##### Table of Contents









U.S. SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|           |  | For the fiscal year ended December 31, 2005                                                 
|           |  | or                                                                                          
|          
|o          |  | 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 PHARMACEUTICALS, INC.


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 04-3030815                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)
|161 First Street, Cambridge, Massachusetts                         |  | 02142                                   
|(Address of principal executive offices)                           |  | (Zip Code)                              

Registrants telephone number, including area code:


(617) 250-6000


Securities registered pursuant to Section 12(b) of the
Exchange Act:


NONE


Securities registered pursuant to Section 12(g) of the
Exchange Act:


Common Stock, $.01 Par Value Per Share


(Title of class)


o þ


o þ


þ o


S-K 10-K 10-K. þ


12b-2


o þ o


12b-2 o þ






DOCUMENTS INCORPORATED BY REFERENCE


10-K: 10-K










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TABLE OF CONTENTS



|                                                        |                                                                                                                      |                          |  |  |  |  |  | 
|------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | ------------------------ |  |  |  |  |  | 
|PART I                                                 
|                                                        | ITEM 1. BUSINESS                                                                                                    
|                                                        | ITEM 1A. RISK FACTORS                                                                                               
|                                                        | ITEM 1B. UNRESOLVED STAFF COMMENTS                                                                                  
|                                                        | ITEM 2. PROPERTIES                                                                                                  
|                                                        | ITEM 3. LEGAL PROCEEDINGS                                                                                           
|                                                        | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                         
|PART II                                                
|                                                        | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|                                                        | ITEM 6. SELECTED FINANCIAL DATA                                                                                     
|                                                        | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                       
|                                                        | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                 
|                                                        | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                 
|                                                        | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                        
|                                                        | Item 9A. CONTROLS AND PROCEDURES                                                                                    
|                                                        | Item 9B. OTHER INFORMATION                                                                                          
|PART III                                               
|                                                        | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                         
|                                                        | ITEM 11. EXECUTIVE COMPENSATION                                                                                     
|                                                        | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS             
|                                                        | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                             
|                                                        | ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                     
|PART IV                                                
|                                                        | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                                    
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|BALANCE SHEETS                                         
|STATEMENTS OF OPERATIONS                               
|STATEMENTS OF STOCKHOLDERS EQUITY                     
|                                                        |                                                                                                                      | STATEMENTS OF CASH FLOWS
|NOTES TO FINANCIAL STATEMENTS                          
|Ex-23.1 Consent of Ernst & Young LLP                   
|Ex-31.1 Section 302 Certification of C.E.O.            
|Ex-31.2 Section 302 Certification of C.F.O.            
|Ex-32 Section 906 Certification of C.E.O. & C.F.O.     



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PART I







|        |         
|------- | --------
|ITEM 1. | BUSINESS

Overview


tm


tm




Recent Events




| |           
| | ----------
| | Management





| |                               
| | ------------------------------
| | Regulatory Update for Vasovist





2



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| |                      
| | ---------------------
| | Strategic Acquisition











| |                   
| | ------------------
| | Reduction-in-Force









| |         
| | --------
| | EP-2104R

proof-of 14-day,


3



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| |                                   
| | ----------------------------------
| | Fibrin-Binding Therapeutic Program

proof-of




| |            
| | -----------
| | Schering AG





EPIX Technology








Products Under Development




| |         
| | --------
| | Vasovist



4



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780-patient






| |         
| | --------
| | EP-2104R

pre-clinical


5



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proof-of 14-day,


EP-2104R.


Use of Vasovist with MRI and MRA Technology










6



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7



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Strategic Alliances and Collaborations




| |            
| | -----------
| | Schering AG









8



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EP-2104R,












| |                   
| | ------------------
| | Tyco/ Mallinckrodt



9



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| |        
| | -------
| | Daiichi





| |     
| | ----
| | Dyax





| |                               
| | ------------------------------
| | Massachusetts General Hospital





| |       
| | ------
| | Prince



10



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Competition


® ® ® ® ® ® ® ®




Patents and Proprietary Rights








| |   |                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Two U.S. patents exclusively licensed from MGH which expire
    in 2006 (U.S. Patents 4,899,755 and 4,880,008) as well as
    their cognate patents in certain foreign countries, including
    EPO 222,886. These patents generally relate to MRI signal
    generation technology, albumin binding with metal chelates and
    liver targeting metal chelates.
|
| |  | Eleven U.S. patents owned by us as well as their cognate
    patents and applications in certain foreign countries:                                                                                                                                                                                                                                             



| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | U.S. Patent 5,582,814, Contrast Agents for Diagnostic
    Imaging (granted December 10, 1996; expires
    April 15, 2014)                       
|
| |  | U. S Patent 5,919,967, Process for Synthesizing
    Phosphodiesters (granted July 6, 1999; expires
    April 11, 2017)                          
|
| |  | U.S. Patent 6,548,044, Imaging Sexual Response
    (granted April 15, 2003; expires November 21, 2020)                                          
|
| |  | U.S. Patent 6,549,798, Magnetic Resonance Angiography
    Data (granted April 15, 2003; expires
    February 7, 2021)                           
|
| |  | U.S. Patent 6,652,835, Targeting Multimeric Imaging
    Agents Through Multilocus Binding (granted
    November 25, 2003; expires July 28, 2020)

11



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| |   |                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | U.S. Patent 6,676,929, Diagnostic Imaging Contrast
    Agents With Extended Blood Retention (granted
    January 13, 2004; expires February 1, 2015; however,
    the USPTO has indicated that the patent is entitled to
    114 days of patent term adjustment)              
|
| |  | U.S. Patent 6,709,646, Bioactivated Diagnostic
    Imaging Contrast Agents (granted March 23, 2004;
    expires March 25, 2017; however, the USPTO has indicated
    that the patent is entitled to 99 days of patent term
    adjustment)                                    
|
| |  | U.S. Patent 6,861,045, Contrast-enhanced diagnostic
    imaging method for monitoring interventional therapies
    (granted March 1, 2005; expires October 2, 2017;
    however the USPTO has indicated that the patent is entitled to
    424 days of patent term adjustment)
|
| |  | U.S. Patent 6,925,321, Magnetic Resonance Angiography
    Data (granted August 2, 2005; expires
    February 7, 2021)                                                                                                                                                         
|
| |  | U.S. Patent 6,969,507, Imaging Sexual Response
    (granted November 29, 2005; expires November 21, 2020;
    however the USPTO has indicated that the patent is entitled to
    117 days of patent term adjustment)                                                          
|
| |  | U.S. Patent 6,991,775, Peptide-based multimeric
    targeted contrast agents (granted January 31, 2006;
    expires July 30, 2022)                                                                                                                                            



| |   |                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Nineteen U.S. utility applications in prosecution as well
    as their cognate applications in certain foreign countries and
    six provisional utility applications. Some of these relate to
    MRI, Vasovist and methods of use, EP-2104R and methods of use,
    and others to therapeutics and methods of use.





Contractual Disputes


non-U.S. ®




12



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Manufacturing




Government Regulation








| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | performance of pre-clinical laboratory and animal studies;                                                                                                                 
|
| |  | submission to the FDA of an application for an investigational
    new drug application, or IND, which must become effective before
    human clinical trials may commence;
|
| |  | completion of adequate and well-controlled human clinical trials
    to establish the safety and efficacy of the pharmaceutical for
    its intended use;                  
|
| |  | submission to the FDA of a NDA;                                                                                                                                            
|
| |  | satisfactory completion of an FDA inspection of the
    manufacturing facility or facilities at which the drug is
    produced to assess compliance; and                   
|
| |  | FDA review and approval of the NDA.                                                                                                                                        



13



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Reimbursement










Employees


reduction-in


Research and Development




Trademarks


® tm tm ®


Available Information


http://www.epixpharma.com 10-K, 10-Q 8-K


15



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10-K.







|         |             
|-------- | ------------
|ITEM 1A. | RISK FACTORS

An investment in our common stock involves a high degree of
risk. You should carefully consider the following risk factors
and other information in our periodic reports filed with the
SEC. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially
and adversely affected.


RESEARCH AND DEVELOPMENT RISKS




| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | We may never receive marketing approval for any of our
    products, including Vasovist and EP-2104R.









16



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| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | If our clinical trials are not successful, we may not be
    able to develop and commercialize our products.













17



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| |                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to comply with the extensive regulatory
    requirements to which we and our products are subject, our
    products could be subject to restrictions or withdrawal from the
    market and we could be subject to penalties.











18



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| |   |                                                   
| | - | --------------------------------------------------
| |  | delay in approval or refusal to approve a product;
|
| |  | product recall or seizure;                        
|
| |  | interruption of production;                       
|
| |  | operating restrictions;                           
|
| |  | warning letters;                                  
|
| |  | injunctions;                                      
|
| |  | criminal prosecutions; and                        
|
| |  | unanticipated expenditures.                       





19



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| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | Our research and development efforts may not result in
    products appropriate for testing in human clinical
    trials.





| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have a limited manufacturing capability and we intend
    to outsource manufacturing of Vasovist to third parties, who may
    not perform as we expect.



TECHNOLOGY RISKS




| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If MRI manufacturers are not able to enhance their
    hardware and software sufficiently, we will not be able to
    complete development of our contrast agent for the evaluation of
    cardiac indications.



20



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| |                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on exclusively licensed technology from the
    Massachusetts General Hospital and if we lose this license, it
    is unlikely we could obtain this technology elsewhere, which
    would have a material adverse effect on our business.

®




| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on patents and other proprietary rights, and if
    they fail to protect our business, we may not be able to compete
    effectively.





| |                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may need to initiate lawsuits to protect or enforce our
    patents and other intellectual property rights, which could
    result in our incurrence of substantial costs and which could
    result in the forfeiture of these rights.



21



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| |                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Other rights and measures that we rely upon to protect our
    intellectual property may not be adequate to protect our
    products and services and could reduce our ability to compete in
    the market.





| |   |                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the agreements may be breached;                                                                                                                                                      
|
| |  | we may have inadequate remedies for any breach;                                                                                                                                      
|
| |  | proprietary information could be disclosed to our
    competitors; or                                                                                                                
|
| |  | others may independently develop substantially equivalent
    proprietary information and techniques or otherwise gain access
    to our trade secrets or disclose such technologies.





| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our success will depend partly on our ability to operate
    without infringing the intellectual property rights of others,
    and if we are unable to do so, we may not be able to sell our
    products.





22



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| |                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to get adequate levels of reimbursement from
    third party payors for our product candidates after they are
    approved in the U.S. and abroad, we may have difficulty
    commercializing our product candidates.







| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | We depend on our key personnel, the loss of whom would
    hurt our ability to compete.





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BUSINESS RISKS




| |                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are actively pursuing a transformative transaction at
    considerable expense and with significant time involvement by
    management, and we may fail to consummate this transformative
    transaction or fail to realize the benefits of the
    transformative transaction.





| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | Our stock price is volatile. It is possible that you may
    lose all or part of your investment.





| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | actual or anticipated fluctuations in our operating results;                                      
|
| |  | announcements of technological innovation or new commercial
    products by us or our competitors;
|
| |  | new collaborations entered into by us or our competitors;                                         
|
| |  | developments with respect to proprietary rights, including
    patent and litigation matters;     
|
| |  | results of pre-clinical and clinical trials;                                                      
|
| |  | the timing of our achievement of regulatory milestones;                                           
|
| |  | conditions and trends in the pharmaceutical and other technology
    industries;                  
|
| |  | adoption of new accounting standards affecting such industries;                                   
|
| |  | changes in financial estimates by securities analysts;                                            
|
| |  | perceptions of the value of corporate transactions; and                                           
|
| |  | degree of trading liquidity in our common stock and general
    market conditions.                



24



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| |                                                                            
| | ---------------------------------------------------------------------------
| | We have never generated revenues from commercial sales of
    our products.





| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | We have never generated positive cash flow, and if we fail
    to generate revenue, it will have a material adverse effect on
    our business.







| |   |                                                                        
| | - | -----------------------------------------------------------------------
| |  | successfully complete our product development efforts;                 
|
| |  | obtain required regulatory approvals in a timely manner, if at
    all;

25



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| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | manufacture our product candidates at an acceptable cost and
    with acceptable quality; or
|
| |  | successfully market any approved products.                                                  





| |                                                                 
| | ----------------------------------------------------------------
| | We anticipate future losses and may never become
    profitable.





| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | If the market does not accept our technology and products,
    we may not generate sufficient revenues to achieve or maintain
    profitability.





| |   |                                                                         
| | - | ------------------------------------------------------------------------
| |  | safety;                                                                 
|
| |  | cost-effectiveness relative to alternative vascular imaging
    methods;
|
| |  | availability of third party reimbursement;                              
|
| |  | ease of administration;                                                 
|
| |  | clinical efficacy; and                                                  
|
| |  | availability of competitive products.                                   





| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may need to raise additional funds necessary to fund
    our operations, and if we do not do so, we may not be able to
    implement our business plan.



26



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| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | the progress and scope of clinical trials;                                                                        
|
| |  | the timing and costs of filing future regulatory submissions;                                                     
|
| |  | the timing and costs required to receive both U.S. and foreign
    governmental approvals;                        
|
| |  | the cost of filing, prosecuting, defending and enforcing patent
    claims and other intellectual property rights;
|
| |  | the extent to which our products gain market acceptance;                                                          
|
| |  | the timing and costs of product introductions;                                                                    
|
| |  | the extent of our ongoing and any new research and development
    programs;                                      
|
| |  | the costs of training physicians to become proficient with the
    use of our products; and                       
|
| |  | the costs of developing marketing and distribution capabilities.                                                  





| |                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our competitors may have greater financial resources,
    superior products or product candidates, manufacturing
    capabilities and/or marketing expertise, and we may not be able
    to compete with them successfully.

® ® ® ® ® ® ® ®




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| |                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We currently depend on our strategic collaborators for
    support in product development and the regulatory approval
    process and, in the future, will depend on them for product
    marketing support as well. These efforts may suffer if we
    experience problems with our collaborators.







28



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| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | Product liability claims could increase our costs and
    adversely affect our results of operations.





| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | We significantly increased our leverage as a result of the
    sale of our 3.0% Convertible Senior Notes due 2024.





| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | make it difficult for us to make payments on the notes;                                                                                
|
| |  | make it difficult for us to obtain financing for working
    capital, acquisitions or other purposes on favorable terms, if
    at all;
|
| |  | make us more vulnerable to industry downturns and competitive
    pressures; and                                                       
|
| |  | limit our flexibility in planning for, or reacting to changes
    in, our business.                                                    





| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Certain anti-takeover clauses in our charter and by-laws
    and in Delaware law and the change of control provisions of our
    convertible senior notes may make an acquisition of us more
    difficult.



29



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|         |                          
|-------- | -------------------------
|ITEM 1B. | UNRESOLVED STAFF COMMENTS








|        |           
|------- | ----------
|ITEM 2. | PROPERTIES








|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS








|        |                                                    
|------- | ---------------------------------------------------
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



30



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PART II







|        |                                                                                                                 
|------- | ----------------------------------------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
    STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



|               |  |      |       |  |     |   |       | 
|-------------- |  | ---- | ----- |  | --- | - | ----- | 
|               |  | High |       |  | Low |  
|               |  |      |       |  |     |  
|2004           |  |      |       |  |     |   |       | 
|First Quarter  |  | $    | 23.40 |  |     | $ | 15.94 | 
|Second Quarter |  |      | 26.37 |  |     |   | 20.34 | 
|Third Quarter  |  |      | 22.58 |  |     |   | 15.80 | 
|Fourth Quarter |  |      | 20.00 |  |     |   | 15.28 | 
|2005           |  |      |       |  |     |   |       | 
|First Quarter  |  | $    | 18.18 |  |     | $ | 6.80  | 
|Second Quarter |  |      | 9.80  |  |     |   | 6.26  | 
|Third Quarter  |  |      | 10.79 |  |     |   | 7.07  | 
|Fourth Quarter |  |      | 8.47  |  |     |   | 3.78  | 










|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA

10-K.


|                                            |                   |                                       |         |        |      |   |         |        |  |   |         |        |  |      |         |        |  |   |         |        | 
|------------------------------------------- | ----------------- | ------------------------------------- | ------- | ------ | ---- | - | ------- | ------ |  | - | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                            |                   | Year Ended December 31,               |        
|                                            |                   |                                       |        
|                                            |                   | 2005                                  |         |        | 2004 |   |         | 2003   |  |   | 2002    |        |  | 2001 |        
|                                            |                   |                                       |         |        |      |   |         |        |  |   |         |        |  |      |        
|                                            |                   | (In thousands, except per share data) |        
|Statement of Operations Data:               |                   |                                       |         |        |      |   |         |        |  |   |         |        |  |      |         |        |  |   |         |       
|Revenues                                    |                   | $                                     | 7,190   |        |      | $ | 12,259  |        |  | $ | 13,525  |        |  | $    | 12,270  |        |  | $ | 9,569   |       
|Operating loss                              |                   |                                       | (24,802 | )      |      |   | (20,111 | )      |  |   | (21,083 | )      |  |      | (22,816 | )      |  |   | (18,841 | )     
|Loss before provision for income taxes      |                   |                                       | (24,269 | )      |      |   | (20,281 | )      |  |   | (20,714 | )      |  |      | (22,098 | )      |  |   | (18,156 | )     
|Provision for income taxes                  |                   |                                       | 42      |        |      |   | 100     |        |  |   | 80      |        |  |      | 94      |        |  |   | 1,092   |       
|Net loss                                    |                   |                                       | (24,311 | )      |      |   | (20,381 | )      |  |   | (20,795 | )      |  |      | (22,191 | )      |  |   | (19,248 | )     
|Weighted average common shares outstanding: |                   |                                       |         |        |      |   |         |        |  |   |         |        |  |      |         |        |  |   |         |       
|                                            | Basic and diluted |                                       |         | 23,258 |      |   |         | 22,889 |  |   |         | 19,056 |  |      |         | 16,878 |  |   |         | 14,007 | 
|Net loss per share, basic and diluted       |                   | $                                     | (1.05   | )      |      | $ | (0.89   | )      |  | $ | (1.09   | )      |  | $    | (1.31   | )      |  | $ | (1.38   | )     

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|                                                 |  |              |         |  |      |   |         |      |  |   |        |  |  |      |        |  |  |   |        |  
|------------------------------------------------ |  | ------------ | ------- |  | ---- | - | ------- | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | -
|                                                 |  | December 31, |        
|                                                 |  |              |        
|                                                 |  | 2005         |         |  | 2004 |   |         | 2003 |  |   | 2002   |  |  | 2001 |       
|                                                 |  |              |         |  |      |   |         |      |  |   |        |  |  |      |       
|Balance Sheet Data:                              |  |              |         |  |      |   |         |      |  |   |        |  |  |      |        |  |  |   |        |  
|Cash, cash equivalents and marketable securities |  | $            | 124,728 |  |      | $ | 164,440 |      |  | $ | 79,958 |  |  | $    | 28,112 |  |  | $ | 24,966 |  
|Working capital                                  |  |              | 113,098 |  |      |   | 136,653 |      |  |   | 57,011 |  |  |      | 12,364 |  |  |   | 8,277  |  
|Total assets                                     |  |              | 130,716 |  |      |   | 171,287 |      |  |   | 81,875 |  |  |      | 30,155 |  |  |   | 26,911 |  
|Long-term liabilities                            |  |              | 100,756 |  |      |   | 101,210 |      |  |   | 4,331  |  |  |      | 7,829  |  |  |   | 12,844 |  
|Total stockholders equity (deficit)             |  |              | 17,833  |  |      |   | 41,382  |      |  |   | 54,157 |  |  |      | 5,887  |  |  |   | (3,210 | )






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS

Overview








Critical Accounting Policies And Estimates








| |                    
| | -------------------
| | Revenue Recognition



32



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##### Table of Contents







proof-of




non-U.S. ®




| |                         
| | ------------------------
| | Research and Development





33



---



##### Table of Contents







| |                            
| | ---------------------------
| | Employee Stock Compensation

Accounting for Stock Issued to
Employees, Share-Based Payments  An
Amendment of FASB Statement No. 123 and 95,




Results Of Operations




| |                                       
| | --------------------------------------
| | Years ended December 31, 2005 and 2004



| |         
| | --------
| | Revenues

proof-of EP-2104R ®


34



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| |                                  
| | ---------------------------------
| | Research and Development Expenses

EP-2104R






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We conduct our clinical trials in accordance with specific
    protocols, which we have filed with the FDA or other relevant
    authorities. If the FDA requires us to perform additional
    studies, to perform additional procedures in our studies or to
    increase patient numbers in those studies, we could incur
    significant additional costs and additional time to complete our
    clinical trials, assuming we are able to reach agreement with
    the FDA on protocols for any additional studies or procedures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | We rely on third party clinical trial centers to find suitable
    patients for our clinical trial program. If these clinical trial
    centers do not find suitable patients in the timeframe for which
    we have planned, we will not be able to complete our clinical
    trials according to our expected schedule.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | We rely on third party contract research organizations for a
    variety of activities in our development program, including
    conducting blinded reading activities, lab testing and analysis
    of clinical samples, data collection, cleanup and analysis and
    drafting study reports and regulatory submissions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | The length of time that the FDA or other regulatory authorities
    take to review our regulatory submissions and the length of time
    it takes us to respond to the FDA or other regulatory
    authorities questions can also vary widely. In January
    2005, we received an approvable letter from the FDA for Vasovist
    in which the FDA requested additional clinical studies to
    demonstrate efficacy prior to approval. In May 2005, we
    submitted our response to the approvable letter received from
    the FDA in January 2005 and it was accepted by the FDA as a
    complete response in June 2005. In November 2005, we received a
    second approvable letter from the FDA for Vasovist in which the
    FDA again requested an additional clinical trial and a re-read
    of images in certain of the previously completed Phase III
    trials. The process of obtaining agreement with the FDA for
    conducting necessary clinical trial studies is subject to
    significant uncertainties in terms of timing, costs and success.
|
| |  | Our partner, Schering AG, is responsible for the commercial
    launch and marketing of Vasovist in Europe, where Vasovist has
    been approved for commercial sale, and in the U.S., where
    Vasovist is not approved for commercial sale.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          



proof-of 14-day,


35



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| |                                    
| | -----------------------------------
| | General and Administrative Expenses

®




| |                    
| | -------------------
| | Restructuring Costs





| |                                     
| | ------------------------------------
| | Interest Income and Interest Expense





| |                           
| | --------------------------
| | Provision for Income Taxes

®


36



---



##### Table of Contents





| |                                       
| | --------------------------------------
| | Years ended December 31, 2004 and 2003



| |         
| | --------
| | Revenues

® non-U.S.




| |                                  
| | ---------------------------------
| | Research and Development Expenses





| |                                    
| | -----------------------------------
| | General and Administrative Expenses

®




| |                                     
| | ------------------------------------
| | Interest Income and Interest Expense





| |                           
| | --------------------------
| | Provision for Income Taxes



37



---



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Liquidity and Capital Resources




®




38



---



##### Table of Contents





® non-U.S. ®


®




39



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##### Table of Contents









|                                                        |  |       |             |                        |        |   |            |           |           |   |           |  |  |         |           |  |  |   |             | 
|------------------------------------------------------- |  | ----- | ----------- | ---------------------- | ------ | - | ---------- | --------- | --------- | - | --------- |  |  | ------- | --------- |  |  | - | ----------- | 
|                                                        |  |       |             | Payments due by Period |       
|                                                        |  |       |             |                        |       
|                                                        |  |       |             | Less Than              |        |   |            |           | More Than |  
|Contractual Obligations                                 |  | Total |             |                        | 1 Year |   |            | 1-3 Years |           |   | 3-5 Years |  |  | 5 Years |          
|                                                        |  |       |             |                        |        |   |            |           |           |   |           |  |  |         |          
|Long-term debt obligations, including interest payments |  | $     | 116,375,000 |                        |        | $ | 3,000,000  |           |           | $ | 6,000,000 |  |  | $       | 6,000,000 |  |  | $ | 101,375,000 | 
|Operating lease obligations                             |  |       | 2,627,996   |                        |        |   | 1,303,059  |           |           |   | 1,324,937 |  |  |         |          |  |  |   |            | 
|Purchase obligations                                    |  |       | 5,933,866   |                        |        |   | 5,764,188  |           |           |   | 169,678   |  |  |         |          |  |  |   |            | 
|                                                        |  |       |             |                        |        |   |            |           |           |   |           |  |  |         |          
|Total                                                   |  | $     | 124,936,862 |                        |        | $ | 10,067,247 |           |           | $ | 7,494,615 |  |  | $       | 6,000,000 |  |  | $ | 101,375,000 | 
|                                                        |  |       |             |                        |        |   |            |           |           |   |           |  |  |         |          



Certain Factors That May Affect Future Results of
Operations




40



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##### Table of Contents



10-K.


Managements Report on Internal Controls


13a-15(f) 15d-15(f)




| |   |                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | pertain to the maintenance of records that, in reasonable
    detail, accurately and fairly reflects transactions in and
    dispositions of our assets;                                                                                                                                                                                 
|
| |  | provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that our receipts and expenditures are being made only in
    accordance with authorizations of our management and
    directors; and
|
| |  | provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of our
    assets that could have a material effect on the financial
    statements.                                                                                                                           









41



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Report of Independent Registered Public Accounting Firm




















| |                      
| | ---------------------
| | /s/ Ernst & Young LLP





42



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##### Table of Contents








|         |                                                           
|-------- | ----------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK










|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

|                                                        |                                    |        |     |     | 
|------------------------------------------------------- | ---------------------------------- | ------ | --- | --- | 
|Index to Financial Statements                           |                                    | Number |    
|                                                        |                                    |        |    
|Report of Independent Registered Public Accounting Firm |                                    |        | F-2 |    
|Financial Statements:                                   |                                    |        |     |    
|                                                        | Balance Sheets                     |        |     | F-3 | 
|                                                        | Statements of Operations           |        |     | F-4 | 
|                                                        | Statements of Stockholders Equity |        |     | F-5 | 
|                                                        | Statements of Cash Flows           |        |     | F-6 | 
|Notes to Financial Statements                           |                                    |        | F-7 |    






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
    AND FINANCIAL DISCLOSURE








|         |                        
|-------- | -----------------------
|Item 9A. | CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and
Procedures. 13a-15(e) 15d-15(e)) 10-K, 10-K


Changes in Internal Controls.







|         |                  
|-------- | -----------------
|Item 9B. | OTHER INFORMATION



43



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##### Table of Contents






PART III







|         |                                                   
|-------- | --------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT










|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT AND RELATED STOCKHOLDER MATTERS








|         |                                               
|-------- | ----------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS








|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES






PART IV







|         |                                        
|-------- | ---------------------------------------
|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Item 15(a). 10-K:


Item 15(a)(1) and (2). 10-K.


Item 15(a)(3). Exhibits. 10-K.


44



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|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 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@         |  | Certificate of Amendment of Restated Certificate of
    Incorporation of the Company. Filed as Exhibit 3.2 to the
    Companys Annual Report on Form 10-K for the year
    ended December 31, 2001 (File No. 000-21863) and
    incorporated herein by reference.                                                                                                                                  
|       
|        | 3  | .3@         |  | Certificate of Amendment of Restated Certificate of
    Incorporation of the Company. Filed as Exhibit 3.2 to the
    Companys Quarterly Report on Form 10-Q for the period
    ended September 30, 2004 (File No. 000-21863) and
    incorporated herein by reference.                                                                                                                            
|       
|        | 3  | .4@         |  | 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.                                                                                                                                                                                     
|       
|        | 4  | .2@         |  | Indenture dated as of June 7, 2004 between the Company and
    U.S. Bank National Association as Trustee, relating to
    3% Convertible Senior Notes due June 15, 2024. Filed
    as Exhibit 4.1 to the Companys Current Report on
    Form 8-K filed June 7, 2004 (File No. 000-21863) and
    incorporated herein by reference.                                                                 
|       
|        | 10 | .1@+        |  | 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 | .2@#        |  | Amended and Restated 1992 Equity Incentive Plan. Filed as
    Appendix A to the Companys 2003 Definitive Proxy
    Statement on Schedule 14A (File No. 000-21863) and
    incorporated herein by reference.                                                                                                                                                                                        
|       
|        | 10 | .3@#        |  | 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 | .4@#        |  | 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 | .5@#        |  | Amended and Restated 1996 Director Stock Option Plan. Filed
    as Appendix B to the Companys 2003 Definitive Proxy
    Statement on Schedule 14A (File No. 000-21863) and
    incorporated herein by reference.                                                                                                                                                                                   
|       
|        | 10 | .6@#        |  | Amended and Restated 1996 Employee Stock Purchase Plan. Filed as
    Appendix C to the Companys 2003 Definitive Proxy
    Statement on Schedule 14A (File No. 000-21863) and
    incorporated herein by reference.                                                                                                                                                                                 
|       
|        | 10 | .7@         |  | 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 | .8@         |  | First Amendment dated February 8, 1999 to the Short
    Form Lease dated as of July 7, 1998 with a
    commencement date as of January 1, 1998 between the Company
    and the Trustees of The Cambridge East Trust. Filed as
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q for the period ended March 31, 1999 (File
    No. 000-21863) and incorporated herein by reference.

45



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|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|       
|        | 10 | .9@         |  | Second Amendment dated June 30, 2000 to the Short
    Form Lease dated as of July 7, 1998 with a
    commencement date as of January 1, 1998 between the Company
    and the Trustees of The Cambridge East Trust. Filed as
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q for the period ended June 30, 2000 and
    incorporated herein by reference.                                                    
|       
|        | 10 | .10@++      |  | Amended and Restated Strategic Collaboration Agreement dated
    June 9, 2000, among the Company, Tyco/ Mallinckrodt Inc. (a
    Delaware corporation) and Tyco/ Mallinckrodt Inc. (a New York
    corporation). Filed as Exhibit 10.1 to the Companys
    Current Report on Form 8-K dated June 29, 2000 (File
    No. 000-21863) and incorporated herein by reference.                                                       
|       
|        | 10 | .11@++      |  | Strategic Collaboration Agreement dated as of June 9, 2000,
    between the Company and Schering Aktiengesellschaft. Filed as
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K dated June 29, 2000 (File No. 000-21863)
    and incorporated herein by reference.                                                                                                                                               
|       
|        | 10 | .12@        |  | Stock Purchase Agreement, dated as of June 9, 2000, between
    the Company and Schering Berlin Venture Corporation. Filed as
    Exhibit 10.3 to the Companys Current Report on
    Form 8-K dated June 29, 2000 (File No. 000-21863)
    and incorporated herein by reference.                                                                                                                                               
|       
|        | 10 | .13@        |  | Standstill Agreement, dated as of June 9, 2000, between the
    Company and Schering Berlin Venture Corporation. Filed as
    Exhibit 10.4 to the Companys Current Report on
    Form 8-K dated June 29, 2000 (File No. 000-21863)
    and incorporated herein by reference.                                                                                                                                                   
|       
|        | 10 | .14@++      |  | Reacquisition Agreement dated December 22, 2000 between the
    Company and Daiichi Radioisotope Laboratories, Ltd. Filed as
    Exhibit 10.32 to the Companys Annual Report on
    Form 10-K for the period ended December 31, 2000 (File
    No. 000-21863) and incorporated herein by reference.                                                                                                                            
|       
|        | 10 | .15@        |  | Amendment No. 1 dated as of December 22, 2000 to the
    Strategic Collaboration Agreement, dated as of June 9,
    2000, between the Company and Schering Aktiengesellschaft. Filed
    as Exhibit 10.33 to the Companys Annual Report on
    Form 10-K for the period ended December 31, 2000 (File
    No. 000-21863) and incorporated herein by reference.                                                                 
|       
|        | 10 | .16@++      |  | Worldwide License Agreement, dated as of September 25,
    2001, by and between the Company and Bracco Imaging S.p.A. filed
    as Exhibit 10.1 to the Companys Current Report on
    Form 8-K dated September 25, 2001 (File
    No. 000-21863) and incorporated herein by reference.                                                                                                                                         
|       
|        | 10 | .17@        |  | Settlement and Release Agreement dated as of September 25,
    2001, by and between the Company and Bracco Imaging S.p.A. filed
    as Exhibit 10.2 to the Companys Current Report on
    Form 8-K dated September 25, 2001 (File
    No. 000-21863) and incorporated herein by reference.                                                                                                                                     
|       
|        | 10 | .18@        |  | Third Amendment, dated May 21, 2002, to the Short
    Form Lease dated as July 7, 1998 with a commencement
    date as of January 1, 1998 between the Company and the
    Trustees of the Cambridge East Trust. Filed as an
    Exhibit 10.31 to the Companys Quarterly Report for
    the period ended June 30, 2002 (File No. 000-21863)
    and incorporated herein by reference.                                           
|       
|        | 10 | .19@++      |  | Thrombus Development Agreement between the Company and Schering
    AG, dated as of May 26, 2003. Filed as Exhibit 10.1 to
    the Companys Quarterly Report on Form 10-Q for the
    period ended June 30, 2003 (File No. 000-21863) and
    incorporated herein by reference.                                                                                                                                                
|       
|        | 10 | .20@++      |  | Collaborative Research Agreement between the Company and
    Schering AG, dated as of May 26, 2003. Filed as
    Exhibit 10.2 to the Companys Quarterly Report on
    Form 10-Q for the period ended June 30, 2003 (File
    No. 000-21863) and incorporated herein by reference.                                                                                                                                              
|       
|        | 10 | .21@++      |  | Lease of premises at 161 First Street, Cambridge, Massachusetts
    from BHX, LLC, as Trustee of First Binney Realty Trust to EPIX
    Pharmaceuticals, Inc.,the Company, dated as of
    September 30, 2003 and executed on October 10, 2003.
    Filed as Exhibit 10.22 to the Companys Annual Report
    on Form 10-K for the year ended December 31, 2003
    File No. 000-21863) and incorporated herein by
    reference.

46



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|        |     |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | --- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|Number  |     | Description
|        |     |            
|       
|        | 10  | .22@        |  | Intellectual Property Agreement by and between the Company and
    Dr. Martin R. Prince, dated November 17, 2003. Filed
    as Exhibit 10.1 to the Companys Current Report on
    Form 8-K dated November 18, 2003 (File
    No. 000-21863) and incorporated herein by reference.                                                                                                                                  
|       
|        | 10  | .23@++      |  | Stock Purchase Agreement by and between the Company and
    Dr. Martin R. Prince, dated as of November 17, 3003.
    Filed as Exhibit 10.2 to the Companys Current Report
    on Form 8-K dated November 18, 2003 (File
    No. 000-21863) and incorporated herein by reference.                                                                                                                                   
|       
|        | 10  | .24++       |  | First Amendment dated October 8, 2004 to the Short
    Form Lease dated as of September 30, 2003 with a
    commencement date as of November 1, 2003 between the
    Company and the BHX, LLC, as Trustees of First Binney Realty
    Trust. Filed as Exhibit 10.22 to the Companys Annual
    Report on Form 10-K for the year ended December 31,
    2003 (File No. 000-21863) and incorporated by
    reference.
|       
|        | 10  | .25@#       |  | Director Compensation Arrangements. Filed as Exhibit 10.27
    to the Companys Annual Report on Form 10-K for the
    year ended December 31, 2004 (File No. 000-21863) and
    incorporated herein by reference.                                                                                                                                                                                                  
|       
|        | 10  | .26@#       |  | Named Executive Officer Compensation Arrangements. Filed with
    the Companys Current Report on Form 8-K dated
    February 16, 2006 (File No. 000-21863) and
    incorporated herein by reference.                                                                                                                                                                                                               
|       
|        | 10  | .27@#       |  | Form of Indemnification Agreement. Filed as Exhibit 10.27
    to the Companys Annual Report on Form 10-K for the
    year ended December 31, 2004 (File No. 000-21863) and
    incorporated herein by reference.                                                                                                                                                                                                   
|       
|        | 10  | .28@#       |  | Form of Amendment to Stock Option Agreement. Filed as
    Exhibit 10.30 to the Companys Annual Report on
    Form 10-K for the year ended December 31, 2004 (File
    No. 000-21863) and incorporated herein by reference.                                                                                                                                                                                         
|       
|        | 10  | .29@#       |  | Amendment to the Collaborative Research Agreement dated as of
    May 26, 2003, between the Company and Schering
    Aktiengesellschaft, dated September 30, 2005. Filed as
    Exhibit 99.1 to the Companys Current Report on
    Form 8-K filed October 7, 2005 (File
    No. 000-21863) and incorporated herein by reference.                                                                                   
|       
|        | 10  | .30@#       |  | Employment Agreement between the Company and Michael J. Astrue,
    dated September 21, 2005. Filed as Exhibit 10.1 to the
    Companys Quarterly Report on Form 10-Q for the period
    ended September 30, 2005 (File No. 000-21863) and
    incorporated herein by reference.                                                                                                                                   
|       
|        | 10  | .31@#       |  | Severance Agreement between the Company and Andrew
    Uprichard, M.D., dated September 14, 2005. Filed as
    Exhibit 10.2 to the Companys Quarterly Report on
    Form 10-Q for the period ended September 30, 2005
    (File No. 000-21863) and incorporated herein by reference.                                                                                                                               
|       
|        | 10  | .32@#       |  | Separation Agreement between the Company and Michael D. Webb,
    dated September 14, 2005. Filed as Exhibit 10.4 to the
    Companys Quarterly Report on Form 10-Q for the period
    ended September 30, 2005 (File No. 000-21863) and
    incorporated herein by reference.                                                                                                                                     
|       
|        | 14  | .1@         |  | The Companys Code of Conduct and Ethics. Filed as
    Exhibit 14.1 to the Companys Annual Report on
    Form 10-K for the year ended December 31, 2003 (File
    No. 000-21863) and incorporated herein by reference.                                                                                                                                                                                             
|       
|        | 23  | .1*         |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                                                           
|       
|        | 31  | .1*         |  | Certification pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002 for Michael J. Astrue.                                                                                                                                                                                                                                                                                                                  
|       
|        | 31  | .2*         |  | Certification pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002 for Robert B. Pelletier.                                                                                                                                                                                                                                                                                                                
|       
|        | 32* |             |  | Certification pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002 (Subsections(a) and(b) of
    Section 1350, Chapter 63 of Title 18,
    U.S. Code)                                                                                                                                                                                                                                                      

47



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|  |                                        
|- | ---------------------------------------
|@ | Incorporated by reference as indicated.



| |   |                
| | - | ---------------
| | * | Filed herewith.



| |   |                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | # | 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 406 of the Securities Act of
    1933, as amended.



|   |                                                                                                                                                                                                                                     
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|++ | 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.

48



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##### Table of Contents



SIGNATURES






| |                           
| | --------------------------
| | EPIX PHARMACEUTICALS, INC.



| |     |                      
| | --- | ---------------------
| | By: | /s/ MICHAEL J. ASTRUE

| | 
| | 
| | 



| |                                
| | -------------------------------
| | Michael J. Astrue              
| | Interim Chief Executive Officer





|                                                             |  |                                                               |  |                   |  | 
|------------------------------------------------------------ |  | ------------------------------------------------------------- |  | ----------------- |  | 
|Signature                                                    |  | Title                                                         |  | Date             
|                                                             |  |                                                               |  |                  
|                                                            
|/s/ MICHAEL J. ASTRUEMichael J. Astrue                       |  | Interim Chief Executive Officer (Principal Executive Officer) |  | March 1, 2006    
|                                                            
|/s/ ROBERT B. PELLETIERRobert B. Pelletier                   |  | Executive Director of Finance (Principal Accounting Officer)  |  | March 1, 2006    
|                                                            
|/s/ CHRISTOPHER F. O.
    GABRIELIChristopher F. O. Gabrieli |  | Chairman of the Board of Directors                            |  | February 28, 2006
|                                                            
|/s/ MARK LEUCHTENBERGERMark Leuchtenberger                   |  | Director                                                      |  | February 28, 2006
|                                                            
|/s/ GREGORY D. PHELPSGregory D. Phelps                       |  | Director                                                      |  | February 28, 2006
|                                                            
|/s/ PETER WIRTHPeter Wirth                                   |  | Director                                                      |  | February 28, 2006

49



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.


INDEX TO FINANCIAL STATEMENTS


|                                                        |                                    |     |    
|------------------------------------------------------- | ---------------------------------- | --- | ---
|Report of Independent Registered Public Accounting Firm |                                    | F-2
|Financial Statements                                    |                                    |    
|                                                        | Balance Sheets                     |     | F-3
|                                                        | Statements of Operations           |     | F-4
|                                                        | Statements of Stockholders Equity |     | F-5
|                                                        | Statements of Cash Flows           |     | F-6
|Notes to Financial Statements                           |                                    | F-7

F-1



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##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
















| |                      
| | ---------------------
| | /s/ Ernst & Young LLP





F-2



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.







BALANCE SHEETS


|                                     |                                                                                                                                                                          |                                            |                            |              |             |             |             |              |             |             | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | -------------------------- | ------------ | ----------- | ----------- | ----------- | ------------ | ----------- | ----------- | 
|                                     |                                                                                                                                                                          | December 31,                               |                           
|                                     |                                                                                                                                                                          |                                            |                           
|                                     |                                                                                                                                                                          | 2005                                       |                            |              | 2004        |            
|                                     |                                                                                                                                                                          |                                            |                            |              |             |            
|ASSETS                              
|Current assets:                      |                                                                                                                                                                          |                                            |                            |              |             |             |             |             
|                                     | Cash and cash equivalents                                                                                                                                                |                                            | $                          | 72,502,906   |             |             | $           | 73,364,538   |            
|                                     | Available-for-sale marketable securities                                                                                                                                 |                                            |                            | 52,225,590   |             |             |             | 91,075,630   |            
|                                     | Accounts receivable                                                                                                                                                      |                                            |                            | 149,287      |             |             |             | 322,546      |            
|                                     | Prepaid expenses and other assets                                                                                                                                        |                                            |                            | 346,919      |             |             |             | 585,138      |            
|                                     |                                                                                                                                                                          |                                            |                            |              |             |            
|                                     |                                                                                                                                                                          |                                            | Total current assets       |              |             | 125,224,702 |             |              |             | 165,347,852 | 
|Property and equipment, net          |                                                                                                                                                                          |                                            | 2,517,859                  |              |             |             | 2,490,804   |             
|Other assets                         |                                                                                                                                                                          |                                            | 2,973,155                  |              |             |             | 3,448,270   |             
|                                     |                                                                                                                                                                          |                                            |                            |              |             |            
|                                     |                                                                                                                                                                          | Total assets                               |                            | $            | 130,715,716 |             |             | $            | 171,286,926 |            
|                                     |                                                                                                                                                                          |                                            |                            |              |             |            
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                                                                          |                                            |                            |              |             |             |             |             
|                                     | Accounts payable                                                                                                                                                         |                                            | $                          | 1,268,325    |             |             | $           | 938,498      |            
|                                     | Accrued expenses                                                                                                                                                         |                                            |                            | 4,310,003    |             |             |             | 4,218,834    |            
|                                     | Contract advances                                                                                                                                                        |                                            |                            | 6,112,549    |             |             |             | 6,150,013    |            
|                                     | Loan payable to strategic partner                                                                                                                                        |                                            |                            |             |             |             |             | 15,000,000   |            
|                                     | Deferred revenue                                                                                                                                                         |                                            |                            | 435,861      |             |             |             | 2,387,882    |            
|                                     |                                                                                                                                                                          |                                            |                            |              |             |            
|                                     |                                                                                                                                                                          |                                            | Total current liabilities  |              |             | 12,126,738  |             |              |             | 28,695,227  | 
|Deferred revenue                     |                                                                                                                                                                          |                                            | 755,647                    |              |             |             | 1,209,725   |             
|Convertible debt                     |                                                                                                                                                                          |                                            | 100,000,000                |              |             |             | 100,000,000 |             
|Commitments and Contigencies         |                                                                                                                                                                          |                                            |                           |              |             |             |            |             
|Stockholders equity:                |                                                                                                                                                                          |                                            |                            |              |             |             |             |             
|                                     | Preferred Stock, $0.01 par value, 1,000,000 shares
    authorized; no shares issued                                                                                      |                                            |                            |             |             |             |             |             |            
|                                     | Common Stock, $0.01 par value, 40,000,000 shares
    authorized; 23,284,810 and 23,190,154 shares issued and
    outstanding at December 31, 2005 and 2004, respectively |                                            |                            | 232,848      |             |             |             | 231,900      |            
|                                     | Additional paid-in-capital                                                                                                                                               |                                            |                            | 197,311,313  |             |             |             | 196,730,731  |            
|                                     | Accumulated deficit                                                                                                                                                      |                                            |                            | (179,644,632 | )           |             |             | (155,333,774 | )          
|                                     | Accumulated other comprehensive loss                                                                                                                                     |                                            |                            | (66,198      | )           |             |             | (246,883     | )          
|                                     |                                                                                                                                                                          |                                            |                            |              |             |            
|                                     |                                                                                                                                                                          |                                            | Total stockholders equity |              |             | 17,833,331  |             |              |             | 41,381,974  | 
|                                     |                                                                                                                                                                          |                                            |                            |              |             |            
|                                     |                                                                                                                                                                          | Total liabilities and stockholders equity |                            | $            | 130,715,716 |             |             | $            | 171,286,926 |            
|                                     |                                                                                                                                                                          |                                            |                            |              |             |            



F-3



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.







STATEMENTS OF OPERATIONS


|                                       |                             |                         |             |            |             |   |             |            |             |   |             |            |             |  
|-------------------------------------- | --------------------------- | ----------------------- | ----------- | ---------- | ----------- | - | ----------- | ---------- | ----------- | - | ----------- | ---------- | ----------- | -
|                                       |                             | Year Ended December 31, |            
|                                       |                             |                         |            
|                                       |                             | 2005                    |             |            | 2004        |   |             | 2003       |            
|                                       |                             |                         |             |            |             |   |             |            |            
|Revenues:                              |                             |                         |             |            |             |   |             |            |             |   |             |           
|                                       | Product development revenue |                         | $           | 4,195,530  |             |   | $           | 7,594,280  |             |   | $           | 9,534,335  |            
|                                       | Royalty revenue             |                         |             | 2,333,384  |             |   |             | 626,685    |             |   |             | 2,397,393  |            
|                                       | License fee revenue         |                         |             | 660,747    |             |   |             | 4,037,636  |             |   |             | 1,593,284  |            
|                                       |                             |                         |             |            |             |   |             |            |            
|Total revenues                         |                             |                         | 7,189,661   |            |             |   | 12,258,601  |            |             |   | 13,525,012  |           
|Operating expenses:                    |                             |                         |             |            |             |   |             |            |             |   |             |           
|                                       | Research and development    |                         |             | 20,775,771 |             |   |             | 21,873,991 |             |   |             | 28,023,522 |            
|                                       | General and administrative  |                         |             | 10,244,271 |             |   |             | 10,495,377 |             |   |             | 6,584,318  |            
|                                       | Restructuring costs         |                         |             | 971,828    |             |   |             |           |             |   |             |           |            
|                                       |                             |                         |             |            |             |   |             |            |            
|Total operating expenses               |                             |                         | 31,991,870  |            |             |   | 32,369,368  |            |             |   | 34,607,840  |           
|                                       |                             |                         |             |            |             |   |             |            |            
|Operating loss                         |                             |                         | (24,802,209 | )          |             |   | (20,110,767 | )          |             |   | (21,082,828 | )         
|Interest income                        |                             |                         | 4,146,532   |            |             |   | 1,958,152   |            |             |   | 663,519     |           
|Interest expense                       |                             |                         | (3,613,190  | )          |             |   | (2,128,738  | )          |             |   | (295,168    | )         
|                                       |                             |                         |             |            |             |   |             |            |            
|Loss before provision for income taxes |                             |                         | (24,268,867 | )          |             |   | (20,281,353 | )          |             |   | (20,714,477 | )         
|Provision for income taxes             |                             |                         | 41,991      |            |             |   | 99,905      |            |             |   | 80,075      |           
|                                       |                             |                         |             |            |             |   |             |            |            
|                                       |                             | Net loss                |             | $          | (24,310,858 | ) |             | $          | (20,381,258 | ) |             | $          | (20,794,552 | )
|                                       |                             |                         |             |            |             |   |             |            |            
|Weighted average shares:               |                             |                         |             |            |             |   |             |            |             |   |             |           
|                                       | Basic and diluted           |                         |             | 23,258,187 |             |   |             | 22,888,673 |             |   |             | 19,055,698 |            
|                                       |                             |                         |             |            |             |   |             |            |            
|Net loss per share, basic and diluted  |                             | $                       | (1.05       | )          |             | $ | (0.89       | )          |             | $ | (1.09       | )         
|                                       |                             |                         |             |            |             |   |             |            |            



F-4



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.







STATEMENTS OF STOCKHOLDERS EQUITY


|                                                            |  |              |            |  |            |   |         |                 |       |   |               |               |  |               |              |   |        |   |          |   |  |   |             |  
|----------------------------------------------------------- |  | ------------ | ---------- |  | ---------- | - | ------- | --------------- | ----- | - | ------------- | ------------- |  | ------------- | ------------ | - | ------ | - | -------- | - |  | - | ----------- | -
|                                                            |  |              |            |  |            |   |         | Accumulated     |       |   | Total         |              
|                                                            |  | Common Stock |            |  |            |   |         |                 | Other |   |               | Stockholders | 
|                                                            |  |              |            |  | Additional |   |         | Accumulated     |       |   | Comprehensive |               |  | (Deficit)     |             
|                                                            |  | Shares       |            |  | Amount     |   |         | Paid-In Capital |       |   | Deficit       |               |  | Income/(loss) |              |   | Equity |  
|                                                            |  |              |            |  |            |   |         |                 |       |   |               |               |  |               |              |   |        |  
|Balance at December 31, 2002                                |  |              | 17,074,034 |  |            | $ | 170,740 |                 |       | $ | 119,712,094   |               |  | $             | (114,157,964 | ) |        | $ | 161,645  |   |  | $ | 5,886,515   |  
|Issuance of common stock upon exercise of options           |  |              | 573,737    |  |            |   | 5,738   |                 |       |   | 3,488,632     |               |  |               |              |   |        |   |          |   |  |   | 3,494,370   |  
|Issuance of common stock under employee stock purchase plan |  |              | 25,871     |  |            |   | 259     |                 |       |   | 207,838       |               |  |               |              |   |        |   |          |   |  |   | 208,097     |  
|Issuance of common stock                                    |  |              | 4,645,000  |  |            |   | 46,450  |                 |       |   | 65,443,384    |               |  |               |              |   |        |   |          |   |  |   | 65,489,834  |  
|Net loss                                                    |  |              |            |  |            |   |         |                 |       |   |               |               |  |               | (20,794,552  | ) |        |   |          |   |  |   | (20,794,552 | )
|Available-for-sale marketable securities unrealized loss    |  |              |            |  |            |   |         |                 |       |   |               |               |  |               |              |   |        |   | (127,692 | ) |  |   | (127,692    | )
|                                                            |  |              |            |  |            |   |         |                 |       |   |               |               |  |               |              |   |        |  
|Comprehensive loss                                          |  |              |            |  |            |   |         |                 |       |   |               |               |  |               |              |   |        |   |          |   |  |   | (20,922,244 | )
|                                                            |  |              |            |  |            |   |         |                 |       |   |               |               |  |               |              |   |        |  
|Balance at December 31, 2003                                |  |              | 22,318,642 |  |            | $ | 223,187 |                 |       | $ | 188,851,948   |               |  | $             | (134,952,516 | ) |        | $ | 33,953   |   |  | $ | 54,156,572  |  
|Issuance of common stock upon exercise of options           |  |              | 723,554    |  |            |   | 7,234   |                 |       |   | 5,211,805     |               |  |               |              |   |        |   |          |   |  |   | 5,219,039   |  
|Issuance of common stock under employee stock purchase plan |  |              | 15,958     |  |            |   | 159     |                 |       |   | 231,950       |               |  |               |              |   |        |   |          |   |  |   | 232,109     |  
|Issuance of common stock                                    |  |              | 132,000    |  |            |   | 1,320   |                 |       |   | 2,337,720     |               |  |               |              |   |        |   |          |   |  |   | 2,339,040   |  
|Compensatory stock option expense                           |  |              |            |  |            |   |         |                 |       |   | 97,308        |               |  |               |              |   |        |   |          |   |  |   | 97,308      |  
|Net loss                                                    |  |              |            |  |            |   |         |                 |       |   |               |               |  |               | (20,381,258  | ) |        |   |          |   |  |   | (20,381,258 | )
|Available-for-sale marketable securities unrealized loss    |  |              |            |  |            |   |         |                 |       |   |               |               |  |               |              |   |        |   | (280,836 | ) |  |   | (280,836    | )
|                                                            |  |              |            |  |            |   |         |                 |       |   |               |               |  |               |              |   |        |  
|Comprehensive loss                                          |  |              |            |  |            |   |         |                 |       |   |               |               |  |               |              |   |        |   |          |   |  |   | (20,662,094 | )
|                                                            |  |              |            |  |            |   |         |                 |       |   |               |               |  |               |              |   |        |  
|Balance at December 31, 2004                                |  |              | 23,190,154 |  |            | $ | 231,900 |                 |       | $ | 196,730,731   |               |  | $             | (155,333,774 | ) |        | $ | (246,883 | ) |  | $ | 41,381,974  |  
|Issuance of common stock upon exercise of options           |  |              | 75,498     |  |            |   | 756     |                 |       |   | 473,359       |               |  |               |              |   |        |   |          |   |  |   | 474,115     |  
|Issuance of common stock under employee stock purchase plan |  |              | 19,158     |  |            |   | 192     |                 |       |   | 103,804       |               |  |               |              |   |        |   |          |   |  |   | 103,996     |  
|Compensatory stock option expense                           |  |              |            |  |            |   |         |                 |       |   | 3,419         |               |  |               |              |   |        |   |          |   |  |   | 3,419       |  
|Net loss                                                    |  |              |            |  |            |   |         |                 |       |   |               |               |  |               | (24,310,858  | ) |        |   |          |   |  |   | (24,310,858 | )
|Available-for-sale marketable securities unrealized gain    |  |              |            |  |            |   |         |                 |       |   |               |               |  |               |              |   |        |   | 180,685  |   |  |   | 180,685     |  
|                                                            |  |              |            |  |            |   |         |                 |       |   |               |               |  |               |              |   |        |  
|Comprehensive loss                                          |  |              |            |  |            |   |         |                 |       |   |               |               |  |               |              |   |        |   |          |   |  |   | (24,130,173 | )
|                                                            |  |              |            |  |            |   |         |                 |       |   |               |               |  |               |              |   |        |  
|Balance at December 31, 2005                                |  |              | 23,284,810 |  |            | $ | 232,848 |                 |       | $ | 197,311,313   |               |  | $             | (179,644,632 | ) |        | $ | (66,198  | ) |  | $ | 17,833,331  |  
|                                                            |  |              |            |  |            |   |         |                 |       |   |               |               |  |               |              |   |        |  



F-5



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.







STATEMENTS OF CASH FLOWS


|                                                                                |                                                                                 |                                                     |            |             |             |   |            |             |             |   |            |             |             |  
|------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | --------------------------------------------------- | ---------- | ----------- | ----------- | - | ---------- | ----------- | ----------- | - | ---------- | ----------- | ----------- | -
|                                                                                |                                                                                 | Year Ended December 31,                             |           
|                                                                                |                                                                                 |                                                     |           
|                                                                                |                                                                                 | 2005                                                |            |             | 2004        |   |            | 2003        |            
|                                                                                |                                                                                 |                                                     |            |             |             |   |            |             |            
|Operating activities:                                                           |                                                                                 |                                                     |            |             |             |   |            |             |             |   |            |            
|                                                                                | Net loss                                                                        |                                                     | $          | (24,310,858 | )           |   | $          | (20,381,258 | )           |   | $          | (20,794,552 | )          
|Adjustments to reconcile net loss to net cash used in operating
    activities: |                                                                                 |                                                     |            |             |             |   |            |             |             |   |            |            
|                                                                                | Depreciation and amortization                                                   |                                                     |            | 1,188,610   |             |   |            | 1,000,101   |             |   |            | 638,282     |            
|                                                                                | Stock compensation expense                                                      |                                                     |            | 3,419       |             |   |            | 97,308      |             |   |            |            |            
|                                                                                | Amortization of deferred financing costs                                        |                                                     |            | 475,115     |             |   |            | 260,188     |             |   |            |            |            
|Changes in operating assets and liabilities:                                    |                                                                                 |                                                     |            |             |             |   |            |             |             |   |            |            
|                                                                                | Accounts receivable                                                             |                                                     |            | 173,259     |             |   |            | (276,474    | )           |   |            | 129,060     |            
|                                                                                | Prepaid expenses and other current assets                                       |                                                     |            | 238,219     |             |   |            | (191,459    | )           |   |            | 122,520     |            
|                                                                                | Other assets                                                                    |                                                     |            |            |             |   |            | 4,943       |             |   |            | (4,313      | )          
|                                                                                | Accounts payable                                                                |                                                     |            | 329,827     |             |   |            | (999,867    | )           |   |            | 43,804      |            
|                                                                                | Accrued expenses                                                                |                                                     |            | 91,169      |             |   |            | (1,300,985  | )           |   |            | 1,454,932   |            
|                                                                                | Accrued reacquisition costs                                                     |                                                     |            |            |             |   |            |            |             |   |            | (2,400,000  | )          
|                                                                                | Contract advances                                                               |                                                     |            | (37,464     | )           |   |            | 2,977,306   |             |   |            | 40,636      |            
|                                                                                | Deferred revenue                                                                |                                                     |            | (2,406,099  | )           |   |            | (3,650,620  | )           |   |            | (3,189,929  | )          
|                                                                                |                                                                                 |                                                     |            |             |             |   |            |             |            
|                                                                                |                                                                                 | Net cash used in operating activities               |            |             | (24,254,803 | ) |            |             | (22,460,817 | ) |            |             | (23,959,560 | )
|Investing activities:                                                           |                                                                                 |                                                     |            |             |             |   |            |             |             |   |            |            
|                                                                                | Purchases of marketable securities                                              |                                                     |            | (88,618,059 | )           |   |            | (93,663,936 | )           |   |            | (43,344,575 | )          
|                                                                                | Sale or redemption of marketable securities                                     |                                                     |            | 127,648,784 |             |   |            | 45,607,145  |             |   |            | 23,488,773  |            
|                                                                                | Purchases of fixed assets                                                       |                                                     |            | (1,215,665  | )           |   |            | (2,077,559  | )           |   |            | (758,826    | )          
|                                                                                |                                                                                 |                                                     |            |             |             |   |            |             |            
|                                                                                |                                                                                 | Net cash provided by (used in) investing activities |            |             | 37,815,060  |   |            |             | (50,134,350 | ) |            |             | (20,614,628 | )
|Financing activities:                                                           |                                                                                 |                                                     |            |             |             |   |            |             |             |   |            |            
|                                                                                | Net proceeds from issuance of convertible debt                                  |                                                     |            |            |             |   |            | 96,350,000  |             |   |            |            |            
|                                                                                | Proceeds from loan payable from strategic partner                               |                                                     |            | 45,000,000  |             |   |            | 52,500,000  |             |   |            | 15,000,000  |            
|                                                                                | Repayment of loan payable to strategic partner                                  |                                                     |            | (60,000,000 | )           |   |            | (45,000,000 | )           |   |            | (7,500,000  | )          
|                                                                                | Proceeds from stock options                                                     |                                                     |            | 474,115     |             |   |            | 5,219,039   |             |   |            | 3,494,370   |            
|                                                                                | Proceeds from Employee Stock Purchase Plan                                      |                                                     |            | 103,996     |             |   |            | 232,109     |             |   |            | 208,097     |            
|                                                                                | Proceeds from sale of common stock                                              |                                                     |            |            |             |   |            |            |             |   |            | 65,489,834  |            
|                                                                                |                                                                                 |                                                     |            |             |             |   |            |             |            
|                                                                                |                                                                                 | Net cash provided by (used in) financing activities |            |             | (14,421,889 | ) |            |             | 109,301,148 |   |            |             | 76,692,301  |  
|                                                                                |                                                                                 |                                                     |            |             |             |   |            |             |            
|Net increase (decrease) in cash and cash equivalents                            |                                                                                 |                                                     | (861,632   | )           |             |   | 36,705,981 |             |             |   | 32,118,113 |            
|Cash and cash equivalents at beginning of period                                |                                                                                 |                                                     | 73,364,538 |             |             |   | 36,658,557 |             |             |   | 4,540,444  |            
|                                                                                |                                                                                 |                                                     |            |             |             |   |            |             |            
|Cash and cash equivalents at end of period                                      |                                                                                 | $                                                   | 72,502,906 |             |             | $ | 73,364,538 |             |             | $ | 36,658,557 |            
|                                                                                |                                                                                 |                                                     |            |             |             |   |            |             |            
|Supplemental cash flow information:                                             |                                                                                 |                                                     |            |             |             |   |            |             |             |   |            |            
|                                                                                | Cash paid for interest                                                          |                                                     | $          | 3,145,883   |             |   | $          | 1,747,236   |             |   | $          | 329,982     |            
|                                                                                |                                                                                 |                                                     |            |             |             |   |            |             |            
|                                                                                | Cash paid for taxes                                                             |                                                     | $          | 41,991      |             |   | $          | 107,889     |             |   | $          | 99,655      |            
|                                                                                |                                                                                 |                                                     |            |             |             |   |            |             |            
|Supplemental disclosure of noncash financing and investing
    activities:      |                                                                                 |                                                     |            |             |             |   |            |             |             |   |            |            
|                                                                                | Issuance of common stock in connection with Intellectual
    Property Agreement |                                                     | $          |            |             |   | $          | 2,339,040   |             |   | $          |            |            
|                                                                                |                                                                                 |                                                     |            |             |             |   |            |             |            



F-6



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.







NOTES TO FINANCIAL STATEMENTS


December 31, 2005




|   |         
|-- | --------
|1. | Business

tm








|   |                                
|-- | -------------------------------
|2. | Significant Accounting Policies



| |                 
| | ----------------
| | Cash Equivalents





| |                      
| | ---------------------
| | Marketable Securities

Accounting for Certain
Investments in Debt and Equity Securities




| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments



F-7



---



##### Table of Contents



EPIX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






| |                              
| | -----------------------------
| | Concentrations of Credit Risk







| |                       
| | ----------------------
| | Property and Equipment





| |                  
| | -----------------
| | Long-Lived Assets

Accounting
for the Impairment or Disposal of Long-Lived Assets,




| |             
| | ------------
| | Income Taxes

Accounting for Income
Taxes.




| |                    
| | -------------------
| | Segment Information

Disclosure about Segments of an
Enterprise and Related Information,


F-8



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






| |        
| | -------
| | Revenue





| |                            
| | ---------------------------
| | Product development revenue

non-U.S.


proof-of




F-9



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




| |                
| | ---------------
| | Royalty revenue

non-U.S. ®








| |                    
| | -------------------
| | License fee revenue

Revenue
Recognition








F-10



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






| |                 
| | ----------------
| | Reclassification





| |                 
| | ----------------
| | Use of Estimates





| |                                  
| | ---------------------------------
| | Research and Development Expenses







| |               
| | --------------
| | Loss Per Share

Earnings per
Share.




F-11



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






|                                                             |  |      |           |  |      |  |           |      |  |  |           | 
|------------------------------------------------------------ |  | ---- | --------- |  | ---- |  | --------- | ---- |  |  | --------- | 
|                                                             |  | 2005 |           |  | 2004 |  |           | 2003 | 
|                                                             |  |      |           |  |      |  |           |      | 
|Stock options and awards                                     |  |      | 3,271,909 |  |      |  | 3,560,478 |      |  |  | 3,557,499 | 
|Shares issuable on conversion of 3% Convertible Senior Notes |  |      | 3,359,090 |  |      |  | 3,359,090 |      |  |  |          | 
|                                                             |  |      |           |  |      |  |           |      | 
|                                                             |  |      | 6,630,999 |  |      |  | 6,919,568 |      |  |  | 3,557,499 | 
|                                                             |  |      |           |  |      |  |           |      | 



| |                            
| | ---------------------------
| | Comprehensive Income (Loss)

Reporting
Comprehensive Income




| |                            
| | ---------------------------
| | Employee Stock Compensation

Accounting for Stock Issued to
Employees Accounting
for Stock-Based Compensation




|                                      |                                                                              |                         |             |            |      |   |             |            |   |   |             |            |  
|------------------------------------- | ---------------------------------------------------------------------------- | ----------------------- | ----------- | ---------- | ---- | - | ----------- | ---------- | - | - | ----------- | ---------- | -
|                                      |                                                                              | Year Ended December 31, |            
|                                      |                                                                              |                         |            
|                                      |                                                                              | 2005                    |             |            | 2004 |   |             | 2003       |  
|                                      |                                                                              |                         |             |            |      |   |             |            |  
|Net loss  as reported                |                                                                              | $                       | (24,310,858 | )          |      | $ | (20,381,258 | )          |   | $ | (20,794,552 | )         
|                                      | Less: employee stock-based compensation included in net loss as
    reported |                         |             |           |      |   |             | 97,308     |   |   |             |           |  
|                                      | Add: pro forma adjustment for stock-based compensation                       |                         |             | (4,141,790 | )    |   |             | (6,047,438 | ) |   |             | (4,040,572 | )
|                                      |                                                                              |                         |             |            |      |   |             |            |  
|Net loss  pro forma                  |                                                                              | $                       | (28,452,648 | )          |      | $ | (26,331,388 | )          |   | $ | (24,835,124 | )         
|                                      |                                                                              |                         |             |            |      |   |             |            |  
|Net loss per share, basic and diluted |                                                                              |                         |             |            |      |   |             |            |   |   |             |           
|                                      | As reported                                                                  |                         | $           | (1.05      | )    |   | $           | (0.89      | ) |   | $           | (1.09      | )
|                                      | Pro forma                                                                    |                         |             | (1.22      | )    |   |             | (1.15      | ) |   |             | (1.30      | )
|                                      |                                                                              |                         |             |            |      |   |             |            |  
|                                      | Effect of pro form adjustment                                                |                         | $           | (0.18      | )    |   | $           | (0.26      | ) |   | $           | (0.21      | )
|                                      |                                                                              |                         |             |            |      |   |             |            |  

F-12



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                                         |  |                         |      |   |      |  |      |      |  |  |      |   |  |      |      |   |      |  |      |   |  |  |      |  
|---------------------------------------- |  | ----------------------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | - |  | ---- | ---- | - | ---- |  | ---- | - |  |  | ---- | -
|                                         |  | Options                 |      |   | ESPP | 
|                                         |  |                         |      |   |      | 
|                                         |  | Year Ended December 31, |     
|                                         |  |                         |     
|                                         |  | 2005                    |      |   | 2004 |  |      | 2003 |  |  | 2005 |   |  | 2004 |      |   | 2003 | 
|                                         |  |                         |      |   |      |  |      |      |  |  |      |   |  |      |      |   |      | 
|Expected life of option (years)          |  |                         | 6.9  |   |      |  | 7.3  |      |  |  | 6.6  |   |  |      | 0.5  |   |      |  | 0.5  |   |  |  | 0.5  |  
|Expected stock price volatility          |  |                         | 0.83 |   |      |  | 0.85 |      |  |  | 0.87 |   |  |      | 0.82 |   |      |  | 0.84 |   |  |  | 0.86 |  
|Weighted average risk-free interest rate |  |                         | 3.77 | % |      |  | 3.25 | %    |  |  | 3.27 | % |  |      | 3.51 | % |      |  | 1.40 | % |  |  | 1.12 | %





| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

Share-Based Payment  An Amendment of FASB
Statements No. 123 and 95 Statement of Cash Flows.






Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes in Interim Financial
Statements


F-13



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






|   |                      
|-- | ---------------------
|3. | Marketable Securities



|                                       |  |            |            |  |      |   |            |            |  |   |            |  |  |   |            | 
|-------------------------------------- |  | ---------- | ---------- |  | ---- | - | ---------- | ---------- |  | - | ---------- |  |  | - | ---------- | 
|                                       |  | 2005       |            |  | 2004 |  
|                                       |  |            |            |  |      |  
|                                       |  | Fair Value |            |  | Cost |   |            | Fair Value |  |   | Cost       | 
|                                       |  |            |            |  |      |   |            |            |  |   |            | 
|Government-sponsored agency securities |  | $          | 19,559,610 |  |      | $ | 19,584,572 |            |  | $ | 38,237,366 |  |  | $ | 38,364,954 | 
|Corporate bonds                        |  |            | 25,112,035 |  |      |   | 25,153,272 |            |  |   | 38,506,427 |  |  |   | 38,625,721 | 
|Commercial paper                       |  |            | 3,980,788  |  |      |   | 3,980,787  |            |  |   | 3,991,800  |  |  |   | 3,991,800  | 
|Certificates of deposit                |  |            | 3,573,157  |  |      |   | 3,573,157  |            |  |   | 10,340,037 |  |  |   | 10,340,037 | 
|                                       |  |            |            |  |      |   |            |            |  |   |            | 
|                                       |  | $          | 52,225,590 |  |      | $ | 52,291,788 |            |  | $ | 91,075,630 |  |  | $ | 91,322,512 | 
|                                       |  |            |            |  |      |   |            |            |  |   |            | 



|                                     |  |              |            |  |      |   |            | 
|------------------------------------ |  | ------------ | ---------- |  | ---- | - | ---------- | 
|                                     |  | December 31, |           
|                                     |  |              |           
|                                     |  | 2005         |            |  | 2004 |  
|                                     |  |              |            |  |      |  
|Due within one year                  |  | $            | 48,447,012 |  |      | $ | 47,193,349 | 
|Due after one year through two years |  |              | 3,778,578  |  |      |   | 43,882,281 | 
|                                     |  |              |            |  |      |  
|                                     |  | $            | 52,225,590 |  |      | $ | 91,075,630 | 
|                                     |  |              |            |  |      |  





F-14



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|   |                       
|-- | ----------------------
|4. | Property and Equipment



|                                               |  |              |            |   |      |   |            |  
|---------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                               |  | December 31, |           
|                                               |  |              |           
|                                               |  | 2005         |            |   | 2004 |  
|                                               |  |              |            |   |      |  
|Leasehold improvements                         |  | $            | 3,880,443  |   |      | $ | 3,607,588  |  
|Laboratory equipment                           |  |              | 2,669,880  |   |      |   | 3,568,169  |  
|Furniture, fixtures and other equipment        |  |              | 1,052,703  |   |      |   | 1,716,801  |  
|                                               |  |              |            |   |      |  
|                                               |  |              | 7,603,026  |   |      |   | 8,892,558  |  
|Less accumulated depreciation and amortization |  |              | (5,085,167 | ) |      |   | (6,401,754 | )
|                                               |  |              |            |   |      |  
|                                               |  | $            | 2,517,859  |   |      | $ | 2,490,804  |  
|                                               |  |              |            |   |      |  



|   |                 
|-- | ----------------
|5. | Accrued Expenses



|                                                 |  |              |           |  |      |   |           | 
|------------------------------------------------ |  | ------------ | --------- |  | ---- | - | --------- | 
|                                                 |  | December 31, |          
|                                                 |  |              |          
|                                                 |  | 2005         |           |  | 2004 |  
|                                                 |  |              |           |  |      |  
|Accrued contractual product development expenses |  | $            | 1,680,790 |  |      | $ | 2,330,849 | 
|Accrued compensation                             |  |              | 1,768,330 |  |      |   | 969,925   | 
|Other accrued expenses                           |  |              | 860,883   |  |      |   | 918,060   | 
|                                                 |  |              |           |  |      |  
|                                                 |  | $            | 4,310,003 |  |      | $ | 4,218,834 | 
|                                                 |  |              |           |  |      |  



|   |                      
|-- | ---------------------
|6. | Restructuring Charges







|   |                       
|-- | ----------------------
|7. | Financing Arrangements



| |                                  
| | ---------------------------------
| | Loan Payable to Strategic Partner



F-15



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






| |                 
| | ----------------
| | Convertible Debt









|   |       
|-- | ------
|8. | Leases





|                             |  |   |           | 
|---------------------------- |  | - | --------- | 
|2006                         |  | $ | 1,303,059 | 
|2007                         |  |   | 1,319,753 | 
|2008                         |  |   | 5,184     | 
|                             |  |   |          
|Total minimum lease payments |  | $ | 2,627,996 | 
|                             |  |   |          





|   |                     
|-- | --------------------
|9. | Stockholders Equity



F-16



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






| |             
| | ------------
| | Equity Plans



| |                      
| | ---------------------
| | Equity Incentive Plan





|                  |  |             |           |   |                 |          |                |                |  |                     |           |  |          |        |           |         |                |  |           |  |  |   |       | 
|----------------- |  | ----------- | --------- | - | --------------- | -------- | -------------- | -------------- |  | ------------------- | --------- |  | -------- | ------ | --------- | ------- | -------------- |  | --------- |  |  | - | ----- | 
|                  |  |             |           |   |                 |          |                |                |  | Options Exercisable |          
|                  |  |             |           |   |                 |          |                |                |  |                     |          
|                  |  |             |           |   |                 | Weighted |                |                |  |                     |           |  | Weighted |       
|                  |  | Options     |           |   | Option Price    |          |                | Average        |  |                     | Available |  |          |        |           | Average |               
|                  |  | Outstanding |           |   | Range per Share |          |                | Exercise Price |  |                     | for Grant |  |          | Number |           |         | Exercise Price | 
|                  |  |             |           |   |                 |          |                |                |  |                     |           |  |          |        |           |         |                | 
|December 31, 2002 |  |             | 3,671,734 |   |                 | $        | 0.42 - $21.63  |                |  | $                   | 8.64      |  |          |        | 580,711   |         |                |  | 1,450,742 |  |  | $ | 7.65  | 
|Granted           |  |             | 643,588   |   |                 | $        | 6.36 - $19.87  |                |  | $                   | 8.18      |  |          |        |           |         |                |  |           |  |  |   |       | 
|Exercised         |  |             | (573,737  | ) |                 | $        | 0.42 - $15.38  |                |  | $                   | 6.09      |  |          |        |           |         |                |  |           |  |  |   |       | 
|Cancelled         |  |             | (339,086  | ) |                 | $        | 5.13 - $19.40  |                |  | $                   | 9.49      |  |          |        |           |         |                |  |           |  |  |   |       | 
|                  |  |             |           |   |                 |          |                |                |  |                     |           |  |          |        |           |         |                | 
|December 31, 2003 |  |             | 3,402,499 |   |                 | $        | 0.45 - $21.63  |                |  | $                   | 8.90      |  |          |        | 776,209   |         |                |  | 1,365,079 |  |  | $ | 8.76  | 
|Granted           |  |             | 944,430   |   |                 | $        | 15.50 - $25.37 |                |  | $                   | 20.02     |  |          |        |           |         |                |  |           |  |  |   |       | 
|Exercised         |  |             | (723,554  | ) |                 | $        | 0.45 - $16.50  |                |  | $                   | 7.21      |  |          |        |           |         |                |  |           |  |  |   |       | 
|Cancelled         |  |             | (302,897  | ) |                 | $        | 5.13 - $21.54  |                |  | $                   | 10.94     |  |          |        |           |         |                |  |           |  |  |   |       | 
|                  |  |             |           |   |                 |          |                |                |  |                     |           |  |          |        |           |         |                | 
|December 31, 2004 |  |             | 3,320,478 |   |                 | $        | 0.83 - $25.37  |                |  | $                   | 12.25     |  |          |        | 634,676   |         |                |  | 1,273,690 |  |  | $ | 9.76  | 
|Granted           |  |             | 594,255   |   |                 | $        | 6.35 - $17.39  |                |  | $                   | 7.30      |  |          |        |           |         |                |  |           |  |  |   |       | 
|Exercised         |  |             | (75,498   | ) |                 | $        | 0.83 - $ 9.13  |                |  | $                   | 6.28      |  |          |        |           |         |                |  |           |  |  |   |       | 
|Cancelled         |  |             | (830,660  | ) |                 | $        | 5.13 - $25.37  |                |  | $                   | 12.74     |  |          |        |           |         |                |  |           |  |  |   |       | 
|                  |  |             |           |   |                 |          |                |                |  |                     |           |  |          |        |           |         |                | 
|December 31, 2005 |  |             | 3,008,575 |   |                 | $        | 4.48 - $24.72  |                |  | $                   | 11.29     |  |          |        | 1,371,081 |         |                |  | 1,634,890 |  |  | $ | 10.86 | 
|                  |  |             |           |   |                 |          |                |                |  |                     |           |  |          |        |           |         |                | 



| |                                
| | -------------------------------
| | 1996 Director Stock Option Plan



F-17



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






|                  |  |             |         |   |                 |          |                |                |  |                     |           |  |          |        |         |         |                |  |         |  |  |   |       | 
|----------------- |  | ----------- | ------- | - | --------------- | -------- | -------------- | -------------- |  | ------------------- | --------- |  | -------- | ------ | ------- | ------- | -------------- |  | ------- |  |  | - | ----- | 
|                  |  |             |         |   |                 |          |                |                |  | Options Exercisable |          
|                  |  |             |         |   |                 |          |                |                |  |                     |          
|                  |  |             |         |   |                 | Weighted |                |                |  |                     |           |  | Weighted |       
|                  |  | Options     |         |   | Option Price    |          |                | Average        |  |                     | Available |  |          |        |         | Average |               
|                  |  | Outstanding |         |   | Range per Share |          |                | Exercise Price |  |                     | for Grant |  |          | Number |         |         | Exercise Price | 
|                  |  |             |         |   |                 |          |                |                |  |                     |           |  |          |        |         |         |                | 
|December 31, 2002 |  |             | 120,000 |   |                 | $        | 7.00 - $13.25  |                |  | $                   | 9.54      |  |          |        | 74,688  |         |                |  | 61,668  |  |  | $ | 10.03 | 
|Granted           |  |             | 35,000  |   |                 | $        | 11.64          |                |  | $                   | 11.64     |  |          |        |         |         |                |  |         |  |  |   |       | 
|                  |  |             |         |   |                 |          |                |                |  |                     |           |  |          |        |         |         |                | 
|December 31, 2003 |  |             | 155,000 |   |                 | $        | 7.00 - $13.25  |                |  | $                   | 10.01     |  |          |        | 139,668 |         |                |  | 86,668  |  |  | $ | 9.74  | 
|Granted           |  |             | 85,000  |   |                 | $        | 18.92 - $24.95 |                |  | $                   | 22.05     |  |          |        |         |         |                |  |         |  |  |   |       | 
|                  |  |             |         |   |                 |          |                |                |  |                     |           |  |          |        |         |         |                | 
|December 31, 2004 |  |             | 240,000 |   |                 | $        | 7.00 - $24.95  |                |  | $                   | 14.28     |  |          |        | 54,668  |         |                |  | 130,001 |  |  | $ | 9.87  | 
|Granted           |  |             | 45,000  |   |                 | $        | 7.77           |                |  | $                   | 7.77      |  |          |        |         |         |                |  |         |  |  |   |       | 
|Cancelled         |  |             | (21,666 | ) |                 | $        | 7.77 - $24.95  |                |  | $                   | 20.99     |  |          |        |         |         |                |  |         |  |  |   |       | 
|                  |  |             |         |   |                 |          |                |                |  |                     |           |  |          |        |         |         |                | 
|December 31, 2005 |  |             | 263,334 |   |                 | $        | 7.00 - $24.95  |                |  | $                   | 12.61     |  |          |        | 131,334 |         |                |  | 181,669 |  |  | $ | 12.36 | 
|                  |  |             |         |   |                 |          |                |                |  |                     |           |  |          |        |         |         |                | 



| |                            
| | ---------------------------
| | Combined Option Information



|                         |  |                |           |  |                  |  |      |                |  |         |                |  |  |                |           |  |  |   |       | 
|------------------------ |  | -------------- | --------- |  | ---------------- |  | ---- | -------------- |  | ------- | -------------- |  |  | -------------- | --------- |  |  | - | ----- | 
|                         |  | Outstanding    |           |  | Exercisable      | 
|                         |  |                |           |  |                  | 
|                         |  | Options        |           |  | Weighted         |  |      |                |  | Options |                |  | 
|                         |  | Outstanding at |           |  | Average          |  |      | Weighted       |  |         | Exercisable at |  |  | Weighted       |          
|                         |  | December 31,   |           |  | Remaining        |  |      | Average        |  |         | December 31,   |  |  | Average        |          
|Range of Exercise Prices |  | 2005           |           |  | Contractual Life |  |      | Exercise Price |  |         | 2005           |  |  | Exercise Price |          
|                         |  |                |           |  |                  |  |      |                |  |         |                |  |  |                |          
|$ 4.48 - $ 7.10          |  |                | 704,974   |  |                  |  | 6.13 |                |  | $       | 6.26           |  |  |                | 383,419   |  |  | $ | 6.08  | 
|$ 7.13 - $ 8.75          |  |                | 833,765   |  |                  |  | 6.68 |                |  | $       | 7.84           |  |  |                | 343,630   |  |  | $ | 8.48  | 
|$ 8.78 - $13.75          |  |                | 873,427   |  |                  |  | 4.81 |                |  | $       | 11.17          |  |  |                | 740,918   |  |  | $ | 11.27 | 
|$13.85 - $24.95          |  |                | 859,743   |  |                  |  | 7.68 |                |  | $       | 19.28          |  |  |                | 348,592   |  |  | $ | 18.37 | 
|                         |  |                |           |  |                  |  |      |                |  |         |                |  |  |                |          
|                         |  |                | 3,271,909 |  |                  |  |      |                |  | $       | 11.39          |  |  |                | 1,816,559 |  |  | $ | 11.01 | 
|                         |  |                |           |  |                  |  |      |                |  |         |                |  |  |                |          



| |                                  
| | ---------------------------------
| | 1996 Employee Stock Purchase Plan



F-18



---



##### Table of Contents



EPIX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






|    |             
|--- | ------------
|10. | Income Taxes



|                                            |  |              |             |   |      |   |             |  
|------------------------------------------- |  | ------------ | ----------- | - | ---- | - | ----------- | -
|                                            |  | December 31, |            
|                                            |  |              |            
|                                            |  | 2005         |             |   | 2004 |  
|                                            |  |              |             |   |      |  
|Deferred tax assets:                        |  |              |             |   |      |   |             |  
|Net operating loss carry forwards           |  | $            | 68,646,000  |   |      | $ | 59,256,000  |  
|Research and development tax credits        |  |              | 8,381,000   |   |      |   | 7,406,000   |  
|Book over tax depreciation and amortization |  |              | 2,582,000   |   |      |   | 2,272,000   |  
|Deferred revenue                            |  |              | 451,000     |   |      |   | 1,394,000   |  
|Other                                       |  |              | 208,000     |   |      |   | 198,000     |  
|                                            |  |              |             |   |      |  
|Total deferred tax assets                   |  | $            | 80,268,000  |   |      | $ | 70,526,000  |  
|Valuation allowance                         |  |              | (80,268,000 | ) |      |   | (70,526,000 | )
|                                            |  |              |             |   |      |  
|Deferred income taxes, net                  |  | $            | 0           |   |      | $ | 0           |  
|                                            |  |              |             |   |      |  





F-19



---



##### Table of Contents



EPIX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                                              |  |                          |            |   |                          |   |            |      |  |   |            |   |  |      |        |    |      |  |        |    |  |  |        |   
|--------------------------------------------- |  | ------------------------ | ---------- | - | ------------------------ | - | ---------- | ---- |  | - | ---------- | - |  | ---- | ------ | -- | ---- |  | ------ | -- |  |  | ------ | --
|                                              |  | Years Ended December 31, |            |   | Years Ended December 31, |  
|                                              |  |                          |            |   |                          |  
|                                              |  | 2005                     |            |   | 2004                     |   |            | 2003 |  |   | 2005       |   |  | 2004 |        |    | 2003 | 
|                                              |  |                          |            |   |                          |   |            |      |  |   |            |   |  |      |        |    |      | 
|Tax at U.S. statutory rate                    |  | $                        | (8,251,000 | ) |                          | $ | (6,896,000 | )    |  | $ | (7,043,000 | ) |  |      | (33.94 | )% |      |  | (33.84 | )% |  |  | (33.87 | )%
|State taxes, net of federal benefit           |  |                          |           |   |                          |   |           |      |  |   |           |   |  |      | 0.00   | %  |      |  | 0.00   | %  |  |  | 0.00   | % 
|Permanent differences, net of federal benefit |  |                          | 19,021     |   |                          |   | 21,629     |      |  |   | 26,894     |   |  |      | 0.08   | %  |      |  | 0.11   | %  |  |  | 0.13   | % 
|Foreign taxes                                 |  |                          | 41,991     |   |                          |   | 99,905     |      |  |   | 80,075     |   |  |      | 0.17   | %  |      |  | 0.49   | %  |  |  | 0.39   | % 
|Operating losses not benefited                |  |                          | 8,231,979  |   |                          |   | 6,874,371  |      |  |   | 7,016,106  |   |  |      | 33.86  | %  |      |  | 33.73  | %  |  |  | 33.74  | % 
|                                              |  |                          |            |   |                          |   |            |      |  |   |            |   |  |      |        |    |      | 
|Income tax expense                            |  | $                        | 41,991     |   |                          | $ | 99,905     |      |  | $ | 80,075     |   |  |      | 0.17   | %  |      |  | 0.49   | %  |  |  | 0.39   | % 
|                                              |  |                          |            |   |                          |   |            |      |  |   |            |   |  |      |        |    |      | 



|    |                          
|--- | -------------------------
|11. | Defined Contribution Plan





|    |                                       
|--- | --------------------------------------
|12. | Strategic Alliances and Collaborations





| |            
| | -----------
| | Schering AG





F-20



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






EP-2104R,






F-21



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






10-K




| |                   
| | ------------------
| | Tyco/ Mallinckrodt





| |        
| | -------
| | Daiichi



F-22



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)






| |     
| | ----
| | Dyax





| |    
| | ---
| | MGH





| |       
| | ------
| | Prince





|    |                  
|--- | -----------------
|13. | Subsequent Events



| |                                  
| | ---------------------------------
| | Dismissal of class action lawsuit



F-23



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)


14. Quarterly Financial Information (unaudited)


|                                           |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |            |           |  |   |             |           | 
|------------------------------------------ | --------------------------- | ------------- | ---------- | --------- | -------------- | - | ---------- | ------------- |  | - | -------------- | --------- |  | ----- | ---------- | --------- |  | - | ----------- | --------- | 
|                                           |                             | First Quarter |            |           | Second Quarter |   |            | Third Quarter |  |   | Fourth Quarter |           |  |      
|                                           |                             | Ended         |            |           | Ended          |   |            | Ended         |  |   | Ended          |           |  |      
|                                           |                             | March 31,     |            |           | June 30,       |   |            | September 30, |  |   | December 31,   |           |  | Total |           
|                                           |                             | 2005          |            |           | 2005           |   |            | 2005          |  |   | 2005           |           |  | Year  |           
|                                           |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |           
|Revenues:                                  |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |            |           |  |   |             |          
|                                           | Product development revenue |               | $          | 1,475,819 |                |   | $          | 314,026       |  |   | $              | 1,297,720 |  |       | $          | 1,107,965 |  |   | $           | 4,195,530 | 
|                                           | Royalty revenue             |               |            | 444,289   |                |   |            | 578,321       |  |   |                | 798,484   |  |       |            | 512,290   |  |   |             | 2,333,384 | 
|                                           | License fee revenue         |               |            | 165,896   |                |   |            | 165,896       |  |   |                | 165,894   |  |       |            | 163,061   |  |   |             | 660,747   | 
|                                           |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |           
|Total revenues                             |                             |               | 2,086,004  |           |                |   | 1,058,243  |               |  |   | 2,262,098      |           |  |       | 1,783,316  |           |  |   | 7,189,661   |          
|Operating expenses:                        |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |            |           |  |   |             |          
|Research Development                       |                             |               | 5,533,151  |           |                |   | 5,637,426  |               |  |   | 5,498,385      |           |  |       | 4,106,809  |           |  |   | 20,775,771  |          
|General & administrative                   |                             |               | 2,743,705  |           |                |   | 2,570,535  |               |  |   | 2,617,410      |           |  |       | 2,312,621  |           |  |   | 10,244,271  |          
|Restructuring costs                        |                             |               |           |           |                |   |           |               |  |   |               |           |  |       | 971,828    |           |  |   | 971,828     |          
|                                           |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |           
|Total operating expenses                   |                             |               | 8,276,856  |           |                |   | 8,207,961  |               |  |   | 8,115,795      |           |  |       | 7,391,258  |           |  |   | 31,991,870  |          
|Operating Loss                             |                             |               | (6,190,852 | )         |                |   | (7,149,718 | )             |  |   | (5,853,697     | )         |  |       | (5,607,942 | )         |  |   | (24,802,209 | )        
|Other income, net                          |                             |               | (64,703    | )         |                |   | 53,634     |               |  |   | 193,940        |           |  |       | 350,471    |           |  |   | 533,342     |          
|Income taxes                               |                             |               |           |           |                |   |           |               |  |   |               |           |  |       | 41,991     |           |  |   | 41,991      |          
|                                           |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |           
|Net loss                                   |                             | $             | (6,255,555 | )         |                | $ | (7,096,084 | )             |  | $ | (5,659,757     | )         |  | $     | (5,299,462 | )         |  | $ | (24,310,858 | )        
|                                           |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |           
|Weighted average shares, basic and diluted |                             |               | 23,226,677 |           |                |   | 23,257,197 |               |  |   | 23,273,075     |           |  |       | 23,275,104 |           |  |   | 23,258,187  |          
|                                           |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |           
|Net loss per share:                        |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |            |           |  |   |             |          
|Basic and diluted                          |                             | $             | (0.27      | )         |                | $ | (0.31      | )             |  | $ | (0.24          | )         |  | $     | (0.23      | )         |  | $ | (1.05       | )        
|                                           |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |           

F-24



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##### Table of Contents



EPIX PHARMACEUTICALS, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)


|                                           |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |            |            |      |   |             |           | 
|------------------------------------------ | --------------------------- | ------------- | ---------- | --------- | -------------- | - | ---------- | ------------- |  | - | -------------- | --------- |  | ----- | ---------- | ---------- | ---- | - | ----------- | --------- | 
|                                           |                             | First Quarter |            |           | Second Quarter |   |            | Third Quarter |  |   | Fourth Quarter |           |  |      
|                                           |                             | Ended         |            |           | Ended          |   |            | Ended         |  |   | Ended          |           |  |      
|                                           |                             | March 31,     |            |           | June 30,       |   |            | September 30, |  |   | December 31,   |           |  | Total |           
|                                           |                             | 2004          |            |           | 2004           |   |            | 2004          |  |   | 2004           |           |  | Year  |           
|                                           |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |           
|Revenues:                                  |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |            |            |      |   |             |          
|                                           | Product development revenue |               | $          | 2,651,925 |                |   | $          | 1,962,067     |  |   | $              | 2,273,957 |  |       | $          | 706,331    |      |   | $           | 7,594,280 | 
|                                           | Royalty revenue             |               |            | 688,453   |                |   |            | 1,009,062     |  |   |                | 700,601   |  |       |            | (1,771,431 | )(1) |   |             | 626,685   | 
|                                           | License fee revenue         |               |            | 283,288   |                |   |            | 275,175       |  |   |                | 263,585   |  |       |            | 3,215,588  |      |   |             | 4,037,636 | 
|                                           |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |           
|Total revenues                             |                             |               | 3,623,666  |           |                |   | 3,246,304  |               |  |   | 3,238,143      |           |  |       | 2,150,488  |            |      |   | 12,258,601  |          
|Operating expenses:                        |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |            |            |      |   |             |          
|Research Development                       |                             |               | 5,513,267  |           |                |   | 5,073,265  |               |  |   | 6,508,418      |           |  |       | 4,779,041  |            |      |   | 21,873,991  |          
|General & administrative                   |                             |               | 2,171,976  |           |                |   | 3,119,630  |               |  |   | 2,878,916      |           |  |       | 2,324,855  |            |      |   | 10,495,377  |          
|                                           |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |           
|Total operating expenses                   |                             |               | 7,685,243  |           |                |   | 8,192,895  |               |  |   | 9,387,334      |           |  |       | 7,103,896  |            |      |   | 32,369,368  |          
|Operating Loss                             |                             |               | (4,061,577 | )         |                |   | (4,946,591 | )             |  |   | (6,149,191     | )         |  |       | (4,953,408 | )          |      |   | (20,110,767 | )        
|Other income, net                          |                             |               | 203,017    |           |                |   | 8,576      |               |  |   | (246,645       | )         |  |       | (135,534   | )          |      |   | (170,586    | )        
|Income taxes                               |                             |               | 8,719      |           |                |   | 20,947     |               |  |   | 16,676         |           |  |       | 53,563     |            |      |   | 99,905      |          
|                                           |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |           
|Net loss                                   |                             | $             | (3,867,279 | )         |                | $ | (4,958,962 | )             |  | $ | (6,412,512     | )         |  | $     | (5,142,505 | )          |      | $ | (20,381,258 | )        
|                                           |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |           
|Weighted average shares, basic and diluted |                             |               | 22,622,249 |           |                |   | 22,818,822 |               |  |   | 22,987,878     |           |  |       | 23,122,088 |            |      |   | 22,888,673  |          
|                                           |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |           
|Net loss per share:                        |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |            |            |      |   |             |          
|Basic and diluted                          |                             | $             | (0.17      | )         |                | $ | (0.22      | )             |  | $ | (0.28          | )         |  | $     | (0.22      | )          |      | $ | (0.89       | )        
|                                           |                             |               |            |           |                |   |            |               |  |   |                |           |  |       |           






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Reflects the Companys decision to recognize the full
    $1.8 million of Braccos assertion that Bracco had
    overstated
    non-U.S.
    royalties to the Company during the period 2001 to 2004. In
    addition, the Company believes that it no longer has a
    reasonable basis to make royalty estimates and will therefore,
    effective in the fourth quarter of 2004, recognize future
    royalties from Bracco in the period in which royalty reports are
    received.

F-25