SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
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
----
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 ___
As of May 10, 2001, 14,048,522 shares of the registrant's Common Stock,
$.01 par value per share, were issued and outstanding.
EPIX MEDICAL, INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited)
Condensed Balance Sheets--March 31, 2001 and December 31, 2000 3
Condensed Statements of Operations--Three Months Ended March 31, 2001 and 2000 4
Condensed Statements of Cash Flows--Three Months Ended March 31, 2001 and 2000 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosure about Market Risk 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
EPIX MEDICAL, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
2001 2000
--------------------- --------------------
Assets:
Current assets:
Cash and cash equivalents $ 2,925,628 $ 402,621
Available-for-sale marketable securities 23,680,495 24,310,253
Due from strategic partner - 3,000,000
Prepaid expenses and other current assets 545,394 371,318
--------------------- ------------------
Total current assets 27,151,517 28,084,192
Property and equipment, net 1,385,392 1,461,443
Other assets 134,547 134,952
--------------------- ------------------
Total assets $ 28,671,456 $ 29,680,587
===================== ==================
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $ 1,418,702 $ 1,800,046
Accrued expenses 4,247,272 3,677,833
Contract advances 3,394,176 2,462,340
Accrued reacquisition costs - 2,800,000
Current portion of capital lease obligations 253,115 259,308
Current portion of note payable 338,213 373,783
Deferred revenue 1,690,909 1,690,909
--------------------- ------------------
Total current liabilities 11,342,387 13,064,219
Capital lease obligations, less current portion - 64,440
Accrued reacquisition costs, less current portion 2,400,000 2,400,000
Loan payable to strategic partner 3,004,607 3,004,607
Deferred revenue 4,159,091 4,581,818
Stockholders' equity:
Common stock, $.01 par value, 40,000,000 shares authorized; 13,816,173
and 13,203,991 shares issued and outstanding at March 31, 2001 and
December 31, 2000, respectively 138,162 132,040
Additional paid-in capital 85,355,337 79,144,912
Stock subscriptions receivable (65,000) -
Accumulated deficit (77,689,106) (72,718,720)
Other comprehensive income 25,978 7,271
--------------------- ------------------
Total stockholders' equity 7,765,371 6,565,503
--------------------- ------------------
Total liabilities and stockholders' equity $ 28,671,456 $ 29,680,587
===================== ==================
See accompanying notes.
3
EPIX MEDICAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2000
--------------------------- ---------------------------
Revenues $ 1,731,673 $ 1,132,127
Operating expenses:
Research and development 5,322,031 5,050,906
General and administrative 1,586,835 1,042,083
--------------------------- ---------------------------
Total operating expenses 6,908,866 6,092,989
--------------------------- ---------------------------
Operating loss (5,177,193) (4,960,862)
Interest income 361,677 168,964
Interest expense (154,870) (95,960)
--------------------------- ---------------------------
Loss before cumulative effect of
change in accounting principle $ (4,970,386) $ (4,887,858)
Cumulative effect of change in
accounting principle - (4,363,636)
--------------------------- ---------------------------
Net loss $ (4,970,386) $ (9,251,494)
=========================== ===========================
Weighted average shares--basic and diluted 13,638,913 11,720,515
Net loss per share, basic and diluted:
Loss before cumulative effect of
change in accounting principle $ (0.36) $ (0.42)
Cumulative effect of change in
accounting principle - (0.37)
--------------------------- ---------------------------
Net loss $ (0.36) $ (0.79)
=========================== ===========================
See accompanying notes.
4
EPIX MEDICAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2000
--------------------------- ---------------------------
Operating activities:
Net loss $ (4,970,386) $ (9,251,494)
Adjustments to reconcile net loss to cash used by operating
activities:
Cumulative effect of change in accounting principle - 4,363,636
Depreciation and amortization 205,425 247,605
Interest income related to stock option loans - (3,953)
Change in operating assets and liabilities:
Due from strategic partner 3,000,000 -
Prepaid expenses and other assets (173,671) (356,667)
Accounts payable (381,345) 17,695
Accrued expenses 569,439 97,630
Contract advances 931,836 -
Payment of reacquisition costs (2,800,000) -
Deferred revenue (422,727) (272,727)
--------------------------- --------------------------
Net cash used by operating activities (4,041,429) (5,158,275)
Investing activities:
Purchase of fixed assets (129,374) (14,412)
Purchases of marketable securities (84,883,535) (5,160,344)
Proceeds from sales or redemptions of marketable securities 85,532,000 9,950,660
--------------------------- --------------------------
Net cash provided by investing activities 519,091 4,775,904
Financing activities:
Proceeds from collection of stock option loan and related
interest - 130,566
Proceeds from issuance of loan payable to strategic partner - 1,214,089
Repayment of capital lease obligations (70,633) (103,750)
Repayment of note payable (35,569) (94,634)
Proceeds from issuance of shares to Acqua Wellington 6,119,218 -
Proceeds from issuance of stock options and warrants 32,329 370,466
--------------------------- --------------------------
Net cash provided by financing activities 6,045,345 1,516,737
--------------------------- --------------------------
Increase in cash and cash equivalents 2,523,007 1,516,737
Cash and cash equivalents at beginning of period 402,621 430,124
--------------------------- --------------------------
Cash and cash equivalents at end of period $ 2,925,628 $ 1,564,490
=========================== ==========================
Supplemental disclosure of noncash investing
and financing activities:
Stock subscription receivable $ 65,000 -
=========================== ==========================
Supplemental cash flow information:
Cash paid for interest $ 212,077 $ 95,960
=========================== ==========================
See accompanying notes.
5
EPIX MEDICAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited condensed financial statements have been prepared in accordance
with accounting principles generally accepted in the United States 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 March 31, 2001 are not necessarily indicative of the results expected for
the full fiscal year.
The operating results for the quarter ended March 31, 2000 reflect the adoption
of Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101") in 2000, retroactive to January 1, which resulted in a
cumulative effect of change in accounting principle of $4.4 million or $0.37 per
share.
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, 2000.
2. 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
loss for the quarter ended March 31, 2001 amounted to $4,951,679 compared to
$9,248,688 in the same period in 2000.
3. DERIVATIVES AND HEDGING ACTIVITIES
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), SFAS 133, as
amended by SFAS 137, 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.
Effective January 1, 2000, the Company adopted SFAS No. 133. The adoption of
this new statement of accounting standard did not have a significant effect on
the Company's financial position or result of operations.
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 or 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 is reported. Accordingly, basic and diluted
net loss per share is the same for all periods presented.
6
5. SUBSEQUENT EVENTS
Subsequent to March 31, 2001, the Company issued 20,636, 31,110, and 181,629
shares of common stock to Acqua Wellington North American Equities Fund Ltd.
("Acqua Wellington") in the draw down periods ending April 5, 2001, April 20,
2001 and May 08, 2001, respectively, for a total of 233,375 shares of common
stock providing additional net proceeds of $1,929,927. Of the 20,636 shares
issued in the draw down period ending April 5, 2001, 6,845 shares valued at
$65,000 were subscribed to by Acqua Wellington during the quarter ending
March 31, 2001 and are recorded as stock subscriptions receivable on the
accompanying Balance Sheet.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Since commencing operations in 1992, we have been engaged principally in the
research and development of our product candidates as well as seeking various
regulatory clearances and patent protection. We have had no revenues from
product sales and have incurred losses since inception through March 31, 2001
aggregating approximately $77.7 million.
We have received revenues in connection with various licensing and collaboration
agreements. In June 2000, we entered into a strategic collaboration agreement
pursuant to which we granted Schering AG an exclusive license to co-develop and
market MS-325 worldwide, exclusive of Japan, and amended our strategic
collaboration with Mallinckrodt, Inc ("Mallinckrodt") to enable us to enter into
the strategic collaboration agreement with Schering AG, as well as to grant
Mallinckrodt a non-exclusive, worldwide license to manufacture MS-325 for
clinical development and commercial use. In December 2000, we reacquired the
rights to develop and commercialize MS-325 in Japan from Daiichi Radioisotope
Laboratories, Ltd. ("Daiichi") and simultaneously amended our strategic
collaboration agreement with Schering AG to grant Schering AG exclusive rights
to develop and market MS-325 in Japan. In connection with the strategic
collaboration agreement entered into with Schering AG and the amendment to the
strategic collaboration with Mallinckrodt, Schering AG paid us an up-front fee
of $10.0 million, which we then paid to Mallinckrodt. Schering AG also made a
$20.0 million equity investment in us at $17.98 per share of common stock,
through its affiliate, Schering Berlin Venture Corporation ("Schering BV"). We
may receive up to an additional $20.0 million in milestone payments under the
strategic collaboration agreement with Schering AG and may be required to pay up
to an additional $5.0 million in milestones to Mallinckrodt pursuant to the
terms of the amended Mallinckrodt agreement. Under the terms of the December
2000 amendment with Schering, Schering AG paid us an up-front fee of $3.0
million and may be required to pay us an additional $7.0 million upon our
achievement of certain milestones. Under the terms of the reacquisition
agreement with Daiichi, we agreed to pay Daiichi a total of $5.2 million. In
January 2001, we paid Daiichi $2.8 million in fees and we will pay an additional
$2.4 million in the future.
We expect continued operating losses for the next several years as we incur
expenses to support research, development and efforts to obtain regulatory
approvals.
Our initial product candidate, MS-325, is currently our only product candidate
undergoing human clinical trials. We filed an investigational new drug
application for MS-325 in July 1996. We initiated a Phase I clinical trial in
1996 and a Phase I dose escalation study in 1997, both of which have been
completed. We completed a Phase II clinical trial in June 1998 to test the
safety and preliminary efficacy of MS-325-enhanced magnetic resonance
angiography or MRA for the evaluation of peripheral vascular disease and are
currently conducting a Phase II feasibility trial to test the safety and
feasibility of MS-325-enhanced MRA for the evaluation of coronary artery
disease. In June 1999, we initiated a Phase III clinical trial to determine the
efficacy of MS-325-enhanced MRA for the detection of aortoiliac occlusive
disease. In addition, in March 2000, we completed enrollment in a Phase II
clinical trial to test the safety and feasibility of MS-325 for detecting breast
cancer. In March 2001, we completed enrollment in a Phase II feasibility trial
which we conducted in collaboration with Pfizer, Inc. to explore the efficacy of
MS-325 enhanced magnetic resonance imaging in the diagnosis of female sexual
arousal dysfunction.
We anticipate fluctuations in our 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 us; the timing
of expenditures in connection with research and development activities; the
timing of product introductions and associated launch, marketing and sales
activities; and the timing and extent of product acceptance for different
indications and geographical areas of the world.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2001 AND 2000
The net loss for the first quarter of 2000 reflects our adoption of SEC Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"), retroactively to January 1, 2000, changing our method of recognizing
revenue. In the first quarter of 2000, in accordance with the adoption of SAB
101, we recorded a cumulative effect of change in accounting principle in the
7
amount of $4.4 million. Included in both 2001 and 2000 first quarter revenues is
$0.3 million of revenue that was recognized in prior years relating to the
adoption of SAB 101.
REVENUES. First quarter revenues were approximately $1.7 million and $1.1
million in 2001 and 2000, respectively, and were derived from product
development contracts with Schering AG in the first quarter of 2001 and
Mallinckrodt in the first quarter of 2000. The increase in revenues during the
first quarter of 2001 was due to the impact of development funding terms under
our strategic collaboration agreement with Schering AG and revenue earned
pursuant to a license fee paid to us by Schering for the marketing rights to
MS-325 in Japan.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
three months ended March 31, 2001 were $5.3 million as compared to $5.1 million
for the three months ended March 31, 2000. The increase was primarily due to the
effect of the funding development terms under the agreement entered into with
Schering AG, and increased costs for personnel and resources to support research
and development of our thrombus imaging program. These increased costs were
partially offset by the absence of manufacturing costs related to our agreement
with Daiichi for the development of MS-325 in Japan, which was terminated in
December 2000. The manufacturing costs will now be incurred by Schering AG,
pursuant to the December 2000 amendment to our strategic agreement.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the
three months ended March 31, 2001 were $1.6 million as compared to $1.0 million
for the three months ended March 31, 2000. The increase was primarily due to
increased legal costs associated with ongoing patent and general corporate
activities.
INTEREST INCOME AND EXPENSE. Interest income increased approximately $0.2
million in the first quarter of 2001 as compared to the first quarter of 2000
mainly due to higher average levels of invested cash, cash equivalents and
marketable securities in the first quarter of 2001. The increase in interest
expense of approximately $59,000 in the first quarter of 2001 was associated
with the loan payable to Mallinckrodt.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity consist of cash, cash equivalents and
marketable debt securities, which totaled $26.6 million at March 31, 2001, as
compared to $24.7 at December 31, 2000.
In June 2000, we entered into a strategic collaboration agreement pursuant to
which we granted Schering AG an exclusive license to co-develop and market
MS-325 worldwide, exclusive of Japan. In December 2000, we amended this
strategic collaboration agreement to grant to Schering AG the exclusive rights
to develop and market MS-325 in Japan. In connection with this strategic
collaboration agreement and in connection with the amendment to the strategic
collaboration agreement between us and Mallinckrodt, as further described below,
Schering AG paid us an up-front fee of $10.0 million, which we then paid to
Mallinckrodt. Schering AG also made a $20.0 million dollar equity investment in
us at $17.98 per share of common stock, through its affiliate, Schering BV. In
return for their investment, we issued 1,112,075 shares of our common stock to
Schering BV. We may receive up to an additional $20.0 million in milestone
payments under the strategic collaboration agreement. Under the terms of the
December 2000 amendment, Schering AG paid us an up-front fee of $3.0 million and
may be required to pay us an additional $7.0 million upon our achievement of
certain milestones.
In June 2000, in connection with the exclusive license that we granted to
Schering AG, we amended our strategic collaboration with Mallinckrodt to grant
Mallinckrodt a non-exclusive, worldwide license to manufacture MS-325 for
clinical development and commercial use in accordance with a manufacturing
agreement entered into in June 2000 between Mallinckrodt and Schering AG, and to
enable us to enter into the strategic collaboration agreement with Schering AG
described above. In connection with this amendment, we paid Mallinckrodt an
up-front fee of $10.0 million and may be required to pay up to an additional
$5.0 million in milestones. We will pay Mallinckrodt a share of operating
margins in the US and a royalty on gross profits outside the US on sales of
MS-325.
In October 1999, we entered into a Non-Negotiable Promissory Note and Security
Agreement (the "Loan") with Mallinckrodt under which we were eligible to borrow
our share of development costs, on a quarterly basis, up to a total of $9.5
million. In June 2000, pursuant to the amended collaboration agreement with
Mallinckrodt and the new strategic collaboration with Schering AG, Schering AG
assumed the development cost sharing obligation for MS-325 from Mallinckrodt as
of January 1, 2000. As a result, the terms of the Loan were amended to allow
funding under the Loan for our portion of development costs through December 31,
1999. The Loan balance at December 31, 2000 of $3,004,607 represented our share
of third and fourth quarter 1999 MS-325 development costs. No additional funding
is available to us under the Loan. The Loan bears interest, adjustable on a
quarterly basis, at the Prime Rate published in the Wall Street Journal and is
repayable in full on October 1, 2002. The Loan is secured by a first priority
security interest in all of the Company's intellectual property.
8
In March 1996, we entered into a development and license agreement with Daiichi
pursuant to which we granted Daiichi an exclusive license to develop and
commercialize MS-325 in Japan. Under this arrangement, Daiichi assumed primary
responsibility for clinical development, regulatory approval, marketing and
distribution of MS-325 in Japan. We retained the right and obligation to
manufacture MS-325 for development activities and commercial sale under the
agreement. In December 2000, we reacquired the rights to develop and
commercialize MS-325 in Japan from Daiichi. Under the terms of this
Reacquisition Agreement, we agreed to pay Daiichi a total of $5.2 million. In
January 2001, we paid Daiichi $2.8 million in fees and we will pay an additional
$2.4 million in the future. Daiichi will also receive a royalty from us on net
sales of MS-325 in Japan. Simultaneously with our reacquisition from Daiichi of
the MS-325 development and marketing rights in Japan, we assigned these rights
to Schering AG as described above.
During the quarter ended March 31, 2001, we used approximately $4.0 million of
cash for operating activities. We expect that our cash needs for operations will
increase significantly in future periods due to planned clinical trials and
other expenses associated with the development of MS-325, continued research and
development activities of our thrombus imaging program and other new research
and development programs.
In September 2000, we entered into an agreement with Acqua Wellington North
American Equities Fund Ltd. ("Acqua Wellington") for an equity financing
facility covering the sale of up to $45 million of our common stock over a 28
month period. These shares may be sold at our discretion at a small discount to
the market price of our shares at the time of the sale. The total amount of the
investment is dependent, in part, on our stock price, with us controlling the
amount and timing of the stock sold. We have received $8,934,543 to date in net
proceeds from Acqua Wellington under this facility, $1,929,927 of which we
received subsequent to March 31, 2001.
We estimate that existing cash, cash equivalents and marketable securities, as
well as our equity financing facility with Acqua Wellington, will be sufficient
to fund our operations through the first quarter of 2004. We believe that we
will need to raise additional funds for research, development and other expenses
through equity or debt financing, strategic alliances or otherwise, in order to
achieve commercial introduction of any of our product candidates. Our 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 our products gain market
acceptance; the timing and costs of product introductions; the extent of our
ongoing research and development programs; the costs of training physicians to
become proficient with the use of our products; and, if necessary, once
regulatory approvals are received, the costs of developing marketing and
distribution capabilities.
Because of anticipated spending to support development of MS-325 and new
research programs, we do not expect positive cash flow from operating activities
for any future quarterly or annual period prior to commercialization of MS-325.
We anticipate continued investments in fixed assets, including equipment and
facilities expansion to support new and continuing research and development
programs. We have in place a lease agreement that will enable us to utilize our
current principal scientific facilities through December 31, 2002, and we have
an option to extend the lease for an additional three or five years. We also
have a lease for nearby office space, which expires in December 2002.
We have incurred tax losses to date and therefore have not paid significant
federal or state income taxes since inception. At December 31, 2000, we had loss
carryforwards of approximately $59.0 million available to offset future taxable
income. These amounts expire at various times through 2020. As a result of
ownership changes resulting from sales of equity securities, our 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"). We currently
estimate that the annual limitation on our 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. We also are 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.
We do not believe that inflation has had a material impact on our operations.
FORWARD-LOOKING STATEMENTS
The discussion included in this section as well as elsewhere in this Quarterly
Report on Form 10-Q contains forward-looking statements based on our current
expectations. Such statements are subject to risks and uncertainties that 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 our Annual Report on Form 10-K for the year
ended December 31, 2000 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. We undertake no obligation to release
publicly the result of any revisions to these forward-looking statements which
may be made to reflect events or circumstances occurring after the date hereof
or to reflect the occurrence of unanticipated events.
9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We invest our 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.
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, our future investment income may fall short of
expectations due to changes in interest rates or we 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 100 basis point increase or
decrease in interest rates, however, would not have a material adverse effect on
our financial condition. The weighted-average interest rate and weighted-average
remaining maturity of marketable securities at March 31, 2001 was 4.64% and
approximately 1-1/4 months, respectively. The fair market value of securities
held at March 31, 2001 was $23,680,495.
The interest rate on our note payable to Mallinckrodt is adjustable on a
quarterly basis and therefore subjects the Company to interest rate risk.
However, based on the outstanding loan balance of $3,004,607 at March 31, 2001,
a 100 basis point increase in interest rates would not result in a significant
increase in the Company's annual interest expense.
The interest rates on our capital lease obligations are fixed and therefore not
subject to interest rate risk.
10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
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, 2000 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 March 31, 2001.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
EPIX Medical, Inc.
Date: May 15, 2001 By: /s/ PAMELA E. CAREY
-------------------
Pamela E. Carey
Vice President of Finance and
Administration, Chief Financial
Officer (Principal Financial
Officer and Accounting Officer)
12