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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number: 0-21863
  EPIX PHARMACEUTICALS,
    INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware(State or other jurisdiction
    of
    incorporation or organization)

04-3030815(I.R.S. Employer
    Identification No.)4 Maguire Road, Lexington, Massachusetts(Address of principal
    executive offices)

02421(Zip
    Code)   Registrants telephone number, including area code:
 (781) 761-7600
 Securities registered pursuant to Section 12(b) of the
    Exchange Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $0.01 par value per share

The NASDAQ Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Exchange Act:
  NONE
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE
  Form 10-K: Form 10-K




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TABLE OF
    CONTENTS
  
  PageSection



No.Part IItem 1.


Business


3Item 1A.


Risk Factors


21Item 1B.


Unresolved Staff Comments


41Item 2.


Properties


42Item 3.


Legal Proceedings


42Item 4.


Submission of Matters to a Vote of Security
    Holders


42Part IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


42Item 6.


Selected Financial Data


43Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


44Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


57Item 8.


Financial Statements and Supplementary Data


57Item 9


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


57Item 9A


Controls and Procedures


58Item 9B


Other Information


58Part IIIItem 10


Directors, Executive Officers and Corporate
    Governance


60Item 11


Executive Compensation


60Item 12


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


60Item 13


Certain Relationships and Related Transactions,
    and Director Independence


60Item 14


Principal Accounting Fees and Services


60Part IVItem 15


Exhibits, Financial Statement Schedules


60EX-10.9 INTELLECTUAL PROPERTY AGREEMENTEX-12.1 RATIO OF EARNINGS TO FIXED CHARGESEX-23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTING FIRMEX-31.1 SECTION 302 CERTIFICATION OF ELKAN GAMZU, PH.D.EX-31.2 SECTION 302 CERTIFICATION OF KIM COBLEIGH DRAPKINEX-32 SECTION 906 CERTIFICATION OF CEO AND CFO    Form 10-K
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PART I  This Annual Report on
    Form 10-K
    contains forward-looking statements within the meaning of
    Section 27A of the Securities Act of 1933, as amended, and
    Section 21E of the Securities Exchange Act of 1934, as
    amended, and are subject to the safe harbor created
    by those sections. These statements relate to, among other
    things, our expectations concerning our research and development
    efforts, regulatory compliance, commercial strategy, strategic
    alliances and collaborative efforts and their likely future
    success. Any statements about our expectations, beliefs, plans,
    objectives, assumptions or future events or performance are not
    historical facts and may be forward-looking. Some of the
    forward-looking statements can be identified by the use of
    forward-looking terms such as believes,
    expects, may, will,
    should, seek, intends,
    plans, estimates,
    anticipates, or other comparable terms. Accordingly,
    these statements involve estimates, assumptions and
    uncertainties that could cause actual results to differ
    materially from those expressed in them. Our actual results may
    differ significantly from the results discussed in the
    forward-looking statements. Factors that might cause such a
    difference include, but are not limited to, those set forth in
    Item 1A. Risk Factors and elsewhere in this
    Annual Report on
    Form 10-K.
    We have no plans to update our forward-looking statements to
    reflect events or circumstances after the date of this report.
    We caution readers not to place undue reliance upon any such
    forward-looking statements, which speak only as of the date
    made.
  ITEM 1.
    BUSINESS  OVERVIEW
       3




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and/or
  Form 10-K,
 4




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OUR
    CLINICAL PRODUCT CANDIDATES
    
    PRX-03140
    for Alzheimers disease
         5




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PRX-08066
    for Pulmonary Hypertension
       6




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moderate-to-severe
  PRX-07034
    for Cognitive Impairment associated with Schizophrenia
    VASOVIST
  and/or
      OUR
    THERAPEUTIC DRUG DISCOVERY TECHNOLOGY AND APPROACH
   7




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100-200
  
    PREDICT-3D in silico modeling.  We have
    developed novel proprietary algorithms which we use in our
    PREDICT technology to model the 3D structure of targets of
    interest (GPCRs and ion channel proteins) from their primary
    amino acid sequence. PREDICT uses algorithms that explore a
    large number of possible structures of the target and then
    selects the biologically relevant one. It takes into account
    specific interactions between the target protein and the
    membrane, specific interactions within the target protein
    itself, and addresses the limitations that hamper homology-based
    modeling of GPCRs and ion channel proteins. The PREDICT software
    code and many of its algorithms are kept as trade secrets,
    making it difficult to copy or reverse engineer. We filed patent
    applications for PREDICT version 1.0 in 2000. The current
    version of PREDICT has evolved considerably from the original
    version and includes numerous new algorithms and capabilities.
    PREDICT bypasses the need for X-ray crystallography structures
    of the GPCR or ion channel protein target to initiate a
    structure-based (so-called rational) drug discovery
    program.
    Virtual libraries.  Our libraries consist of in
    silico versions of four million drug-like compounds which are
    available for purchase from commercial vendors worldwide. These
    virtual libraries reduce the need for us to synthesize or
    purchase, store and maintain tens or hundreds of thousands of
    actual compounds for the initial screening.
    Rapid in silico screening.  The process of in
    silico screening requires the computer to perform trillions of
    operations in trying to fit numerous drug-like compounds into
    the binding site of the target protein, matching both shape and
    chemical properties. We perform high-throughput in silico
    screening with a combination of proprietary and commercially
    available public software to identify compounds that may bind to
    a target GPCR or ion channel protein.
    Ranking of screening results.  We have
    developed proprietary algorithms for ranking our in silico
    screening results using internally developed tools, which we
    believe enables us to select the
    100-200 most
    promising compounds for in vitro testing.
    Integrated structure-based lead
    optimization.  The most promising novel lead
    compounds, identified in silico and shown to have binding
    affinity and functionality in vitro, are optimized into
    drug candidates using an integrated structure-based approach.
    This process makes use of the PREDICT 3D structures (of the drug
    target and related off-target proteins) as well as many other in
    silico tools that we have created or acquired to enable
    efficient structure-based lead optimization, leading to highly
    selective 8




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drug candidates. These tools allow us to overcome challenges
    frequently encountered during lead optimization, such as
    selectivity, blood-brain barrier penetration and hERG ion
    channel binding, in a fraction of the time and cost compared to
    traditional lead optimization efforts. Using these in silico
    tools, our computational and medicinal chemists are able to
    select for actual synthesis the most promising subset of
    suggested compounds for further optimization. In each of our
    clinical-stage programs, this approach has allowed us to
    synthesize fewer than 10% of the compounds that we believe would
    have been synthesized if we were to follow the traditional
    methods of lead optimization.  STRATEGIC
    ALLIANCES AND COLLABORATIONS
  GlaxoSmithKline
      product-by-product country-by-country
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product-by-product country-by-country
      Amgen
      
    Amgen is required to obtain third-party rights to develop and
    commercialize a product that incorporates an EPIX
    compound; and
    Amgen develops and commercializes products that are not covered
    by the intellectual property rights we licensed to Amgen, such
    as for example, S1P1-modulating products that may be acquired by
    Amgen from a third-party.    product-by-product country-by-country
 10




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Cystic
    Fibrosis Foundation Therapeutics, Incorporated
        Bayer
    Schering
     11




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region-by-region
  TECHNOLOGY
    AGREEMENTS
  Covidien
      COMPETITION
   12




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
    PRX-03140.  If approved, PRX-03140, the drug
    candidate we are developing for the treatment of
    Alzheimers disease, may compete with approved products
    from such pharmaceutical companies as Forest Laboratories, Inc.,
    Johnson & Johnson, Novartis AG and Pfizer, Inc., and
    may compete with drug candidates in clinical development from
    other companies, including Medivation, Inc., GlaxoSmithKline plc
    and Pfizer, Inc. We are studying PRX-03140 both as monotherapy
    and in combination with approved products such as Aricept, which
    is marketed by Pfizer Inc.
    PRX-08066.  If approved, PRX-08066, the drug
    candidate we are developing for the treatment of pulmonary
    hypertension associated with COPD, may compete with approved
    products from such pharmaceutical companies as Actelion
    Pharmaceuticals Ltd., GlaxoSmithKline plc, Pfizer Inc., Gilead
    Sciences Inc., and United Therapeutics Corporation, and may
    compete with drug candidates in clinical development by other
    companies, such as Bayer Schering Pharma AG.
    PRX-07034.  If approved for the treatment of
    cognitive impairment (associated with schizophrenia), PRX-07034
    may compete with approved products from such pharmaceutical
    companies as Forest Laboratories, Johnson & Johnson,
    Novartis AG and Pfizer, Inc., and may compete with several
    therapeutic product candidates in clinical development from
    other companies, including GlaxoSmithKline plc, AstraZeneca and
    Memory Pharmaceuticals Corp.    INTELLECTUAL
    PROPERTY
     13




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Ramot
      country-by-country
     14




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Massachusetts
    General Hospital
  country-by-country
  Prince
    MARKETING,
    SALES AND DISTRIBUTION
    MANUFACTURING
   15




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GOVERNMENT
    REGULATION AND PRODUCT APPROVAL
      
    preclinical laboratory and animal studies;
    submission of an investigational new drug application, or IND,
    which must become effective before human clinical trials may
    begin;
    adequate and well-controlled human clinical trials to establish
    the safety and efficacy of the proposed drug for its intended
    use; and
    FDA approval of a new drug application, or NDA.     16




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30-day
    
    Phase 1:  The drug is initially introduced into
    healthy human subjects or patients with the disease and tested
    for safety, dosage tolerance, absorption, metabolism,
    distribution and excretion.
    Phase 2:  Involves studies in a limited patient
    population to identify possible adverse effects and safety
    risks, to preliminarily evaluate the efficacy of the product for
    specific targeted diseases and to determine dosage tolerance and
    optimal dosage.
    Phase 3:  Clinical trials are undertaken to
    further evaluate dosage, clinical efficacy and safety in an
    expanded patient population at geographically dispersed clinical
    study sites. These studies are intended to establish the overall
    risk-benefit ratio of the product and provide an adequate basis
    for product labeling.        agreed-upon agreed-upon
 17




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and/or
     18




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19




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REIMBURSEMENT
          EMPLOYEES
  4 part-time
  RESEARCH
    AND DEVELOPMENT
   20




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AVAILABLE
    INFORMATION
  (781) 761-7600. http://www.epixpharma.com. Form 10-K, Form 10-Q Form 8-K, Form 10-K.
  ITEM 1A.
    RISK
    FACTORS  We operate in a rapidly changing environment that involves a
    number of risks, some of which are beyond our control. This
    discussion highlights some of the risks which may affect future
    operating results. These are the risks and uncertainties we
    believe are most important for you to consider. Additional risks
    and uncertainties not presently known to us, which we currently
    deem immaterial or which are similar to those faced by other
    companies in our industry or business in general, may also
    impair our business operations. If any of the following risks or
    uncertainties actually occurs, our business, financial condition
    and operating results would likely suffer.
  RISKS
    RELATED TO OUR BUSINESS
  We
    will need to raise additional capital in the next five months to
    continue our current operations beyond the end of August
    2009.
    
    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 product candidates gain market
    acceptance;
    the timing and costs of product introductions;
    the extent of our ongoing and any new research and development
    programs;
    changes in our strategy or our planned activities;
    the costs of training physicians to become proficient with the
    use of our product candidates; and
    the costs of developing marketing and distribution capabilities.   21




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and/or and/or
  If we
    are not able to maintain continued listing of our common stock
    on the NASDAQ stock market, noteholders may require us to
    repurchase the $100 million aggregate principal amount of
    our 3% Convertible Senior Notes.
  Form 8-K
 22




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Our
    independent auditors have expressed substantial doubt about our
    ability to continue as a going concern, and we may be unable to
    raise additional capital on acceptable terms in the
    future.
  and/or
  We may
    not be able to monetize our commercial rights to Vasovist, which
    would have a material adverse effect on our
    business.
   23




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We
    significantly increased our leverage as a result of the issuance
    of 3% Convertible Senior Notes due 2024, and may be unable
    to repay, repurchase or redeem these notes if, and when,
    required.
    Form 8-K
    
    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.  We
    anticipate future losses and may never become
    profitable.
   24




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A
    substantial portion of our future revenues will be dependent
    upon our agreements with GlaxoSmithKline, CFFT and Amgen
    Inc.
    We
    have never had a commercially available therapeutic product in
    the United States and we may never succeed in developing
    marketable therapeutic products.
     25




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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;
    manufacture our product candidates at an acceptable cost and
    with acceptable quality; or
    successfully market any approved products.    We
    depend on our strategic collaborators for support in product
    development and the regulatory approval process for our product
    candidates and, if approved, for product
    marketing.
   26




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We
    rely on third-parties to conduct our clinical trials, and those
    third-parties may not perform satisfactorily, including failing
    to maintain adequate diligence in the conduct of our trials and
    failing to meet established deadlines for the completion of such
    trials.
    If
    clinical trials for our product candidates are prolonged or
    delayed, we may be unable to commercialize our product
    candidates on a timely basis, which would require us to incur
    additional costs and delay our receipt of any revenue from
    potential product sales.
   27




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
    conditions imposed on us by the FDA or any foreign regulatory
    authority regarding the scope or design of our clinical trials;
    delays in obtaining, or our inability to obtain, required
    approvals from institutional review boards or other reviewing
    entities at clinical sites selected for participation in our
    clinical trials;
    delay in developing, or our inability to obtain, a clinical
    dosage form, insufficient supply or deficient quality of our
    product candidates or other materials necessary to conduct our
    clinical trials;
    negative or inconclusive results from clinical trials, or
    results that are inconsistent with earlier results, that
    necessitate additional clinical study or termination of a
    clinical program;
    serious
    and/or
    unexpected product-related side effects experienced by subjects
    in clinical trials; or
    failure of our third-party contractors or our investigators to
    comply with regulatory requirements or otherwise meet their
    contractual obligations to us in a timely manner.  15-month
  If we
    are unable to obtain required regulatory approval of our
    therapeutic product candidates, we will be unable to market and
    sell our therapeutic product candidates and our business will be
    materially harmed.
   28




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
    our failure to demonstrate to the satisfaction of the FDA or
    comparable foreign regulatory authorities that a product
    candidate is safe and effective for a particular indication;
    our inability to demonstrate that a product candidates
    benefits outweigh its risks;
    our inability to demonstrate that the product candidate presents
    a significant advantage over existing therapies;
    the FDAs or comparable foreign regulatory
    authorities disagreement with the manner in which we and
    our collaborators interpret the data from preclinical studies or
    clinical trials;
    the FDAs or comparable foreign regulatory
    authorities failure to approve our manufacturing processes
    or facilities or the processes or facilities of our
    collaborators; or
    a change in the approval policies or regulations of the FDA or
    comparable foreign regulatory authorities.    Our
    clinical trials may not yield results that will enable us to
    obtain regulatory approval for our product
    candidates.
    
    the product candidate may not prove to be safe and efficacious;
    the dosage form of the product candidate may not deliver
    reproducible amounts of product to patients;
    patients may die or suffer other adverse effects for reasons
    that may or may not be related to the product candidate being
    tested; 29




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
    the results of later-stage clinical trials may not confirm the
    positive results of earlier trials;
    the results may not meet the level of statistical significance
    required by the FDA or other regulatory agencies for
    approval; and
    the FDA or other regulatory agencies may require additional or
    expanded trials.    Gadolinium-based
    imaging agents, such as Vasovist, may cause adverse side effects
    which could limit our ability to sell our commercial rights to
    Vasovist.
    If we
    encounter difficulties enrolling subjects in our clinical trials
    for our product candidates, or subjects drop out of trials in
    progress for our product candidates, our trials could be delayed
    or otherwise adversely affected.
   30




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
    the limited size of the patient population and the availability
    of commercial products for certain target indications, including
    pulmonary hypertension associated with chronic obstructive
    pulmonary disease;
    the nature and design of the trial protocol;
    the proximity of patients to clinical sites;
    the availability of other effective treatments for the relevant
    disease (whether approved or experimental);
    the eligibility criteria for enrollment in our clinical trials;
    perceived risks and benefits of the product candidate under
    study; and
    competing studies or trials.    Our
    therapeutic product candidates are currently
    unformulated.
    
    the current dosage may not provide reproducible amounts of
    product;
    the pharmaceutical development of a commercially viable
    formulation may add significant cost and time to our clinical
    development programs for therapeutics;
    additional trials may be required if the new formulation is not
    bioequivalent to formulations already used in clinical trials;
    future clinical trials may be delayed in order to identify,
    develop, optimize, manufacture and certify a commercially viable
    formulation; and
    regulatory filings,
    and/or
    commercial launch may be delayed due to the lack of a commercial
    process for cGMP manufacturing of the new formulation.    Our
    prior stock option practices may result in significant
    liability.
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Form 10-K, and/or
  Failure
    to comply with foreign regulatory requirements governing human
    clinical trials and marketing approval for our product
    candidates could prevent us from selling our product candidates
    in foreign markets, which may adversely affect our operating
    results and financial condition.
    Our
    product candidates will remain subject to ongoing regulatory
    requirements even if they receive marketing approval, and if we
    fail to comply with requirements, we could lose these approvals
    and the sale of any approved commercial products could be
    temporarily or permanently suspended.
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
    restrictions on the products, manufacturers or manufacturing
    processes;
    warning letters;
    civil or criminal penalties;
    fines;
    injunctions;
    product seizures or detentions;
    import bans;
    product recalls and related publicity requirements;
    unanticipated expenditures;
    total or partial suspension of production; and
    refusal to approve pending applications for marketing approval
    of new products or supplements to approved applications.    We are
    focusing our therapeutic product discovery and development
    efforts on G-Protein Coupled Receptor and ion channel-targeted
    product candidates, which have historically had a high incidence
    of adverse side effects.
    The
    application of our in silico therapeutic product discovery
    technology and approach may be limited to a subset of
    therapeutically useful proteins, which may reduce the
    opportunities to develop and commercialize product candidates
    against other important therapeutic targets.
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Our
    competitors may develop products that are less expensive, safer
    or more effective, which may diminish or eliminate the
    commercial success of any future products that we may
    commercialize.
    
    PRX-03140.  If approved, PRX-03140, the drug
    candidate we are developing for the treatment of
    Alzheimers disease, may compete with approved products
    from such pharmaceutical companies as Forest Laboratories, Inc.,
    Johnson & Johnson, Novartis AG and Pfizer, Inc., and
    may compete with drug candidates in clinical development from
    other companies, including Medivation, Inc., GlaxoSmithKline plc
    and Neurochem Inc. We are studying PRX-03140 both as monotherapy
    and in combination with approved products, such as Aricept which
    is marketed by Pfizer Inc. We believe that there are more than
    100 therapeutic product candidates in clinical trials for the
    treatment of Alzheimers disease.
    PRX-08066.  If approved, PRX-08066, the drug
    candidate we are developing for the treatment of pulmonary
    hypertension in association with chronic obstructive pulmonary
    disease, may compete with approved products from such
    pharmaceutical companies as Actelion Pharmaceuticals Ltd.,
    GlaxoSmithKline plc, Pfizer Inc., Gilead Sciences Inc., and
    United Therapeutics Corporation, and may compete with drug
    candidates in clinical development by other companies, such as
    Bayer Schering Pharma AG, Germany. We believe that there are
    more than 15 therapeutic product candidates in clinical trials
    or that have been submitted for approval for the treatment of
    pulmonary arterial hypertension
    and/or
    pulmonary hypertension associated with chronic obstructive
    pulmonary disease.
    PRX-07034.  If approved for the treatment of
    cognitive impairment (associated with schizophrenia), PRX-07034
    may compete with approved products from such pharmaceutical
    companies as Forest Laboratories, Johnson & Johnson,
    Novartis AG and Pfizer, Inc., and may compete with several
    therapeutic product candidates in clinical development from
    other companies, including GlaxoSmithKline plc, AstraZeneca and
    Memory Pharmaceuticals Corp. We believe that there are more than
    60 therapeutic product candidates in clinical trials for the
    treatment of cognitive impairment in association with
    schizophrenia.     34




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If the
    market does not accept our technology and product candidates, we
    may not generate sufficient revenues to achieve or maintain
    profitability.
    
    safety;
    cost-effectiveness relative to alternative therapies, methods or
    products;
    availability of third-party reimbursement;
    ease of administration;
    clinical efficacy; and
    availability of competitive products.    We may
    not be able to keep up with the rapid technological change in
    the biotechnology and pharmaceutical industries, which could
    make any of our future approved therapeutic products obsolete
    and reduce our revenue.
    Our
    product candidates require significant biological testing,
    preclinical testing, manufacturing and pharmaceutical
    development expertise and investment. We rely primarily on
    external partners to complete these activities.
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and/or
  If we
    are unable to attract and retain key management and other
    personnel, it would hurt our ability to operate effectively and
    execute our business strategy.
    Our
    research and development efforts may not result in product
    candidates appropriate for testing in human clinical
    trials.
    If we
    fail to get adequate levels of reimbursement from third-party
    payors for our product candidates after they are approved in the
    United States and abroad, we may have difficulty commercializing
    our product candidates.
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We
    deal with hazardous materials and must comply with environmental
    laws and regulations, which can be expensive and restrict how we
    do business.
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Product
    liability claims could increase our costs and adversely affect
    our results of operations.
    Political
    and military instability and other factors may adversely affect
    our operations in Israel.
    RISKS
    RELATED TO OUR INTELLECTUAL PROPERTY
  We
    depend on patents and other proprietary rights, and if they fail
    to protect our business, we may not be able to compete
    effectively.
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We
    depend on exclusively licensed technology from Ramot at Tel Aviv
    University Ltd. and, if we lose this license, it is unlikely we
    could obtain such technology elsewhere, which would have a
    material adverse effect on our business.
    We may
    need to initiate lawsuits to protect or enforce our patents and
    other intellectual property rights, which could result in the
    incurrence of substantial costs and which could result in the
    forfeiture of these rights.
    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.
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and/or
  
    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.
    RISKS
    RELATED TO OUR SECURITIES
  Our
    stock price is volatile, which could subject us to securities
    class action litigation.
    
    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 preclinical studies and clinical trials; 40




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
    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.      Certain
    anti-takeover clauses in our charter and by-laws and in Delaware
    law may make an acquisition of us more difficult.
    ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS   41




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##### Table of Contents



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      High


Low2007First Quarter

$
7.20


$
6.08Second Quarter


7.28



5.08Third Quarter


5.90



3.67Fourth Quarter


5.40



2.892008First Quarter


4.41



1.33Second Quarter


2.50



1.28Third Quarter


2.16



0.84Fourth Quarter


1.87



0.21   mark-up,
   42




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##### Table of Contents



ISSUER
    PURCHASES OF EQUITY SECURITIES
    (a) Totalnumber of


(b) AverageShares (or


Price PaidUnits)


per Share (orPeriod(1)

Purchased


Unit)Fiscal month beginning December 1, 2008 and ended
    December 31, 2008


165,344
(2)

$
1.03
(3)Total


165,344
(2)

$
1.03
(3)     (1)
    
    There were no other repurchases of our equity securities by or
    on behalf of us or any affiliated purchaser during the three
    months ended December 31, 2008.(2)
    
    With respect to grants of stock in December 2008 to certain
    employees, we repurchased from the employees a number of shares
    of stock with a value, based on the fair market value on the
    date of grant, equal to our required minimum income tax
    withholding obligation for the shares. Shares repurchased under
    this arrangement are not available for future awards under our
    2008 Stock Option and Incentive Plan.(3)
    
    The amount represents the last reported sale price of our common
    stock on The NASDAQ Global Market on December 31, 2008.  ITEM 6.
    SELECTED
    FINANCIAL DATA      Year Ended December 31,2008


2007


2006(1)


2005


2004Statement of Operations Data:Revenues

$
28,628


$
14,960


$
6,041


$
7,190


$
12,259Operating loss


(34,241
)


(63,564
)


(157,668
)


(21,760
)


(22,351
)Net loss


(36,671
)


(62,789
)


(157,393
)


(21,269
)


(22,621
)Weighted average common shares outstanding:Basic and diluted


41,466



33,936



20,789



15,505



15,259Net loss per share, basic and diluted

$
(0.88
)

$
(1.85
)

$
(7.57
)

$
(1.37
)

$
(1.48
)   December 31,2008


2007


2006


2005


2004Balance Sheet Data:Cash, cash equivalents and marketable securities

$
24,597


$
61,077


$
109,543


$
124,728


$
164,440Total assets


41,069



78,075



125,027



130,716



171,287Convertible debt(2)


100,000



100,000



100,000



100,000



100,000Long-term liabilities


118,276



120,846



120,066



100,756



101,210     (1)
    
    We merged with Predix on August 16, 2006. 2006 includes a
    charge of $123.5 million for acquired in-process research
    and development related to the merger. 43




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##### Table of Contents



(2)
    
    Noteholders may require us to repurchase the notes at par, plus
    accrued and unpaid interest, on June 15, 2011, 2014 and
    2019 and upon certain other events, including a change of
    control and termination of trading of our common stock on the
    NASDAQ Stock Market.  ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Form 10-K.
  Overview
        PRX-08066
 44




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##### Table of Contents



and/or
  Critical
    Accounting Policies And Estimates
      Revenue
    Recognition
  Revenue Recognition,
   45




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##### Table of Contents



Product
    development revenue
      Royalty
    revenue
    License
    fee revenue
    Research
    and Development
  Accounting for Research and Development Cost,
   46




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##### Table of Contents



Employee
    Stock Compensation
  Share-Based Payment  An Amendment of FASB
    Statements No. 123 and 95,
    Results
    of Operations
  Research
    and Development Overview
      
    salaries, benefits and related expenses for personnel engaged in
    research and development activities;
    fees paid to contract research organizations to manage and
    monitor clinical trials;
    fees paid to the investigator sites who participate in clinical
    trials;
    fees paid to research organizations in conjunction with
    preclinical studies;
    costs of materials used in research and development and clinical
    studies; 47




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##### Table of Contents




    fees paid to access chemical and intellectual property databases;
    academic testing and consulting, license and sponsored research
    fees paid to third parties; and
    costs of facilities and equipment, including depreciation, used
    in research and development activities.        DrugCandidate

Disease Indication

Clinical Trial StatusPRX-03140(1)

Alzheimers disease


Phase 2bPRX-08066(2)

Pulmonary Hypertension/COPD


Phase 2bPRX-07034(3)

Cognitive impairment in association with schizophrenia


Phase 1b     (1)
    
    In May 2008, we initiated a Phase 2b trial in Alzheimers
    disease of PRX-03140 in combination with Aricept (donepezil).
    This randomized, double-blind, placebo-controlled trial is
    designed to evaluate the efficacy of PRX-03140 on cognitive
    function as measured by the change from baseline in the
    cognitive component of the Alzheimers Disease Assessment
    Scale (ADAS-cog) score. Patients will be randomized to one of
    three trial arms: placebo; 50 mg of PRX-03140 once daily;
    or 150 mg of PRX-03140 once daily. All patients in the
    trial must be treated with 10 mg of Aricept for at least
    four months prior to enrollment. The six-month trial is expected
    to enroll approximately 420 adult patients with Alzheimers
    disease.In May 2008, we initiated a second Phase 2b trial of PRX-03140
    as monotherapy treatment of Alzheimers disease. This
    randomized, double-blind, placebo-controlled trial is designed
    to evaluate the efficacy of PRX-03140 alone on cognitive
    function as measured by the change from baseline in the ADAS-cog
    score. Patients will be randomized to one of four trial arms:
    placebo; Aricept positive control; 50 mg of PRX-03140 once
    daily; or 150 mg of PRX-03140 once daily. The three-month
    trial is expected to enroll approximately 240 adult patients
    with Alzheimers disease. This monotherapy trial also
    includes a three-month optional extension.(2)
    
    In August 2008, we initiated a Phase 2b right-heart catheter
    study of PRX-08066 in patients with COPD and moderate-to-severe
    pulmonary hypertension (PH). This single-arm, open-label, Phase
    2b study is designed to evaluate the mean pulmonary artery blood
    pressure change from baseline as measured directly by
    right-heart catheterization and will also measure the change
    from baseline in the standard six-minute walk distance test
    after three months of treatment. Patients will be treated with
    500 mg of PRX-08066 on 48




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##### Table of Contents



day one of the trial followed by twice-daily dosing of
    300 mg of PRX-08066 for three months. The trial is designed
    to enroll adult patients with COPD and moderate-to-severe PH.(3)
    
    PRX-07034 has completed multiple Phase 1 studies and is being
    developed for the treatment of cognitive impairment in
    association with schizophrenia. We put development of this
    program on hold as part of a cost reduction initiative
    implemented in October 2008. Future development of this program
    is dependent upon us raising a significant amount of capital.    
    the number of patients that participate in the trials;
    the length of time required to enroll suitable patient subjects;
    the number of sites included in the trials;
    the duration of patient
    follow-up
    that seems appropriate in view of results; and
    the efficacy and safety profile of the drug candidate.      EstimatedClinical



CompletionPhase

Objective

PeriodPhase 1

Establish safety in healthy volunteers and occasionally in
    patients; study how the drug works, is metabolized and interacts
    with other drugs


1-2 yearsPhase 2

Evaluate efficacy, optimal dosages and expanded evidence of
    safety


2-3 yearsPhase 3

Further evaluate efficacy and safety of the drug candidate in a
    larger patient population


2-3 years      49




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##### Table of Contents



project-by-project
  PRX-03140

$
17.7 millionPRX-08066

$
5.5 millionPRX-07034

$
9.8 million     Financial
    Results
  Years
    ended December 31, 2008 and 2007
  Revenue
    Years Ended December 31,2008


2007IncreaseRevenue


(Decrease)


RevenueProduct development revenue

$
26,190,203



156
%

$
10,239,120Royalty revenue


626,228



(38
)%


1,017,669License fee revenue


1,811,924



(51
)%


3,703,260Total

$
28,628,355



91
%

$
14,960,049        50




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##### Table of Contents



Research
    and Development Expense
    General
    and Administrative Expense
    Royalty
    Expense
        Restructuring
    Expense
   51




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Interest
    and Other Income
    Interest
    Expense
    Provision
    for Income Taxes
    Years
    ended December 31, 2007 and 2006
  Revenue
    2007


2006IncreaseRevenue


(Decrease)


RevenueProduct development revenue

$
10,239,120



252
%

$
2,909,402Royalty revenue


1,017,669



(37
)%


1,603,230License fee revenue


3,703,260



142
%


1,527,910Total

$
14,960,049



148
%

$
6,040,542      52




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Research
    and Development Expense
    In-Process
    Research and Development Charge
    General
    and Administrative Expense
    Royalty
    Expense
   53




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Restructuring
    Costs
      Interest
    and Other Income
    Interest
    Expense
  30-day
 54




---



##### Table of Contents



Provision
    for Income Taxes
    Liquidity
    and Capital Resources
           55




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Payments Due by PeriodLess Than


1-3


3-5


More ThanContractual Obligations

Total


1 Year


Years


Years


5 YearsLong-term debt obligations, including interest payments

$
107,500,000


$
3,000,000


$
104,500,000


$



$
Operating lease obligations


12,852,415



2,686,070



4,647,960



3,648,625



1,869,760Capital lease obligations


475,382



250,113



225,269







Unconditional purchase obligations


1,090,107



1,090,107











Other long-term liabilities


2,905,000



525,000



280,000



280,000



1,820,000Total

$
124,822,904


$
7,551,290


$
109,653,229


$
3,928,625


$
3,689,760   and/or
  and/or and/or
   56




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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 Consolidated Financial Statements

NumberReport of Independent Registered Public Accounting Firm

F-2Consolidated Financial Statements:Consolidated Balance Sheets

F-3Consolidated Statements of Operations

F-4Consolidated Statements of Stockholders Equity (Deficit)

F-5Consolidated Statements of Cash Flows

F-6Notes to Consolidated Financial Statements

F-7   ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE   57




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##### Table of Contents



Item 9A.
    CONTROLS
    AND PROCEDURES  Managements
    Evaluation of Disclosure Controls and Procedures
  Rules 13a-15(e))
  Managements
    Annual Report on Internal Control Over Financial
    Reporting
  Rules 13a-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.        Form 10-K.
  Changes
    in Internal Controls over Financial Reporting
    Item 9B.
    OTHER
    INFORMATION   58




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
                 
    59




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##### Table of Contents



PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE    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, AND DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTING FEES AND SERVICES   PART IV  ITEM 15.
    EXHIBITS,
    FINANCIAL STATEMENT SCHEDULES  Item 15(a).
  Form 10-K
  Item 15(a)
    (1) and (2).
  Form 10-K.
 60




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##### Table of Contents



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

Description3.1@

Restated Certificate of Incorporation of the Company. Filed as
    Exhibit 3.1 to the Companys Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.3.2@

Amended and Restated By-Laws of the Company. Filed as
    Exhibit 3.1 to the Companys Quarterly Report on
    Form 10-Q
    for the period ended March 31, 2007 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 Quarterly Report
    on
    Form 10-Q
    for the period ended September 30, 2006 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 and incorporated herein by reference.4.3@

Warrant issued to RRD International, LLC. Filed as
    Exhibit 4.3 to the Companys Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.4.4@

Warrant issued to General Electric Capital Corporation. Filed as
    Exhibit 4.4 to the Companys Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.4.5@

Warrant issued to Kingsbridge Capital Limited, dated as of
    August 4, 2008. Filed as Exhibit 4.1 to the
    Companys Current Report on
    Form 8-K
    filed August 5, 2008 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
    filed December 10, 1996 (File
    No. 333-17581)
    and incorporated herein by reference.10.2@#

Amended and Restated 1992 Incentive Plan. Filed as
    Appendix A to the Companys 2005 Definitive Proxy
    Statement on Schedule 14A filed April 29, 2005 and
    incorporated herein by reference.10.3@#

Form of Incentive Stock Option Certificate under the Amended and
    Restated 1992 Incentive Plan. Filed as Exhibit 10.29 to the
    Companys Registration Statement on
    Form S-1
    filed December 10, 1996 (File
    No. 333-17581)
    and incorporated herein by reference.10.4@#

Form of Nonstatutory Stock Option Certificate under the Amended
    and Restated 1992 Incentive Plan. Filed as Exhibit 10.30 to
    the Companys Registration Statement on
    Form S-1
    filed December 10, 1996 (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 2005 Definitive Proxy
    Statement on Schedule 14A filed April 29, 2005 and
    incorporated herein by reference.10.6@++

Amended and Restated Strategic Collaboration Agreement dated as
    of June 9, 2000, among the Company, Mallinckrodt Inc. (a
    Delaware corporation) and Mallinckrodt Inc. (a New York
    corporation). Filed as Exhibit 10.6 to the Companys
    Annual Report on
    Form 10-K
    for the year ended December 31, 2007 and incorporated
    herein by reference.10.7@++

Strategic Collaboration Agreement dated as of June 9, 2000,
    between the Company and Schering Aktiengesellschaft. Filed as
    Exhibit 10.7 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2007 and incorporated
    herein by reference.10.8@

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 10.8 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2007 and incorporated
    herein by reference. 61




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##### Table of Contents



ExhibitNumber

Description10.9*

Intellectual Property Agreement by and between the Company and
    Dr. Martin R. Prince, dated November 17, 2003.10.10@#

Description of Director Compensation Arrangements. Filed with
    the Companys Current Report on
    Form 8-K
    filed June 4, 2007 and incorporated herein by reference.10.11@#

Form of Indemnification Agreement. Filed as Exhibit 10.29
    to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2004 and incorporated
    herein by reference.10.12@

Form of Amendment to Stock Option Agreement under the Amended
    and Restated 1992 Incentive Plan. Filed as Exhibit 10.30 to
    the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2004 and incorporated
    herein by reference.10.13@

Predix Pharmaceuticals Holdings, Inc. Amended and Restated 2003
    Stock Incentive Plan. Filed as Exhibit 10.1 to the
    Companys Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.10.14@

Physiome Sciences, Inc. Stock Option Plan (as amended
    September 21, 2001). Filed as Exhibit 10.2 to the
    Companys Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.10.15@++

Amended and Restated License Agreement between Ramot at Tel Aviv
    University Ltd., Company Registration
    No. 51-066714-0
    and Predix Pharmaceuticals Holdings, Inc., dated as of
    May 20, 2004. Filed as Exhibit 10.3 to the
    Companys Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.10.16@++

Research, Development and Commercialization Agreement between
    Predix Pharmaceuticals Holdings, Inc. and Cystic Fibrosis
    Foundation Therapeutics, Incorporated, dated as of March 7,
    2005. Filed as Exhibit 10.4 to the Companys Quarterly
    Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.10.17@++

License Agreement between Amgen Inc. and Predix Pharmaceuticals
    Holdings, Inc., dated as of July 31, 2006. Filed as
    Exhibit 10.5 to the Companys Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.10.18@

Lease between Trustees of 4 Maguire Road Realty Trust and EPIX
    Delaware, Inc. dated as of January 30, 1998, as amended
    through June 2, 2008. Filed as Exhibit 10.6 to the
    Companys Quarterly Report on
    Form 10-Q
    for the period ended June 30, 2008 and incorporated herein
    by reference.10.19@

Lease Agreement by and between 150 College Road, LLC and
    Physiome Sciences, Inc., dated as of December 21, 2000, as
    amended. Filed as Exhibit 10.7 to the Companys
    Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.10.20@

Sublease by and between Predix Pharmaceuticals Holdings, Inc.
    and Novo Nordisk Pharmaceuticals, Inc., dated as of
    December 12, 2003. Filed as Exhibit 10.8 to the
    Companys Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.10.21@

Unprotected Lease Agreement between Emed Real Estate
    Development and Investments Company Ltd. and Predix
    Pharmaceuticals Ltd., dated as of September 26, 2004. Filed
    as Exhibit 10.9 to the Companys Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.10.22@++

Development and License Agreement among SmithKline Beecham
    Corporation, doing business as GlaxoSmithKline, Glaxo Group
    Limited and the Company, dated as of December 11, 2006.
    Filed as Exhibit 10.1 to the Companys Current Report
    on
    Form 8-K/A
    filed January 18, 2007 and incorporated herein by reference.10.23@

Stock Purchase Agreement among the Company, Glaxo Group Limited
    and SmithKline Beecham Corporation, doing business as
    GlaxoSmithKline, dated as of December 11, 2006. Filed as
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K/A
    filed January 18, 2007 and incorporated herein by
    reference. 62




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##### Table of Contents



ExhibitNumber

Description10.24@

First Amendment to License Agreement between Amgen Inc. and the
    Company, dated as of March 20, 2007. Filed as
    Exhibit 10.52 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2006 and incorporated
    herein by reference.10.25@#

Employment Agreement between the Company and Michael G.
    Kauffman, M.D., Ph.D., dated as of March 27,
    2007. Filed as Exhibit 10.2 to the Companys Current
    Report on
    Form 8-K
    filed March 29, 2007 and incorporated herein by reference.10.26@#

2006 Employee Stock Purchase Plan. Filed as Appendix A to
    the Companys 2007 Definitive Proxy Statement on
    Schedule 14A filed April 30, 2007 and incorporated
    herein by reference.10.27@++

First Amendment to Amended and Restated License Agreement
    between the Company and Ramot at Tel Aviv University Ltd., dated
    as of June 13, 2007. Filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed June 15, 2007 and incorporated herein by reference.10.28@#

Employment Agreement between the Company and Andrew Uprichard,
    MD, dated as of August 9, 2007. Filed as Exhibit 10.1
    to the Companys Current Report on
    Form 8-K
    filed August 10, 2007 and incorporated herein by reference.10.29@++

Third Amendment to Research, Development and Commercialization
    Agreement between the Company and Cystic Fibrosis Foundation
    Therapeutics, Incorporated, dated as of November 1, 2007.
    Filed as Exhibit 10.1 to the Companys Current Report
    on
    Form 8-K
    filed November 7, 2007 and incorporated herein by reference.10.30@

Form of Securities Purchase Agreement dated November 9,
    2007 between the Company and each of the purchasers listed on
    Exhibit A thereto. Filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed November 15, 2007 and incorporated herein by
    reference.10.31@#

Form of Restricted Stock Unit Agreement under the Amended and
    Restated 1992 Incentive Plan. Filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed February 22, 2008 and incorporated herein by
    reference.10.32@#

Form of Restricted Stock Unit Agreement under the Amended and
    Restated 2003 Stock Option and Incentive Plan. Filed as
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    filed February 22, 2008 and incorporated herein by
    reference.10.33@++

Research, Development and Commercialization Agreement between
    EPIX Pharmaceuticals, Inc. and Cystic Fibrosis Foundation
    Therapeutics, Inc., dated as of April 1, 2008. Filed as
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q
    for the period ended March 31, 2008 and incorporated herein
    by reference.10.34@#

Letter Agreement between the Company and Elkan
    Gamzu, Ph.D., dated as of July 25, 2008. Filed as
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    filed July 28, 2008 and incorporated herein by reference.10.35@#

Employment Agreement between the Company and Chen Schor, dated
    as of June 16, 2008. Filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed June 19, 2008 and incorporated herein by reference.10.36@#

Separation Agreement and Post-Employment Consulting Agreement
    between the Company and Andrew Uprichard, M.D., dated
    May 29, 2008. Filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed June 3, 2008 and incorporated herein by reference.10.37@#

Separation Agreement between the Company and Michael G.
    Kauffman, M.D., Ph.D., dated as of July 25, 2008.
    Filed as Exhibit 10.1 to the Companys Current Report
    on
    Form 8-K
    filed July 28, 2008 and incorporated herein by reference.10.38@#

2008 Stock Option and Incentive Plan and forms of award
    agreements thereunder. Filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed May 21, 2008 and incorporated herein by reference.10.39@#

Employment Agreement between the Company and Kim C. Drapkin,
    dated as of September 15, 2008. Filed as Exhibit 10.1
    to the Companys Current Report on
    Form 8-K
    filed September 18, 2008 and incorporated herein by
    reference. 63




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##### Table of Contents



ExhibitNumber

Description10.40@#

Amendment to Employment Agreement between the Company and Chen
    Schor, dated as of September 16, 2008. Filed as
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    filed September 18, 2008 and incorporated herein by
    reference.10.41@

Common Stock Purchase Agreement between the Company and
    Kingsbridge Capital Limited, dated as of August 4, 2008.
    Filed as Exhibit 10.1 to the Companys Current Report
    on
    Form 8-K
    filed August 5, 2008 and incorporated herein by reference.10.42@

Registration Rights Agreement between the Company and
    Kingsbridge Capital Limited, dated as of August 4, 2008.
    Filed as Exhibit 10.2 to the Companys Current Report
    on
    Form 8-K
    filed August 5, 2008 and incorporated herein by reference.12.1*

Ratio of Earnings to Fixed Charges.21.1@

Subsidiaries of the Company. Filed as Exhibit 21.1 to the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2006 and incorporated
    herein by reference.23.1*

Consent of Independent Registered Public Accounting Firm.24.1

Power of Attorney (included on signature page to this Annual
    Report on
    Form 10-K).31.1*

Certification pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002 for Elkan Gamzu, Ph.D.31.2*

Certification pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002 for Kim Cobleigh Drapkin.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).     @
    
    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. 64




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##### Table of Contents



SIGNATURES
      By:
    /s/  KIM
    COBLEIGH DRAPKIN        POWER OF
    ATTORNEY
  Form 10-K
    Signature

Title

Date/s/  ELKAN
    GAMZUElkan
    Gamzu, Ph.D.

President, Chief Executive Officer and Director (Principal
    Executive Officer)

March 13, 2009/s/  KIM
    COBLEIGH DRAPKINKim
    Cobleigh Drapkin, CPA

Chief Financial Officer (Principal Financial and Accounting
    Officer)

March 13, 2009/s/  FREDERICK
    FRANKFrederick
    Frank

Chairman of the Board of Directors

March 13, 2009/s/  MICHAEL
    GILMANMichael
    Gilman, Ph.D.

Director

March 13, 2009/s/  MARK
    LEUCHTENBERGERMark
    Leuchtenberger

Director

March 13, 2009/s/  GREGORY
    D. PHELPSGregory
    D. Phelps

Director

March 13, 2009/s/  IAN
    F. SMITHIan
    F. Smith, CPA, ACA

Director

March 13, 2009  65




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description3.1@

Restated Certificate of Incorporation of the Company. Filed as
    Exhibit 3.1 to the Companys Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.3.2@

Amended and Restated By-Laws of the Company. Filed as
    Exhibit 3.1 to the Companys Quarterly Report on
    Form 10-Q
    for the period ended March 31, 2007 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 Quarterly Report
    on
    Form 10-Q
    for the period ended September 30, 2006 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 and incorporated herein by reference.4.3@

Warrant issued to RRD International, LLC. Filed as
    Exhibit 4.3 to the Companys Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.4.4@

Warrant issued to General Electric Capital Corporation. Filed as
    Exhibit 4.4 to the Companys Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.4.5@

Warrant issued to Kingsbridge Capital Limited, dated as of
    August 4, 2008. Filed as Exhibit 4.1 to the
    Companys Current Report on
    Form 8-K
    filed August 5, 2008 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
    filed December 10, 1996 (File
    No. 333-17581)
    and incorporated herein by reference.10.2@#

Amended and Restated 1992 Incentive Plan. Filed as
    Appendix A to the Companys 2005 Definitive Proxy
    Statement on Schedule 14A filed April 29, 2005 and
    incorporated herein by reference.10.3@#

Form of Incentive Stock Option Certificate under the Amended and
    Restated 1992 Incentive Plan. Filed as Exhibit 10.29 to the
    Companys Registration Statement on
    Form S-1
    filed December 10, 1996 (File
    No. 333-17581)
    and incorporated herein by reference.10.4@#

Form of Nonstatutory Stock Option Certificate under the Amended
    and Restated 1992 Incentive Plan. Filed as Exhibit 10.30 to
    the Companys Registration Statement on
    Form S-1
    filed December 10, 1996 (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 2005 Definitive Proxy
    Statement on Schedule 14A filed April 29, 2005 and
    incorporated herein by reference.10.6@++

Amended and Restated Strategic Collaboration Agreement dated as
    of June 9, 2000, among the Company, Mallinckrodt Inc. (a
    Delaware corporation) and Mallinckrodt Inc. (a New York
    corporation). Filed as Exhibit 10.6 to the Companys
    Annual Report on
    Form 10-K
    for the year ended December 31, 2007 and incorporated
    herein by reference.10.7@++

Strategic Collaboration Agreement dated as of June 9, 2000,
    between the Company and Schering Aktiengesellschaft. Filed as
    Exhibit 10.7 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2007 and incorporated
    herein by reference.10.8@

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 10.8 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2007 and incorporated
    herein by reference.10.9*

Intellectual Property Agreement by and between the Company and
    Dr. Martin R. Prince, dated November 17, 2003.10.10@#

Description of Director Compensation Arrangements. Filed with
    the Companys Current Report on
    Form 8-K
    filed June 4, 2007 and incorporated herein by reference. 66




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##### Table of Contents



ExhibitNumber

Description10.11@#

Form of Indemnification Agreement. Filed as Exhibit 10.29
    to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2004 and incorporated
    herein by reference.10.12@

Form of Amendment to Stock Option Agreement under the Amended
    and Restated 1992 Incentive Plan. Filed as Exhibit 10.30 to
    the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2004 and incorporated
    herein by reference.10.13@

Predix Pharmaceuticals Holdings, Inc. Amended and Restated 2003
    Stock Incentive Plan. Filed as Exhibit 10.1 to the
    Companys Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.10.14@

Physiome Sciences, Inc. Stock Option Plan (as amended
    September 21, 2001). Filed as Exhibit 10.2 to the
    Companys Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.10.15@++

Amended and Restated License Agreement between Ramot at Tel Aviv
    University Ltd., Company Registration
    No. 51-066714-0
    and Predix Pharmaceuticals Holdings, Inc., dated as of
    May 20, 2004. Filed as Exhibit 10.3 to the
    Companys Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.10.16@++

Research, Development and Commercialization Agreement between
    Predix Pharmaceuticals Holdings, Inc. and Cystic Fibrosis
    Foundation Therapeutics, Incorporated, dated as of March 7,
    2005. Filed as Exhibit 10.4 to the Companys Quarterly
    Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.10.17@++

License Agreement between Amgen Inc. and Predix Pharmaceuticals
    Holdings, Inc., dated as of July 31, 2006. Filed as
    Exhibit 10.5 to the Companys Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.10.18@

Lease between Trustees of 4 Maguire Road Realty Trust and EPIX
    Delaware, Inc. dated as of January 30, 1998, as amended
    through June 2, 2008. Filed as Exhibit 10.6 to the
    Companys Quarterly Report on
    Form 10-Q
    for the period ended June 30, 2008 and incorporated herein
    by reference.10.19@

Lease Agreement by and between 150 College Road, LLC and
    Physiome Sciences, Inc., dated as of December 21, 2000, as
    amended. Filed as Exhibit 10.7 to the Companys
    Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.10.20@

Sublease by and between Predix Pharmaceuticals Holdings, Inc.
    and Novo Nordisk Pharmaceuticals, Inc., dated as of
    December 12, 2003. Filed as Exhibit 10.8 to the
    Companys Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.10.21@

Unprotected Lease Agreement between Emed Real Estate
    Development and Investments Company Ltd. and Predix
    Pharmaceuticals Ltd., dated as of September 26, 2004. Filed
    as Exhibit 10.9 to the Companys Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 and incorporated
    herein by reference.10.22@++

Development and License Agreement among SmithKline Beecham
    Corporation, doing business as GlaxoSmithKline, Glaxo Group
    Limited and the Company, dated as of December 11, 2006.
    Filed as Exhibit 10.1 to the Companys Current Report
    on
    Form 8-K/A
    filed January 18, 2007 and incorporated herein by reference.10.23@

Stock Purchase Agreement among the Company, Glaxo Group Limited
    and SmithKline Beecham Corporation, doing business as
    GlaxoSmithKline, dated as of December 11, 2006. Filed as
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K/A
    filed January 18, 2007 and incorporated herein by reference.10.24@

First Amendment to License Agreement between Amgen Inc. and the
    Company, dated as of March 20, 2007. Filed as
    Exhibit 10.52 to the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2006 and incorporated
    herein by reference.10.25@#

Employment Agreement between the Company and Michael G.
    Kauffman, M.D., Ph.D., dated as of March 27,
    2007. Filed as Exhibit 10.2 to the Companys Current
    Report on
    Form 8-K
    filed March 29, 2007 and incorporated herein by reference.10.26@#

2006 Employee Stock Purchase Plan. Filed as Appendix A to
    the Companys 2007 Definitive Proxy Statement on
    Schedule 14A filed April 30, 2007 and incorporated
    herein by reference. 67




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##### Table of Contents



ExhibitNumber

Description10.27@++

First Amendment to Amended and Restated License Agreement
    between the Company and Ramot at Tel Aviv University Ltd., dated
    as of June 13, 2007. Filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed June 15, 2007 and incorporated herein by reference.10.28@#

Employment Agreement between the Company and Andrew Uprichard,
    MD, dated as of August 9, 2007. Filed as Exhibit 10.1
    to the Companys Current Report on
    Form 8-K
    filed August 10, 2007 and incorporated herein by reference.10.29@++

Third Amendment to Research, Development and Commercialization
    Agreement between the Company and Cystic Fibrosis Foundation
    Therapeutics, Incorporated, dated as of November 1, 2007.
    Filed as Exhibit 10.1 to the Companys Current Report
    on
    Form 8-K
    filed November 7, 2007 and incorporated herein by reference.10.30@

Form of Securities Purchase Agreement dated November 9,
    2007 between the Company and each of the purchasers listed on
    Exhibit A thereto. Filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed November 15, 2007 and incorporated herein by
    reference.10.31@#

Form of Restricted Stock Unit Agreement under the Amended and
    Restated 1992 Incentive Plan. Filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed February 22, 2008 and incorporated herein by
    reference.10.32@#

Form of Restricted Stock Unit Agreement under the Amended and
    Restated 2003 Stock Option and Incentive Plan. Filed as
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    filed February 22, 2008 and incorporated herein by
    reference.10.33@++

Research, Development and Commercialization Agreement between
    EPIX Pharmaceuticals, Inc. and Cystic Fibrosis Foundation
    Therapeutics, Inc., dated as of April 1, 2008. Filed as
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q
    for the period ended March 31, 2008 and incorporated herein
    by reference.10.34@#

Letter Agreement between the Company and Elkan
    Gamzu, Ph.D., dated as of July 25, 2008. Filed as
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    filed July 28, 2008 and incorporated herein by reference.10.35@#

Employment Agreement between the Company and Chen Schor, dated
    as of June 16, 2008. Filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed June 19, 2008 and incorporated herein by reference.10.36@#

Separation Agreement and Post-Employment Consulting Agreement
    between the Company and Andrew Uprichard, M.D., dated
    May 29, 2008. Filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed June 3, 2008 and incorporated herein by reference.10.37@#

Separation Agreement between the Company and Michael G.
    Kauffman, M.D., Ph.D., dated as of July 25, 2008.
    Filed as Exhibit 10.1 to the Companys Current Report
    on
    Form 8-K
    filed July 28, 2008 and incorporated herein by reference.10.38@#

2008 Stock Option and Incentive Plan and forms of award
    agreements thereunder. Filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed May 21, 2008 and incorporated herein by reference.10.39@#

Employment Agreement between the Company and Kim C. Drapkin,
    dated as of September 15, 2008. Filed as Exhibit 10.1
    to the Companys Current Report on
    Form 8-K
    filed September 18, 2008 and incorporated herein by
    reference.10.40@#

Amendment to Employment Agreement between the Company and Chen
    Schor, dated as of September 16, 2008. Filed as
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    filed September 18, 2008 and incorporated herein by
    reference.10.41@

Common Stock Purchase Agreement between the Company and
    Kingsbridge Capital Limited, dated as of August 4, 2008.
    Filed as Exhibit 10.1 to the Companys Current Report
    on
    Form 8-K
    filed August 5, 2008 and incorporated herein by reference.10.42@

Registration Rights Agreement between the Company and
    Kingsbridge Capital Limited, dated as of August 4, 2008.
    Filed as Exhibit 10.2 to the Companys Current Report
    on
    Form 8-K
    filed August 5, 2008 and incorporated herein by reference.12.1*

Ratio of Earnings to Fixed Charges. 68




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##### Table of Contents



ExhibitNumber

Description21.1@

Subsidiaries of the Company. Filed as Exhibit 21.1 to the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2006 and incorporated
    herein by reference.23.1*

Consent of Independent Registered Public Accounting Firm.24.1

Power of Attorney (included on signature page to this Annual
    Report on
    Form 10-K).31.1*

Certification pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002 for Elkan Gamzu, Ph.D.31.2*

Certification pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002 for Kim Cobleigh Drapkin.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).     @
    
    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. 69




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##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  Report of Independent Registered Public
    Accounting Firm


F-2Consolidated Financial StatementsConsolidated Balance Sheets


F-3Consolidated Statements of Operations


F-4Consolidated Statements of Stockholders
    Equity (Deficit)


F-5Consolidated Statements of Cash Flows


F-6Notes to Consolidated Financial Statements


F-7  F-1




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM               
    F-2




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
 CONSOLIDATED BALANCE SHEETS  December 31,2008


2007ASSETSCurrent assets:Cash and cash equivalents

$
24,596,683


$
9,157,973Available-for-sale marketable securities






51,919,128Accounts receivable


1,752,094



639,396Prepaid expenses and other assets


1,424,327



1,523,499Total current assets


27,773,104



63,239,996Property and equipment, net


5,300,682



6,044,886Other assets


3,055,859



3,850,431Goodwill


4,939,814



4,939,814Total assets

$
41,069,459


$
78,075,127LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable

$
1,058,563


$
3,539,099Accrued expenses


9,646,509



8,099,539Contract advances


3,679,287



4,719,201Current portion of capital lease obligation


221,585



179,859Current portion of deferred revenue


1,500,412



1,372,042Other current liabilities


778,136



610,867Total current liabilities


16,884,492



18,520,607Deferred revenue


13,791,549



15,688,296Capital lease obligation


214,143



182,748Other liabilities


4,270,345



4,975,123Convertible debt


100,000,000



100,000,000Total liabilities


135,160,529



139,366,774Commitments and contigencies (Note 8)Stockholders deficit:Preferred Stock, $0.01 par value, 1,000,000 shares
    authorized; no shares issued






Common Stock, $0.01 par value, 100,000,000 shares
    authorized; 41,914,691 and 41,353,079 shares issued and
    outstanding at December 31, 2008 and December 31,
    2007, respectively


419,147



413,530Additional
    paid-in-capital


350,318,033



346,289,024Accumulated deficit


(444,828,250
)


(408,157,261
)Accumulated other comprehensive income






163,060Total stockholders deficit


(94,091,070
)


(61,291,647
)Total liabilities and stockholders deficit

$
41,069,459


$
78,075,127    F-3




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##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2008


2007


2006Revenues:Product development revenue

$
26,190,203


$
10,239,120


$
2,909,402Royalty revenue


626,228



1,017,669



1,603,230License fee revenue


1,811,924



3,703,260



1,527,910Total revenues


28,628,355



14,960,049



6,040,542Operating expenses:Research and development


46,241,139



57,526,506



26,255,000Acquired in-process research and development










123,500,000General and administrative


13,023,701



20,051,893



12,257,320Royalties


3,361,748



595,269



1,063,102Restructuring


242,445



350,137



633,238Total operating expenses


62,869,033



78,523,805



163,708,660Operating loss


(34,240,678
)


(63,563,756
)


(157,668,118
)Interest and other income


1,354,337



4,901,106



5,496,081Interest expense


(3,784,648
)


(4,067,795
)


(5,075,848
)Loss before provision for income taxes


(36,670,989
)


(62,730,445
)


(157,247,885
)Provision for income taxes






58,118



145,313Net loss

$
(36,670,989
)

$
(62,788,563
)

$
(157,393,198
)Weighted average shares:Basic and diluted


41,466,361



33,936,317



20,789,388Net loss per share, basic and diluted

$
(0.88
)

$
(1.85
)

$
(7.57
)    F-4




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##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
  Accumulated


TotalAdditional





Other


StockholdersCommon Stock


Paid-In


Accumulated


Comprehensive


EquityShares


Amount


Capital


Deficit


Income/(loss)


(Deficit)Balance at December 31, 2005


15,523,207


$
155,232


$
204,833,760


$
(187,975,500
)

$
(66,198
)

$
16,947,294Issuance of common stock under employee stock purchase plan


11,165



112



59,863











59,975Issuance of common stock upon exercise of options


360,018



3,600



454,124











457,724Sale of common stock to GlaxoSmithKline


3,009,027



30,090



17,469,910











17,500,000Stock-based compensation expense










4,203,663











4,203,663Cash paid for fractional shares


(29
)






(205
)










(205
)Issuance of common stock in connection with merger


13,621,338



136,213



85,963,747











86,099,960Net loss














(157,393,198
)






(157,393,198
)Available-for-sale marketable securities unrealized gain


















103,506



103,506Comprehensive loss






















(157,289,692
)Balance at December 31, 2006


32,524,726



325,247



312,984,862



(345,368,698
)


37,308



(32,021,281
)Issuance of common stock under employee stock purchase plan


54,731



547



203,257











203,804Issuance of common stock upon exercise of options


361,154



3,612



414,824











418,436Sale of common stock


5,245,468



52,454



14,957,898











15,010,352Stock-based compensation expense










4,775,152











4,775,152Issuance of common stock in connection with merger


3,167,000



31,670



12,953,031











12,984,701Net loss














(62,788,563
)






(62,788,563
)Available-for-sale marketable securities unrealized gain


















125,752



125,752Comprehensive loss






















(62,662,811
)Balance at December 31, 2007


41,353,079



413,530



346,289,024



(408,157,261
)


163,060



(61,291,647
)Issuance of common stock under employee stock purchase plan


52,815



528



73,126











73,654Issuance of common stock upon exercise of options


186,215



1,862



182,526











184,388Sale of common stock


94,627



947



39,129











40,076Stock-based compensation expense


227,955



2,280



3,734,228











3,736,508Net loss














(36,670,989
)






(36,670,989
)Available-for-sale marketable securities unrealized loss


















(163,060
)


(163,060
)Comprehensive loss






















(36,834,049
)Balance at December 31, 2008


41,914,691


$
419,147


$
350,318,033


$
(444,828,250
)

$



$
(94,091,070
)    F-5




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##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2008


2007


2006Operating activities:Net loss

$
(36,670,989
)

$
(62,788,563
)

$
(157,393,198
)Adjustments to reconcile net loss to net cash used in operating
    activities:Depreciation, amortization and asset write offs


1,873,101



1,959,542



1,548,422Write-off of acquired in-process research and development










123,500,000Stock-based compensation expense


3,736,508



4,775,152



4,203,663Noncash interest expense (credit) from embedded derivative






(771,592
)


936,536Merger consideration interest paid in common stock






975,432



Amortization of deferred financing costs


528,678



510,184



492,337Accretion of discount on available-for-sale securities


(758,704
)


(2,582,393
)


(593,665
)Changes in operating assets and liabilities, exclusive of
    amounts acquired from the merger with Predix:Accounts receivable


(1,112,698
)


(593,029
)


852,920Prepaid expenses and other current assets


99,172



1,051,766



(282,827
)Other assets and liabilities


(402,436
)


2,421,205



2,073,119Accounts payable


(2,480,536
)


1,557,067



216,567Accrued expenses


1,546,970



403,991



(5,892,204
)Contract advances


(1,039,914
)


114,122



(1,507,470
)Merger consideration payable






(465,517
)


465,517Deferred revenue


(1,768,377
)


(3,705,947
)


15,741,238Net cash used in operating activities


(36,449,225
)


(57,138,580
)


(15,639,045
)Investing activities:Cash paid for merger with Predix, net of cash acquired






(5,257,707
)


(7,142,601
)Purchases of marketable securities


(24,572,340
)


(108,710,354
)


(124,598,368
)Sales or redemptions of marketable securities


77,087,112



138,317,442



98,310,699Purchases of fixed assets


(830,578
)


(4,161,704
)


(1,314,374
)Other investing activities


130,821



293,073



(243,327
)Net cash provided by (used in) investing activities


51,815,015



20,480,750



(34,987,971
)Financing activities:Principal payments of notes payable










(9,516,380
)Principal payments on capital leases


(225,198
)


(149,257
)


(44,536
)Proceeds from sale of common stock


40,076



15,010,352



17,500,000Proceeds from stock option exercises


184,388



418,436



457,724Proceeds from employee stock purchase plan


73,654



203,804



59,975Cash paid for fractional shares from reverse stock split










(205
)Net cash provided by financing activities


72,920



15,483,335



8,456,578Net increase (decrease) in cash and cash equivalents


15,438,710



(21,174,495
)


(42,170,438
)Cash and cash equivalents at beginning of year


9,157,973



30,332,468



72,502,906Cash and cash equivalents at end of year

$
24,596,683


$
9,157,973


$
30,332,468Supplemental cash flow information:Cash paid for interest

$
3,038,739


$
3,552,440


$
3,383,774Cash paid for taxes

$



$
58,118


$
145,313Supplemental disclosure of noncash financing and investing
    activities:Milestone obligation paid in common stock

$



$
12,009,268


$
Purchases of fixed asset with capital lease

$
298,319


$
325,154


$
    F-6




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Business        Going
    Concern Uncertainty and Managements Plans
   F-7




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  and/or
  2.
    Significant
    Accounting Policies  Principles
    of Consolidation
    Use of
    Estimates
    Translation
    of Foreign Currencies
   F-8




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Cash
    Equivalents
    Marketable
    Securities
  Accounting for Certain
    Investments in Debt and Equity Securities
  Fair
    Value of Financial Instruments
  Fair Value
    Measurements
  The Fair Value Option for
    Financial Assets and Financial Liabilities Including
    an Amendment of FASB Statement No. 115
   F-9




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Concentrations
    of Credit Risk
        Property
    and Equipment
    Long-Lived
    Assets
  Accounting
    for the Impairment or Disposal of Long-Lived Assets,
  Other
    Assets
    Goodwill
  Goodwill and Other
    Intangible Assets
 F-10




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Income
    Taxes
  Accounting for Income
    Taxes.
  Segment
    Information
  Disclosure about Segments of an
    Enterprise and Related Information,
  Revenue
  Revenue Recognition in
    Financial Statements,
          Product
    development revenue
   F-11




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    non-U.S. sales.
      Royalty
    revenue
  country-by-country
   F-12




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  License
    fee revenue
              Research
    and Development Expenses
     F-13




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Loss
    Per Share
  Earnings per
    Share.
    2008


2007


2006Stock options, awards and warrants


3,772,436



3,847,386



3,427,107Shares issuable on conversion of 3% Convertible Senior
    Notes(A)


2,239,393



2,239,393



2,239,393Shares issuable in satisfaction of merger consideration
    payable(B)










3,008,726Total


6,011,829



6,086,779



8,675,226   (A)
    
    Each $1,000 of senior notes is convertible into
    22.39 shares of the Companys common stock
    representing a conversion price of approximately $44.66 per
    share if (1) the price of the Companys common stock
    trades above 120% of the conversion price for a specified time
    period, (2) the trading price of the senior notes is below
    a certain threshold, (3) the senior notes have been called
    for redemption, or (4) specified corporate transactions
    have occurred. None of these conversion triggers have occurred
    as of December 31, 2008.(B)
    
    Share amount calculated as if the merger consideration was
    payable as of December 31, 2006. Actual settlement occurred
    on October 29, 2007 as the Company issued
    3,167,000 shares of common stock and paid $5.8 million
    in cash.  Comprehensive
    Loss
  Reporting
    Comprehensive Income
  Employee
    Stock Compensation
  Share-Based Payment  An Amendment of FASB
    Statements No. 123 and 95
 F-14




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Reclassifications
    Recent
    Accounting Pronouncements
    14-1, Accounting for Convertible Debt Instruments That May Be
    Settled in Cash upon Conversion (Including Partial Cash
    Settlement) 14-1), 14-1 14-1 14-1 14-1
  3.
    Marketable
    Securities    2007Fair Value


CostCorporate bonds

$
2,565,474


$
2,566,837Commercial paper


35,357,829



35,206,400Asset backed securities


13,524,757



13,511,763Certificates of deposit


471,068



471,068$
51,919,128


$
51,756,068    F-15




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    4.
    Property
    and Equipment    December 31,2008


2007Leasehold improvements

$
3,804,245


$
3,766,584Laboratory equipment


3,194,205



2,777,731Furniture, fixtures and other equipment


3,445,405



3,020,93510,443,855



9,565,250Less accumulated depreciation and amortization


(5,143,173
)


(3,520,364
)$
5,300,682


$
6,044,886     5.
    Accrued
    Expenses    December 31,2008


2007Accrued contractual product development expenses

$
2,501,087


$
3,407,600Accrued compensation


2,359,359



2,184,368Royalties


2,513,711



9,861Other accrued expenses


2,272,352



2,497,710$
9,646,509


$
8,099,539   6.
    Restructuring
    Charges     F-16




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Asset


LeaseSeverance


Write Off


Obligation


TotalBalance at December 31, 2005

$
971,828


$



$



$
971,8282006 restructuring charge


134,642



177,906



320,690



633,238Cash payments


(1,106,470
)






(90,714
)


(1,197,184
)Non-cash payments






(177,906
)






(177,906
)Balance at December 31, 2006










229,976



229,9762007 restructuring charge










482,535



482,535Cash payments










(580,113
)


(580,113
)Reduction of 2006 restructuring charge










(132,398
)


(132,398
)Balance at December 31, 2007














2008 restructuring charge


242,445











242,445Cash payments


(242,445
)










(242,445
)Balance at December 31, 2008

$



$



$



$
   7.
    Financing
    Arrangements  Convertible
    Debt
     F-17




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      8.
    Commitments
    and Contingencies  Leases
      Capital Leases


Operating Leases2009

$
250,113


$
2,686,0702010


169,797



2,515,1662011


55,472



2,132,7942012






1,725,8682013






1,922,757Thereafter






1,869,760Total minimum lease payments


475,382



12,852,415Less aggregate future sublease income






(1,403,030
)475,382


$
11,449,385Less amount representing interest


(39,654
)Present value of minimum lease payment


435,728Less current portion of capital lease obligations


(221,585
)Capital lease obligations, net of current portion

$
214,143    F-18




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Other
    Commitments
    9.
    Stockholders
    Equity  Common
    Stock
    Form S-1
 F-19




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Form S-3 Form S-3, 12-month
    Equity
    Plans
           F-20




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Options


ESPPYear Ended December 31,2008


2007


2006


2008


2007


2006Expected life of option (years)


5.0



6.3



6.3



0.5



0.5



0.5Expected stock price volatility


70
%


70
%


70
%


76
%


48
%


71
%Weighted average risk-free interest rate


3.00
%


4.52
%


4.69
%


1.51
%


4.30
%


4.93
%Expected annual dividend per share

$



$



$



$



$



$
    F-21




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Weighted -Weighted -


AverageAverage


Remaining


AggregateExercise


Contractual


IntrinsicShares


Price


Term (in years)


ValueOutstanding at December 31, 2007


3,847,386


$
6.85Granted


1,310,496



2.63Exercised


(186,215
)


0.99Cancelled


(1,697,688
)


7.43Outstanding at December 31, 2008


3,273,979


$
5.19



7.29


$
17,971Exercisable at December 31, 2008


1,830,805


$
5.85



6.31


$
15,399Vested and expected to vest at December 31, 2008


3,059,209


$
5.26



7.19


$
17,445     2006
    Employee Stock Purchase Plan
   F-22




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  10.
    Income
    Taxes    December 31,2008


2007Deferred tax assets:Net operating loss carry forwards

$
85,171,000


$
65,651,000Research and development tax credits


3,968,000



1,274,000Book over tax depreciation and amortization


2,662,000



3,973,000Deferred revenue


5,542,000



6,301,000Noncash compensation deductions


1,675,000



1,130,000Other


785,000



406,000Total deferred tax assets


99,803,000



78,735,000Valuation allowance


(99,803,000
)


(78,735,000
)Deferred income taxes, net

$



$
       SFAS No. 141-R, Business Combinations,
 F-23




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,


Years Ended December 31,2008


2007


2006


2008


2007


2006Tax at U.S. statutory rate

$
(12,468,136
)

$
(21,328,352
)

$
(53,464,281
)


(34.00
)%


(34.00
)%


(34.00
)%Permanent differences, net of federal benefit


774,328



832,198



43,305,862



2.11
%


1.33
%


27.54
%Foreign taxes






58,118



145,313



0.00
%


0.09
%


0.09
%Operating losses not benefited


11,693,808



20,496,154



10,158,419



31.89
%


32.67
%


6.46
%Income tax expense

$



$
58,118


$
145,313



0.00
%


0.09
%


0.09
%   Accounting for
    Uncertain Tax Positions
    11.
    Defined
    Contribution Plan    12.
    Strategic
    Alliances and Collaborations    GlaxoSmithKline
     F-24




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        No. 99-19 Reporting Revenue Gross as a Principal Versus Net as an
    Agent
  product-by-product country-by-country
  product-by-product country-by-country
 F-25




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Amgen
      
    Amgen is required to obtain third-party rights to develop and
    commercialize a product that incorporates an EPIX
    compound; and
    Amgen develops and commercializes products that are not covered
    by the intellectual property rights the Company licensed to
    Amgen, such as for example, S1P1-modulating products that may be
    acquired by Amgen from a third-party.    product-by-product country-by-country
 F-26




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Cystic
    Fibrosis Foundation Therapeutics, Incorporated
  No. 99-19 Reporting Revenue Gross as a Principal Versus Net as an
    Agent
     F-27




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Bayer
    Schering Pharma AG, Germany
      region-by-region
     F-28




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Technology
    Agreements
  Ramot
      country-by-country
      Covidien
    Ltd.
   F-29




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Massachusetts
    General Hospital
  country-by-country
  13.
    Subsequent
    Event (unaudited)   F-30




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  14.
    Quarterly
    Financial Information (unaudited)    March 31,


June 30,


September 30,


December 31,2008


2008


2008


2008Revenues:Product development revenue

$
1,927,420


$
16,868,438


$
4,500,280


$
2,894,065Royalty revenue


137,844



159,196



159,711



169,477License fee revenue


343,010



327,361



440,829



700,724Total revenues


2,408,274



17,354,995



5,100,820



3,764,266Operating expenses:Research and development


12,691,249



15,041,755



10,954,028



7,554,107General and administrative


3,038,260



3,356,021



3,580,761



3,048,659Royalties


39,046



694,434



70,241



2,558,027Restructuring














242,445Total operating expenses


15,768,555



19,092,210



14,605,030



13,403,238Operating loss


(13,360,281
)


(1,737,215
)


(9,504,210
)


(9,638,972
)Interest and other income


629,225



288,291



257,537



179,284Interest expense


(1,003,430
)


(887,040
)


(943,970
)


(950,208
)Loss before provision for income taxes


(13,734,486
)


(2,335,964
)


(10,190,643
)


(10,409,896
)Provision for income taxes














Net loss

$
(13,734,486
)

$
(2,335,964
)

$
(10,190,643
)

$
(10,409,896
)Weighted average shares, basic and diluted


41,353,992



41,358,087



41,473,368



41,679,996Net loss per share:Basic and diluted

$
(0.33
)

$
(0.06
)

$
(0.25
)

$
(0.25
)  F-31




---



##### Table of Contents



EPIX
    PHARMACEUTICALS, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  March 31,


June 30,


September 30,


December 31,2007


2007


2007


2007Revenues:Product development revenue

$
434,392


$
395,087


$
4,192,766


$
5,216,875Royalty revenue


487,658



315,135



100,470



114,406License fee revenue


1,032,850



1,046,458



1,046,459



577,493Total revenues


1,954,900



1,756,680



5,339,695



5,908,774Operating expenses:Research and development


13,491,119



14,789,943



14,930,082



14,315,362General and administrative


8,613,758



4,478,387



3,560,010



3,399,738Royalties


53,668



83,428



203,475



254,698Restructuring






350,137







Total operating expenses


22,158,545



19,701,895



18,693,567



17,969,798Operating loss


(20,203,645
)


(17,945,215
)


(13,353,872
)


(12,061,024
)Interest and other income


1,962,953



1,174,354



927,549



836,250Interest expense


(1,230,734
)


(1,252,945
)


(504,397
)


(1,079,719
)Loss before provision for income taxes


(19,471,426
)


(18,023,806
)


(12,930,720
)


(12,304,493
)Provision for income taxes


38,089



20,029







Net loss

$
(19,509,515
)

$
(18,043,835
)

$
(12,930,720
)

$
(12,304,493
)Weighted average shares, basic and diluted


32,586,377



32,622,318



32,850,191



37,686,382Net loss per share:Basic and diluted

$
(0.60
)

$
(0.55
)

$
(0.39
)

$
(0.33
)  F-32