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.
                               ------------------
             (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
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      (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
                                              ---

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.
<PAGE>


                                     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.


                                       8
<PAGE>


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.


                                       9
<PAGE>


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.


                                       10
<PAGE>


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.


                                       11
<PAGE>


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.


                                       12
<PAGE>


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.


                                       13
<PAGE>


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.


                                       14
<PAGE>


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.