<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
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
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EPIX MEDICAL, INC.
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(Exact name of Registrant as Specified in its Charter)
DELAWARE 04-3030815
- ---------------------------------------- -----------------------------------
(State or other jurisdiction of I.R.S. Employer Identification No.)
incorporation or organization)
71 ROGERS STREET
CAMBRIDGE, MASSACHUSETTS 02142
- ---------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 250-6000
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
----
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
--------------------------------------
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
As of November 8, 1999, 11,650,954 shares of the registrant's Common Stock,
$.01 par value per share, were issued and outstanding.
1
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EPIX MEDICAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited)
Balance Sheets--September 30, 1999 and December 31, 1998 3
Statements of Operations--Three Months and Nine Months Ended September 30, 1999 and 1998 4
Statements of Cash Flows--Nine Months Ended September 30, 1999 and 1998 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
2
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EPIX MEDICAL, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 76,606 $ 369,454
Available-for-sale marketable securities 16,534,232 28,731,747
Prepaid expenses and other current assets 480,038 517,701
------------- -------------
Total current assets 17,090,876 29,618,902
Property and equipment, net 2,247,546 2,861,277
Notes receivable from officer 351,091 335,888
Other assets 113,086 87,152
------------- -------------
Total assets $ 19,802,599 $ 32,903,219
============= =============
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable and accrued expenses $ 2,705,521 $ 2,681,137
Contract advances 134,494 611,038
Current portion of capital lease obligations 390,659 384,976
Current portion of note payable 385,045 349,009
------------- -------------
Total current liabilities 3,615,719 4,026,160
Capital lease obligations, less current portion 414,700 602,407
Note payable, less current portion 478,187 771,647
Common stock, $.01 par value, 15,000,000 shares authorized;
11,649,088 and 11,458,401 shares issued and outstanding at
September 30, 1999 and December 31, 1998, respectively 116,491 114,584
Additional paid-in capital 56,329,988 55,839,411
Loan to stock option holders (382,425) (123,119)
Accumulated deficit (40,737,851) (28,415,324)
Accumulated other comprehensive income (32,210) 87,453
------------- -------------
Total stockholders' equity 15,293,993 27,503,005
------------- -------------
Total liabilities and stockholders' equity $ 19,802,599 $ 32,903,219
============= =============
</TABLE>
See accompanying notes.
3
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EPIX MEDICAL, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues $ 70,480 $ 396,210 $ 624,299 $ 1,337,234
Operating expenses:
Research and development 3,785,555 3,725,960 10,503,522 9,690,492
General and administrative 1,106,759 1,098,488 3,238,800 2,964,842
----------- ----------- ------------ ------------
Total operating expenses 4,892,314 4,824,448 13,742,322 12,655,334
----------- ----------- ------------ ------------
Operating loss (4,821,834) (4,428,238) (13,118,023) (11,318,100)
Interest income 265,437 488,044 952,170 1,481,487
Interest expense (48,580) (16,337) (156,674) (44,094)
----------- ----------- ------------ ------------
Net loss $(4,604,977) $(3,956,531) $(12,322,527) $ (9,880,707)
=========== =========== ============ ============
Weighted average shares
Basic and diluted 11,608,707 11,383,296 11,522,763 11,324,294
=========== =========== ============ ============
Loss per common share
Basic and diluted $(0.40) $(0.35) $(1.07) $(0.87)
=========== =========== ============ ============
</TABLE>
See accompanying notes.
4
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EPIX MEDICAL, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Operating activities:
Net loss $ (12,322,527) $ (9,880,707)
Adjustments to reconcile net loss to cash used by operating
activities:
Depreciation and amortization 750,040 572,034
Stock compensation expense 98,956 86,408
Loss on sale of fixed assets 18,070 --
Change in operating assets and liabilities:
Prepaid expenses, other current assets, notes
receivable from officer and other assets (3,474) (253,783)
Contract advances (476,544) (338,641)
Accounts payable and accrued expenses 24,384 129,525
------------- -------------
Net cash used in operating activities (11,911,095) (9,685,164)
Investing activities:
Purchase of fixed assets (44,622) (954,585)
Proceeds from sale of fixed assets 45,000 --
Purchases of marketable securities (158,976,542) (348,572,981)
Proceeds from sales or redemptions of marketable securities 171,054,395 359,251,215
------------- -------------
Net cash provided by investing activities 12,078,231 9,723,649
Financing activities:
Repayment of capital lease obligations (336,784) (333,766)
Repayment of note payable (257,424) --
Proceeds from ESPP purchase 66,895 76,216
Proceeds from issuance of stock options and warrants 67,329 107,892
------------- -------------
Net cash used by financing activities (459,984) (149,658)
------------- -------------
Decrease in cash and cash equivalents (292,848) (111,173)
Cash and cash equivalents at beginning of period 369,454 1,455,657
------------- -------------
Cash and cash equivalents at end of period $ 76,606 $ 1,344,484
============= =============
Supplemental disclosure of noncash investing and financing activities:
Fixed assets acquired through lease financing $ 154,759 $ 610,618
============= =============
Issuance of stock option loan for exercise of stock options and
related interest $ 259,306 $ 121,424
============= =============
Supplemental cash flow information:
Cash paid for interest $ 156,674 $ 44,094
============= =============
</TABLE>
See accompanying notes.
5
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EPIX MEDICAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and the rules of the Securities
and Exchange Commission (the "Commission"). Accordingly, they do not include all
of the information and footnotes required to be presented for complete financial
statements. The accompanying condensed financial statements reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the results for the
interim periods presented. The results of the interim period ended September 30,
1999 are not necessarily indicative of the results expected for the full fiscal
year.
The condensed financial statements and related disclosures have been
prepared with the assumption that users of the interim financial statements have
read or have access to the audited financial statements for the preceding fiscal
year. Accordingly, these condensed financial statements should be read in
conjunction with the audited financial statements and the related notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1998.
2. TRANSITION FROM A DEVELOPMENT STAGE ENTERPRISE TO AN ESTABLISHED OPERATING
ENTERPRISE
During March 1999, the Company met with the Food and Drug Administration
("FDA") to discuss the proposed protocol application to initiate a Phase III
clinical trial for aortoiliac occlusive disease ("AIOD"). The Company began this
trial in June 1999.
The Company considers this event an important milestone and believes that
the progression from Phase II to Phase III for AIOD during 1999 warrants the
transition from a development stage enterprise, as defined by Financial
Standards No. 7, "Accounting and Reporting by Development Stage Enterprises"
("SFAS 7") issued by the Financial Accounting Standard Board ("FASB"), to an
established operating enterprise. Consequently, cumulative amounts and other
additional disclosures required by SFAS 7 have not been provided.
3. COMPREHENSIVE INCOME
Financial Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130")
requires unrealized gains or losses on the Company's available-for-sale
securities to be included in other comprehensive income. Total comprehensive
income (loss) for the quarter ended September 30, 1999 amounted to ($11,978)
compared to $127,356 in the same period in 1998. Total comprehensive income
(loss) for the nine months ended September 30, 1999 amounted to ($119,662)
compared to $131,477 in the same period in 1998.
6
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4. EARNINGS (LOSS) PER SHARE
The Company computes earnings (loss) per share in accordance with the
provisions of SFAS No. 128, "Earnings per Share." Basic net earnings (loss) 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. Diluted net earnings (loss) per share includes the effect of
dilutive potential common stock issuable upon exercise of stock options using
the treasury stock method. In computing diluted earnings (loss) per share, only
potential common shares that are dilutive, those that reduce earnings per share,
are included. The exercise of options is not assumed if the result is
antidilutive, such as when a loss from continuing operations is reported. The
following table sets forth the computation of basic and diluted loss per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------------- ---------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Numerator:
Net loss $(4,604,977) $(3,956,531) $(12,322,527) $(9,880,707)
----------- ----------- ------------ -----------
Numerator for basic and diluted loss per share $(4,604,977) $(3,956,531) $(12,322,527) $(9,880,707)
Denominator:
Denominator for basic and diluted loss per
share--weighted average shares 11,608,707 11,383,296 11,522,763 11,324,294
=========== =========== ============ ===========
Basic and diluted loss per share $(0.40) $(0.35) $(1.07) $(0.87)
</TABLE>
5. RELATED PARTY TRANSACTION
During June 1999, the Company received a promissory note with 25% recourse
from an executive officer of the Company pursuant to an employee stock option
financing program available to all employees of the Company. The promissory note
is secured by shares of common stock of the Company equal in value, at the time
of the transaction, to approximately 150% of the amount of the promissory note.
The proceeds from the executive loan evidenced by this promissory note were used
to exercise certain stock options held by the executive officer. The difference
between the exercise price and the fair market value of the stock, less 25%
related to the recourse stipulation, was recorded as stock compensation expense
during the second quarter of 1999. The loan amount plus accrued interest was
recorded as a loan to stock option holders in the financial statements. This
transaction is summarized below:
<TABLE>
<CAPTION>
SHARES OF COMPANY COMMON STOCK
INTEREST PROVIDED AS
DATE OF NOTE TERM AMOUNT RATE COLLATERAL
------------ ---------- --------- -------- ------------------------------
<S> <C> <C> <C> <C>
June 3, 1999 60 months $249,993 5.25% 55,554
</TABLE>
6. AMENDMENT TO AMENDED AND RESTATED 1992 EQUITY INCENTIVE PLAN
("THE EQUITY PLAN")
In September 1999, the Board of Directors voted, subject to shareholder
approval, to amend the Equity Plan to increase the aggregate number of shares
of Common Stock available thereunder by an additional 550,000 shares to an
aggregate of 3,149,901 shares, subject to adjustment for stock-splits and
similar capital changes. On September 15, 1999, the Company granted 530,050
of the 550,000 shares of Common Stock as non-statutory stock options to
employees of the Company in order to retain key employees and to enable them
to participate in the long-term growth of the Company.
7
<PAGE>
7. SUBSEQUENT EVENT
In October 1999, the Company entered into a Non-Negotiable Promissory
Note and Security Agreement (the "Loan") with Mallinckrodt, Inc.
("Mallinckrodt"), pursuant to which the Company is eligible to borrow up to
$9.5 million from Mallinckrodt, on a quarterly basis, to cover EPIX's share
of AngioMARK development costs. The Loan bears interest, adjustable on a
quarterly basis, at the Prime Rate published in the Wall Street Journal. The
Loan shall be repayable in full on the earliest to occur of (i) October 1,
2002 (ii) thirty days after the date of the First Commercial Sale of Licensed
Product in the Territory (as such terms are defined in the Company's
Strategic Collaboration Agreement with Mallinckrodt dated August 30, 1996, as
amended (the "Strategic Collaboration Agreement")) and (iii) thirty days
after the first date upon which the Company could reasonably repay all
outstanding principal and interest on the Loan without creating any
reasonably foreseeable risk that the Company would be otherwise entitled to
receive a loan from Mallinckrodt under the existing terms of the Strategic
Collaboration Agreement within six months of the date of any such repayment.
The Loan is secured by a first priority security interest in all of the
Company's intellectual property. The Company believes that the Loan will not
be repaid in the next twelve months. Accordingly, the Company will recognize
the Loan as a long-term obligation as proceeds from the Loan are received by
the Company.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Since commencing operations in 1992, the Company has been engaged
principally in the research and development of its product candidates as well as
seeking various regulatory clearances and patent protection. The Company has had
no revenues from product sales and has incurred losses from inception through
September 30, 1999, in the aggregate amount of approximately $40.7 million. The
Company has received revenues in connection with various licensing and
collaboration agreements. In August 1996, the Company entered into a strategic
alliance with Mallinckrodt Inc. ("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 Radioisotope
Laboratories, Ltd. ("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 and development and to obtain
regulatory approvals.
The Company's initial product candidate, AngioMARK (MS-325), is currently
the Company's only product candidate undergoing human clinical trials. The
Company filed an investigational new drug ("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 magnetic resonance angiography
("MRA") for the evaluation of AIOD and is currently conducting a Phase II
feasibility trial to test the safety and feasibility of AngioMARK-enhanced MRA
for the evaluation of coronary artery disease ("CAD"). In December 1998, the
Company filed a proposed protocol application with the FDA to initiate a Phase
III clinical trial for AIOD. During March 1999, the Company met with the FDA to
discuss the proposed protocol application to initiate a Phase III clinical trial
for AIOD. The Company initiated a Phase III clinical trial for AIOD in June
1999. 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 THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUES. Third quarter revenues were approximately $70,000 and $396,000 in
1999 and 1998, respectively, and in both periods included revenues derived
from product development contracts. Revenues for the third quarter of 1998
included $331,000 associated with the manufacture of material under an
existing product development contract with Daiichi, the Company's Japanese
partner.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
three months ended September 30, 1999 were $3.8 million as compared to $3.7
million for the three months ended September 30, 1998. The increased research
and development expenses were primarily due to higher than expected
manufacturing costs of material to be provided to Daiichi. However, these
research and development manufacturing costs were partially offset by lower
clinical trial costs.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the
three months ended September 30, 1999 and the corresponding period of 1998 were
$1.1 million. Third quarter of 1999 general and administrative expenses
increased slightly over the third quarter of 1998 primarily due to higher legal
costs associated with ongoing patent activities, but were partially offset by
lower compensation and recruiting costs.
INTEREST INCOME AND EXPENSE. Net interest income decreased approximately
$254,000 in the third quarter of 1999 as compared to the third quarter of 1998
mainly due to lower average levels of invested cash during the third quarter of
1999.
Cash, cash equivalents and marketable securities at September 30, 1999 totaled
$16.6 million.
9
<PAGE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUES. Revenues for the nine months ended September 30, 1999 and September
30, 1998 were approximately $624,000 and $1,337,000, respectively, and in
both periods included revenues derived from product development contracts.
Revenues for the nine months ended September 30, 1998 included $331,000
associated with the manufacture of material under an existing product
development contract with Daiichi. The decreased revenues were also due to
the timing of work performed under other product development contracts.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
nine months ended September 30, 1999 were $10.5 million as compared to $9.7
million for the nine months ended September 30, 1998. The increased research and
development expenses were primarily due to additional personnel and resources to
support further development of the Company's core technology. Higher than
expected manufacturing costs of material to be provided to the Company's
Japanese partner, Daiichi, also contributed to the increase. However, these
increased research and development costs were partially offset by lower clinical
trial costs.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the
nine months ended September 30, 1999 were $3.2 million as compared to $3.0
million for the corresponding period of 1998. The increase was primarily due to
higher legal costs associated with ongoing patent activities.
INTEREST INCOME AND EXPENSE. Net interest income decreased approximately
$642,000 in the nine months ended September 30, 1999 as compared to the nine
months ended September 30, 1998 mainly due to lower average levels of invested
cash during the nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations from inception through September
30, 1999 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, $2.6 million of
equipment lease financing and $4.8 million in interest income.
The Company's principal source of liquidity consists of cash, cash
equivalents and marketable securities, which totaled $16.6 million at September
30, 1999, as compared to $29.1 million at December 31, 1998.
In October 1999, the Company entered into a Non-Negotiable Promissory
Note and Security Agreement (the "Loan") with Mallinckrodt, pursuant to which
the Company is eligible to borrow up to $9.5 million from Mallinckrodt, on a
quarterly basis, to cover EPIX's share of AngioMARK development costs. The
Loan bears interest, adjustable on a quarterly basis, at the Prime Rate
published in the Wall Street Journal. The Loan shall be repayable in full on
the earliest to occur of (i) October 1, 2002 (ii) thirty days after the date
of the First Commercial Sale of Licensed Product in the Territory (as such
terms are defined in the Company's Strategic Collaboration Agreement with
Mallinckrodt dated August 30, 1996, as amended (the "Strategic Collaboration
Agreement")) and (iii) thirty days after the first date upon which the
Company could reasonably repay all outstanding principal and interest on the
Loan without creating any reasonably foreseeable risk that the Company would
be otherwise entitled to receive a loan from Mallinckrodt under the existing
terms of the Strategic Collaboration Agreement within six months of the date
of any such repayment. The Loan is secured by a first priority security
interest in all of the Company's intellectual property. The Company believes
that the Loan will not be repaid in the next twelve months. Accordingly, the
Company will recognize the Loan as a long-term obligation as proceeds from
the Loan are received by the Company.
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 nine months ended September 30, 1999, the Company used
approximately $11.9 million of cash for operating activities. The Company
expects that its cash needs for operations will increase in future periods due
to planned clinical trials and other expenses associated with the development of
AngioMARK and new research and development programs.
10
<PAGE>
The Company estimates that existing cash, cash equivalents, marketable
securities and the Loan from Mallinckrodt will be sufficient to fund its
operations through the first quarter of 2001. 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. The Company cannot guarantee
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. The Company's current lease agreement for its
principal scientific facilities expires on December 31, 2002. In April 1999, the
Company secured an additional option to extend the term of the lease for an
additional three or five year period. The Company also has a lease for nearby
office space. In June 1999, the Company exercised its option to extend the term
of this lease for an additional three year period ending December 31, 2002.
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.
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 conducted both internal and external reviews to address the
Year 2000 issue. Internally, the Company reviewed information technology ("IT")
systems, and non-IT systems such as scientific instruments and other electronic
devices that could be affected by this issue. The inventory and assessment of IT
systems, scientific instruments, and material third parties has been completed.
The Company utilized both internal and external resources to reprogram, or
replace, and test the software and systems for Year 2000 modifications. The
Company completed remediation efforts and the validation phase during the third
quarter of 1999. If any of the Company's business partners do not, or if the
Company itself did 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. The inability of the Company's
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'S COSTS OF YEAR 2000 REMEDIATION
The total cost to achieve Year 2000 compliance was less than $50,000.
Such costs included direct and indirect costs incurred through monitoring and
managing the Year 2000 issue. Direct costs included charges by third-party
software and hardware vendors for product enhancements and costs involved in
testing software products for Year 2000. Indirect costs principally consisted
of the time devoted by existing employees in monitoring software vendor
progress and testing enhanced software products.
11
<PAGE>
THE COMPANY'S CONTINGENCY PLANS
At this time the Company believes that contingency plans are not necessary;
however, some risks of the Year 2000 issue are beyond the control of the Company
and its business partners.
FORWARD-LOOKING STATEMENTS
The discussion included in this section as well as elsewhere in the
Quarterly Report on Form 10-Q contains forward-looking statements based on the
current expectations of the Company's management. Such statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those projected. See "Important Factors Regarding Forward-Looking
Statements" attached as Exhibit 99.1 and incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1998 as
previously filed with the Commission. Readers are cautioned not to place undue
reliance on the forward-looking statements which speak only as of the date
thereof. The Company undertakes no obligation to release publicly the result of
any revisions to these forward-looking statements which may be made to reflect
events or circumstances occurring after the date hereof or to reflect the
occurrence of unanticipated events.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27.1 Financial Data Schedule for the interim year-to date period ended
September 30, 1999 (for electronic filing only).
99.1 Important Factors Regarding Forward-Looking Statements filed
as Exhibit 99.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 and incorporated herein
by reference.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended September 30, 1999.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
EPIX Medical, Inc.
Date: November 15, 1999 By: /s/ Pamela E. Carey
-------------------
Pamela E. Carey
Director of Finance and Treasurer
(Principal Financial Officer and
Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION
- ------ -----------
27.1 Financial data schedule for the interim year-to-date period ended
September 30, 1999 (for electronic filing only).
99.1 Important Factors Regarding Forward-Looking Statements filed as
Exhibit 99.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 and incorporated herein by reference.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET OF EPIX MEDICAL, INC. AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 76,606
<SECURITIES> 16,534,232
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,090,876
<PP&E> 4,411,614
<DEPRECIATION> (2,164,068)
<TOTAL-ASSETS> 19,802,599
<CURRENT-LIABILITIES> 3,615,718
<BONDS> 478,187
0
0
<COMMON> 116,491
<OTHER-SE> 56,329,988
<TOTAL-LIABILITY-AND-EQUITY> 19,802,599
<SALES> 0
<TOTAL-REVENUES> 624,299
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 13,742,322
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 156,674
<INCOME-PRETAX> (12,322,527)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,322,527)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,322,527)
<EPS-BASIC> (1.07)
<EPS-DILUTED> (1.07)
</TABLE>
