties will share the costs
thereof as provided in Section 8.3.
4.8.3. Approval of Agreement and Any Amendments. Following
approval by the Joint Steering Committee of a Third Party
Collaboration, the Collaborating Party will proceed to
negotiate the definitive terms thereof, keeping the other
Party reasonably informed, will consider in good faith any
comments or suggestions of the other Party relating thereto,
and shall in any event obtain the written approval of the
other Party prior to executing the definitive agreement (the
"Third Party Agreement") or any material amendments thereto.
4.8.4. Sharing of Developments and Information. Following
execution of a Third Party Agreement as provided in Section
4.8.3, the Collaborating Party agrees, subject to the
confidentiality provisions hereof, to keep the other Party
regularly informed of all material developments under the
Third Party Agreement, including all reports, technical
information and data, and intellectual property rights arising
therefrom. Upon request of the other Party, to the extent
reasonably feasible, and subject in appropriate circumstances
to the other Party entering into agreements to be bound by
applicable terms of the Third Party Agreement, the
Collaborating Party will permit representatives of the other
Party to attend and participate in meetings with
representatives of the Third Party conducting the
collaboration.
4.8.5. Sharing of Intellectual Property Rights. The
Collaborating Party under any Third Party Agreement agrees
that the other Party will have a joint undivided interest in
any patent rights or other intellectual property rights
obtained by the Collaborating Party as a result of any Third
Party Agreement, and, upon request of the other Party, the
Collaborating Party agrees to execute and deliver to the other
Party any documents of assignment necessary to effect the
foregoing. Except as otherwise agreed, the Collaborating Party
will be responsible, in consultation with the other Party, for
the preparation, filing, prosecution and maintenance of any
patent applications or patents, the costs of which shall be
Development Costs to be shared by the Parties under Section
8.3.
4.8.6. Existing and Proposed Third Party Collaborations. The
Parties acknowledge that [*], Epix's agreement with the
General Electric Company ("GEC") dated as of January 9,
1998,
[*] Omitted portions filed separately with the Securities and Exchange
Commission.
Page 2 of 6
September 10, 1998
<PAGE>
[*] are approved Third Party Agreements hereunder. [*] has not
yet been the subject of a formal notice pursuant to Section
4.8.1 above.
4.8.7. Failure to Accept a Third Party Collaboration. If the
Joint Steering Committee declines to approve a proposed Third
Party Collaboration under Section 4.8.1, the Collaborating
Party shall have the right to enter into the Third Party
Agreement at its own expense, and the other Party shall have
no right to any intellectual property or other rights arising
from such Third Party Agreement, except as otherwise provided
in this Agreement.
2. Epix and MKG hereby agree to amend Article 5 of the Collaboration Agreement
so that the following Sections are amended and restated, or added, to read in
their entirety as follows:
5.1. Additional Research Programs. In the event that either
Party, during the term of this Agreement, has what it believes
is a valid concept for discovering potential Second Generation
Compounds that are reasonably likely to have successful
commercial application, such Party shall promptly report such
concept to the Joint Steering Committee together with a
recommended specific research program pursuant to which any
such concept could be added to the Program. Such
recommendation shall include a proposed research plan and
budget and shall include details explaining why the
recommending party believes that the proposed concept could
lead to the discovery of Second Generation Compounds that may
have significant performance or other advantages over the
compounds ongoing Research Programs. The Joint Steering
Committee shall make a determination with respect to each such
recommendation as soon as practicable after such
recommendation is made but in no event later than ninety (90)
days. In the event that the Joint Steering Committee fails or
declines to approve any recommended research program as an
addition to the Program within the aforementioned ninety (90)
day period (or such longer period as the Parties may mutually
agree), then the Party which recommended such research program
shall be free to develop, market and sell any compounds
developed in such research program by itself, including with
the assistance of third party contractors, provided, however,
that any compounds developed in such research program [*].
If the Joint Steering Committee approves the recommended
research program as an addition to the Program, then the
research program may commence immediately in
[*] Omitted portions filed separately with the Securities and Exchange
Commission.
Page 3 of 6
September 10, 1998
<PAGE>
accordance with the proposed research plan and budget. At such
time during the research program as either Party identifies a
specific potential Second Generation Compound for development,
such Party shall promptly report such compound to the Joint
Steering Committee together with a recommended specific
research plan and budget relating to the development of such
compound. The Joint Steering Committee shall make a
determination with respect to each such recommendation as soon
as practicable after such recommendation is made but in no
event later than ninety (90 days). If the Joint Steering
Committee approves the recommended research program for the
specific potential Second Generation Compound as an addition
to the Program, then the research program for such compound
may commence immediately in accordance with the proposed
research plan and budget. In the event that the Joint Steering
Committee fails or declines to approve any recommended
research program for the specific potential Second Generation
Compound as an addition to the Program within the
aforementioned ninety (90) day period (or such longer period
as the Parties may mutually agree) then the non-recommending
Party shall either [*].
5.1.1. Ongoing Research Programs. Epix and MKG acknowledge
that they are currently engaged in a single Research Program
under the Collaboration Agreement which relates to albumin
binding for second generation intravascular contrast agents,
which Research
[*] Omitted portions filed separately with the Securities and Exchange
Commission.
Page 4 of 6
September 10, 1998
<PAGE>
Program is more fully described in correspondence between
Epix and MKG dated [*]. Unless otherwise agreed by Epix and
MKG, Epix and MKG agree that there shall be no more than [*]
Research Programs being conducted at any time. Unless
otherwise agreed by Epix and MKG, should a research program
concept be proposed and the Joint Steering Committee
recommend that such concept could be added to the Program
while [*] Research Programs are being conducted, any such
recommended Research Program shall be delayed until [*] the
ongoing Research Programs [*] been completed.
5.2.1. General. The Joint Steering Committee will determine
the allocation of responsibility between the Parties for the
conduct of each approved Research Program. Upon approval of a
Research Program, the Joint Steering Committee shall select a
Joint Scientific Team consisting of five (5) members, three
(3) from the recommending Party and two (2) from the
non-recommending Party, to direct the research. The Joint
Scientific Team shall issue a written progress report
quarterly and shall make an oral status presentation at each
meeting of the Joint Steering Committee. Each of the Parties
will attempt to achieve efficiently and expeditiously the
objectives assigned to it by the Joint Steering Committee as
described in the Annual Research Plan (defined below) and will
proceed diligently with the work described therein by using
its good faith efforts. The Joint Steering Committee shall
have the authority to mandate changes in the direction of the
Research Program or to mandate its discontinuance at any time.
3. Epix and MKG hereby agree to amend Article 8 of the Collaboration Agreement
so that the following section is amended and restated to read in its entirety as
follows:
8.3.5. Notwithstanding any other provision hereof, it is
understood that, without its prior written consent, neither
Party shall be liable to pay an amount in Development Costs
hereunder with respect to the Licensed Compound and any
Replacement Compounds and their corresponding Licensed
Products of more than [*].
4. Epix and MKG hereby agree to amend Article 13 of the Collaboration Agreement
so that the following section is amended and restated to read in its entirety as
follows:
13.2.4. Effect of Termination of the Research Program. In the
event that the Research Program is terminated with respect to
any compound pursuant to Section 13.2.2, then such compound
may not be designated as a Second Generation Compound or a
Replacement Compound by the Joint Steering Committee and
neither party, alone or with a Third Party, shall have the
right to develop a product for sale in the Field based upon
such compound; provided, however, that if the compound
demonstrates [*]
[*] Omitted portions filed separately with the Securities and Exchange
Commission.
Page 5 of 6
September 10, 1998
<PAGE>
over any compound then in research or development or
being marketed or sold under the collaboration, then, in such
event, (a) all rights with respect to the use, manufacture,
distribution for sale and sale of such compound shall revert
to the Originating Party, except that, to the extent such
compound has been jointly acquired through license, purchase
or otherwise, both Parties will have the right to use,
manufacture, distribute for sale and sell such compound on a
nonexclusive basis, (b) to the extent legally permissible, all
additional action reasonably necessary shall be taken by the
Parties to assign all right, title and interest in and
transfer possession and control of the regulatory filings and
regulatory approvals relating to such compound and (c) the
Originating Party shall be free to develop or grant licenses
to Third Parties with respect to such compound. In the event
that the Originating Party enters into an agreement with a
Third Party pursuant to clause (c) hereof and such Third Party
will use data generated during the Program, then the
Originating Party shall provide in such agreement that such
Third Party shall reimburse the non-Originating Party for the
perceived value of such data, such value to be negotiated in
good faith by MKG and Metasyn taking into account the
financial contributions of both Parties to the generation of
such data.
ARTICLE 2 - MISCELLANEOUS
Except as expressly amended by this Amendment No. 1, the Collaboration
Agreement shall remain unmodified and in full force and effect. This Amendment
No. 1 may be executed in two or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument. This Amendment No. 1 shall be governed and construed in accordance
with the laws of the State of New York without giving effect to the choice of
law provisions thereof.
IN WITNESS WHEREOF, the Parties have executed this Amendment No. 1 as of
the date set forth above.
<TABLE>
<S> <C>
EPIX MEDICAL, INC. MALLINCKRODT INC.
By: /s/ Michael D. Webb By: /s/ James C. Carlile
----------------------- ------------------------
Name: Michael D. Webb Name: James C. Carlile
Title: President and Chief Title: President, Imaging Group
Executive Officer
</TABLE>
[*] Omitted portions filed separately with the Securities and Exchange
Commission.
Page 6 of 6
September 10, 1998
PROMISSORY NOTE
---------------
$1,200,000.00 December 21, 1998
Farmington, Connecticut
FOR VALUE RECEIVED, EPIX MEDICAL, INC., a Delaware corporation, having its
principal place of business at 71 Rogers Street, Cambridge, Massachusetts 02142
(the "Borrower"), hereby promises to pay to the order of FINOVA TECHNOLOGY
FINANCE, INC. (the "Lender"), at 10 Waterside Drive, Farmington, Connecticut
06032-3065 the principal sum of One Million Two Hundred Thousand and 00/100
Dollars ($1,200,000.00), plus interest on the unpaid principal balance at a rate
of 13.1735% (the "Interest Rate"), payable in thirty-six (36) monthly
installments of principal and interest, each in the amount of $39,672.00,
commencing on January 1, 1999 and continuing on a like day of each month
thereafter through and including December 1, 2001, upon which date, all unpaid
principal, interest and charges due hereunder shall be paid in full.
Notwithstanding the foregoing, Borrower shall prepay the first and the last such
installments of principal and interest hereunder contemporaneously with the
execution of this Note.
Reference is made to a Master Equipment Lease Agreement dated as of June
24, 1997 by and between Lender as "Lessor" and Borrower as "Lessee" (the "Master
Lease") pursuant to which Lender has financed the lease of various equipment to
Borrower (collectively, the "Leases"). Borrower hereby acknowledges that the
Master Lease and the Leases constitute finance leases and that Borrower holds
title to all machinery, equipment and any and all other goods and property
<PAGE>
which are the subject of the Master Lease and the Leases, free and clear of all
liens, claims and encumbrances. Borrower hereby gives and grants to Lender a
continuing security interest in and to all machinery, equipment, and any and all
other goods and property which are now or hereafter leased to Borrower pursuant
to the terms of the Master Lease and/or the Leases, as amended, supplemented,
restated, substituted and/or replaced and in and to all replacements,
substitutions, additions, attachments, accessories, parts, fittings, accessions,
modifications, enhancements, maintenance and repairs of or to such Equipment and
all proceeds of the foregoing, including, without limitation, all insurance
proceeds.
All payments made by the Borrower hereunder, shall be applied first to late
charges, fees, costs, expenses and all other amounts due the Lender, if any,
under this Note or otherwise (including legal fees and expenses incurred in
enforcing its rights), other than principal and interest, then to interest at
the rate of interest then in effect, and the balance to the principal balance
due under this Note.
All payments on this Note are to be made in lawful money of the United
States of America in immediately available funds, at the office of the Lender at
or such other place as the holder hereof shall designate to the Borrower in
writing. If any payment of principal or interest becomes due on a Saturday,
Sunday or any other day which is not a business day, such payment shall be
deferred to, and shall be payable on, the next business day.
All indebtedness outstanding under this Note shall bear interest after
maturity, whether at its maturity date, by acceleration or otherwise, at the
interest rate then in effect plus three percent (3%) per annum, but in no event
greater than the highest rate of interest which may be charged by the Lender or
which the Borrower may legally contract to pay under applicable law.
- 2 -
<PAGE>
If the Borrower shall fail to make any payments within ten (10) days after
the same is due, the Borrower shall pay a late charge of five percent (5%) of
the unpaid amounts, but in no event greater than the maximum rate permitted by
law, to cover the Lender's administrative costs occasioned by such delay.
The Lender and the Borrower intend this Note to comply in all respects with
all provisions of law and not to violate, in any way, any legal limitations on
interest charges. Accordingly, if, for any reason, the Borrower is required to
pay, or has paid, interest at a rate in excess of the highest rate of interest
which may be charged by the Lender or which the Borrower may legally contract to
pay under applicable law (the "Maximum Rate"), then the interest rate shall be
deemed to be reduced, automatically and immediately, to the Maximum Rate, and
interest payable hereunder shall be computed and paid at the Maximum Rate and
the portion of all prior payments of interest in excess of the Maximum Rate
shall be deemed to have been payments in reduction of the outstanding principal
of this Note and applied as partial prepayments.
This Note may be prepaid in whole or in part on any payment date.
Upon the occurrence of any default by Borrower in the payment or
performance of any obligation of Borrower hereunder or in the payment or
performance of any other obligation of Borrower to Lender now existing or
hereafter arising under any lease, loan agreement, instrument, document or other
agreement now or hereafter entered into between Borrower and Lender, including,
without limitation, the Master Lease (collectively, the "Other Agreements") such
default shall constitute a default hereunder and shall also constitute a default
or an Event of Default under the Other Agreements and the Lender shall have all
of the rights and remedies contained in the Other
- 3 -
<PAGE>
Agreements and hereunder, including, without limitation, the right, at is
option, to declare all indebtedness under this Note to be immediately due and
payable.
The Borrower hereby expressly waives presentment for payment, demand for
payment, notice of dishonor, protest, notice of protest, notice of non-payment,
and all lack of diligence or delays in collection or enforcement of this Note.
The Lender may extend the time of payment of this Note, postpone the
enforcement hereof, release any collateral securing this Note, or grant any
other indulgences whatsoever without affecting or diminishing the Lender's right
of recourse against the Borrower, as provided herein, which right is hereby
expressly reserved. The failure to assert any right by the Lender shall not be
deemed a waiver thereof.
This Note is binding upon the Borrower and its successors and assigns;
provided, however, that the Borrower shall not be entitled to assign or delegate
any rights or obligations under this Note without the prior written consent of
the Lender. The Borrower hereby consents to the Lender's sale, assignment,
transfer or other disposition at any time or times hereafter, of this Note, of
any right or interest herein contained. Upon such assignment, the assignee shall
have all of the rights of the Lender to enforce any term of this Note. The
Borrower agrees not to assert as against any such assignee any claims, offsets,
deductions or defenses it may have against the Lender for breach of this Note or
otherwise (however, such assignment shall not affect Borrower's ability to
assert against Lender any such claims, offsets, deductions or defenses it may
have).
This Note may be amended, modified or supplemented only by written
agreement signed on behalf of the Lender and the Borrower.
- 4 -
<PAGE>
The Borrower agrees to pay all costs, fees and expenses of collection,
including, without limitation, the Lender's reasonable attorneys' fees and
disbursements, in the event that any action, suit or proceeding is brought by
the holder hereof to collect this Note or if an Event of Default shall have
occurred.
THIS NOTE SHALL BE DEEMED TO HAVE BEEN MADE IN AND SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CONNECTICUT.
THE BORROWER IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING
AGAINST IT UNDER, ARISING OUT OF OR IN ANY MANNER RELATING TO THIS NOTE, MAY BE
BROUGHT IN ANY STATE OR FEDERAL COURT LOCATED IN THE STATE OF CONNECTICUT. THE
BORROWER, BY ITS EXECUTION AND DELIVERY OF THIS NOTE, EXPRESSLY AND IRREVOCABLY
ASSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF ANY OF SUCH COURTS IN ANY
SUCH ACTION OR PROCEEDING. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF ANY COMPLAINT, SUMMONS, NOTICE OR OTHER PROCESS RELATING TO SUCH
ACTION OR PROCEEDING BY DELIVERY THEREOF TO IT BY HAND OR BY MAIL IN THE MANNER
PROVIDED FOR IN THE SECURITY AGREEMENT. THE BORROWER HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES ANY CLAIM OR DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED
ON ANY ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS OR ANY SIMILAR BASIS. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR
IMPAIR IN ANY MANNER OR TO ANY EXTENT THE RIGHT OF THE LENDER TO COMMENCE LEGAL
- 5 -
<PAGE>
PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY JURISDICTION OR TO
SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
TO THE EXTENT PERMITTED BY LAW, THE BORROWER HEREBY WAIVES ANY RIGHT TO A
TRIAL BY JURY.
IN WITNESS WHEREOF, the Borrower has duly executed this Note on the date
first above written.
EPIX MEDICAL, INC.
By: /s/ M.D. Webb
----------------------
Title: President & CEO
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 registration numbers 333-57881, 333-41477 and 333-57879) pertaining to
the Amended and Restated 1992 Equity Incentive Plan, the 1996 Employee Stock
Purchase Plan, and the 1996 Directors Stock Option Plan, respectively, of EPIX
Medical, Inc. of our report dated February 3, 1999, with respect to the
financial statements of EPIX Medical, Inc. included in the Annual Report (Form
10-K) for the year ended December 31, 1998.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 26, 1999
EXHIBIT 99.1
Important Factors Regarding Forward Looking Statements
From time to time, EPIX Medical, Inc., through its management, may make forward
looking statements, such as statements concerning then expected future revenues
or earnings or concerning projected plans, performance, product development and
commercialization, as well as other estimates relating to future operations.
There are certain key factors that could cause future results to differ
materially from those anticipated by management including, but not limited to,
the following:
Early Stage of Development; No Product Sales to Date. The Company commenced
operations in 1992 and is a development stage company. The Company currently has
no products for sale nor is there any guarantee that it will ever have
marketable products. All of the Company's product candidates are in research or
development, and no revenues have been generated from product sales. To date,
the Company has financed its operations through public stock offerings, private
sales of equity securities, equipment lease financings and license payments from
its strategic partners. To achieve profitable operations, the Company, alone or
with others, must successfully develop, obtain regulatory approval for,
introduce, market and sell products. The Company does not expect to receive
revenue from the sale of any of its product candidates for the next several
years. There can be no assurance that the Company's product development efforts
will be successfully completed, that required regulatory approvals will be
obtained in a timely manner, if at all, that its product candidates can be
manufactured at an acceptable cost and with acceptable quality or that any
approved products can be successfully marketed.
Dependence on AngioMARK. AngioMARK is currently the Company's only product
candidate in human clinical trials, and there is no guarantee that any of its
other development projects will yield a product candidate suitable for entry
into clinical trials. The failure of AngioMARK to achieve regulatory approval
and market acceptance would have a material adverse effect on the Company's
business, financial condition and results of operations.
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
AngioMARK is therefore dependent on advancements in MRI hardware and software.
Although several leading MRI manufacturers, academic centers and others are
developing advanced hardware and software, there can be no assurance when, or
if, these techniques will enable AngioMARK to provide clinically relevant images
in cardiac indications currently being pursued.
Uncertainty of Market Acceptance of Technology and Products. The commercial
success of AngioMARK and the Company's other product candidates, when and if
approved for marketing by the United States Food and Drug Administration (the
"FDA") and corresponding foreign agencies, will depend on their acceptance by
the medical community and third-party payors as clinically useful,
cost-effective and safe. While contrast agents are currently used in an
estimated 25% of all MRI exams, there are no targeted vascular agents approved
by the FDA in use. Furthermore, clinical use of MRI for vascular imaging has
been limited, and use of MRI for cardiac imaging has occurred mainly in
research. Market acceptance, and thus sales of the Company's product candidates,
will depend on several factors, including safety, price, ease of administration,
effectiveness and the rate of adoption of up-to-date MRI technology. Market
acceptance will also depend on the ability of the Company and its strategic
partners to educate the medical community and third-party payors about the
benefits of diagnostic imaging with MRI enhanced with the Company's product
candidates compared to imaging with other modalities. The Company's MRI contrast
agents represent a new approach to imaging the cardiovascular system ("CVS"),
and market acceptance both of MRI as an appropriate imaging technique for the
CVS and of the Company's product candidates is critical to the Company's
success. There can be no assurance that the Company's product candidates will
gain market acceptance. Failure to achieve market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations.
<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 both 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 CVS
imaging. There can be no assurance that the Company will be able to compete
successfully in the future or that developments by others will not render
AngioMARK 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.
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 AngioMARK. 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.
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 several strategic alliances,
including a collaboration agreement with Mallinckrodt Group Inc.
("Mallinckrodt") to develop and commercialize AngioMARK and other MRI vascular
agents worldwide, excluding Japan, and a development and license agreement with
Daiichi Radioisotope Laboratories, Ltd. ("Daiichi") for the development and
commercialization of AngioMARK in Japan. The Company may not receive milestone
payments from these alliances should AngioMARK 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 AngioMARK in their
respective territories, or that they will successfully market AngioMARK. Both
Mallinckrodt and Daiichi currently manufacture imaging agents for other
modalities that will compete against AngioMARK. Mallinckrodt and the Company
will share responsibility for setting the price of the product worldwide, except
Japan, and Daiichi will be responsible for setting the product price in Japan.
There can be no assurance that either Mallinckrodt or Daiichi will do so in a
manner that maximizes revenues for the Company. In addition, Daiichi has the
right to terminate its agreement on short notice under certain circumstances,
and there is no guarantee that it will not exercise this right. The failure of
the Company to receive milestone payments, a reduction or discontinuance of
efforts by the Company's partners or the termination of these alliances would
have a material adverse effect on the Company's business, financial condition
and results of operations.
There can be no assurance that the Company will be successful in entering into
additional strategic alliances for the development and commercialization of
future product candidates, nor that these alliances, if entered into, will be on
terms favorable to the Company or will be successful. If the Company were unable
to enter into future strategic alliances with capable partners on commercially
reasonable terms, the development and commercialization of future product
candidates would be delayed and possibly postponed indefinitely.
<PAGE>
Unproven Safety and Effectiveness of Product Candidates; Uncertainties Related
to Clinical Trials. The Company's product candidates are in research and
development and will require additional research and development, extensive
clinical testing and regulatory approval prior to any commercial sales. The
Company cannot predict if or when any of its products under development will be
commercialized. The Company currently has only one product candidate, AngioMARK,
in clinical trials. The Company will be required to complete successfully
clinical trials in the United States to demonstrate the safety and efficacy of
AngioMARK, 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. Although no clinically
significant adverse effects from AngioMARK in Phase I and 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 trial proceeds. The results from early clinical trials may not be
predictive of results that will be obtained in large scale clinical trials, as a
number of companies have suffered significant setbacks in advanced clinical
trials, even after promising results in earlier trials. There can be no
assurance that additional Phase II or Phase III clinical trials for AngioMARK
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 AngioMARK will be studied, the proximity of the
patient to a clinical site and the eligibility criteria for the study. Delays in
planned patient enrollment may result in increased costs, regulatory filing
delays, or both. Furthermore, the Company, the FDA or other regulatory
authorities may suspend or terminate clinical trials at any time. Failure to
complete successfully any of its clinical trials on a timely basis or at all
would have a material adverse effect on the Company's business, financial
condition and results of operations.
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
AngioMARK. 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 AngioMARK and
other products developed pursuant to the collaboration agreement between the
Company and Mallinckrodt were AngioMARK and those other products to be held to
fall within the claims of those third-party patents. If the agreement with
Mallinckrodt is terminated by either party, the Company would likely be required
to enter into a strategic alliance with another party having a license from this
third party or obtain a license from this third party directly or from others
licensed by this third party in order to manufacture, market and sell AngioMARK
and other chelate-based MRI contrast agents. However, there can be no assurance
that the Company would be able to consummate a strategic alliance with a party
having this third-party license or obtain licenses from third parties on
commercially reasonable terms, if at all. One of the Japanese patents of this
third party will expire in 2007. The Company has filed an appeal in the Japanese
Patents Office requesting that this patent be declared invalid. This appeal will
likely take several years to finally resolve. While the Company believes that it
will prevail in this proceeding, there can be no assurance as to the scope of
the claims that the third party will maintain. The remaining 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 AngioMARK 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 the Company does not prevail in its appeal to the Japanese Patent
Office or Daiichi commercializes AngioMARK in Japan before 2002, it may be
required to obtain an appropriate license from this third party or from others
licensed by this third party, or take other measures to avoid infringement of
third-party patents, including delaying the commencement of product sales. There
can be no assurance that the Company's current or future activities will not be
challenged in the future, that additional patents will not be issued containing
claims materially constraining the proposed activities of the Company, that the
Company will not be required to obtain licenses from third parties, or that the
Company will not become involved in costly, time-consuming litigation regarding
patents in the field of contrast agents, including actions brought to challenge
or invalidate the Company's own patent rights.
<PAGE>
Many of the Company's competitors are continuing to actively pursue patent
protection for activities and discoveries similar to the Company's. There can be
no assurance that these competitors, many of which have substantially greater
resources than the Company and have made substantial investments in competing
technologies, will not seek to assert that the Company's products or chemical
processes infringe their existing patents and/or will not seek new patents that
claim to cover aspects of the Company's technology. Furthermore, patent
applications in the United States are maintained in secrecy until patents issue,
and patent applications in foreign countries are maintained in secrecy for a
specified period after filing. Publication of discoveries in the scientific or
patent literature tends to lag behind actual discoveries and the filing of
related patent applications. In addition, patents issued and patent applications
filed relating to pharmaceuticals are numerous. Therefore, there can be no
assurance that the Company is aware of all competitive patents, either pending
or issued, that relate to products or processes used or proposed to be used by
the Company.
The pharmaceutical and biotechnology industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
Litigation may be necessary to enforce any patents issued to the Company and/or
determine the scope and validity of others' proprietary rights. The Company may
have to participate in interference proceedings declared by the United States
Patent and Trademark Office or by foreign agencies to determine the priority of
inventions. Any involvement in litigation surrounding these issues could result
in extensive costs to the Company as well as be a significant distraction for
management. Such costs could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company also relies upon trade secrets, technical know-how and continuing
technological innovation to develop and maintain its competitive position. The
Company typically requires its employees, consultants and advisors to execute
confidentiality and assignment of inventions agreements in connection with their
employment, consulting or advisory relationships with the Company. There can be
no assurance, however, that these agreements will not be breached or that the
Company will have adequate remedies for any breach. Furthermore, there can be no
assurance that competitors will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's proprietary technology, or that the Company can meaningfully
protect its rights in unpatented proprietary technology. Several of the
Company's management and scientific personnel were formerly associated with
other pharmaceutical and biotechnology companies and academic institutions. In
some cases, these individuals are conducting research in similar areas with
which they were involved prior to joining the Company. As a result, the Company,
as well as these individuals, could be subject to claims of violation of trade
secrets and similar claims.
The Company intends to vigorously protect and defend its intellectual property.
Costly and time-consuming litigation brought by the Company may be necessary to
enforce patents issued to the Company, to protect trade secrets or know-how
owned by the Company, or to determine the enforceability, scope and validity of
the proprietary rights of others.
Extensive Government Regulation; No Assurance of Regulatory Approval. The
Company is subject to extensive governmental regulatory requirements and a
lengthy approval process for its product candidates. The development and
commercial use of the Company's product candidates will be regulated by numerous
federal, state and local governmental authorities in the United States,
including the FDA and comparable foreign regulatory agencies abroad. The nature
of the Company's research and development and manufacturing processes requires
the use of hazardous substances and testing on certain laboratory animals.
Accordingly, the Company is subject to extensive federal, state and local laws,
rules, regulations and policies governing the use, generation, manufacture,
storage, air emission, effluent discharge, handling and disposal of certain
materials and wastes, as well as the use of and care for laboratory animals.
Although the Company believes it is in compliance with all such laws and
maintains policies and procedures to ensure that it remains in compliance, there
can be no assurance that accidents will not happen that would expose the Company
to legal risk and/or financial loss. Furthermore, there can be no assurance that
current laws will not be changed or that new laws will not be passed that force
the Company to change its policies and procedures, an event which could impose
significant costs on the Company.
<PAGE>
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 AngioMARK 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 AngioMARK 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.
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
December 31, 1998, the Company had accumulated net losses of approximately $28.4
million. These losses have resulted primarily from expenses associated with the
Company's research and development activities, including preclinical and
clinical trials, and general and administrative expenses. The Company
anticipates that its research and development expenses will increase
significantly in the future and it expects to incur substantial losses over at
least the next several years. There can be no assurance that the Company will
ever be able to generate revenues from the sale of products. Moreover, even if
the Company generates product revenues, there can be no assurance that the
Company will be able to achieve or sustain profitability. The Company's results
of operations have varied and will continue to vary significantly from quarter
to quarter and depend on, among other factors: the timing of fees and milestone
payments received from strategic partners; the formation of new strategic
alliances by the Company; the timing of expenditures in connection with research
and development activities, including clinical trials; the timing of product
introductions and associated launch, marketing and sales activities; and the
timing and extent of product acceptance for different indications and
geographical areas of the world.
<PAGE>
Future Capital Needs; Uncertainty of Additional Funding. Since inception, the
Company has funded its operations primarily through its public offerings of
Common Stock, private sales of equity securities, equipment lease financings and
license payments from its strategic partners. The Company believes that existing
cash and cash equivalents will be sufficient to fund its operations through the
first quarter of 2000. The Company believes that it will need to raise
substantial additional funds for research, development and other expenses,
through equity or debt financings, strategic alliances or otherwise, prior to
commercialization of any of its product candidates. The Company's future
liquidity and capital requirements will depend upon numerous factors, including
the following: the progress and scope of clinical trials; the timing and costs
of filing future regulatory submissions; the timing and costs required to
receive both United States and foreign governmental approvals; the cost of
filing, 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.
Limited Manufacturing Capability. The Company does not have, nor does it
currently have plans to develop, full-scale manufacturing capability for
AngioMARK. While it does manufacture small amounts of AngioMARK for research and
development efforts, the Company intends to rely on Mallinckrodt as the primary
manufacturer of AngioMARK for Phase III clinical trials as well as for any
future human clinical trials and commercial use. If Mallinckrodt is unable to
produce AngioMARK 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 AngioMARK.
There can be no assurance that the Company would be able to obtain such a
license on commercially reasonable terms, if at all.
Dependence on Suppliers. The Company currently procures the raw materials for
the various components of AngioMARK from a broad variety of vendors and,
wherever possible, maintains relationships with multiple vendors for each
component. There are a number of components of AngioMARK 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 AngioMARK available for sale
to the Company, it could have a material adverse effect on the Company's ability
to commercialize AngioMARK and on the Company's business, financial condition
and results of operations.
Potential Product Liability Exposure and Insurance. The clinical testing,
manufacturing and marketing of the Company's product candidates may expose the
Company to product liability claims, and there can be no assurance that the
Company will not experience material product liability losses in the future. The
Company currently has limited product liability insurance for the use of its
product candidates in clinical research, but there can be no assurance that such
coverage will continue to be available on terms acceptable to the Company or
that such coverage will be adequate for liabilities actually incurred. The
Company does not have product liability insurance coverage for the commercial
sale of its products but intends to obtain such coverage if and when its product
candidates are commercialized. However, there can be no assurance that the
Company will be able to obtain adequate additional product liability insurance
coverage on acceptable terms, if at all. A successful claim brought against the
Company in excess of available insurance coverage, or any claim or product
recall that results in significant adverse publicity against the Company, may
have a material adverse effect on the Company's business, financial condition
and results of operations.
<PAGE>
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.
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.
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 may be highly volatile.
The market price of the shares of the Company's 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 Company's 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.
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
Restated Certificate provides for staggered terms for the members of the Board
of Directors. A staggered Board of Directors and certain provisions of the
Company's By-laws (the "By-laws") and of Delaware law applicable to the Company
could delay or make more difficult a merger, tender offer or proxy contest
involving the Company. The Company, for example, 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.
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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF EPIX MEDICAL, INC. AS OF DECEMBER 31, 1998 AND FOR THE TWELVE MONTH
PERIOD ENDED DECEMBER 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 369,454
<SECURITIES> 28,731,747
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,618,902
<PP&E> 5,732,667
<DEPRECIATION> (2,871,390)
<TOTAL-ASSETS> 32,903,219
<CURRENT-LIABILITIES> 4,026,160
<BONDS> 771,647
0
0
<COMMON> 114,584
<OTHER-SE> 27,388,421
<TOTAL-LIABILITY-AND-EQUITY> 32,903,219
<SALES> 0
<TOTAL-REVENUES> 1,780,985
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 17,605,894
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,132
<INCOME-PRETAX> (13,998,229)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,998,229)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,998,229)
<EPS-PRIMARY> (1.23)
<EPS-DILUTED> (1.23)
</TABLE>
