SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

      [X] Annual report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934

                   For the fiscal year ended December 31, 1997

                                       or

      [ ] Transition report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934

              For the transition period from ________ to _________.

                         Commission File Number 0-21863
                                                -------
                               EPIX Medical, Inc.
                               ------------------
             (Exact name of Registrant as Specified in its Charter)


              Delaware                               04-3030815
    --------------------------------    -------------------------------------
    (State or other jurisdiction of      (I.R.S. Employer Identification No.)
    incorporation or organization)

          71 Rogers Street
      Cambridge, Massachusetts                         02142
 ---------------------------------------        -------------------
 (Address of principal executive offices)            (Zip Code)

       Registrant's telephone number, including area code: (617) 499-1400
                                                           --------------

        Securities registered pursuant to Section 12(b) of the Act: None
                                                                    ----

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

                     Common Stock, $.01 par value per share
                     --------------------------------------
                                (Title of Class)

      Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

      The aggregate market value, based upon the closing sale price of the
shares as reported by the Nasdaq National Market, of voting stock held by
non-affiliates (without admitting that any person whose shares are not included
in such calculation is an affiliate) at March 11, 1998 was $155,018,000.

         As of March 11, 1998, 11,274,054 shares of the registrant's Common
Stock, $.01 par value per share, were issued and outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant's definitive Proxy Statement for its 1998
Annual Meeting of Stockholders are incorporated by reference into Part III of
this Report on Form 10-K.

<PAGE>

                                     PART I

ITEM 1. BUSINESS DESCRIPTION

General

EPIX Medical, Inc. ("EPIX" or the "Company") is developing targeted contrast
agents both to improve the capability and expand the use of magnetic resonance
imaging ("MRI") as a diagnostic tool for a variety of diseases. The Company was
incorporated in Delaware in 1988 and commenced operations in 1992.


Background

The Company is developing targeted contrast agents both to improve the
capability and expand the use of MRI as a tool for diagnosing human disease. The
Company's principal product under development, MS-325, is an injectable vascular
contrast agent designed for multiple vascular imaging indications, including
coronary artery disease ("CAD") and peripheral vascular disease ("PVD"). The
Company believes that MS-325 will significantly enhance the quality of images
and provide physicians with a clinically superior, noninvasive (i.e., no more
invasive than a peripheral intravenous injection ("I.V.")) and cost-effective
method for diagnosing cardiovascular disease. The Company further believes that
MS-325 will simplify the diagnostic pathway for a number of cardiovascular
diseases and in many cases replace highly invasive (i.e., more invasive than a
peripheral I.V. up to and including a surgical procedure) and expensive X-ray
angiography, which is currently considered the definitive diagnostic exam for
assessing cardiovascular disease. The Company is also investigating additional
imaging indications for MS-325, including pulmonary embolism and myocardial
perfusion. EPIX has entered into strategic alliances with Mallinckrodt and
Daiichi for the development and commercialization of MS-325 and other vascular
contrast agents.

The Company completed a Phase I clinical trial of MS-325 in February 1997 and no
clinically significant adverse events were reported. The Phase I clinical trial
yielded images and signal duration and intensity consistent with the Company's
belief that MS-325 enhanced MRI used earlier in the diagnostic pathway will
provide physicians with diagnostic information clinically equivalent to X-ray
angiography. The Company is currently conducting a Phase II clinical trial to
test the safety and preliminary efficacy of MS-325 for the evaluation of PVD and
a Phase II clinical trial to test the safety and feasibility of MS-325 for the
evaluation of CAD. In each of these clinical trials, the Company is comparing
MS-325 enhanced MRI to conventional X-ray angiography, the current reference
standard. In addition, in January of 1998, the Company initiated a Phase II
clinical trial to test the safety and feasibility of MS-325 for detecting breast
cancer.

The use of MRI has grown steadily over the past 10 years due to reduced cost and
improved imaging capabilities and now provides an effective diagnostic modality
for a broad range of applications. MRI manufacturers have improved the hardware
and software of their systems, reducing the time per procedure drastically while
significantly enhancing resolution. While MRI is currently used extensively to
image many organs and tissues in the body, its use in imaging the arteries and
veins has been limited. Prior attempts to develop contrast agents to facilitate
the clinical usefulness of MRI, particularly for coronary arteries, have had
limited success. Unlike most currently available MRI contrast agents, which are
non-specific, MS-325 is a targeted intravascular contrast agent designed to bind
to albumin, the most common blood protein. Because of its affinity for albumin,
MS-325 remains at high concentrations in the bloodstream throughout the MRI exam
and, consequently, provides the image acquisition time and signal strength
needed to obtain a high contrast, high resolution image of the cardiovascular
system. Like most currently available non-specific contrast agents, MS-325 is
designed to be excreted safely through the kidneys over time. EPIX believes that
the advantages of MS-325, coupled with the reduced cost and improved imaging
capabilities of MRI, will lead to significantly expanded use of MRI to diagnose
cardiovascular and other diseases.

                                       2

<PAGE>

Magnetic Resonance Imaging Background

In an MRI exam, images are obtained by placing a portion of the patient's body
in a magnetic field and applying safe, low-energy radio waves. The different
organs and tissues in the body respond uniquely to the MRI's electromagnetic
field and these responses are then scanned and converted into a
three-dimensional image. MRI can easily provide high contrast, high resolution
images of anatomy deep inside the body.

The use of MRI, which was developed in the 1970s, has grown steadily over the
past decade due to declining costs, increased clinical effectiveness, reduced
exam times and more comprehensive coverage by third-party payors. As an example,
a standard MRI brain exam, which in 1985 required 60 minutes and cost
approximately $1,500, now takes only 30 minutes, costs less than half as much
and can identify tumors that are over 50% smaller than those detectable in 1985.
The installed base of MRI scanners in the United States grew from fewer than 400
scanners in 1985 to over 3,900 in 1996, during which year there were over 8.5
million MRI exams performed.

Underlying the economic and clinical advancement of MRI is the consistent and
rapid technological progress achieved by MRI equipment manufacturers such as
General Electric, Philips and Siemens. Over the past 10 years, MRI equipment
manufacturers have achieved significant improvements in both MRI hardware and
software while reducing the price of a new machine by more than 35%. The primary
hardware components in an MRI scanner are the magnet, gradients, radio frequency
coils and computer processors and memory. Since 1985, gradients have quadrupled
in speed and power, and enhancements in radio frequency coils have improved the
signal-to-noise ratio by over 100%. Improvements in computer processors, memory
and software, including new techniques to improve scanning, image processing and
motion compensation, have been even more dramatic.

Images obtained in certain applications of MRI can be enhanced through the use
of contrast agents. Contrast agents are injected into a vein in the patient's
arm prior to a scan and are designed to amplify the contrast between various
tissues, organs and anatomic structures. Currently available MRI contrast agents
are primarily non-specific gadolinium compounds which diffuse throughout the
body following injection. They are effective at enhancing images of certain
tissue types, primarily in the brain and spine, but lack the efficacy to be
clinically useful for many vascular applications. Non-specific contrast agents
are used in an estimated 25% of MRI exams and their usage has grown by more than
60% over the last five years.

MRI has been established as the imaging modality of choice for a broad range of
indications, including brain tumors, many spinal disorders and knee injuries.
Nevertheless, MRI has been used sparingly as an imaging modality for the
vascular system due to its limited ability to image arteries and veins in
patients. In particular, cardiac motion currently precludes clinically
significant MRI of the coronary arteries. Several leading MRI manufacturers,
academic centers and others are developing hardware and software solutions to
the problem of cardiac motion. In both CAD and PVD, clinically significant
magnetic resonance images of the arterial anatomy are also limited by MRI's
inability to provide sufficient contrast between the arteries and the
surrounding tissues. Further, MRI exams using the existing non-specific contrast
agents are limited by the rapid diffusion of these agents out of the vascular
system, which reduces the time during which an image can be acquired.
Consequently, many experts believe MRI contrast agents which remain in the
vascular system for extended periods of time will be necessary to obtain
sufficient contrast for widespread clinical use of MRI to image the vascular
system.


The EPIX Solution

The Company believes that MS-325, together with the anticipated hardware and
software solutions to the cardiac motion problem, will enable widespread
clinical use of MRI to diagnose CAD. The Company also believes that MS-325 will
significantly expand the use of currently available MRI equipment in diagnosing
PVD. MS-325 has been designed to be used with MRI to provide physicians with a
clinically superior, noninvasive and cost-effective diagnostic pathway by
eliminating many X-ray angiograms and ancillary tests.

                                       3

<PAGE>

MS-325: Cardiac Indications

Background. It is estimated that over 500,000 people in the United States die of
CAD each year, making it the leading cause of death. CAD is characterized by the
accumulation of plaque on the arterial walls, leading to a disruption in blood
flow to the heart muscle. This interruption of blood to the heart can cause
ischemia (lack of oxygen) or infarction (death of heart tissue) and result in
significant morbidity or death. In order to diagnose a patient who exhibits
apparent symptoms of CAD, prescribe an effective treatment and monitor the
results of intervention, a physician often requires information on the anatomy
and function of the heart and, specifically, the coronary arteries. Due, in
part, to the lack of cost-effective, noninvasive, comprehensive diagnostic
imaging procedures, diagnosis of CAD is currently a complex and expensive
process. Based on independent sources, the Company believes that in 1996 over
6.0 million patients in the United States underwent over 11.0 million various
diagnostic tests for the diagnosis of CAD at an estimated cost of over $7.0
billion. The Company believes that MRI-based cardiac evaluations using MS-325
would simplify the process of diagnosing CAD, significantly improving patient
outcomes and lowering total medical costs.

Traditional Approach to CAD Diagnosis. The current diagnostic process for CAD is
complex, expensive and can involve multiple, often inconclusive, tests. While
the specific diagnostic pathway may vary for any given patient, several
appointments for multiple diagnostic exams may be necessary prior to formulation
of a treatment plan. Figure 1 below outlines the traditional approach to CAD
diagnosis.

       Figure 1 - Coronary Artery Disease: Traditional diagnostic pathway


       Figure 1 - Coronary Artery Disease: Traditional diagnostic pathway
       
--------------------------------------------------------------------------------



<TABLE>
<S>            <C>                    <C>               <C>               <C>
                7% Acute/Critical                        60% Drug Therapy
              ----   Ischemia                           ----  or Rule Out
              |                                         |         CAD
              |                       Traditional       |
  Initial     |                       Non-Invasive      |
Chest Pain    |                         Imaging         |                  50%    Drug   
  Workup      |                       o Stress echo-    |                 ---- Therapy or
              |                         cardiogram      |                 |    No Therapy
o EKG         |    Indeterminate                        |                 |
o Exercise    |51%  Non-acute         o Nuclear stress  |                 |27%
  stress test ----  Myocardial   ----   perfusion study |    Coronary     ----  PTCA
              |     Infarction                          |40%  X-ray       |
6.75 Million  |42%                       3.44 Million   ---- Angiography  |
  Patients    ---- Rule Out CAD             Patients                      |23%
                                                             1.38 Million ----  CABG
                                                               Patients   

</TABLE>

--------------------------------------------------------------------------------


         Note: Percentages are estimates derived by the Company from both data
         compiled by the Company and data obtained from independent sources.
         Actual diagnostic outcomes could vary depending on numerous factors,
         including geographical location of the patient, type of medical setting
         in which the tests are administered and physician practice patterns.



It is estimated that over 6.75 million patients enter the CAD diagnostic pathway
in the United States each year after experiencing chest pain or shortness of
breath. An electrocardiogram ("EKG") is often performed at this stage.
Approximately 7% of these patients present with severe pain and acute or
critical ischemia and are immediately triaged for treatment. For the remaining
93%, the physician completes a work-up, history and physical exam to determine
whether the patient exhibits symptoms consistent with CAD and has any of the
risk factors for CAD, such as smoking, high cholesterol, family history, excess
weight, diabetes or high blood pressure. A patient with an abnormal EKG or
significant risk factors will likely be referred to a cardiologist for further
testing. The cardiologist will typically continue the work-up with an exercise
stress test. Based on EKG and exercise stress test results, CAD is ruled out for
approximately 42% of all patients entering the diagnostic pathway. For the
remaining 51% of all patients, results of the exercise stress test are
indeterminate and the cardiologist generally will perform a stress
echocardiogram and/or a nuclear stress perfusion study. Approximately 60% of
patients undergoing these tests receive either drug therapy or no further
treatment. For the remaining 40% of patients for whom the stress echocardiogram
or a nuclear stress perfusion study is positive or indeterminate, a coronary
X-ray angiogram is often prescribed. Approximately 50% of the patients who
receive coronary X-ray angiograms are either treated with drugs or require no
therapy. If the coronary X-ray angiogram indicates surgically correctable
disease, the patient will be scheduled for a percutaneous transluminal coronary
angioplasty ("PTCA"), a procedure designed to enlarge partially blocked
arteries, or referred to a cardiac surgeon for a coronary artery bypass graft
("CABG"), a surgical procedure designed to circumvent a blocked or partially
blocked artery or arteries with a vascular graft.

                                       4

<PAGE>

As indicated above, the following tests are generally part of the traditional
diagnostic pathway for CAD:

o EKGs measure the electrical potential of the heart using several surface
electrodes. Varying patterns of monitored electrical activity may indicate heart
abnormalities, including ischemic heart disease or a previous heart attack.

o Exercise stress tests measure a patient's ability to exercise without chest
pain. For certain patients with extreme results, the test can be used to confirm
or exclude the presence of blockages which significantly decrease blood flow and
sometimes to prescribe drug therapy. However, for most patients the test is
inconclusive. The test provides no information on the anatomy of the coronary
arteries.

o Stress echocardiograms use transthoracic ultrasound to measure motion of the
walls of the heart under physical or pharmacological stress. In most cases, a
lack of blood flow to a particular area of the heart will be reflected in
atypical motion of the heart wall. The test is noninvasive and costs between
$300 and $900. While a normal stress echocardiogram usually eliminates the
possibility of blockages which significantly decrease blood flow, the test is
often inconclusive and provides no information on the anatomy of the coronary
arteries. It is estimated that over 800,000 stress echocardiograms were
performed in the United States in 1996 at an estimated cost of over $250
million.

o Nuclear stress perfusion studies, which measure the flow of blood to cardiac
tissue, can be used either as the critical diagnostic test prior to X-ray
angiography or to confirm the impact on blood flow of an intermediate blockage
identified through X-ray angiography. These tests are noninvasive, use small
quantities of ionizing radiation and cost between $600 and $1,400. A patient is
injected with a radiopharmaceutical and then a gamma camera is used to detect
uptake of the agent in the heart muscle. A deficiency in blood flow to
particular regions of the heart is shown on the resultant images. While the test
can identify the effects of CAD, it provides no information on the anatomy of
the coronary arteries and it cannot determine the location of blockages. It is
estimated that over 2.7 million nuclear stress perfusion studies were conducted
in the United States in 1996 at an estimated cost of more than $1.9 billion.

o Coronary X-ray angiography is currently considered by many to be the
definitive diagnostic exam for imaging the coronary artery anatomy. It uses
conventional X-ray technology enhanced with iodinated contrast media. Coronary
X-ray angiography is highly invasive and costs between $2,000 and $6,000 per
procedure. The procedure requires an interventional cardiologist to puncture the
femoral artery in the patient's groin area and feed a catheter up into the
patient's heart. During X-ray imaging, up to 100 milliliters of contrast media
are injected into the catheter, effectively replacing blood flow in the heart
and associated arteries for approximately two seconds. This cardiac
catheterization must be performed in a surgical setting and requires patient
monitoring for at least six hours after the procedure. Approximately 5% of
patients undergoing a coronary X-ray angiogram experience serious side effects,
including renal failure, limb loss and death, which may be caused by both the
insertion of the catheter and the high dosage of iodinated radio-opaque dye. In
addition, coronary X-ray angiography does not always provide sufficient
information for clinical decision-making. While the procedure identifies the
location of arterial blockages, in many cases it cannot conclusively determine
their impact on blood flow. Therefore, for many blockages, a nuclear stress
perfusion study must be performed to enable the physician to make a definitive
diagnosis. Due to the expensive nature of coronary X-ray angiography, its high
risk of complications, and the fact that approximately 50% of the patients
undergoing coronary X-ray angiograms ultimately are diagnosed as having
conditions that do not warrant invasive therapy, physicians employ a battery of
tests to triage patients in an effort to avoid this procedure. However, because
a diagnostic coronary X-ray angiogram is currently the only test that can image
the coronary artery anatomy, it is estimated that approximately 1.4 million such
procedures were performed in the United States in 1996 at an approximate cost of
more than $3.8 billion.

The EPIX Approach to CAD Diagnosis. The Company believes that MS-325, coupled
with anticipated advances in software and hardware for MRI equipment, will
enable physicians to use MRI to perform a noninvasive, integrated cardiac exam
for the diagnosis of CAD. Such a procedure will be designed to provide
information on coronary artery anatomy, including location of arterial
blockages, as well as cardiac perfusion and cardiac function data, in one
sitting early in the diagnostic pathway. Because the procedure is intended to
provide physicians with more comprehensive diagnostic information at an earlier
stage of the diagnostic pathway, physicians will be able to make a more informed
diagnosis, and arrange for appropriate patient treatment, sooner than would
otherwise be possible, thereby achieving better patient outcomes at a lower
cost. The Phase I clinical trial yielded images and signal duration and
intensity consistent with the Company's belief that MS-325 enhanced MRI used
earlier in the diagnostic pathway will provide physicians with diagnostic
information clinically equivalent to X-ray angiography. Although several leading
MRI equipment manufacturers, academic centers and others are developing advanced
hardware and software, there can be no assurance when, or if, these techniques
will enable MS-325 to provide clinically relevant images in cardiac indications
currently being pursued. Figure 2 below outlines the EPIX approach to the
diagnosis of CAD.

                                       5

<PAGE>


           Figure 2 - Coronary Artery Disease: EPIX diagnostic pathway

--------------------------------------------------------------------------------


<TABLE>
<S>            <C>                    <C>               <C>               <C>
                7% Acute/Critical                        80%  Drug Therapy
              ----   Ischemia                           ---- or Rule Out CAD
              |                                         |                 
              |                       EPIX Solution     |
  Initial     |                        MS-325/MRI       |
Chest Pain    |                                         | 9% Coronary
  Workup      |                       o Anatomy         ----  X-ray       ---- CABG
              |                                         |    Angiography  
o EKG         |    Indeterminate      o Perfusion       |                 
o Exercise    |51%  Non-acute                           |    0.31 Million 
  stress test ----  Myocardial   ---- o Function        |      Patients   
              |     Infarction                          |11%              
6.75 Million  |42%                    3.44 Million      ---- PTCA         
  Patients    ---- Rule Out CAD         Patients

</TABLE>

--------------------------------------------------------------------------------


         Note: Percentages are estimates derived by the Company from both data
         compiled by the Company and data obtained from independent sources.
         Actual diagnostic outcomes could vary depending on numerous factors,
         including geographical location of the patient, type of medical setting
         in which the tests are administered and physician practice patterns.

The Company believes that the use of MS-325 enhanced MRI to perform integrated
cardiac exams will simplify and improve the diagnostic work-up for CAD by
enabling noninvasive cardiologists (approximately 80% of all cardiologists) to
visualize the coronary arteries noninvasively early in the work-up. Under the
EPIX approach for CAD assessment, a patient who has an indeterminate EKG and
exercise stress test would be referred for a noninvasive, integrated cardiac
exam. Unlike the invasive nature of coronary X-ray angiography, the patient
would receive a single injection of MS-325 in a vein in the arm prior to the
exam and then enter the MRI scanner. The exam is expected to provide the
physician with three-dimensional anatomic detail of the coronary arteries as
well as the perfusion and functional information currently provided by stress
echocardiograms and nuclear stress perfusion studies. Based on the results of
the MS-325 enhanced MRI integrated cardiac exam, the cardiologist would either
prescribe no treatment, prescribe drug therapy or refer the patient to an
interventional cardiologist (i.e., a cardiologist who performs invasive
procedures) for a PTCA or surgical planning for a CABG. Because the MS-325
enhanced MRI exam is expected to provide all of the anatomic information
currently provided by a coronary X-ray angiogram, the need for coronary X-ray
angiography as a diagnostic tool would be reduced. Only in the limited number of
cases where CABG is deemed necessary would the patient be subjected to invasive
coronary X-ray angiography for surgical planning.

The Company believes that the EPIX simplified diagnostic pathway could result in
significant cost savings to the United States healthcare system for the
diagnosis of CAD. These savings are predicated on providing noninvasive coronary
artery anatomic information earlier in the CAD work-up. In 1996, for the over
3.44 million patients in the United States completing the traditional diagnostic
pathway, the total cost of the diagnostic work-up for CAD was more than $5.4
billion. Under the EPIX approach to diagnosis of CAD, both stress
echocardiograms and nuclear stress perfusion studies could be eliminated. In
addition, because an MS-325 enhanced MRI exam is expected to provide physicians
with anatomic information early in the CAD work-up, the Company believes that
50% of the patients who undergo coronary X-ray angiography but do not ultimately
require invasive therapy would be able to avoid a coronary X-ray angiogram. The
estimated total cost for the 3.44 million patients completing the EPIX
diagnostic pathway for CAD would be $3.2 billion, yielding approximately $2.2
billion in savings to the United States healthcare system based on estimated
1996 procedure costs.

                                       6

<PAGE>

     Figure 3 - Estimated Savings: Traditional CAD diagnostic pathway versus
                            EPIX diagnostic pathway

--------------------------------------------------------------------------------


Traditional

                   60% Drug Therapy
   $500           ----  or Rule Out
                  |         CAD
Traditional       |
Non-Invasive      |
  Imaging         |                  50%    Drug   
o Stress echo-    |                 ---- Therapy or
  cardiogram      |                 |    Rule Out CAD
                  |                 |
o Nuclear stress  |     $2,700      |27%
  perfusion study |    Coronary     ----  PTCA
                  |40%  X-ray       |
                  ---- Angiography  |
                                    |23%
  3.44 Million                      ----  CABG
    Patients              
                     1.38 Million 
                       Patients   

      Estimated Total U.S. Cost = $5.4 billion


--------------------------------------------------------------------------------


--------------------------------------------------------------------------------


EPIX

                   80%  Drug Therapy
                  ---- or Rule Out CAD
   $700           |                 
EPIX Solution     |
 MS-325/MRI       |     $2,700
                  | 9% Coronary
o Anatomy         ----  X-Ray       ---- CABG
                  |    Angiography  
o Perfusion       |                 
                  |    0.31 Million 
o Function        |      Patients   
                  |11%              
3.44 Million      ---- PTCA         
  Patients

   Estimated Total U.S. Cost = $3.2 billion


--------------------------------------------------------------------------------


         Note: Percentages are estimates derived by the Company from both data
         compiled by the Company and data obtained from independent sources.
         Actual diagnostic outcomes could vary depending on numerous factors,
         including geographical location of the patient, type of medical setting
         in which the tests are administered and physician practice patterns.


Post-Intervention Monitoring and "Relooks." The Company believes that, after
either a PTCA or a CABG, optimal patient management would include follow-up
exams to determine re-forming of blockages ("restenosis") as well as proper
functioning of grafts. However, while it is estimated that more than 400,000
PTCAs and 500,000 CABGs were performed in the United States in 1996, only a
small proportion of the patients undergoing these procedures received follow-up
coronary X-ray angiography ("relooks"). The Company estimates that there are
currently over 2.7 million patients who have undergone a CABG and over 2.1
million patients who have undergone a PTCA who are potential candidates for a
periodic relook. Due to the risk, discomfort and expense associated with
coronary X-ray angiography, follow-up imaging currently is limited, which can
lead to increased patient management costs and poorer outcomes due to
undiagnosed restenosis and other complications. The Company believes that the
availability of MS-325 may lead to an increase in follow-up exams using MRI.
Furthermore, the Company believes that MS-325 would enable noninvasive
cardiologists to visualize the coronary arteries of the over 300,000 patients
who are treated with thrombolytic therapy (streptokinase and TPA) each year.


MS-325: Peripheral Vascular Indications

Background. PVD affects arteries throughout the body and results in significant
morbidity and mortality. There are approximately 600,000 vascular operations,
400,000 strokes and 100,000 amputations (primarily related to PVD) each year in
the United States. Similar to CAD, blockage of arteries outside the heart can
lead to ischemia (lack of oxygen) or infarction (death of tissue). Complications
from PVD include pain, limitations in mobility, amputation of the extremities,
hypertension, kidney failure in the case of renal arteries, or stroke in the
case of carotid or cerebral arteries. The need for imaging the vascular system
outside the heart extends to many areas of the body, including the carotid
arteries, vessels of the leg, the aorta and pulmonary arteries.

Traditional Approach to PVD Diagnosis. A patient with PVD may present with a
wide range of symptoms, such as leg pain, gangrene, hypertension, renal failure,
stroke or transient ischemic attack ("TIA"), a brief episode of cerebral
ischemia usually characterized by blurred vision, slurred speech, numbness or
paralysis. The appropriate initial diagnostic tests vary according to the
particular PVD indication. Traditional imaging modalities for diagnosing PVD,
such as ultrasound, nuclear medicine and CT, frequently do not provide
definitive diagnostic information. For example, ultrasound and renal nuclear
scans have poor image quality, leading to exams which are frequently
indeterminate. CT can be used for certain peripheral vascular indications, but
can only image a limited area during each scan due to the large amounts of
potentially toxic X-ray contrast media required.

With the exception of imaging carotid arteries, MRI has not made a significant
impact on the diagnosis of PVD to date. Non-contrast MRI exams of the vascular
system, which measure blood flow and do not image anatomy, are often ineffective
when used in patients with disease because of their limitations in imaging the
blood flow associated with PVD, which may be either minimal or turbulent. Even
for the imaging of carotid arteries, where flow-based MRI has had a substantial
clinical impact, the lack of direct anatomic data limits the ability of MRI to
provide a quantitative measurement of stenosis required for accurate diagnosis.
MRI exams using existing non-specific contrast agents are limited by the rapid
diffusion of the agents out of the vascular system.

                                       7

<PAGE>

As with the diagnostic work-up of CAD, a peripheral X-ray angiogram is generally
considered to be the definitive diagnostic exam for peripheral vascular
indications. In the work-up of PVD of the lower extremities, for example, the
patient typically presents with leg pain, gangrene or limited mobility. The
surgeon checks the patient's pulse in the ankles and performs two noninvasive
exams, impedance plethysmography and ankle brachial index measurements, which
can confirm that the patient has PVD and often localizes the disease within the
limb. An ultrasound exam is sometimes performed at this stage. Peripheral X-ray
angiography is then performed to visualize the extent of the disease and to plan
for surgery. Like coronary X-ray angiograms, peripheral X-ray angiograms are
performed in a surgical setting and involve the puncture of the femoral artery
in the groin area, the placement of a catheter in the artery and the replacement
of blood by X-ray contrast media. While peripheral X-ray angiograms have
slightly lower morbidity rates compared to coronary X-ray angiograms, the risks
are significant with complications, including limb loss and renal failure,
occurring at a rate of 1.7%. The cost of peripheral X-ray angiography is
estimated to range from less than $1,000 to almost $3,000 per procedure. Despite
the drawbacks of peripheral X-ray angiography, approximately 1.9 million of
these procedures were performed in the United States in 1996. Figure 4 below
outlines the traditional diagnostic pathway for various forms of PVD.

     Figure 4 - Peripheral Vascular Disease: Traditional diagnostic pathway

--------------------------------------------------------------------------------

<TABLE>
<S>                         <C>                              <C>              <C>
          Anatomic Area           Current Diagnostic Exams

----------------------                   
Carotid                            Ultrasound              
Artery                ----            MRI              ----|             |
----------------------                                     |             |
                                                           |             |
----------------------                                     |             |
Aorta                 ----            CT                   |             ----   Surgery
----------------------             Ultrasound          ----|             |
                                                           | Peripheral  |
----------------------                                     |   X-ray     |
Renal                          Renal nuclear scan          | Angiography |
Arteries              ----         Ultrasound          ----|             |    Percutaneous
----------------------                                     |             ---- Transluminal
                                                           |             |    Angioplasty
----------------------             Impedance               |             |       (PTA)
Extremities           ----    plethysmography (IPG)        |             |
----------------------      Ankle Brachial Index (ABI) ----|             |
                        |          Ultrasound              
                        |
                        |
                        |
          [GRAPHIC OF HUMAN BODY]
</TABLE>

--------------------------------------------------------------------------------

The EPIX Approach to PVD Diagnosis. The Company believes that the use of MS-325
enhanced MRI will simplify and improve the PVD diagnostic pathway by enabling
radiologists to visualize peripheral arteries noninvasively early in the work-up
with resolution sufficient to provide a definitive diagnosis and surgical plan.
Although several available MRI contrast agents also provide high resolution,
they diffuse out of the cardiovascular system rapidly, making it difficult to
obtain detailed anatomic images beyond a limited area. MS-325 is designed to
remain in the blood vessels for over an hour providing sufficient time for
detailed images of large portions of the vascular system. By significantly
increasing the contrast of the vascular system and using the MRI equipment
currently in widespread use, the Company believes that MS-325 will enable MRI to
overcome the principal problem that has limited its clinical effectiveness in
evaluating PVD.

An MS-325 enhanced MRI exam is intended to provide sufficient anatomic detail
for a definitive diagnosis and the anatomic data necessary for surgical
planning. Unlike peripheral X-ray angiography which, due to its invasive and
painful nature, high cost and risk of complications, is often deferred in favor
of noninvasive, often inconclusive exams, an MS-325 enhanced MRI exam is
intended for use early in the PVD work-up. The Phase I clinical trial yielded
images and signal duration and intensity consistent with the Company's belief
that MS-325 enhanced MRI used earlier in the diagnostic pathway will provide
physicians with diagnostic information clinically equivalent to peripheral X-ray
angiography. Consequently, the Company believes that MS-325 enhanced MRI exams
would not only replace a large portion of the approximately 1.9 million
peripheral X-ray angiograms performed in the United States each year, but would
also be used in a significant number of instances where ultrasound, nuclear
medicine or other noninvasive modalities are currently employed but lack
definitive diagnostic capability as described above. Based upon estimated 1996
procedure costs, the Company believes that the use of MS-325 enhanced MRI to
diagnose PVD could yield savings to the United States healthcare system of
nearly $1.0 billion.

                                       8

<PAGE>

Thrombosis is another vascular disease outside the heart that is diagnosed with
a variety of radiological imaging techniques. Commonly referred to as "blood
clots," thrombosis can occur in the legs, arms, pelvis, lungs and neck, and is
the cause of over 400,000 deaths per year in the United States. Blood clots can
cause death from a pulmonary embolus (an obstruction in the pulmonary
vasculature), stroke or heart attack. Ultrasound and nuclear stress perfusion
studies are used early in the work-up in an attempt to defer peripheral X-ray
angiography because of cost, mortality and complications. These noninvasive
modalities are often indeterminate. Although limited in use because of the
mortality and complication rate, peripheral X-ray angiography, as in PVD,
continues to be considered by many to be the definitive diagnostic tool. The
Company believes that an MS-325 enhanced MRI exam will be able to noninvasively
provide diagnostic information which is clinically equivalent to peripheral
X-ray angiography for the diagnosis of blood clots in selected cases.


MS-325: Breast Cancer Indication

Background and Current Approach to Breast Cancer Diagnosis. Breast cancer
afflicts approximately 145,000 women in the United States each year and is the
second leading cause of death in women, resulting in over 40,000 deaths
annually. Mammography is currently the primary means of screening for breast
cancer and over 20 million mammograms are performed each year in the United
States. Between 10% and 15% of mammograms, however, are indeterminate and
further testing is required. Furthermore, approximately 20% to 25% of mammograms
provide sub-optimal information either because of dense breast tissue or
fibrocystic disease. The definitive diagnostic tests for breast cancer are
surgical excision or core biopsy, both of which are highly invasive procedures
and cost between $2,000 and $3,000 and between $500 and $1,000 per procedure,
respectively. Only 20% of the excisional and core biopsies indicate malignant
disease, suggesting that as many as 80% of these surgical procedures are
performed unnecessarily.

The EPIX Approach to Breast Cancer Diagnosis. The Company believes that MS-325
enhanced MRI could provide a non-invasive means of detecting breast cancer due
primarily to the ability of MS-325 enhanced MRI to image angiogenesis, which is
an early indicator of malignant tumors and is characterized by abnormal growth
of blood vessels. In particular, the Company believes that MS-325 enhanced MRI
would assist physicians in diagnosing breast cancer in the approximately 4.0
million women who have sub-optimal mammograms each year. Furthermore, the
Company believes MS-325 enhanced MRI may enable physicians to discriminate
between benign and malignant tumors in the approximately 1.0 million women who
currently undergo a biopsy.



Business Strategy

         The Company's objective is to become a worldwide leader in MRI contrast
agents by pursuing a strategy based on commercializing MS-325 and developing new
applications for its proprietary technology platform. The Company's key business
objectives are to:

Establish the safety and clinical utility of MS-325 for multiple vascular
imaging indications. The Company is conducting Phase II clinical trials to test
the safety and preliminary efficacy of MS-325 for the evaluation of PVD and the
safety and feasibility of MS-325 for the evalulation of CAD. . In each of these
clinical trials, the Company is comparing MS-325 enhanced MRI to X-ray
angiography, the current reference standard. In addition, in January 1998 the
Company commenced a Phase II clinical trial to test the safety and feasibility
of MS-325 for detecting breast cancer. The Company also intends to conduct
future additional clinical trials for other indications.

                                       9

<PAGE>

Achieve market acceptance of MS-325. The Company intends to collect
pharmacoeconomic and clinical data that demonstrates that MS-325 enhanced MRI is
superior to the traditional diagnostic pathway. Through its strategic partners'
extensive worldwide marketing and sales networks, the Company intends to present
this data to both physicians and third-party payors. The Company believes that
third-party payors will promote the use of MS-325 because of its potential for
substantial clinical benefits and cost savings. The Company also intends to
further the market acceptance of MS-325 enhanced MRI by coordinating its
development efforts with the development efforts of leaders in the MRI equipment
industry. In January 1998 the Company entered into a collaboration agreement
with General Electric Medical Systems. The major objective of the collaboration
is to develop technologies and protocols which improve and expand the use of MRI
for cardiovascular imaging.

Develop new targeted MRI contrast agents. In addition to evaluating the use of
MS-325 in diagnosing thrombosis, the Company is developing thrombosis-specific
MRI contrast agents based on its proprietary technology platform. The Company is
also pursuing a discovery program for functional brain imaging.

Maximize the value of strategic alliances. The Company currently has strategic
alliances with Mallinckrodt and Daiichi. The Company entered into these
alliances, and will seek to enter into future strategic alliances with
pharmaceutical, imaging agent and MRI equipment industry leaders, in order to
obtain access to resources and infrastructure to leverage the Company's
strengths.


Technology

Background

The products under development by the Company are based upon its proprietary
biophysics technology platform. The Company's product candidates are small
molecule chelates (soluble metal-organic complexes) containing a magnetically
active metal element which elicit a strong MRI signal and are designed to be
safely excreted through the kidneys over time. The Company has developed
significant expertise in the design, synthesis and characterization of
metal-containing complexes for in vivo use. While the contrast agents primarily
used in MRI today are non-targeted in that they diffuse indiscriminately
throughout the tissues of the body, the Company believes that its proprietary
technology platform will enable it to design contrast agents which are capable
of targeting specific tissues or organs by binding to particular proteins. The
Company's proprietary biophysics technology platform consists of two key
elements:


Receptor-Induced Magnetic Enhancement

Receptor-induced magnetic enhancement ("RIME") technology, which was developed
by Dr. Randall Lauffer, the Company's founder and Chief Scientific Officer,
while at Massachusetts General Hospital ("MGH"), allows targeting of a contrast
agent to particular tissue and fluid types in the body while simultaneously
multiplying the signal enhancing effect of the agent and is now exclusively
licensed by the Company under patents held by MGH. RIME technology involves the
design of metal complexes that bind to particular proteins and receptor
molecules in the body. This binding causes increased concentration and retention
of the contrast agent in the specific tissues and fluids that contain targeted
receptor molecules. The binding also causes a special magnetic effect based on
the complex biophysics of MRI contrast agents. One of the factors that
determines an MRI contrast agent's signal enhancing effect is its rotation, or
tumbling rate, in solution. When an agent binds to a large molecule through the
RIME process, the agent's tumbling rate decreases substantially, resulting in a
corresponding increase in the strength of the agent's magnetic signal, which is
detectable by MRI.


Enzyme Sensing Technology

Developed by EPIX scientists, enzyme sensing technology is an extension of the
RIME technology that allows MRI to probe biological events on the molecular
level for the first time, thereby increasing the sensitivity of MRI. The Company
is developing small molecule contrast agents that become active in the presence
of certain enzymes which allows them to bind to their target receptor molecules
and express their full RIME signal enhancement. Because the presence of elevated
levels of particular enzymes occur only in certain biological situations, enzyme
sensing technology would allow MRI to scan for specific biological events
currently undetectable with MRI.

                                       10

<PAGE>

EPIX Products and Development Programs

MS-325

The Company's lead product candidate, MS-325, is a targeted vascular contrast
agent intended for use with MRI. MS-325 is a gadolinium-based small molecule
chelate which is engineered with the Company's proprietary RIME technology and
designed to bind to albumin, the most common blood protein. In an image enhanced
by MS-325 using standard MRI techniques, the blood, which is infused with
gadolinium, gives off a strong magnetic signal and appears bright while the
surrounding tissue gives off a very low magnetic signal and appears dark.
Because of its affinity for albumin, MS-325 remains at high concentrations in
the bloodstream throughout the MRI exam and, consequently, provides the image
acquisition time and signal strength needed to obtain a high contrast, high
resolution image of the cardiovascular system. Like most currently available
non-specific contrast agents, MS-325 is designed to be excreted safely through
the kidneys over time.

While MS-325 is based on the Company's proprietary technology platform, its
chemical composition is similar to currently available MRI contrast agents which
have a strong safety record and are known to cause few, if any, side effects.
Furthermore, due to the increased magnetic signal elicited by MS-325, the
Company expects it to be used at a similar or lower dose than currently
available MRI contrast agents. As a result of these factors, the Company
believes that MS-325 will have a safety profile comparable to currently
available MRI contrast agents.

The Company completed a Phase I clinical trial of MS-325 in February 1997 and a
Phase I dose escalation study in the first quarter of 1998. No clinically
significant adverse events were reported for these Phase I trials.

In June 1997, the Company commenced a Phase II clinical trial to test the safety
and preliminary efficacy of MS-325 for the evaluation of PVD in the carotid,
iliac and femoral arteries. Patient enrollment for this trial concluded in March
1998. This Phase II trial was conducted at multiple clinical sites and involved
a blinded administration of several dose levels to 80 patients. In the trial,
MS-325 enhanced MRI is being compared to conventional X-ray angiography, the
current reference standard, to determine the location and degree of stenotic
lesions. The Company believes, based on the initial images available from this
trial, that MS-325 might aid in the identification and evaluation of stenotic
lesions, although any comparisons to X-ray angiography will not be available
until completion of the trial. The Company anticipates that the final audit of
the Phase II data for the PVD trial will be completed in the first half of 1998.

In September 1997, the Company commenced a Phase II clinical trial to test the
safety and feasibility of MS-325 for the evaluation of CAD. This Phase II
clinical trial is being conducted at multiple sites and will involve the
administration of MS-325 to approximately 105 patients. As with the Phase II PVD
trial, MS-325 enhanced MRI will be compared to X-ray angiography, the current
reference standard, to determine the location and degree of stenotic lesions.
The Company anticipates that the final audit of the Phase II data for the CAD
trial will be completed in 1998.

In January 1998 the Company commenced a Phase II clinical trial to test the
safety and feasibility of MS-325 for detecting breast cancer. The Company
believes that, based on the physical properties of MS-325 and preclinical
studies, MS-325 has potential application as part of a noninvasive imaging
procedure that would assist physicians in identifying breast cancer in patients
who are at high risk or who have had indeterminant mammograms. Another potential
application for MS-325 in the diagnosis of breast cancer is in defining the size
of malignant lesions.

                                       11

<PAGE>


Other Research and Development Programs

Thrombosis Imaging. The Company intends to develop novel contrast agents for
imaging thrombosis, commonly referred to as "blood clots." These clots can occur
in the legs, pelvis, or occasionally the arms where they are referred to as deep
vein thrombosis ("DVT") and can migrate to the lungs where they are referred to
as pulmonary emboli ("PE"). The Company is seeking to develop a targeted
contrast agent and protocol that would enable MRI to illuminate blood clots
against a dark background. The Company believes that its proprietary technology
platform could also enable MRI to differentiate old and new clot formations and
that such a product would change the diagnostic pathway for many of the
conditions associated with thrombotic disease, including PE and DVT. The Company
recently formed a strategic alliance with Dyax Corp. ("Dyax") to develop novel
contrast imaging agents for the diagnosis of severe blood clots in the lungs and
legs. See "--Strategic Alliances--Dyax Corp." The Company believes that use of
the new approach would lead to better medical outcomes due to earlier definitive
diagnosis. Early diagnosis is especially important for clots in the pelvis and
vena cava, the large vein through which blood returns to the heart, because of
their increased likelihood of migrating to the lungs where the clots can be
fatal. The Company believes that such contrast agents could eliminate the need
for selected ultrasound and nuclear medicine studies of thrombosis while
providing, noninvasively, diagnostic information which is clinically equivalent
to that provided by peripheral X-ray angiography.

Functional Brain Imaging. Functional brain imaging involves measuring small
changes in the brain to, in effect, watch the brain function in real time.
Investigators at a number of institutions have developed a new brain imaging
technique using MRI. Even in its present experimental form, the technique is
being adopted by many leading neuroscience centers throughout the world. The
technique detects small increases in blood volume or flow that accompany the
greater metabolic activity in stimulated brain regions, thus allowing one to
watch, in real time, different regions of the brain "light up" as a person
thinks, moves or views objects. At present, studies are being conducted using a
specialized MRI technique which does not employ a contrast agent. However, these
studies are currently difficult to interpret since blood flow changes induced by
cognitive activity are subtle and associated signals are weak. Clinical
applications of functional brain imaging are potentially broad, including
pre-surgical planning, neurodegenerative disease diagnosis and psychiatry.

EPIX is currently conducting preliminary research to evaluate the feasibility of
developing an agent that would be able to magnify the signal from small volume
changes in blood flow to particular areas of the brain. The Company believes
that such a contrast agent could potentially enable MRI scans of brain function.


Strategic Alliances

The Company's strategy includes entering into alliances with leaders in the
pharmaceutical, diagnostic imaging and MRI equipment industries to facilitate
the development, manufacture, marketing, sale and distribution of its products.
To date, the Company has formed strategic alliances with Mallinckrodt and
Daiichi for the development and commercialization of MS-325, and with Dyax to
develop novel contrast agents for the diagnosis of severe blood clots in the
lungs and legs.

                                       12

<PAGE>

Mallinckrodt Inc.

Pursuant to a collaboration agreement between the Company and Mallinckrodt,
which was executed in August 1996, the Company granted Mallinckrodt an exclusive
license to develop and commercialize MS-325 worldwide, excluding Japan. The
agreement also provides for potential collaboration and cost sharing
arrangements in connection with future MRI vascular agent programs, whether
developed by the Company or Mallinckrodt or in-licensed by either party. The
operations of the collaboration are supervised by a joint steering committee
comprised of an equal number of representatives of both parties. The Company has
primary responsibility for conducting Phase I and Phase II clinical trials and
for manufacturing MS-325 for such trials. Mallinckrodt will assume primary
responsibility for development and manufacturing starting with Phase III
clinical trials. Mallinckrodt will also be responsible for the marketing and
distribution of MS-325 worldwide, excluding Japan. The agreement imposes certain
development due diligence obligations on both of the parties and certain
marketing due diligence obligations on Mallinckrodt.

The Company received a $6.0 million license fee upon execution of the agreement
with Mallinckrodt and received an additional $2.0 million milestone payment in
July 1997. Mallinckrodt and the Company will generally share equally in the
worldwide, excluding Japan, development and manufacturing scale-up and product
launch costs of MS-325 and all future MRI vascular agents which may be covered
by the agreement. The parties' current obligations with respect to MS-325
development costs are limited to a specified amount. Under the arrangement, the
Company will share in future operating profits, if any.

The agreement provides that Mallinckrodt may not independently develop, market
or sell any MRI vascular agent worldwide except Japan other than those that are
part of the collaboration without the approval of the joint steering committee.


Daiichi Radioisotope Laboratories, Ltd.

Pursuant to a development and license agreement, which was entered into in March
1996, the Company granted Daiichi an exclusive license to develop and
commercialize MS-325 in Japan. Under this arrangement, Daiichi will assume
primary responsibility for clinical development, regulatory approval, marketing
and distribution of MS-325 in Japan. The Company retained the right and
obligation to manufacture MS-325 for development activities and commercial sale
under the agreement. However, Daiichi may, under certain circumstances, elect to
formulate MS-325 purchased from the Company into a final product. The agreement
imposes certain development due diligence obligations on both parties and
marketing due diligence obligations on Daiichi. The agreement may be terminated
by Daiichi upon 30 days prior written notice if Daiichi determines in its
reasonable opinion that MS- 325 lacks clinical efficacy, presents serious side
effects or otherwise exhibits unacceptable properties. In connection with this
strategic alliance, the Company received an up-front fee from Daiichi in the
amount of $3.0 million and earned a $900,000 milestone payment in June 1997.
Daiichi will be required to make future payments to EPIX up to an aggregate
amount of $2.4 million upon the achievement of certain MS-325 development
milestones. Daiichi also made a $5.0 million equity investment in the Company
and is required to make royalty payments to the Company on net sales of MS-325
in Japan.


Dyax Corp.

The Company and Dyax have formed a strategic alliance to develop novel contrast
imaging agents for the diagnosis of severe blood clots in the lungs and legs.
The companies will jointly identify and develop compounds that specifically
target PE and DVT for use as in vivo MRI and nuclear medicine imaging agents for
the diagnosis of these disorders.

Under the terms of the agreement, the two companies have agreed to use Dyax's
proprietary phage display technology to identify peptides that specifically bind
to PE and DVT. The Company will fund the phage display screening program and
provide expertise in MRI contrast technology for development of MRI-specific
imaging agents. Dyax will assume primary responsibility for developing agents
for use in nuclear medicine. Dyax will receive royalties on sales of MRI
products, and the Company will receive royalties on sales of nuclear medicine
products resulting from this collaboration.

                                       13

<PAGE>

Other

In 1992, the Company entered into an agency agreement with Sumitomo Corporation
("Sumitomo") whereby the Company engaged Sumitomo as its exclusive agent to
assist the Company in entering into arrangements with third parties for the
development and commercialization of vascular, liver and tumor MRI agents in
Japan. Sumitomo assigned this agreement to Summit Pharmaceuticals International
Corporation ("Summit") in 1995. In accordance with the agreement, the Company
paid Summit a specified percentage on all amounts received by the Company from
Daiichi to date and will make payments to Summit on future milestone payments it
receives from Daiichi, if any.


Competition

The healthcare industry is characterized by extensive research efforts and rapid
technological change, and there are many companies that are working to develop
products similar to the Company's. There are currently no FDA-approved targeted
vascular contrast agents for use with MRI. However, there are a number of
non-specific MRI agents approved for marketing in the United States and certain
foreign markets that are likely to compete with the Company's products for
certain applications. Magnevist(R) by Schering-AG, Dotarem(R) by Guerbet, S.A.,
Omniscan(R) by Nycomed Imaging ASA (Nycomed), and ProHance(R) by Bracco S.p.A.
are all such products. The Company is aware of only one agent under development,
Nycomed's NC100150, that is being evaluated for use in vascular imaging using
MRI. There can be no assurance that the Company's competitors will not succeed
in the future in developing products that are more effective than any that are
being developed by the Company. The Company believes that its ability to compete
within the MRI contrast agent market is dependent on a number of factors,
including the success and timeliness with which it completes FDA trials, the
breadth of applications, if any, for which it receives approval, and the
effectiveness, cost, safety and ease of use of the Company's products in
comparison to the products of the Company's competitors. The success of the
Company will also be based on physician acceptance of MRI as a primary imaging
modality for certain cardiovascular and other applications. See "Risk
Factors--Uncertainty of Market Acceptance of Technology and Products."

The Company has many competitors including pharmaceutical, biotechnology and
chemical companies, a number of which, including two of the Company's strategic
partners, are actively developing and marketing products that, if
commercialized, would compete with the Company's product candidates. Many of
these competitors have substantially greater capital and other resources than
the Company and may represent significant competition for the Company. Such
companies may succeed in developing technologies and products that are more
effective or less costly than any of those that may be developed by the Company,
and such companies may be more successful than the Company in developing,
manufacturing and marketing products. Furthermore, there are several
well-established medical imaging modalities that currently compete, and will
continue to compete, with MRI, including X-ray angiography, CT, nuclear medicine
and ultrasound. Other companies are actively developing the capabilities of the
competing modalities to enhance their effectiveness in cardiovascular system
imaging. There can be no assurance that the Company will be able to compete
successfully in the future or that developments by others will not render MS-325
or the Company's future product candidates obsolete or non-competitive or that
the Company's collaborators or customers will not choose to use competing
technologies or products.


Patents and Proprietary Rights

EPIX considers the protection of its proprietary technologies to be material to
its business prospects. The Company pursues a comprehensive patent program in
the United States and in other countries where it believes that significant
market opportunities exist.

                                       14

<PAGE>

The Company owns or has exclusively licensed patents and patent applications on
the critical aspects of its core technology as well as many specific
applications of this technology. EPIX has exclusively licensed two patents in
the United States broadly covering RIME technology, albumin binding with metal
chelates, and liver targeting metal chelates, has been issued a patent in Europe
similar to those United States patents, and has received notice of allowance for
a similar patent application in Japan. The Company's European patent and
Japanese allowed patent application have been opposed by several parties. These
oppositions will likely take several years to finally resolve. While the Company
believes that it will prevail in these oppositions, there can be no assurance as
to the scope of the claims that will be maintained, if any, or the ultimate
benefit, if any, of those claims to the Company in protecting its products. The
Company has exclusively licensed five additional patents in the United States.
These patents have counterpart patent applications pending in Japan and Europe.
The Company has also received an additional United States patent covering novel
metal chelates and has a counterpart patent application pending in Japan.
Finally, the Company has patent applications pending in the United States, Japan
and Europe covering various aspects of its RIME technology. The Company's patent
protection for MS-325 currently extends to 2006 in the United States, Japan and
Europe. If the currently pending patent applications issue, this protection will
be extended until 17 years after the date of issue in the United States, and
until 2016 in Europe and Japan.

An issued patent grants to the owner the right to exclude others from practicing
inventions claimed therein. In the United States, a patent filed before June 8,
1995 is enforceable for 17 years from the date of issuance or 20 years from the
deemed date of filing the underlying patent applications, whichever is longer.
Patents based on applications filed from June 8, 1995 expire 20 years from the
deemed date. The General Agreement on Tariffs and Trade provides that patents
whose applications were filed on or after June 8, 1995 are effective for 20
years from filing. This new rule is generally regarded as unfavorable to
pharmaceutical companies, where the time period between patent filing and
commercialization of the patented product may be extended many years because of
the lengthy development cycle and regulatory process.

The patent positions of pharmaceutical and biopharmaceutical firms involve
complex legal and factual questions. There can be no assurance that the
Company's issued patents, or any patents that may be issued in the future, will
effectively protect the Company's technology or provide a competitive advantage.
There can be no assurance that any of the Company's patents or patent
applications will not be challenged, invalidated or circumvented in the future.

The Company's commercial success will also depend on its ability to operate
without infringing upon the patents of others in the United States and abroad.
If any third-party patents are upheld as valid and enforceable in any judicial
or administrative proceeding, the Company could be prevented from practicing the
subject matter claimed in such patents, or would be required to obtain licenses
from the patent owners of each such patent, or to redesign its products or
processes, to avoid infringement. There can be no assurance that such licenses
would be available or, if available, would be available on terms acceptable to
the Company or that the Company would be successful in any attempt to redesign
its products or processes to avoid infringement. Accordingly, an adverse
determination in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent the Company from manufacturing and selling its
products, which would have a material adverse effect on the Company's business,
financial condition and results of operations.

There are pending or issued patents, held by parties not affiliated with the
Company, relating to technologies used by the Company in the development or use
of certain of the Company's product candidates. In particular, the Company is
aware of certain patents in the United States, Japan and elsewhere owned by or
licensed to one party that relate to MRI contrast agents and which may cover
certain of the Company's MRI product candidates, including MS-325. Mallinckrodt,
one of the Company's partners, has rights from this third party under those
patents which the Company and Mallinckrodt believe will permit Mallinckrodt to
manufacture, market and sell MS-325 and other products developed pursuant to the
collaboration agreement between the Company and Mallinckrodt if MS-325 and those
other products were to be held to fall within the claims of those third-party
patents. If the agreement with Mallinckrodt is terminated by either party and
were MS-325 and those other products to be held to fall within the claims of
those third-party patents, the Company would be required to enter into a
strategic alliance with another party having a license from this third party or
obtain a license from this third party directly or from others licensed by this
third party in order to manufacture, market and sell MS-325 and other
chelate-based MRI contrast agents. However, there can be no assurance that the
Company would be able to consummate a strategic alliance with a party having
this third-party license or obtain a license from this third party or another
third party on commercially reasonable terms, if at all. The patent rights of
this third party in Japan will expire in 2002, before such time as the Company

                                       15

<PAGE>


presently anticipates that Daiichi will have sales of MS-325 in Japan and,
therefore, the Company believes that the existence of such patents in Japan is
unlikely to have a material adverse effect on the Company. However, in the event
that Daiichi commercializes MS-325 in Japan before 2002, it may be required to
obtain an appropriate license or take other measures to avoid infringement of
the third-party patents, including delaying the commencement of product sales.
There can be no assurance that the Company's current or future activities will
not be challenged, that additional patents will not be issued containing claims
materially constraining the proposed activities of the Company, that the Company
will not be required to obtain licenses from third parties, or that the Company
will not become involved in costly, time-consuming litigation regarding patents
in the field of contrast agents, including actions brought to challenge or
invalidate the Company's own patent rights. At the same time, the Company is
aware of certain products under development by the third party referred to above
and others which it believes may infringe certain of the Company's exclusively
licensed patents. The Company intends to pursue license or cross-license
arrangements with or, if necessary and appropriate, infringement proceedings
against, these parties upon their seeking final regulatory approval for the
marketing and sale of any such products.

Many of the Company's competitors are continuing to actively pursue patent
protection for activities and discoveries similar to the Company's. There can be
no assurance that these competitors, many of which have substantially greater
resources than the Company and have made substantial investments in competing
technologies, will not in the future seek to assert that the Company's products
or chemical processes infringe their existing patents and/or will not seek new
patents that claim to cover aspects of the Company's technology. Furthermore,
patent applications in the United States are maintained in secrecy until patents
issue, and patent applications in foreign countries are maintained in secrecy
for a specified period after filing. Publication of discoveries in the
scientific or patent literature tends to lag behind actual discoveries and the
filing of related patent applications. In addition, patents issued and patent
applications filed relating to biopharmaceuticals are numerous. Therefore, there
can be no assurance that the Company is aware of all competitive patents, either
pending or issued, that relate to products or processes used or proposed to be
used by the Company.

The Company and MGH have entered into a license agreement pursuant to which MGH
has granted the Company an exclusive worldwide license to the patents and patent
applications which relate to the Company's only product candidate, MS-325. The
MGH License imposed certain due diligence obligations with respect to the
development of products covered by the license, all of which have been fulfilled
to date. The MGH License requires the Company to pay royalties on net sales of
MS-325 by the Company. The Company must also pay MGH a percentage of all
royalties received by the Company from its sublicensees. Accordingly, the
Company will be required to make payments to MGH on profits generated under the
Mallinckrodt collaboration, if any, and on royalties received from Daiichi under
its license agreement, if any. Failure of the Company to comply with these
requirements could result in the conversion of the license from being exclusive
to non-exclusive in nature or termination of the license agreement itself. Any
such event would have a material adverse effect on the Company's business,
financial condition and results of operations.

The pharmaceutical and biotechnology industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
Litigation may be necessary to enforce any patents issued to the Company and/or
determine the scope and validity of others' proprietary rights. The Company may
have to participate in interference proceedings declared by the United States
Patent and Trademark Office or by foreign agencies to determine the priority of
inventions. Any involvement in litigation surrounding these issues could require
extensive costs to the Company as well as be a significant distraction for
management. Such costs could have a material adverse effect on the Company's
business, financial condition and results of operations.

                                       16

<PAGE>

The Company also relies upon trade secrets, technical know-how, and continuing
technological innovation to develop and maintain its competitive position. The
Company typically requires its employees, consultants, and advisors to execute
confidentiality and assignment of inventions agreements in connection with their
employment, consulting or advisory relationships with the Company. These
agreements require disclosure and assignment to the Company of ideas,
developments, discoveries and inventions made by employees, consultants and
advisors. There can be no assurance, however, that these agreements will not be
breached or that the Company will have adequate remedies for any breach.
Furthermore, no assurance can be given that competitors will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's proprietary technology, or that the
Company can meaningfully protect its rights in unpatented proprietary
technology.

The Company intends to vigorously protect and defend its intellectual property.
Costly and time-consuming litigation brought by the Company may be necessary to
enforce patents issued to the Company, to protect trade secrets or know-how
owned by the Company, or to determine the enforceability, scope, and validity of
the proprietary rights of others.


Manufacturing

The Company currently manufactures, as part of its ongoing development efforts,
small non-GMP (good manufacturing practices as promulgated by the FDA) batches
of MS-325 in its laboratories located in Cambridge, Massachusetts. MS-325 for
use in preclinical and Phase I and II clinical trials has been manufactured in
accordance with GMP by outside contractors. As part of its strategic alliance
with the Company, Mallinckrodt will serve as primary manufacturer for MS-325
thereafter worldwide except for in Japan and, possibly, in Japan. If
Mallinckrodt is unable to produce MS-325 in adequate amounts and at a reasonable
cost or to comply with any applicable regulations, including GMP, it could have
a material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, should Mallinckrodt fail to fulfill its
manufacturing responsibilities satisfactorily, the Company could be forced to
find an alternative manufacturer. There can be no assurance that the Company
would be able to find such an alternative manufacturer. In the event the Company
was forced to develop its own FDA-approved full-scale manufacturing capability,
it would require significant expenditures of capital and management attention
and resources and could require the Company to obtain a license from a third
party, and would result in a delay in the approval or commercialization of
MS-325. There can be no assurance that the Company would be able to obtain such
a license on commercially reasonable terms, if at all. The Company currently
procures the raw materials for the various components of MS-325 from a broad
variety of vendors and, wherever possible, maintains relationships with multiple
vendors for each component. There are a number of components of MS-325 for which
the largest suppliers may have significant control over the market price due to
controlling market shares. If any one of the Company's suppliers decided to
increase prices significantly or reduce quantities of any component of MS-325
available for sale to the Company, it could have a material adverse effect on
the Company's ability to commercialize MS-325 and on the Company's business,
financial condition and results of operations. See "Strategic Alliances."


Government Regulation

The manufacture and commercial distribution of the Company's product candidates
are subject to extensive governmental regulation in the United States and other
countries. Pharmaceuticals, including contrast imaging agents for use with MRI,
are regulated in the United States by the FDA under the Food, Drug and Cosmetic
Act ("FD&C Act") and require FDA approval prior to commercial distribution.
Pursuant to the FD&C Act, pharmaceutical manufacturers and distributors must be
registered with the FDA and are subject to ongoing FDA regulation, including
periodic FDA inspection of their facilities and review of their operating
procedures. Noncompliance with applicable requirements can result in failure to
receive approval, withdrawal of approval, total or partial suspension of
production, fines, injunctions, civil penalties, recalls or seizure of products
and criminal prosecution, each of which would have a material adverse effect on
the Company's business, financial conditions and results of operations.

                                       17

<PAGE>

In order to undertake clinical trials and market pharmaceutical products for
diagnostic or therapeutic use in humans, the procedures and safety standards
established by the FDA and comparable agencies in foreign countries must be
followed. In the United States, a company seeking approval to market a new
pharmaceutical must obtain FDA approval of a new drug application ("NDA").
Before an NDA may be filed, however, a certain procedure is typically followed.
This includes: (i) performance of preclinical laboratory and animal studies;
(ii) submission to the FDA of an application for an investigational new drug
application ("IND"), which must become effective before human clinical trials
may commence; (iii) completion of adequate and well-controlled human clinical
trials to establish the safety and efficacy of the pharmaceutical for its
intended application; (iv) submission to the FDA of an NDA; and (v) approval of
the NDA by the FDA prior to any commercial sale or shipment of the agent. In
November 1997, the Food and Drug Administration Modernization Act of 1997 was
passed and signed into law (the "Act"). The Act, most of which became effective
in February 1998, promises, among other things, to streamline the approval
process for drugs and enable patients with serious diseases to more easily
access experimental products. The effect, if any, of the Act on the Company,
MS-325 and the Company's other product candidates is not known at this time.

Preclinical studies include laboratory evaluation of product chemistry and
animal studies to assess the potential safety and efficacy of the product and
its formulation. The results of the preclinical studies are submitted to the FDA
as part of an IND, and unless the FDA objects, the IND will become effective 30
days following its receipt by the FDA. Clinical trials are conducted in
accordance with protocols that detail the objectives of the study, the
parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each protocol together with information about the clinical
investigators who will perform the studies and the institutions at which the
trials will be performed are submitted to the FDA as part of the IND. An
independent institutional review board ("IRB") at each institution at which the
trial will be conducted will also be asked by the principal investigator at that
institution to approve, according to FDA regulations governing IRBs, the trials
that will be performed at that institution. The IRB will consider, among other
things, ethical factors, the protection of human subjects and the possible
liability of the institution.

Clinical trials under the IND are typically conducted in three sequential
phases, but the phases may overlap. In Phase I, the initial introduction of the
pharmaceutical into humans, the pharmaceutical is tested for safety, dosage
tolerance, metabolism, distribution, excretion and clinical pharmacology in
healthy adult subjects. Imaging agents may also be subject to a Phase IB trial
under which an agent's imaging characteristics in humans are first evaluated.
Phase II involves a detailed evaluation of the safety and efficacy of the agent
in a range of doses in patients with the disease or condition being studied.
Phase III clinical trials typically consist of evaluation of safety and efficacy
in a larger patient population and at more institutions.

The Company completed a Phase I clinical trial for MS-325 in February 1997 and a
Phase I dose escalation study in February 1998. No clinically significant
adverse events were reported for these Phase I trials. In June 1997, the Company
commenced a Phase II clinical trial to test the safety and preliminary efficacy
of MS-325 for the evaluation of PVD and, in September 1997, the Company
commenced a Phase II clinical trial to test the safety and feasibility of MS-325
for the evaluation of CAD. In addition, in January 1998 the Company commencd a
Phase II clinical trial to test the safety and feasibility of MS-325 for
detecting breast cancer. The process of completing clinical testing and
obtaining FDA approval for a new product is likely to take a number of years.
When the study for a particular indication as described in the IND is complete,
and assuming that the results support the safety and efficacy of the product for
that indication, the Company intends to submit an NDA to the FDA. The NDA
approval process can be expensive, uncertain and lengthy. Although the FDA is
supposed to complete its review of an NDA within 180 days of the date that it is
filed, the review time is often significantly extended by the FDA which may
require more information or clarification of information already provided in the
NDA. During the review period, an FDA advisory committee likely will be asked to
review and evaluate the application and provide recommendations to the FDA about
approval of the pharmaceutical. In addition, the FDA will inspect the facility
at which the pharmaceutical is manufactured to ensure compliance with GMP and
other applicable regulations. Failure of the third-party manufacturers to comply
or come into compliance with GMP requirements could significantly delay FDA
approval of the NDA. The FDA may grant an unconditional approval of an agent for
a particular indication or may grant approval conditioned on further
post-marketing testing and/or surveillance programs to monitor the agent's
efficacy and side effects. Results of these post-marketing programs may prevent
or limit the further marketing of the agent. In addition, additional studies and
a supplement to the initially approved NDA will be required to gain approval for
the use of an approved product in indications other than those for which the NDA
was approved initially.

                                       18

<PAGE>

While the Company, because of its agreement with Mallinckrodt, does not
currently intend to manufacture any of its products itself once they are
approved, it may choose to do so in the future. Should the Company decide to
manufacture its products, the Company would be required to obtain a license from
a third party having rights to patents which may cover certain of the Company's
contrast agents. There can be no assurance that the Company would be able to
obtain such a license from the third party. Furthermore, the Company's
manufacturing facilities would be subject to inspection and approval by the FDA
before the Company could begin commercial distribution of product from its own
manufacturing facilities. See "Business--Patents and Proprietary Rights" and
"Risk Factors--Uncertainty Regarding Patents and Proprietary Rights."

After an NDA is approved, the Company would continue to be subject to pervasive
and continuing regulation by the FDA, including record keeping requirements,
reporting of adverse experience from the use of the agent and other requirements
imposed by the FDA. FDA regulations also require FDA approval of an NDA
supplement for certain changes if they affect the safety and efficacy of the
pharmaceutical, including, but not limited to, new indications for use, labeling
changes, the use of a different facility to manufacture, process or package the
product, changes in manufacturing methods or quality control systems and changes
in specifications for the product. Failure by the Company to receive approval of
an NDA supplement could have a material adverse effect on the Company's
business, financial condition and results of operations.

The advertising of most FDA-regulated products is subject to FDA and Federal
Trade Commission jurisdiction, but the FDA has sole jurisdiction over
advertisements for prescription drugs. The Company is and may be subject to
regulation under state and Federal law regarding occupational safety, laboratory
practices, handling of chemicals, environmental protection and hazardous
substance control. The Company also will be subject to other present and
possible future local, state, federal and foreign regulation. Failure to comply
with regulatory requirements could have a material adverse effect on the
Company's business, financial conditions and results of operations.

Approval and marketing of pharmaceutical products outside of the United States
are subject to regulatory requirements that vary widely from country to country.
In the European Union ("EU"), the general trend has been towards coordination of
common standards for clinical testing of new agents, leading to changes in
various requirements imposed by each EU country. The level of regulation in the
EU and other foreign jurisdictions varies widely. The time required to obtain
regulatory approval from comparable regulatory agencies in each foreign country
may be longer or shorter than that required for FDA approval. In addition, in
certain foreign markets the Company may be subject to governmentally mandated
prices for its products.

Regulations regarding the approval, manufacture and sale of the Company's
product candidates are subject to change. The Company cannot predict what
impact, if any, such changes might have on its business, financial condition or
results of operations.

The Company's research, development and manufacturing processes require the use
of hazardous substances and testing on certain laboratory animals. As a result,
the Company is also subject to federal, state, and local laws, regulations and
policies governing the use, generation, manufacture, storage, air emission,
effluent discharge, handling and disposal of certain materials and waste as well
as the use of and care of laboratory animals. These laws and regulations are all
subject to change. The Company cannot predict what impact, if any, such changes
might have on its business, financial condition or results of operations.

                                       19

<PAGE>

Reimbursement

The Company expects that sales volumes and prices of its products will be
dependent in large measure on the availability of reimbursement from third-party
payors and that individuals seldom would be willing or able to pay directly for
all the costs associated with procedures which in the future may incorporate the
use of the Company's products. The Company expects that its products will be
purchased by hospitals, clinics, doctors and other users that bill various
third-party payors, such as Medicare, Medicaid and other government insurance
programs, and private payors including indemnity insurers, Blue Cross Blue
Shield plans and managed care organizations ("MCOs") such as health maintenance
organizations. Most of these third-party payors provide coverage for MRI for
some indications when it is medically necessary, but the amount that a
third-party payor will pay for MRI may not include a separate payment for a
contrast imaging agent that is used with MRI. Reimbursement rates vary depending
on the procedure performed, the third-party payor, the type of insurance plan
and other factors. For example, Medicare pays hospitals a prospectively
determined amount for an in-patient stay based on a Medicare beneficiary's
discharge diagnosis related group ("DRG"). This payment includes payment for any
procedure, including MRI, that is performed while a beneficiary is in the
hospital. No additional payment is made for contrast agents used during the
procedure. Other third-party payors may pay a hospital an additional amount for
an MRI procedure performed on an in-patient according to another methodology
such as a fee schedule or a percentage of charge. Such payment may or may not
include a payment for a contrast imaging agent. In the outpatient setting,
Medicare and other third-party payors may pay for all, some portion of, or none
of the cost of contrast agents used with MRI.

Third-party payors carefully review and increasingly challenge the prices
charged for procedures and medical products. In the past few years, the amounts
paid for radiology procedures in particular have come under careful scrutiny and
have been subject to decreasing reimbursement rates. In addition, an increasing
percentage of insured individuals are receiving their medical care through MCOs
which monitor and often require preapproval of the services that a member will
receive. Many MCOs are paying their providers on a capitated basis which puts
the providers at financial risk for the services provided to their patients by
paying them a predetermined payment per member per month. The percentage of
individuals, including Medicare beneficiaries, covered by MCOs is expected to
grow in the United States over the next decade. In addition, a recently enacted
federal law overhauling Medicare may have the effect of increasing the number
and type of managed care plans available to Medicare beneficiaries. The Company
believes that the managed care approach to healthcare and the growth in
capitated arrangements and other arrangements under which the providers are at
financial risk for the services that are provided to their patients will
facilitate the market acceptance of its products, as it believes that the use of
its products will significantly lower the overall costs and improve the
effectiveness of managing patient populations. There can be no assurance,
however, that the Company's products will be available, will lower costs of care
for any patients or that providers will choose to utilize them even if they do,
or if reimbursement will be available.

In foreign markets, reimbursement is obtained from a variety of sources,
including governmental authorities, private health insurance plans and labor
unions. In most foreign countries, there are also private insurance systems that
may offer payments for alternative therapies. Although not as prevalent as in
the United States, health maintenance organizations are emerging in certain
European countries. The Company may need to seek international reimbursement
approvals, although there can be no assurance that any such approvals will be
obtained in a timely manner or at all. Failure to receive international
reimbursement approvals could have a material adverse effect on market
acceptance of the Company's product candidates in the international markets in
which such approvals are sought.

The Company believes that reimbursement in the future will be subject to
increased restrictions such as those described above, both in the United States
and in foreign markets. The Company believes that the overall escalating cost of
medical products and services has led to, and will continue to lead to,
increased pressures on the health care industry, both foreign and domestic, to
reduce the cost of products and services, including products offered by the
Company. There can be no assurance, in either the United States or foreign
markets, that third party reimbursement and coverage will be available or
adequate, that current reimbursement amounts will not be decreased in the future
or that future legislation, regulation, or reimbursement policies of third-party
payors will not otherwise adversely affect the demand for the Company's product
candidates or its ability to sell its product candidates on a profitable basis,
particularly if MRI exams enhanced with the Company's contrast agents are more
expensive than competing vascular imaging techniques that are equally effective.
The unavailability or inadequacy of third-party payor coverage or reimbursement
could have a material adverse effect on the Company's business, financial
condition and results of operations.

                                       20

<PAGE>

Product Liability Insurance

The clinical and commercial development of pharmaceuticals, including contrast
agents such as those being developed by the Company, may entail exposure to
product liability claims. While the Company has never been subject to any
liability claims stemming from the manufacture of or preclinical or clinical
trials of its products, there can be no assurance that it will not face such
claims in the future. While the Company currently has product liability
insurance coverage for the clinical research use of its product candidates,
there can be no assurance that such coverage limits will be adequate nor that a
successful product liability lawsuit would not have a material adverse effect on
the Company. The Company does not have product liability insurance coverage for
the commercial sale of its products but intends to obtain such coverage if and
when its products are commercialized. If and when MS-325 or other EPIX product
candidates are approved for marketing by the FDA, or similar foreign regulatory
bodies, there can be no assurance that sufficient product liability insurance
will be available on terms acceptable to the Company or at all.

 Employees

As of December 31, 1997 the Company employed 45 persons on a full-time basis, of
which 34 were involved in research and development and 11 in administration and
general management. Twenty of the Company's employees hold Ph.D. or M.D.
degrees. The Company believes that its relations are good with all of its
employees. None of the Company's employees is a party to a collective bargaining
agreement.


Research and Development

During the years ended December 31, 1997 and 1996 and the nine months ended
December 31, 1995, the Company incurred research and development expenses of
$8,899,197, $6,878,666 and $4,164,940, respectively.


ITEM 2. PROPERTIES

The Company leases a total of 17,050 square feet of space at 71 Rogers Street
and adjacent locations, and 8,930 square feet at 161 First Street, all in
Cambridge, Massachusetts. The current lease at 71 Rogers Street and adjacent
locations runs until December 31, 2002 but may be terminated by the Company in
1999, subject to a termination fee. The current lease at 161 First Street runs
until October 31, 1998, but can be extended under certain conditions for an
additional 12 month period. The Company believes that its current facilities and
currently available space are adequate to meet its requirements for the
foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.


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

None

                                       21

<PAGE>

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers, directors and key employees of the Company as of December 31, 1997:

<TABLE>
<CAPTION>

   Name                              Age      Position
   ----                              ---      --------
   <S>                               <C>      <C>
   Michael D. Webb                   39       President, Chief Executive Officer and Secretary

   James E. Smith, Ph.D.             54       Executive Vice President, Research & Development

   Randall B. Lauffer, Ph.D.         40      Chief Scientific Officer

   Stephen C. Knight, M.D.           37      Senior Vice President, Corporate Development, Strategy
                                             and Finance

   E. Kent Yucel, M.D.               41      Senior Vice President and Chief Medical Officer

   Susan M. Flint                    46      Vice President, Regulatory Affairs and Clinical Operations

   Jeffrey R. Lentz                  44      Vice President, Finance and Administration,
                                             Chief Financial Officer, Treasurer and
                                             Assistant Secretary

</TABLE>


Michael D. Webb joined EPIX in December 1994 from Ciba-Corning Diagnostics,
Inc., where he was most recently Senior Vice President, Worldwide Marketing and
Strategic Planning. During his tenure at Ciba from April 1989 to December 1994,
Mr. Webb's achievements included the development and commercialization of the
ACS:180\R immunodiagnostics system. From 1984 to 1989, Mr. Webb was a senior
consultant at Booz, Allen & Hamilton, Inc., specializing in healthcare and life
sciences. Mr. Webb holds an MM degree in marketing and finance from the J.L.
Kellogg Graduate School of Management at Northwestern University.

Dr. James E. Smith has over 20 years experience in the in vivo diagnostics
industry. Prior to joining EPIX in February 1996, Dr. Smith worked for 16 years
at Du Pont Merck Pharmaceutical Company, where his experience included research
and development, regulatory, QA/QC and manufacturing for the
radio-pharmaceutical division, most recently as Senior Director of
Radiopharmaceutical Research and Development. Dr. Smith has published and
lectured on radiopharmaceutical research and development. Dr. Smith received his
Ph.D. degree in inorganic chemistry from the University of Washington.

Dr. Randall B. Lauffer, Chief Scientific Officer, founded the Company in
November 1988 and served as Chief Executive Officer until December 1994 and as
Chairman until October 1996. From November 1983 to March 1992, Dr. Lauffer was a
member of the faculty of Harvard Medical School, serving most recently as
Assistant Professor of Radiology from 1987 to 1992. During this time he was also
Director of the NMR Contrast Media Laboratory at MGH as well as an NIH
Postdoctoral Fellow and an NIH New Investigator. Dr. Lauffer is the primary
inventor of the Company's core technology and is the originator of several types
of MRI technology, including hepatobiliary (liver-enhancing) agents, vascular
agents, tissue blood flow agents, and strategies to increase the magnetic
efficiency of MRI agents in the body. He has written over 50 scientific
publications and two books, and has been named on several U.S. patents. Dr.
Lauffer holds a Ph.D. degree in inorganic chemistry from Cornell University.

                                       22

<PAGE>

Dr. Stephen C. Knight joined the Company in July 1996. From April 1991 to June
1996, Dr. Knight was a senior consultant with Arthur D. Little specializing in
biotechnology, pharmaceuticals and valuation. Dr. Knight was also a consultant
at APM, Inc., a consulting company. Prior to 1990, Dr. Knight performed research
at AT&T Bell Laboratories, the National Institute of Neurological and
Communicative Diseases and Stroke, and Yale University. He serves on the board
of directors of Pharmos, Inc. Dr. Knight holds an M.D. from the Yale University
School of Medicine and an MPPM degree from the Yale School of Organization and
Management.

Dr. E. Kent Yucel joined the Company in June 1996. From March 1993 to July 1996,
he was Chief of Vascular and Interventional Radiology and Director of MRI at
Boston Medical Center and Professor of Radiology at Boston University Medical
School. From July 1988 to February 1993 he served as Assistant Professor of
Radiology at MGH and Harvard Medical School. Dr. Yucel was Principal
Investigator for a Phase III vascular imaging trial of Prohance(R), the
nonspecific MRI agent now sold by Bracco. Dr. Yucel is the editor and co-author
of Magnetic Resonance Angiography (McGraw-Hill, 1995). Dr. Yucel received his
M.D. degree from Harvard Medical School.

Ms. Susan M. Flint joined the Company in April 1995. She is a Regulatory Affairs
specialist with over twenty years of experience in regulatory submissions and
clinical trials. She was a regulatory affairs/clinical research consultant to
various companies, including EPIX, from April 1993 to April 1995. Ms. Flint
previously held the position of Director of Clinical Trials at Advanced
Magnetics, Inc. from February 1989 to March 1993 and Director of Regulatory
Affairs at Du Pont Pharmaceutical Company from June 1975 to January 1989. She
has filed a number of applications for INDs and ten NDAs, along with several
medical device applications. Ms. Flint is certified by the Regulatory Affairs
Professional Society. She received her M.S. degree in pharmacology from
Northeastern University.

Jeffrey R. Lentz joined the Company in May 1996 as Vice President, Finance and
Administration. He is also the Company's Chief Financial Officer and Treasurer.
Prior to joining the Company, Mr. Lentz worked from August 1994 to May 1996 in
private practice as a consultant and in venture capital. Mr. Lentz served as
Director of Finance with Nova Biomedical Corporation from March 1993 to August
1994 and as a senior manager with Ernst & Young LLP from November 1986 to
November 1992. Mr. Lentz is a certified public accountant and holds an M.S.
degree from Northeastern University.

                                       23

<PAGE>


                                                                        PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock commenced trading on the Nasdaq Stock Market on
January 30, 1997 under the symbol "EPIX", and is listed in Nasdaq's National
Market. The following table sets forth, for the periods indicated, the range of
the high and low closing sale prices for the Company's Common Stock:

                                                         High           Low
1997
  First Quarter (from January 30, 1997)                  $ 9.50        $ 6.63
  Second Quarter                                           9.00          6.00
  Third Quarter                                           12.00          8.25
  Fourth Quarter                                          14.00         10.00

1998
  First Quarter (through March 11, 1998)                 $14.38        $12.00

On March 11, 1998 the last reported sale price of the Common Stock was $13.75
per share. As of March 11, 1998 there were approximately 76 holders of record of
the Company's Common Stock and approximately 1,000 beneficial holders. To date
the Company has neither declared nor paid any cash dividends on shares of its
Common Stock and does not anticipate doing so for the forseeable future.

A Registration Statement on Form S-1 (File No. 333-17581) registering 2,300,000
shares of the Company's Common Stock, filed in connection with the Company's
IPO, was declared effective by the Securities and Exchange Commission on January
30, 1997. The primary offering of 2,000,000 shares closed on February 4, 1997
and the underwriters exercised a 300,000 share overallotment in full on February
13, 1997. The aggregate offering price to the public was $16,100,000 before
underwriter discounts and the costs of the offerings. The managing underwriters
of the IPO were Hambrecht & Quist LLC and Wessels Arnold and Henderson, L.L.C.
In connection with the IPO the Company incurred expenses from February 4, 1997
to December 31, 1997 of $1,831,000 including underwriting discounts of
$1,127,000 and other expenses of approximately $704,000. After such expenses the
Company's net proceeds from the IPO were approximately $14,269,000. From
February 4, 1997 to December 31, 1997 the Company used an estimated $10 million
of the net proceeds to fund research and development costs, the MS-325 clinical
trial program and for working capital and general corporate purposes.


ITEM 6.  SELECTED FINANCIAL DATA

The following selected financial data are derived from the Company's audited
financial statements and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Financial Statements, related Notes and other financial information included
herein.

                                       24

<PAGE>

<TABLE>
<CAPTION>
                                                                                  Nine Months
                                                            Year Ended               Ended         Year Ended        Year Ended
                                                       March 31,      March 31,   December 31,    December 31,      December 31,
 (in thousands, except per share data)                    1994          1995        1995 (2)          1996              1997     
                                                          ----          ----        --------          ----              ----     
<S>                                                      <C>            <C>             <C>          <C>                <C>      
 Statement of Operations Data:                                                                                                   
 Revenues ..........................................     $1,700         $412            $900         $10,010            $4,228   
 Operating income (loss)............................       (579)      (2,820)         (4,770)            269            (7,462)  
 Net income (loss)..................................       (617)      (2,778)         (4,893)            268            (6,112)  

 Earnings (loss) per share (1):
    Basic...........................................                                  $(3.27)          $0.12            $(0.73)
    Diluted.........................................                                  $(3.27)          $0.03            $(0.73)

 Weighted average common shares outstanding:                                            
    Basic...........................................                                   1,498           1,561             8,333
    Diluted.........................................                                   1,498           7,732             8,333


                                                              March 31,                             December 31, 
                                                          ------------------            ------------------------------------- 
 Balance Sheet Data:                                      1994          1995            1995          1996               1997    
                                                          ----          ----            ----          ----               ----    
 Cash, cash equivalents and short-term investments..     $4,154       $1,079            $150         $10,664            $42,813  
 Working capital (deficit)..........................      3,574          516          (1,327)          8,299             39,673  
 Total assets.......................................      5,050        2,141           1,211          12,575             44,775  
 Capital lease obligations, less current portion....        292          107             342             176                279  
 Redeemable convertible preferred stock ............      3,941        3,949           3,956          17,204                --   
 Total stockholders' equity (deficit)...                    200       (2,552)         (7,336)         (7,240)            41,046  
</TABLE>

------------
(1) See Note 10 to Notes to Financial Statements for a description of the
    calculation of earnings (loss) per share. Reflects a 1-for-1.5 reverse stock
    split effected on December 6, 1996.

(2) In 1995 the Company changed its fiscal year end from March 31 to 
    December 31.



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Overview

Since commencing operations in 1992, the Company has been engaged principally in
the research and development of its product candidates as well as seeking
various regulatory clearances and patent protection. The Company has had no
revenues from product sales and has incurred losses since inception through
December 31, 1997 aggregating approximately $14.4 million. The Company has
received revenues in connection with various licensing and collaboration
agreements. In August 1996, the Company entered into a strategic alliance with
Mallinckrodt pursuant to which it received $6.0 million in up-front license
fees. The agreement provided for an additional $2.0 million milestone payment
which was received in July 1997. In March 1996, the Company entered into a
strategic alliance with Daiichi. Under this agreement, the Company received $3.0
million in license fees and $5.0 million from the sale of shares of the
Company's preferred stock, and was entitled to receive up to $3.3 million in
future payments based upon the Company's achievement of certain product
development milestones. The Company received $900,000 of such milestone payments
in July 1997.

The Company expects continued operating losses for the next several years as it
incurs expenses to support research, development and efforts to obtain
regulatory approvals.

                                       25

<PAGE>

The Company's initial product candidate, MS-325, is currently the Company's only
product candidate undergoing human clinical trials. The Company filed an IND
application for MS-325 in July 1996. The Company initiated a Phase I clinical
trial in 1996 and a Phase I dose escalation study in 1997 both of which have
been completed. The Company started a Phase II trial for peripheral vascular
disease indications in June 1997 and has since commenced feasibility clinical
trials for both cardiac and breast cancer indications.

In 1995, the Company changed its fiscal year end from March 31 to December 31.
The Company anticipates fluctuation in its quarterly results of operations due
to several factors, including: the timing of fees and milestone payments
received from strategic partners; the formation of new strategic alliances by
the Company; the timing of expenditures in connection with research and
development activities; the timing of product introductions and associated
launch, marketing and sales activities; and the timing and extent of product
acceptance for different indications and geographical areas of the world.



Results of Operations


Comparison of Year Ended December 31, 1997 and Year Ended December 31, 1996

Revenues
Revenues for the 1997 annual period included milestone payments of $2.0 million
received from Mallinckrodt Inc. and $900,000 received from Daiichi Radioisotope
Laboratories, Ltd. pursuant to collaboration agreements covering the Company's
lead product, MS-325. Revenues for the year ended December 31, 1996 consisted
principally of a $6.0 million license fee received from Mallinckrodt and a $3.0
million licensee fee from Daiichi, each related to the formation of the
collaboration agreements covering MS-325. Annual revenues also include $1.3
million and $1.0 million of MS-325 development contract revenue earned from
strategic partners in 1997 and 1996, respectively.

Research and Development expenses
Research and development expenses for the year ended December 31, 1997 were $8.9
million as compared to $6.9 million for 1996. The increase resulted principally
from additional costs for personnel and resources to support research in the
area of thrombus imaging and the development of core technology. Higher costs
associated with advancing MS-325 through clinical trials also contributed to
higher research and development expenses in 1997.

General and Administrative expenses
General and administrative expenses for the year ended December 31, 1997 were
$2.8 million as compared to $2.9 million for 1996. Higher expenses in 1996 were
largely the result of the costs associated with the formation of two major
strategic collaborations. In addition, 1996 general and administrative expenses
included a $250,000 non-recurring expense related to the restructuring of a
licensing arrangement under a liver agent development program that was
terminated in 1995. Partially offsetting these items were higher expenses in
1997 for ongoing patent protection activities, and the additional costs of
becoming and operating as a publicly-held company.

Interest income and expense
Interest income for the year ended December 31, 1997 was $1.4 million as
compared to $288,000 for 1996. The $1.1 million increase was primarily due to
higher average levels of invested cash during 1997. Interest expense for the
year ended December 31, 1997 was $62,000 as compared to $289,000 in 1996. The
1996 period included interest on borrowings under promissory notes and bridge
loans which were outstanding during the first five months of 1996.

                                       26

<PAGE>

Comparison of Year Ended December 31, 1996 and Nine Months Ended December 31,
1995

Revenues. Revenues for the year ended December 31, 1996 were $10.0 million as
compared to $900,000 for the nine-month fiscal period ended December 31, 1995.
Revenues for the year ended December 31, 1996 included $6.0 million in license
fees and approximately $1.0 million of development contract revenue from
Mallinckrodt. Revenues during 1996 also included $3.0 million in license fees
(net of 10% foreign withholding tax) received from Daiichi for the rights to
commercialize MS-325 in Japan. Revenues for the nine-month period ended December
31, 1995 consisted entirely of payments received from a pharmaceutical company
as consideration for an option for certain rights to the Company's future
contrast agents in Japan. The option expired and the rights to the agent were
subsequently licensed to a third party.

Research and development expenses. Research and development expenses for the
year ended December 31, 1996 were $6.9 million, as compared to $4.2 million for
the nine-month period ended December 31, 1995. This increase was due primarily
to increased MS-325 development costs associated with the commencement of Phase
I clinical trials in September 1996.

General and administrative expenses. General and administrative expenses for the
year ended December 31, 1996 were $2.9 million as compared to $1.5 million for
the nine-month period ended December 31, 1995. The $1.4 million increase was
largely due to increased personnel costs associated with recruitment and
compensation of additional senior management and increased expenses for
strategic consulting and business development activities. Significant secondary
causes of the increase include higher patent costs as well as increased agency
fees and legal expenses associated principally with the formation of
collaborative agreements. In addition, general and administrative expenses for
1996 included $250,000 of nonrecurring expense incurred in connection with the
restructuring of a liver agent development program which was terminated by the
Company in 1995.

Interest income and expense. Interest income for the year ended December 31,
1996 was $288,000, as compared to $28,000 for the nine-month period ended
December 31, 1995. This increase was due to higher average cash available for
investment during 1996. Interest expense for the year ended December 31, 1996
was $289,000, as compared to $151,000 for the nine-month period ended December
31, 1995. This increase was due to higher borrowings during 1996 under
promissory notes and bridge loans.


Liquidity and Capital Resources

The Company financed its operations from inception through December 31, 1997
primarily with $14.3 million in net proceeds from the Company's initial public
offering completed in February 1997, $22.9 million from a follow-on public
offering of common stock in November 1997, $18.4 million from private sales of
equity securities, $18.0 million received from third parties in connection with
collaboration and license arrangements, $1.8 million of equipment lease
financing and $1.9 million in interest income. From inception through December
31, 1997, the Company has incurred $33.9 million of costs attributable to
operating activities, including $24.2 million related to the research and
development of technology and new product candidates, including MS-325.

The Company's principal source of liquidity consists of cash, cash equivalents
and marketable securities which totaled $42.8 million at December 31, 1997, as
compared to $10.7 million at December 31, 1996.

The Company is eligible to receive additional payments of $2.4 million from
Daiichi upon the attainment of certain future MS-325 development milestones.
Daiichi is responsible for funding development of MS-325 in Japan. Under the
Company's agreement with Mallinckrodt, Mallinckrodt and the Company will
generally share equally in future development costs of MS-325 up to a specified
maximum amount.

During the year ended December 31, 1997, the Company used approximately $8.6
million of cash for operating activities, exclusive of license fee revenues. The
Company expects that its cash needs for operations will increase significantly
in future periods due to planned clinical trials and other expenses associated
with the development of MS-325 and new research and development programs.

                                       27

<PAGE>

The Company estimates that existing cash, cash equivalents and marketable
securities, will be sufficient to fund its operations through the second quarter
of 1999. The Company believes that it will need to raise additional funds for
research, development and other expenses, through equity or debt financings,
strategic alliances or otherwise, prior to commercialization of any of its
product candidates. There can be no assurance that additional financing will be
available on terms acceptable to the Company, or at all. The Company's future
liquidity and capital requirements will depend on numerous factors, including
the following: the progress and scope of clinical trials; the timing and costs
of filing future regulatory submissions; the timing and costs required to
receive both United States and foreign governmental approvals; the cost of
filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights; the extent to which the Company's products gain
market acceptance; the timing and costs of product introductions; the extent of
the Company's ongoing research and development programs; the costs of training
physicians to become proficient with the use of the Company's products; and, if
necessary, once regulatory approvals are received, the costs of developing
marketing and distribution capabilities.

Because of anticipated spending to support development of MS-325 and new
research programs, the Company does not expect positive cash flow from operating
activities for any future quarterly or annual period prior to commercialization
of MS-325. The Company anticipates continued investments in fixed assets,
including equipment and facilities expansion to support new and continuing
research and development programs. In July 1997, the Company reached an
agreement which will enable it to lease its current principal scientific
facilities through December 31, 2002. The Company has a short-term lease for a
nearby office space which expires in October 1998 but is renewable under certain
conditions for an additional 12 month period.

The Company has reported only tax losses to date and therefore has not paid
significant federal or state income taxes since inception. At December 31, 1997,
the Company had loss carryforwards of approximately $12.0 million available to
offset future taxable income. These amounts expire at various times through
2011. As a result of ownership changes resulting from sales of equity
securities, the Company's ability to use the loss carryforwards is subject to
limitations as defined in Sections 382 and 383 of the Internal Revenue Code of
1986, as amended (the "Code"). The Company currently estimates that the annual
limitation on its use of net operating losses through May 31, 1996 will be
approximately $900,000. Pursuant to Sections 382 and 383 of the Code, the change
in ownership resulting from public equity offerings in 1997 and any other future
ownership changes may further limit utilization of losses and credits in any one
year. The Company is also eligible for research and development tax credits
which can be carried forward to offset federal taxable income. The annual
limitation and the timing of attaining profitability may result in the
expiration of net operating loss and tax credit carryforwards before
utilization.

The Company does not believe that inflation has had a material impact on its
operations.

The Company has performed a preliminary internal review of its computer systems
for the potential consequences associated with Year 2000 issues. Based on this
review, the Company does not believe that the Year 2000 will have a material
impact on its operations. The Company is currently conducting a more in-depth
study to confirm this preliminary finding.

The discussion included in this section as well as elsewhere in the Annual
report on Form 10-K may contain forward-looking statements based on current
expectations of the Company's management. Such statements are subject to risks
and uncertainties which could cause actual results to differ from those
projected. See "Factors Regarding Forward Looking Statements" attached hereto as
Exhibit 99.1 and incorporated by reference into this Form 10-K. Readers are
cautioned not to place undue reliance on the forward looking statements which
speak only as the date hereof. The Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements which
may be made to reflect events or circumstances occurring after the date hereof
or to reflect the occurrence of unanticipated events.

                                       28

<PAGE>


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements and supplementary data appear at pages F-1 through F-26 of
this report on Form 10-K.




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

Not applicable.

                                       29

<PAGE>



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Directors. The information required under this item is incorporated herein
by reference to the section entitled "Election of Directors" in the Company's
definitive Proxy Statement for its Annual Meeting of Stockholders to be held May
12, 1998 (the "1998 Proxy Statement" to be filed with the Commission not later
than April 30, 1998.

(b) Executive Officers. See Item 4A. of Part I above.


ITEM 11.  EXECUTIVE COMPENSATION

The information required under this item is incorporated herein by reference to
the section entitled "Executive Compensation" in the 1998 Proxy Statement.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required under this item is incorporated herein by reference to
the section entitled "Security Ownership of Certain Beneficial Owners And
Management" in the 1998 Proxy Statement.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required under this item is incorporated herein by reference to
the section entitled "Certain Transactions" in the 1998 Proxy Statement.

                                       30

<PAGE>

                                     PART IV

ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

a. Documents filed as part of this Report:

     1. Financial Statements:

     Index to Financial Statements:                                          
         Report of Independent Auditors                                      F-1
         Financial Statements:
           Balance Sheets                                                    F-2
           Statements of Operations                                          F-4
           Statements of Redeemable Convertible                              
             Preferred Stock and Stockholders' Equity (Deficit)              F-5
           Statements of Cash Flows                                          F-8
           Notes to Financial Statements                                     F-9

     2. Financial Statement Schedules

     All schedules are omitted because they are not applicable or the required
     information is shown in the financial statements or notes thereto.

b. Reports on Form 8-k

   No reports on form 8-k were filed during the fourth quarter of 1997.

c. Exhibits

  3.1     Restated Certificate of Incorporation of the Company. Filed as Exhibit
          4.1 to the Company's Registration Statement on Form S-8 (File No.
          333-30531) and incorporated herein by reference.
  3.2     Form of Amended and Restated By-Laws of the Company. Filed as Exhibit
          4.2 to the Company's Registration Statement on Form S-8 (File No.
          333-30531) and incorporated herein by reference.
  4.1     Specimen certificate for shares of Common Stock of the Company. Filed
          as Exhibit 4.1 to the Company's Registration Statement on Form S-1
          (File No. 333-17581) and incorporated herein by reference.
  10.1+   Agency Agreement between the Company and Sumitomo Corporation dated
          March 13, 1992. Filed as Exhibit 10.1 to the Company's Registration
          Statement on Form S-1 (File No. 333-17581) and incorporated herein by
          reference.
  10.2+   Amendment to the Agency Agreement between the Company and Sumitomo
          Corporation dated June 26, 1992. Filed as Exhibit 10.2 to the
          Company's Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
  10.3    Short Form Lease from Trustees of the Cambridge East Trust to the
          Company dated July 1, 1992. Filed as Exhibit 10.3 to the Company's
          Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
  10.4    Form of Warrant to Purchase Shares of Series A Convertible Preferred
          Stock dated December 21, 1992. Filed as Exhibit 10.4 to the Company's
          Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.

                                       31

<PAGE>


  10.5    Dominion Ventures Master Lease Agreement No. 8050 dated December 21,
          1992. Filed as Exhibit 10.5 to the Company's Registration Statement on
          Form S-1 (File No. 333-17581) and incorporated herein by reference.
  10.6    First Amendment to Master Lease Agreement No. 8050 dated May 14, 1993.
          Filed as Exhibit 10.6 to the Company's Registration Statement on Form
          S-1 (File No. 333-17581) and incorporated herein by reference.
  10.7    Second Amendment to Master Lease Agreement No. 8050 dated August 5,
          1993. Filed as Exhibit 10.7 to the Company's Registration Statement on
          Form S-1 (File No. 333-17581) and incorporated herein by reference.
  10.8    First Amendment Lease From Trustees of the Cambridge Trust to the
          Company dated October 20, 1993. Filed as Exhibit 10.8 to the Company's
          Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
  10.9    Warrant to Purchase Shares of Series B Convertible Preferred Stock
          dated June 6, 1994. Filed as Exhibit 10.9 to the Company's
          Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
  10.10   Second Amendment to Master Lease Agreement No. 8050 dated June 6,
          1994. Filed as Exhibit 10.10 to the Company's Registration Statement
          on Form S-1 (File No. 333-17581) and incorporated herein by reference.
  10.11+  Amendment Agreement to the Agency Agreement between the Company and
          Sumitomo Corporation dated September 15, 1994. Filed as Exhibit 10.11
          to the Company's Registration Statement on Form S-1 (File No.
          333-17581) and incorporated herein by reference.
  10.12   Second Amendment Lease From Trustees of the Cambridge East Trust to
          the Company dated September 17, 1994. Filed as Exhibit 10.12 to the
          Company's Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
  10.13   Convertible Promissory Note Purchase Agreement by and among the
          Company and certain purchasers named therein dated May 26, 1995. Filed
          as Exhibit 10.13 to the Company's Registration Statement on Form S-1
          (File No. 333-17581) and incorporated herein by reference.
  10.14+  Amended and Restated License Agreement between the Company and The
          General Hospital Corporation dated July 10, 1995. Filed as Exhibit
          10.14 to the Company's Registration Statement on Form S-1 (File No.
          333-17581) and incorporated herein by reference.
  10.15   Warrant to Purchase Shares of Series C Convertible Preferred Stock
          dated August 2, 1995. Filed as Exhibit 10.15 to the Company's
          Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
  10.16   Third Amendment to the Master Lease Agreement No. 8050 dated August 2,
          1995. Filed as Exhibit 10.16 to the Company's Registration Statement
          on Form S-1 (File No. 333-17581) and incorporated herein by reference.
  10.17   Amendment No. 1 to Convertible Promissory Note Purchase Agreement by
          and among the Company and certain purchasers named therein dated
          January 19, 1996. Filed as Exhibit 10.17 to the Company's Registration
          Statement on Form S-1 (File No. 333-17581) and incorporated herein by
          reference.
  10.18+  Extension Agreement to Agency Agreement between the Company and
          Sumitomo Corporation dated March 5, 1996. Filed as Exhibit 10.18 to
          the Company's Registration Statement on Form S-1 (File No. 333-17581)
          and incorporated herein by reference.
  10.19+  Development and License Agreement dated March 29, 1996 by and among
          the Company and Daiichi Radioisotope Laboratories, Ltd. Filed as
          Exhibit 10.19 to the Company's Registration Statement on Form S-1
          (File No. 333-17581) and incorporated herein by reference.
  10.20   Third Amendment Lease From Trustees of the Cambridge East Trust to the
          Company dated May 1, 1996. Filed as Exhibit 10.20 to the Company's
          Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
  10.21   Series D Convertible Preferred Stock Purchase Agreement by and among
          the Company and certain purchasers named therein dated May 29, 1996.
          Filed as Exhibit 10.21 to the Company's Registration Statement on Form
          S-1 (File No. 333-17581) and incorporated herein by reference.
  10.22   Third Amended and Restated Stockholders' Rights Agreement by and among
          the Company and certain of its stockholders named therein dated May
          29, 1996. Filed as Exhibit 10.22 to the Company's Registration
          Statement on Form S-1 (File No. 333-17581) and incorporated herein by
          reference.

                                       32

<PAGE>

  10.23   Form of Warrant to Purchase Shares of Series D Preferred Stock dated
          May 29, 1996. Filed as Exhibit 10.23 to the Company's Registration
          Statement on Form S-1 (File No. 333-17581) and incorporated herein by
          reference.
  10.24   Amendment No. 1 to Third Amended and Restated Stockholders' Rights
          Agreement dated May 31, 1996. Filed as Exhibit 10.24 to the Company's
          Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
  10.25   Series E Convertible Preferred Stock Purchase Agreement dated May 31,
          1996 between the Company and Daiichi Radioisotope Laboratories, Ltd.
          Filed as Exhibit 10.25 to the Company's Registration Statement on Form
          S-1 (File No. 333-17581) and incorporated herein by reference.
  10.26+  Strategic Collaboration Agreement between the Company and Mallinckrodt
          Medical, Inc. and Mallinckrodt Group Inc. dated August 30, 1996. Filed
          as Exhibit 10.26 to the Company's Registration Statement on Form S-1
          (File No. 333-17581) and incorporated herein by reference.
  10.27   Amendment No. 2 to Third Amended and Restated Stockholders' Rights
          Agreement dated December 6, 1996. Filed as Exhibit 10.27 to the
          Company's Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
  10.28#  Amended and Restated 1992 Equity Incentive Plan. Filed as Exhibit 99.1
          to the Company's Registration Statement on Form S-8 (File No.
          333-30531) and incorporated herein by reference.
  10.29#  Form of Incentive Stock Option Certificate. Filed as Exhibit 10.29 to
          the Company's Registration Statement on Form S-1 (File No. 333-17581)
          and incorporated herein by reference.
  10.30   Form of Nonstatutory Stock Option Certificate. Filed as Exhibit 10.30
          to the Company's Registration Statement on Form S-1 (File No.
          333-17581) and incorporated herein by reference.
  10.31#  1996 Director Stock Option Plan. Filed as Exhibit 10.31 to the
          Company's Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
  10.32#  1996 Employee Stock Purchase Plan. Filed as Exhibit 10.32 to the
          Company's Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
  10.33   Form of Consulting and Confidentiality Agreement between the Company
          and certain consultants of the Company. Filed as Exhibit 10.33 to the
          Company's Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
  10.34   Form of Invention and Non-Disclosure Agreement between the Company and
          certain employees of the Company. Filed as Exhibit 10.34 to the
          Company's Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
  10.35   Form of Non-Competition and Non-Solicitation Agreement between the
          Company and certain employees of the Company. Filed as Exhibit 10.35
          to the Company's Registration Statement on Form S-1 (File No.
          333-17581) and incorporated herein by reference.
  10.36   Form of Common Stock Purchase Agreement. Filed as Exhibit 10.36 to the
          Company's Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
  10.37   Form of Stock Purchase and Right of First Refusal Agreement. Filed as
          Exhibit 10.37 to the Company's Registration Statement on Form S-1
          (File No. 333-17581) and incorporated herein by reference.
  10.38   Collaboration Agreement effective as of June 20, 1997 between Dyax
          Corp. and the Company. Filed as Exhibit 10.1 to the Company's
          quarterly report on Form 10-Q for the period ended September 30, 1997
          (File No. 000-21863) and incorporated herein by reference.
  10.39   Short Form Lease from Trustees of the Cambridge Trust to the Company
          with a commencement date of January 1, 1998. Filed as Exhibit 10.39 to
          the Company's Registration Statement on Form S-1 (File No. 333-38399)
          and incorporated herein by reference.
  23.1    Consent of Ernst & Young LLP. Filed herewith. 
  24.1    Power of Attorney. Contained on signature page hereto. 
  27.1    Financial Data Schedule. Filed herewith. 
  99.1    Important Factors Regarding Forward-Looking Statements. Filed
          herewith.

-----------------
 +       Certain confidential material contained in the document has been
         omitted and filed separately with the Securities and Exchange
         Commission pursuant to Rule 406 of the Securities Act of 1933, as
         amended.

  #       Identifies a management contract or compensatory plan or agreement in
          which an executive officer or director of the Company participates.

                                       33

<PAGE>

                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)



                          INDEX TO FINANCIAL STATEMENTS

Report of Independent Auditors...............................................F-1

Financial Statements

Balance Sheets...............................................................F-2
Statements of Operations.....................................................F-4
Statements of Redeemable Convertible Preferred
     Stock and Stockholders' Equity (Deficit)................................F-5
Statements of Cash Flows.....................................................F-8
Notes to Financial Statements................................................F-9


<PAGE>


                         REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
EPIX Medical, Inc.

We have audited the accompanying balance sheets of EPIX Medical, Inc. (a company
in the development stage) as of December 31, 1997 and 1996, and the related
statements of operations, redeemable convertible preferred stock and
stockholders' equity (deficit), and cash flows for the years ended December 31,
1997, December 31, 1996, the nine months ended December 31, 1995, and the period
from inception (November 29, 1988) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EPIX Medical, Inc. at December
31, 1997 and 1996, and the results of its operations and its cash flows for the
years ended December 31, 1997, December 31, 1996, the nine months ended December
31, 1995 and the period from inception (November 29, 1988) to December 31, 1997,
in conformity with generally accepted accounting principles.


                                                           /s/ ERNST & YOUNG LLP

Boston, Massachusetts
February 13, 1998

                                       F-1


<PAGE>

                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                December 31
                                                                            1997            1996
                                                                        -----------    -----------
<S>                                                                     <C>              <C>
Assets                                                                   
Current assets:
   Cash and cash equivalents                                            $ 1,455,657    $ 2,667,892
   Marketable securities                                                 41,356,941      7,996,186
   Prepaid expenses                                                         241,138         57,135
   Other current assets                                                      69,772         12,221
                                                                        -----------    -----------
        Total current assets                                             43,123,508     10,733,434

Property and equipment, net                                               1,254,281        994,179

Notes receivable from officer                                               315,616        295,344

Other assets                                                                 81,966        551,610
                                                                        -----------    -----------

        Total assets                                                    $44,775,371    $12,574,567
                                                                        ===========    ===========

Liabilities and Stockholders' Deficit
Current liabilities:
   Current portion of capital lease obligations                         $   319,745    $   208,571 
   Contract advances                                                        794,346               
   Accounts payable and accrued expenses                                  2,336,135      2,225,713 
                                                                        -----------    -----------
        Total current liabilities                                         3,450,226      2,434,284

Capital lease obligations, less current portion                             278,966        176,269

Redeemable convertible preferred stock:
   Series B, $.01 par value, 2,655,138 shares
     authorized; 2,643,736 shares issued and
     outstanding at December 31, 1996                                                    3,963,682

   Series C, $.01 par value, 1,445,536 shares
     authorized; 1,432,318 shares issued and
     outstanding at December 31, 1996
                                                                                         3,251,444
   Series D, $.01 par value, 1,740,002 shares
     authorized; 1,700,002 shares issued and
     outstanding at December 31, 1996
                                                                                         5,072,575
   Series E, $.01 par value, 868,329 shares
     authorized; 868,329 shares issued and
     outstanding at December 31, 1996                                                    4,916,106
</TABLE>

                                      F-2


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                               December 31
                                                                            1997          1996
                                                                        ------------   ------------
<S>                                                                     <C>            <C>
Stockholders' equity (deficit):
   Series A convertible preferred stock,
     $.01 par value, 104,388 shares authorized;
     93,691 shares issued and outstanding at
     December 31, 1996                                                                   1,037,664
   Common stock, $.01 par value, 15,000,000
     shares authorized; 11,218,264 and 1,564,451 shares
     issued and outstanding at December 31, 1997 and
     1996, respectively                                                     112,183         15,644
  Additional paid-in capital                                             55,351,091        112,960
  Accretion of redeemable convertible
     preferred stock to redemption value                                                  (101,059)
   Deficit accumulated during the development stage                     (14,417,095)    (8,305,002)
                                                                        ------------   ------------
Total stockholders' equity (deficit)                                     41,046,179     (7,239,793)
                                                                        ------------   ------------

Total liabilities and stockholders' equity (deficit)                    $44,775,371    $12,574,567
                                                                        ============   ============
</TABLE>


See accompanying notes.

                                      F-3


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)
                            STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                                                              Nine Months      Period from
                                              Year ended      Year ended         ended         Inception to
                                             December 31,    December 31,     December 31,     December 31,
                                                1997            1996              1995             1997
                                            ------------    ------------    ------------    --------------
<S>                                         <C>              <C>             <C>              <C>          
Revenues                                    $ 4,227,526     $10,009,739     $   900,000     $  18,248,774

Operating expenses:
    Research and development                  8,899,197       6,878,666       4,164,940        24,201,120
    General and administrative                2,790,222       2,861,906       1,504,811         9,720,231
                                            ------------    ------------    ------------    --------------
         Total operating expenses            11,689,419       9,740,572       5,669,751        33,921,351
                                            ------------    ------------    ------------    --------------

Operating income (loss)                      (7,461,893)        269,167      (4,769,751)      (15,672,577)

Interest income                               1,411,803         287,671          27,880         1,918,433
Interest expense                                (62,003)       (288,776)       (151,057)         (647,484)
                                            ------------    ------------    ------------    --------------
Net income (loss)                           $(6,112,093)    $   268,062     $(4,892,928)     $(14,401,628)
                                            ============    ============    ============    ==============

Weighted average shares
   Basic                                      8,333,294       1,561,045       1,498,347
   Diluted                                    8,333,294       7,732,477       1,498,347

Earnings (loss) per common share
   Basic                                    $     (0.73)    $      0.12     $     (3.27)
   Diluted                                  $     (0.73)    $      0.03     $     (3.27)

See accompanying notes.
</TABLE>

                                      F-4


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)


              STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
                       AND STOCKHOLDERS' EQUITY (DEFICIT)


<TABLE>
<CAPTION>
                                                                                                                              
                                                                                                                              
                                   Redeemable Convertible     Convertible Preferred                              Additional   
                                      Preferred Stock                 Stock                  Common Stock          Paid in    
                                     Shares      Amount        Shares       Amount       Shares       Amount       Capital    
                                  ------------------------------------------------------------------------------------------- 
<S>                               <C>          <C>          <C>           <C>          <C>          <C>          <C>
Issuance of common stock in
  May 1989                                                                                 333,330       $3,333       $1,667  
Issuance of Series A preferred
   stock in March 1992 (net of
   legal costs of $12,336)                                        93,691   $1,037,664                                          
Cumulative net loss for the
   period November 29, 1988
   (date of inception) through
   March 31, 1992                                                                                                             
                                  ------------------------------------------------------------------------------------------- 
Balance at March 31, 1992                                         93,691    1,037,664      333,330        3,333        1,667   
Issuance of common stock in
   April 1992 as payment for
   consulting services received                                                              5,186           52           26   
Net loss                                                                                                                      
                                  ------------------------------------------------------------------------------------------- 
Balance at March 31, 1993                                         93,691    1,037,664      338,516        3,385        1,693  
Issuance of common stock in
   February 1994 as payment
   for consulting services
   received                                                                                  5,186           52           26   
Three-for-one stock dividend
   declared and paid in
   March 1994                                                                            1,031,118       10,311        5,156   
Issuance of Series B preferred
   stock in March 1994, net of
   issuance costs of $58,764       2,643,736   $3,941,236
Issuance of warrants in
   conjunction with financing                                                                                         43,391   
Net loss                                                                                                                      
                                  ------------------------------------------------------------------------------------------- 
Balance at March 31, 1994          2,643,736    3,941,236         93,691    1,037,664    1,374,820       13,748       50,266  
Issuance of common stock upon
   exercise of options                                                                      66,866          669       27,415  
Issuance of warrants in
   conjunction
   with financing                                                                                                      6,925   
Accretion of redeemable
   convertible
   preferred stock to
   redemption value                                 8,147                                                                     
Net loss                                                                                                                      
                                  ------------------------------------------------------------------------------------------- 
Balance at March 31, 1995          2,643,736    3,949,383         93,691    1,037,664    1,441,686       14,417       84,606  
</TABLE>





<TABLE>
<CAPTION>
                                    Accretion
                                       of
                                    Dividends
                                       on         Deficit
                                   Redeemable   Accumulated      Total
                                   Convertible     in the     Stockholders'
                                    Preferred   Development     Equity
                                      Stock        Stage       (Deficit)
                                   ---------------------------------------
<S>                                <C>          <C>           <C>
Issuance of common stock in
   May 1989                                                   $    5,000
Issuance of Series A preferred
   stock in March 1992 (net of
   legal costs of $12,336)                                     1,037,664
Cumulative net loss for the
   period November 29, 1988
   (date of inception) through
   March 31, 1992                                 $(27,911)      (27,911)
                                   ---------------------------------------
Balance at March 31, 1992                          (27,911)    1,014,753
Issuance of common stock in
   April 1992 as payment for
   consulting services received                                       78
Net loss                                          (242,078)     (242,078)
                                   ---------------------------------------
Balance at March 31, 1993                         (269,989)      772,753
Issuance of common stock in
   February 1994  as payment
   for consulting services
   received                                                           78
Three-for-one stock dividend
   declared and paid in
   March 1994                                      (15,467)
Issuance of Series B preferred
   stock in March 1994, net of
   issuance costs of $58,764      
Issuance of warrants in
   conjunction with financing                                     43,391
Net loss                                          (616,480)     (616,480)
                                   ---------------------------------------
Balance at March 31, 1994                         (901,936)      199,742
Issuance of common stock upon
   exercise of options                                            28,084
Issuance of warrants in
   conjunction
   with financing                                                  6,925
Accretion of redeemable
   convertible
   preferred stock to
   redemption value                   (8,147)                     (8,147)
Net loss                                        (2,778,200)   (2,778,200)
                                   ---------------------------------------
Balance at March 31, 1995             (8,147)   (3,680,136)   (2,551,596)
</TABLE>

                                      F-5



<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

              STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
                       AND STOCKHOLDERS' EQUITY (DEFICIT)



<TABLE>
<CAPTION>



                                                                                                                             
                                   Redeemable Convertible     Convertible Preferred                              Additional
                                      Preferred Stock                 Stock                  Common Stock          Paid in   
                                     Shares      Amount        Shares      Amount        Shares       Amount       Capital   
                                  --------------------------------------------------------------------------------------------
<S>                               <C>          <C>            <C>          <C>          <C>           <C>         <C>         
Issuance of common stock upon
   exercise of options                                                                     38,399        384       16,874 
Issuance of common stock in
   July 1995 under license
   agreement                                                                               83,723        837       68,235 
Accretion of redeemable
   convertible preferred stock
   to redemption value                               6,122                                                                    
Issuance of warrants in
   conjunction with financing                                                                                      28,703 
Net loss                                                                                                                     
                                  --------------------------------------------------------------------------------------------
Balance at December 31, 1995        2,643,736    3,955,505      93,691     1,037,664    1,563,808     15,638      198,418 
Issuance of common stock upon
   exercise of options                                                                     67,309        673       38,313 
Issuance of Series C preferred
   stock upon conversion of
   convertible notes and
   interest thereon in May 1996,
   net of issuance costs
   of $12,560                       1,432,318    3,210,177
Issuance of warrants in
   conjunction with financing                                                                                      78,236 
Issuance of Series D preferred
   stock for cash in May 1996,
   net of issuance costs of
   $31,043                          1,500,002    4,468,963
Issuance of Series D preferred
   stock upon conversion of
   Bridge Notes in May 1996           200,000      600,000
Issuance of Series E preferred
   stock in May and August
   1996, net of issuance costs
   of $117,628                        868,329    4,882,372
Issuance of compensatory stock
   option grants                                                                                                   67,326  
Repurchase of common stock from
   officer in May 1996                                                                    (66,666)      (667)    (269,333)  
Accretion of redeemable
   convertible preferred stock
   to redemption value                              86,790                                                                    
Net income                                                                                                                   
                                  --------------------------------------------------------------------------------------------
Balance at December 31, 1996        6,644,385   17,203,807      93,691     1,037,664    1,564,451     15,644      112,960 
</TABLE>




<TABLE>
<CAPTION>
                                   Accretion
                                      of
                                   Dividends
                                      on         Deficit 
                                  Redeemable   Accumulated      Total
                                  Convertible     in the     Stockholders'
                                   Preferred   Development     Equity
                                     Stock        Stage       (Deficit)
                                  ---------------------------------------
<S>                               <C>          <C>           <C>
Issuance of common stock upon
   exercise of options                                            17,258
Issuance of common stock in
   July 1995 under license
   agreement                                                      69,072
Accretion of redeemable
   convertible preferred stock
   to redemption value               (6,122)                      (6,122)
Issuance of warrants in
   conjunction with financing                                     28,703
Net loss                                       (4,892,928)    (4,892,928)
                                  ---------------------------------------
Balance at December 31, 1995        (14,269)   (8,573,064)    (7,335,613)
Issuance of common stock upon
   exercise of options                                            38,986
Issuance of Series C preferred sto
   stock upon conversion of
   convertible notes and interest
   thereon in May 1996, net of
   issuance costs of $12,560                     
Issuance of warrants in
   conjunction with financing                                     78,236
Issuance of Series D preferred
   stock for cash in May 1996,
   net of issuance costs of
   $31,043                        
Issuance of Series D preferred
   stock upon conversion of
   Bridge Notes in May 1996       
Issuance of Series E preferred
   stock in May and August
   1996, net of issuance costs
   of $117,628                    
Issuance of compensatory stock
   option grants                                                  67,326
Repurchase of common stock from
   officer in May 1996                                          (270,000)
Accretion of redeemable
   convertible preferred stock
   to redemption value              (86,790)                     (86,790)
Net income                                        268,062        268,062
                                  ---------------------------------------
Balance at December 31, 1996       (101,059)   (8,305,002)    (7,239,793)
</TABLE>

                                      F-6


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

              STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
                       AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>


                                                                                                                              
                                   Redeemable Convertible     Convertible Preferred                              Additional   
                                      Preferred Stock                 Stock                  Common Stock          Paid in    
                                     Shares      Amount        Shares       Amount       Shares       Amount       Capital    
                                  ------------------------------------------------------------------------------------------- 
<S>                               <C>          <C>          <C>           <C>          <C>          <C>          <C>          
Issuance of common stock upon
   exercise of options                                                                     99,394          994        65,753   
Issuance of common stock upon
   Initial Public Offering, net
   of offering costs of
   $1,831,436 in February 1997                                                          2,300,000       23,000    14,245,564   
Conversion of preferred stock
   to common stock upon initial
   public offering in February
   1997                           (6,644,385)  (17,203,807)    (93,691)   (1,037,664)   4,750,278       47,503    18,092,909   
Issuance of compensatory stock
   option grants                                                                                                       3,393   
Issuance of common stock upon
   Follow-on Public Offering,
   net of offering costs of
   $1,819,447 in November 1997                                                          2,467,500       24,675    22,830,879   
Issuance of common stock upon
   conversion of warrants                                                                  36,641          367          (367)
Net loss                                                                                                                      
                                  ------------------------------------------------------------------------------------------- 
                                                                                                                              
Balance at December 31, 1997               0          $  0           0           $ 0   11,218,264     $112,183   $55,351,091  
                                  =========================================================================================== 
</TABLE>






<TABLE>
<CAPTION>
                                   Accretion
                                      of
                                   Dividends
                                      on         Deficit
                                  Redeemable   Accumulated      Total
                                  Convertible     in the     Stockholders'
                                   Preferred   Development     Equity
                                     Stock        Stage       (Deficit)
                                  ---------------------------------------
<S>                               <C>          <C>           <C> 
Issuance of common stock upon
   exercise of options                                            66,747
Issuance of common stock upon
   Initial Public Offering, net
   of offering costs of
   $1,831,436 in February 1997                                14,268,564
Conversion of preferred stock
   to common stock upon initial
   public offering in February
   1997                              101,059                  17,203,807
Issuance of compensatory stock
   option grants                                                   3,393
Issuance of common stock upon
   Follow-on Public Offering,
   net of offering costs of
   $1,819,447 in November 1997                                22,855,554
Issuance of common stock upon
   conversion of warrants        
Net loss                                         (6,112,093)  (6,112,093)
                                  ---------------------------------------
Balance at December 31, 1997             $ 0   $(14,417,095) $41,046,179
                                  =======================================
</TABLE>

See accompanying notes.

                                      F-7

<PAGE>



                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                        Nine months     Period from
                                                           Year ended    Year ended       ended       inception (November
                                                           December 31,  December 31,   December 31,    28, 1988) to
                                                              1997           1996          1995       December 31, 1997
                                                         -------------- -------------- -------------- -----------------
<S>                                                      <C>            <C>            <C>            <C>
Operating activities
Net income (loss)                                        $  (6,112,093) $   268,062    $(4,892,928)     $(14,401,628)
Adjustments to reconcile net income (loss) to cash
   provided (used) by operating activities:
     Depreciation and amortization                             580,852      549,241        396,673         2,233,496
     Expenses paid with equity instruments                                  136,526         67,816           204,342
     Change in operating assets and liabilities:
       Prepaid expenses and other current assets               207,818       14,517         16,411            68,168
       Contract advances                                       794,346                                       794,346
       Accounts payable and accrued expenses                   110,422      707,588        872,018         2,062,211
                                                         ------------------------------------------------------------
Net cash provided (used) by operating activities            (4,418,655)   1,675,934     (3,540,010)       (9,039,065)

Investing activities
Purchase of fixed assets                                      (840,953)    (694,893)      (324,429)       (3,224,003)
Purchase of marketable securities                         (359,397,388)  (7,996,186)                    (369,750,084)
Sale or redemption of marketable securities                326,036,634                                   328,393,143
Issuance of notes receivable from officer                                  (230,000)       (50,000)         (280,000)
                                                         -------------- ------------ -------------- -----------------
Net cash provided (used) by investing activities           (34,201,707)  (8,921,079)      (374,429)      (44,860,944)
                                                         -------------- ------------ -------------- -----------------

Financing activities
Proceeds from lease financing of fixed assets                  452,193       17,173        511,145         1,575,046
Repayment of capital lease obligations                        (238,323)    (274,143)      (245,489)       (1,165,056)
Issuance of promissory notes                                                300,000      2,700,000         3,000,000
Issuance of bridge notes                                                    600,000                          600,000
Sale of Series B redeemable convertible preferred stock                                                    3,941,236
Sale of Series D redeemable convertible preferred stock                   4,468,963                        4,468,963
Sale of Series E redeemable convertible preferred stock                   4,882,372                        4,882,372
Sale of Series A convertible preferred stock                                                               1,037,664
Repurchase of stock from officer                                           (270,000)                        (270,000)
Proceeds from sale of common stock, net                     37,124,118       38,986         18,514        37,124,118
Proceeds from issuance of stock options and warrants            70,139                         600           161,323
                                                         -------------- ------------ -------------- -----------------
Net cash provided by financing activities                   37,408,127    9,763,351      2,984,770        55,355,666
                                                         -------------- ------------ -------------- -----------------

Increase (decrease) in cash and cash equivalents            (1,212,235)   2,518,206       (929,669)        1,455,657
Cash and cash equivalents at beginning of period             2,667,892      149,686      1,079,355
                                                         -------------- ------------ -------------- -----------------

Cash and cash equivalents at end of period               $   1,455,657  $ 2,667,892    $   149,686      $  1,455,657
                                                         ============== ============ ============== =================

Supplemental cash flow information
Cash paid for interest                                   $      37,984  $    96,455    $    51,441      $    331,528
                                                         ============== ============ ============== =================
</TABLE>

See accompanying notes.

                                      F-8


<PAGE>

                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                         NOTES TO FINANCIAL STATEMENTS

                               December 31, 1997

1.  Basis of Presentation

EPIX Medical, Inc. ("EPIX" or the "Company") was formed on November 29, 1988 as
a Delaware corporation and commenced operations in 1992. The Company is
developing targeted contrast agents both to improve the capability and expand
the use of magnetic resonance imaging ("MRI") as a tool for diagnosing a variety
of diseases. The Company's principal product under development, MS-325, is an
injectable contrast agent designed for multiple vascular imaging indications.

The Company is a development-stage enterprise, as defined in Statement of
Financial Accounting Standards No. 7, and has, since inception, been engaged in
the research and development of its product candidates as well as seeking
regulatory clearances and patent protection and raising capital to fund
operations.

Public Offerings

During 1997, the Company completed an initial public offering of 2,300,000
shares of its Common Stock at a price of $7.00 per share and a follow-on public
offering of 2,467,500 shares of Common Stock at a price of $10.00 per share. The
net proceeds, after underwriter discounts and offering expenses, aggregated
approximately $37.1 million which the Company expects to use for research and
development and funding of clinical trials in support of regulatory approvals
and for general corporate purposes.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

                                       F-9


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


1.  Basis of Presentation (continued)

Significant Revenues

For the year ended December 31, 1997, one source represented 73% of revenues and
one source represented 27% of revenues. For the year ended December 31, 1996,
one source represented 70% of revenues and another source represented 30% of
revenues. All of the revenues received during the nine-month period ended
December 31, 1995 were derived from a single source.

2.  Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all investments with original maturities of three months
or less to be cash equivalents. Cash equivalents consist of money market
accounts and short-term investments.

Property and Equipment

Property and Equipment are recorded at historical cost. Depreciation on
laboratory equipment and furniture, fixtures and other equipment is determined
using the straight-line method over the estimated useful lives of the related
assets, ranging from 3 to 5 years. Leasehold improvements are amortized using
the straight-line method over the shorter of the asset life or the remaining
life of the lease. Expenditures for maintenance and repairs are charged to
expense; betterments are capitalized.

Capital Lease Obligations

Assets and liabilities relating to capital leases are recorded at the present
value of the future minimum rental payments using interest rates appropriate at
the inception of the lease.

                                      F-10


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


2.    Significant Accounting Policies (continued)

Income Taxes

The Company provides for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Under this method, deferred
taxes are recognized using the liability method, whereby tax rates are applied
to cumulative temporary differences between carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes based on when and how they are expected to affect the tax return. A
valuation allowance is provided to the extent that there is uncertainty as to
the Company's ability to generate taxable income in the future to realize the
benefit from its net deferred tax asset.

Fair Value of Financial Instruments

At December 31, 1997 and 1996, the Company's financial instruments consist of
cash, cash equivalents, marketable securities, notes receivable from a related
party, accounts payable and accrued expenses and capital lease obligations. At
December 31,1996, financial instruments also include mandatorily redeemable
preferred stock. Fair value of issued equity instruments is based upon
negotiated prices and includes cash and the fair value of other consideration
received. The fair value of available-for-sale securities at December 31, 1997
and 1996 approximates cost.

Revenue Recognition

Revenues from non-refundable license fees are recognized upon execution of the
underlying license agreement. Option, license and milestone payments under
collaborative agreements are recorded as earned based upon the provisions of
each agreement. Payments received for which revenue has not been earned are
recorded as contract advances.

Technology, Licenses and Patents

Costs associated with technology, licenses and patents are expensed as incurred.

                                      F-11


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


2.  Significant Accounting Policies (continued)

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25") in accounting for its
stock-based compensation plans, rather than the alternative fair value
accounting method provided for under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation." ("SFAS 123"). The Company
will provide the required disclosures as put forth in SFAS 123. Under APB 25,
when the exercise price of options granted under these plans equals the market
price of the underlying stock on the date of grant, no compensation expense is
required.


Earnings Per Share

In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Standards No. 128, "Earnings per Share" ("SFAS 128").
SFAS 128 replaces the calculation for computing primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is
similar to the previously reported fully diluted earnings per share. However,
pursuant to the previous requirements of the Securities and Exchange Commission
(SEC), common shares, common share equivalents and convertible preferred stock
issued by the Company during the twelve-month period prior to the initial public
offering in February 1997 had been included in the previously reported weighted
average shares for all periods presented, whether or not they were
anti-dilutive. In February 1998, the SEC issued Staff Accounting Bulletin 98
which, among other things, conformed prior SEC requirements to SFAS 128 and
eliminated inclusion of such shares in the computation of earnings per share.
All earnings (loss) per share amounts for all periods have been presented, and
as appropriate, restated to conform to SFAS 128 and the current SEC
requirements.

                                      F-12


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2.  Significant Accounting Policies (continued)

Recent Accounting Pronouncements

In February 1997, the FASB issued Statement of Financial Standards No. 129,
"Disclosure of Information about Capital Structure" ("SFAS 129"). SFAS 129
establishes standards for disclosing information about an entity's capital
structure. SFAS 129 was effective for financial statement periods ending after
December 15, 1997 and did not have a material impact on the Company's financial
statement disclosures.

In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements for periods
beginning after December 15, 1997. Comprehensive income, as defined, includes
all changes in equity (net assets) during a period from nonowner sources.
Examples of items to be included in comprehensive income which are excluded from
net income include cumulative translations adjustments resulting from
consolidation of foreign subsidiaries' financial statements and unrealized gains
and losses on available-for-sale securities. Reclassifications of financial
statements for earlier periods for comparative purposes is required. The Company
will adopt SFAS 130 beginning in 1998 and does not expect such adoption to have
a material effect on its financial statements.

In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). This statement established
standards for the way companies report information about operating segments in
annual financial statements for periods beginning after December 15, 1997. It
also establishes standards for related disclosures about product and services,
geographic areas, and major customers. The Company will adopt SFAS 131 beginning
in fiscal 1998 and does not expect such adoption to have a material effect on
its consolidated financial statements.

                                      F-13


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


3.  Marketable Securities

Marketable Securities consist of the following:

                                                 December 31
                                            1997             1996
                                         ---------------------------
Available-for-sale securities:
   Federal agency obligations            $28,840,543      $7,496,886
   U.S. Treasury obligations               1,526,335
   Bank obligations                       10,990,063         499,300
                                         ---------------------------

                                         $41,356,941      $7,996,186
                                         ===========================

The fair value of available-for-sale securities at December 31, 1997 and 1996
approximates cost.

Maturities of marketable securities classified as available-for-sale at December
31, 1997 and 1996 by contractual maturity are shown below:

                                                    December 31
                                             1997                1996
                                          --------------- --------------
Marketable securities available-for-sale:
   Due within one year                    $38,815,803         $7,996,186
   Due after one year through three years   2,541,138
                                          --------------- --------------

                                          $41,356,941         $7,996,186
                                          =============== ==============


                                      F-14

<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


4.  Property and Equipment

Property and equipment consist of the following:

                                                          December 31
                                                     1997           1996
                                                 -------------- --------------

Laboratory equipment                              $ 1,989,251     $ 1,520,170
Leasehold improvements                                730,010         516,160
Furniture, fixtures and other equipment               628,191         470,169
                                                 -----------------------------
                                                    3,347,452       2,506,499
Less accumulated depreciation and amortization     (2,093,171)     (1,512,320)
                                                 -----------------------------

                                                  $ 1,254,281    $    994,179
                                                 =============================

5.  Leases

The Company has entered into a number of capital leases for equipment, including
sale and leaseback transactions involving certain equipment. Assets under
capital leases, the majority of which are laboratory equipment, totaled
$1,834,543 and $1,382,350 at December 31, 1997 and 1996, respectively.
Accumulated amortization relating to assets under capital leases was $1,254,448
and $993,437 at December 31, 1997 and 1996, respectively. In December 1997, the
Company arranged a new equipment lease facility which provides for additional
lease financing up to an aggregate of $1.8 million.

                                      F-15


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5.  Leases (continued)

Additionally, the Company leases office space under operating lease
arrangements. The lease for its principal facility expires in December 2002, but
may be terminated by the Company in 1999, subject to a termination fee.

Future minimum commitments under leases with non-cancelable terms of one or more
years are as follows at December 31, 1997:

                                            Capital      Operating
                                             Leases       Leases
                                            ----------------------

1998                                        $354,691   $422,417
1999                                         182,223    400,750
2000                                         115,051
                                            -------------------
Total minimum lease payments                 651,965   $823,167
                                                       ========
Less amounts representing interest           (53,254)
                                            ----------
Present value minimum lease payments         598,711
Less amounts due within one year            (319,745)
                                            ----------
                                            $278,966
                                            ==========

Rent expense amounted to approximately $266,644, $174,666 and $86,100 for the
twelve months ended December 31, 1997 and December 31, 1996 and the nine months
ended December 31, 1995, respectively, and approximately $753,644 for the period
from inception (November 29, 1988) to December 31, 1997.

                                      F-16


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6.  Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

                                                    December 31
                                                1997         1996
                                             ----------------------

Accounts payable                             $  750,897    $428,746
Accrued development expenses                  1,006,469     963,447
Accrued legal expense                            38,076     176,209
Accrued public offering costs                               294,893
Accrued license restructuring cost                          250,000
Accrued compensation                            383,149
Other accrued expenses                          157,544     112,418
                                             ----------------------

                                             $2,336,135  $2,225,713
                                             ======================



7.  Capital Stock

In addition to the sale of its Common Stock, the Company previously authorized
and issued one series of convertible preferred stock ("Series A Preferred
Stock") and four series of redeemable, convertible preferred stock ("Series B ,
Series C, Series D and Series E Preferred Stock").

In January 1996, the Company issued convertible promissory notes for an
aggregate amount of $3,015,862 ("Convertible Notes") in exchange for $300,000 of
cash and cancellation of previously issued 10% Promissory Notes ("Promissory
Notes") and accrued interest thereon. The Convertible Notes were issued at an
annual interest rate of 10% and became due upon demand on or after February 15,
1996. In February 1996, the Company issued additional convertible promissory
notes for an aggregate amount of $600,000 ("Bridge Notes") which became due upon
demand, with interest at a rate of 10% per year. In May 1996, the Convertible
Notes and accrued interest thereon were converted at a conversion price of $2.25
into 1,432,318 shares of the Company's Series C Preferred Stock. In May 1996,
the Company issued 1,700,002 shares of Series D Preferred Stock, priced at $3.00
per share, in exchange for cash and cancellation of the Bridge Notes and accrued
interest thereon. A sale of Series E Preferred Stock, was completed in two
separate closings, one in May 1996 and the other in August 1996, for a total of
868,329 shares at a price of $5.76 per share.

                                      F-17


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


7.  Capital Stock (continued)

In February 1997, the Company completed it's initial public offering and all of
the Preferred Stock issued and outstanding as of that date converted into
4,750,278 shares of Common Stock. Each share of Series A Preferred Stock
converted into 3.4 shares of Common Stock. All other shares of Preferred Stock
converted into .67 shares of Common Stock. The former holders of the Preferred
Stock had certain voting and redemption rights and liquidation preferences which
were relinquished upon the conversion of the Preferred Stock into Common Stock
Immediately following conversion, all currently outstanding shares of Preferred
Stock were canceled, retired and eliminated from the Company's authorized shares
of capital stock and the number of authorized shares of Preferred Stock was
decreased to 1,000,000 shares.

8.  Warrants

In connection with a master lease line (see Note 5), the Company had issued
warrants to purchase shares of Series A, Series B and Series C Preferred Stock.
In October 1997, the holders of the Series A, B and C Warrants (the Warrants)
elected to surrender the Warrants and receive Common Stock equivalent to the
difference between the deemed fair market value of the Common Stock (ranging
from $11.81-$12.15/share) and the exercise price of the Warrants (ranging from
$2.27 to $6.81/share) multiplied by the outstanding Warrants (53,031). The
resulting difference converted into 36,641 shares of Common Stock which were
issued in exchange for the Warrants.

In connection with the issuance of Bridge Notes and the sale of Series D
preferred stock (see Note 7), the Company issued warrants to purchase 40,000
shares of Series D preferred stock. Effective with the initial public offering
and the conversion of Series D preferred stock into Common Stock, the holders of
the warrants are entitled to convert the warrants to an aggregate of 26,665
shares of common stock at a cost equal to $4.50 per common share.

                                      F-18


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

9.  Equity Plans

Equity Incentive Plan

On July 1, 1992, the Company adopted the 1992 Equity Incentive Plan, which
provides stock awards to purchase shares of Common Stock to be granted to
employees and consultants under incentive and non-statutory stock option
agreements. In June 1997 and December 1996, the Company amended the 1992 Equity
Incentive Plan (as amended, "the Equity Plan") to, among other things, increase
the number of shares reserved for issuance pursuant to grants. The Equity Plan
provides for the grant of stock options (incentive and non-statutory), stock
appreciation rights, performance shares, restricted stock or stock units for the
purchase of an aggregate of 2,099,901 shares of Common Stock, subject to
adjustment for stock-splits and similar capital changes. Awards under the Equity
Plan can be granted to officers, employees and other individuals as determined
by the committee of the Board of Directors which administers the Equity Plan.
The Compensation Committee selects the participants and establishes the terms
and conditions of each option or other equity right granted under the Equity
Plan, including the exercise price, the number of shares subject to options or
other equity rights and the time at which such options become exercisable. Stock
option information relating to the Equity Incentive Plan is as follows:

<TABLE>
<CAPTION>

                                                                                                   Exercisable
                                                               Weighted                  -------------------------------
                                                               Average                                       Weighted
                              Options        Option Price      Exercise     Available       Number of   Average Exercise
                            Outstanding    Range Per Share      Price       for Grant        Options          Price
                          ---------------- ----------------- ------------- ------------- -------------- ----------------

<S>                       <C>              <C>               <C>           <C>           <C>               <C>
March 31, 1993                107,976      $0.42                 $0.42         725,259         6,975           $0.42
   Granted                    142,648      $0.42                 $0.42
                          ------------------------------------------------
March 31, 1994                250,624      $0.42                 $0.42         582,611        34,592           $0.42
   Granted                    359,131      $0.45                 $0.43
   Exercised                  (66,866)     $0.42                 $0.42
   Canceled                    (1,400)     $0.42                 $0.42
                          ------------------------------------------------
March 31, 1995                541,489      $0.42-$0.45           $0.43         224,880       143,207           $0.43
   Granted                    133,994      $0.45-$0.83           $0.55
   Exercised                  (38,399)     $0.42-$0.45           $0.45
   Canceled                   (40,933)     $0.42-$0.45           $0.45
                          ------------------------------------------------
December 31, 1995             596,151      $0.42-$0.83           $0.47         131,820       200,631           $0.44
   Granted                    753,896      $0.83-$8.50           $3.59
   Exercised                  (67,309)     $0.42-$0.83           $0.58
   Canceled                    (4,934)     $0.42-$0.45           $0.45
                          ------------------------------------------------
December 31, 1996           1,277,804      $0.42-$8.50           $2.30         149,524       392,933           $1.21
   Granted                    517,974      $6.50-$13.50          $8.70
   Exercised                  (99,394)     $0.42-$6.63           $0.67
   Canceled                   (29,670)     $0.45-$8.50           $5.72
                          ------------------------------------------------
December 31, 1997           1,666,714      $0.42-$13.50          $4.33         161,219       562,704           $2.04
</TABLE>

                                      F-19


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

9.  Equity Plans (continued)

1996 Employee Stock Purchase Plan

In December 1996, the Company adopted the Company's 1996 Employee Stock Purchase
Plan (the "Purchase Plan") under which employees may purchase shares of Common
Stock at a discount from fair market value. There are 66,666 shares of Common
Stock reserved for issuance under the Purchase Plan. To date, no shares of
Common Stock have been issued under the Purchase Plan. The Purchase Plan is
intended to qualify as an employee stock purchase plan within the meaning of
Section 423 of the code. Rights to purchase Common Stock under the Purchase Plan
are granted at the discretion of the Compensation Committee, which determines
the frequency and duration of individual offerings under the Purchase Plan and
the dates when stock may be purchased. Eligible employees participate
voluntarily and may withdraw from any offering at any time before stock is
purchased. Participation terminates automatically upon termination of
employment. The purchase price per share of Common Stock in an offering is 85%
of the lesser of its fair market value at the beginning of the offering period
or on the applicable exercise date and are paid through payroll deductions. The
Purchase Plan terminates in December 2006.

1996 Directors Stock Option Plan

In December 1996, the Board of Directors and stockholders of the Company adopted
the Company's 1996 Director Stock Option Plan (the "Director Plan"). All of the
directors who are not employees of the Company (the "Eligible Directors") are
currently eligible to participate in the Director Plan. At December 31, 1997
there are 66,666 shares of Common Stock reserved for issuance under the Director
Plan. Upon the election or reelection of an Eligible Director, such director is
automatically granted an option to purchase 6,666 shares of Common Stock (the
"Option"). Each Option becomes exercisable with respect to 1,333 shares on each
anniversary date of grant for a period of five years, provided that the option
holder is still a director of the Company at the opening of business such date.
The Options have a term of ten years. The exercise price for the Options is
equal to fair value at the date of grant. The exercise price may be paid in cash
or shares of Common Stock or combination of both. During 1997, options to
purchase 6,666 shares were issued at an average price of $8.50. No other options
have been issued and no options were exercisable at December 31, 1997.

                                      F-20


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


9.  Equity Plans (continued)

FAS 123 Pro Forma Information

The pro forma information required by FAS 123 is presented below and has been
determined as if the Company accounted for its stock options under the fair
value method of that Statements. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model. For pro forma
purposes, the fair value of the options is amortized over the options' vesting
period:


<TABLE>
<CAPTION>
                                                                  Year ended       Year ended    Nine months ended
                                                               December 31 1997 December 31 1996  December 31 1995
                                                              ------------------------------------------------------
<S>                                                           <C>                    <C>         <C>
Assumptions:
   Risk-free interest rates                                              6.00%          6.34%           5.85%
   Dividend yields                                                        Nil            Nil             Nil
   Volatility factors                                                    0.60           0.60            0.60
   Weighted-average option life (in years)                               3.75           5.53            4.92
 
Pro forma amounts
   Weighted average fair value of options granted                 $      3.83        $  2.16     $      0.31
   Weighted average contractual life (in years)                          8.27           8.59            8.53

Net income (loss)                                                 $(6,684,788)       $48,866     $(4,896,608)
Pro forma Earnings (loss) per share--diluted basis                $     (0.80)       $  0.01     $     (3.27)
</TABLE>

                                      F-21


<PAGE>



                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

10. Earnings Per Share


The following table sets forth the computation of basic and diluted earnings
(loss) per share:

<TABLE>
<CAPTION>
                                                                    Year ended         Year ended       Nine months ended
                                                                    December 31        December 31       December 31 1995
                                                                      1997               1996                 1995
                                                              -----------------------------------------------------------
<S>                                                           <C>                     <C>                  <C>
Numerator:
   Net income (loss)                                                $(6,112,093)      $   268,062          $(4,892,928)
   Accretion on redeemable convertible preferred stock                                    (86,790)              (6,122)
                                                              -----------------------------------------------------------
Numerator for basic earnings (loss) per share--income
available to common stockholders                                    $(6,112,093)      $   181,272          $(4,899,050)

Effect of dilutive securities:
   Accretion on redeemable convertible preferred stock                                     86,790                6,122
                                                              -----------------------------------------------------------

Numerator for diluted earnings per share--income available to
common stockholders after assumed conversions                       $(6,112,093)     $    268,062          $(4,892,928)
                                                              ===========================================================

Denominator:
   Denominator for basic earnings (loss) per share--weighted
   average shares                                                     8,333,294         1,561,045            1,498,347
   Effect of dilutive securities:
     Employee stock options                                                             1,364,826
     Warrants                                                                              56,317
     Convertible preferred stock                                                        4,750,289
                                                              -----------------------------------------------------------
Dilutive potential common shares                                                        6,171,432
                                                              -----------------------------------------------------------


Denominator for diluted earnings (loss) per share--adjusted
weighted average shares and assumed conversions                       8,333,294         7,732,477            1,498,347
                                                              ===========================================================

Basic earnings (loss) per share                                        $  (0.73)          $  0.12             $  (3.27)
Diluted earnings (loss) per share                                      $  (0.73)          $  0.03             $  (3.27)
</TABLE>

                                      F-22


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


11.  Income Taxes

The Company has incurred losses since inception and, due to the degree of
uncertainty related to the ultimate use of the loss carryforwards, fully
reserved this tax benefit. The Company has the following total deferred tax
assets as of December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                                 December 31
                                                                          1997                1996
                                                                    --------------------------------------
<S>                                                                 <C>                <C>
Deferred tax assets:
   Net operating loss carryforwards                                      $ 4,827,000        $ 2,921,000
   Research and development tax credits                                      543,000            400,000
   Book over tax depreciation and amortization                               538,000            383,000
   Other                                                                     247,000             18,000
                                                                    --------------------------------------
Total deferred tax assets                                                  6,155,000          3,722,000
Valuation allowances                                                      (6,155,000)        (3,722,000)
                                                                    --------------------------------------
Deferred income taxes, net                                               $         0        $         0
                                                                    ======================================
</TABLE>

As of December 31, 1997, the Company has net operating loss carryfowards for
income tax purposes of approximately $12 million, which expire through the year
2011 and 2002, for Federal and State, respectively. The valuation allowance
increased by $2,433,000 during the twelve months ended December 31, 1997, due
primarily to the additional allowance for the net operating losses incurred. The
tax net operating loss carryforwards differ from the accumulated deficit
principally due to temporary differences in the recognition of certain revenue
and expense items for financial and tax reporting purposes.

As a result of ownership changes resulting from sales of equity securities, the
Company's ability to use the loss carryforwards is subject to limitations as
defined in Sections 382 and 383 of the Internal Revenue Code of 1986, as amended
(the "Code"). The Company currently estimates that the annual limitation on its
use of net operating losses through May 31, 1996 will be approximately $900,000.
Pursuant to Sections 382 and 383 of the Code, the change in ownership resulting
from public equity offerings in 1997 and any other future ownership changes may
further limit utilization of losses and credits in any one year. The Company is
also eligible for research and development tax credits which can be carried
forward to offset federal taxable income. The annual limitation and the timing
of attaining profitability may result in the expiration of net operating loss
and tax credit carryforwards before utilization.

                                      F-23


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


12.  Defined Contribution Plan

The Company offers a defined contribution 401(k) plan which covers substantially
all employees. The plan permits participants to make contributions from 1% to
15% of their compensation (as defined).

13.  Related-Party Transaction

During 1995 and 1996 the Company received promissory notes from one employee who
is also an executive officer and director. These transactions are summarized
below:



                                                     Shares of Company Common
                                            Interest    Stock Provided as
   Date of Note        Term         Amount    Rate         Collateral
-----------------------------------------------------------------------------

June 26, 1995         10 years     $ 50,000   7.31%        14,814
April 5, 1996         10 years       50,000   6.51         14,814
May 31, 1996          10 years      230,000   6.83         44,444

The notes are subject to certain acceleration clauses. In May 1996, the Company
also repurchased from the same officer of the Company, 66,666 shares of Common
Stock at a price per share of $4.05.

14.  Significant Agreements

The Company has a license agreement with Massachusetts General Hospital ("MGH")
for the exclusive license of a number of patents and patent applications on
which the Company's research and development efforts are significantly based. In
exchange, the Company will remit royalties based on a specified percentage of
revenues. Under this agreement, the Company is required to pay for all patent
application costs related to the licensed technology. On July 10, 1995, the
Company issued and sold to the MGH 83,723 shares of the Company's Common Stock
for $1,256 as consideration for certain modifications to the license. The
Company expensed the difference between proceeds received and fair value at the
time of issuance, approximately $68,000.

                                      F-24


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

14.  Significant Agreements (continued)

In March 1992, the Company entered into an Agency Agreement with Sumitomo Corp.
("Sumitomo") to assist the Company in entering into collaboration and licensing
arrangements with other companies in Japan for the development, manufacture,
distribution and sale of the Company's future products. At that time, Sumitomo
purchased 66,923 shares of the Company's Series A Preferred Stock, $.01 par
value, for $11.21 per share. In October 1995, Sumitomo assigned the Agency
Agreement and its shares to Summit Pharmaceutical International Corporation
("Agent"). Under the terms of the amended Agency Agreement, which expired in
March 1997, the Company is required to pay the Agent certain commissions and
fees, based on a stipulated percentage of amounts received by the Company as
license fees, milestone payments or capital investments under arrangements made
pursuant to the Agency Agreement.

Also, in March 1992, the Company entered into a $3.5 million development and
license agreement with, a Japanese manufacturer and distributor ("Japanese
Manufacturer and Distributor") of medical products. Under the terms of the
agreement, the Company received funding for research and development through the
sale of Preferred Stock and license rights to the Company's liver MRI contrast
agent product candidate. In March of 1992, the Japanese Manufacturer and
Distributor purchased an equity interest in the Company in accordance with the
agreement by acquiring 26,768 shares of Series A Preferred Stock for $11.21 per
share. As of December 31, 1997, the Company had received an aggregate of $2.7
million in revenues (net of withholding tax) under this agreement.

In December 1996, the Company and the Japanese Manufacturer and Distributor
agreed to restructure the existing agreement. In connection with the
restructuring, the parties terminated further collaboration efforts and the
Japanese Manufacturer and Distributor relinquished its exclusive rights in Japan
to the liver MRI agent in exchange for a non-exclusive technology license and a
$250,000 payment from the Company. The Company is entitled to receive royalties
based upon specified percentage of future revenues, if any, from the sale of
liver MRI contrast agents by the Japanese Manufacturer and Distributor.

In March 1996, the Company entered into marketing, development and license
agreements with Daiichi Radioisotope Laboratories Ltd., a Japanese
pharmaceutical company ("Daiichi") covering the Company's vascular MRI contrast
agent. During 1996,

                                      F-25


<PAGE>


                               EPIX MEDICAL, INC.
                      (A Company in the Development Stage)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

14.  Significant Agreements (continued)

the Company received a license fee of $3.0 million (net of withholding tax) upon
execution of the agreement and proceeds from the issuance of 868,329 shares of
Series E Preferred Stock at price of $5.76 per share. A further $900,000 was
received from Daiichi in 1997. In addition, the Company is entitled to receive
future milestone payments of up to $2.4 million (net of withholding tax) The
agreements also provide for the Company to supply product to Daiichi and to
receive royalties for sales made by Daiichi in Japan.

In August 1996, the Company entered into a strategic collaboration agreement
with Mallinckrodt Inc. ("Mallinckrodt"), a U.S. pharmaceutical company,
involving research, development and marketing of MS-325 and future MRI vascular
contrast agents developed or in-licensed by either party. Under the terms of the
agreement, each party is obligated to fund a portion of the development cost of
MS-325 up to a specified maximum amount. Mallinckrodt will have the right to
manufacture MS-325 and to market the product worldwide except Japan. During
1996, the Company received a $6.0 million license fee payment upon execution of
the agreement and in 1997 received a $2.0 million milestone payment. Under the
agreement, the Company will share in future operating profits from the sale of
products covered under the agreement.

In June 1997, the Company and Dyax Corporation formed a strategic alliance to
develop novel contrast imaging agents for the diagnosis of severe blood clots in
the lungs and legs. The companies will jointly seek to identify and develop
compounds that specifically target PE and DVT for use as in vivo MRI and nuclear
medicine imaging agents for the diagnosis of these disorders. The Company will
partially fund the program and provide expertise in MRI contrast technology for
development of MRI-specific imaging agents. Dyax will assume primary
responsibilities for developing agents for use in nuclear medicine. Dyax will
receive royalties on sales of MRI products, and the Company will receive
royalties on sales of nuclear medicine products resulting from this
collaboration.

                                     F-26


<PAGE>





                                   SIGNATURES

         Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereto duly authorized.


                                      EPIX MEDICAL, INC.


 Date:    March 27, 1998              By: /s/ Michael D. Webb
                                          --------------------------------------
                                          Michael D. Webb 
                                          President and Chief Executive Officer

         We the undersigned officer and directors of EPIX Medical, Inc., hereby
severally constitute Michael D. Webb, Jeffrey R. Lentz and William T. Whelan,
and each of them singly, our true and lawful attorneys, with full power to them
and each of them to sign for use, in our names and in the capacity indicated
below, any and all amendments to this annual report on this Form 10-K for the
fiscal year ended December 31, 1997, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each said attorneys-in-fact
may cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons on behalf of the Company and in the
capacities and on the dates indicated.


<TABLE>
<CAPTION>
Signature                              Title                                                Date
-------------------------------------------------------------------------------------------------------------
<S>                                    <C>                                                  <C> 
/s/ Michael D. Webb
--------------------------------       President, Chief Executive Officer                   March 27, 1998
Michael D. Webb                        and Director (Principal Executive Officer)


/s/ Jeffrey R. Lentz
--------------------------------        Chief Financial Officer, and Vice                   March 27, 1998
Jeffrey R. Lentz                        President, Finance and Administration
                                        (Principal Financial Officer and
                                        Principal Accounting Officer)


/s/ Christopher F. O. Gabrieli
--------------------------------
Christopher F. O. Gabrieli              Chairman of the Board and Director                  March 27, 1998


/s/ Stanley T. Crooke, M.D., Ph.D.
--------------------------------
Stanley T. Crooke, M.D., Ph.D.          Director                                            March 27, 1998


/s/ Luke B. Evnin, Ph.D.
--------------------------------
Luke B. Evnin, Ph.D.                    Director                                            March 27, 1998


/s/ Randall B. Lauffer, Ph.D.
--------------------------------
Randall B. Lauffer, Ph.D.               Director                                            March 27, 1998


</TABLE>





<PAGE>


                                  EXHIBIT INDEX

Exhibit
Number    Description

3.1       Restated Certificate of Incorporation of the Company. Filed as Exhibit
          4.1 to the Company's Registration Statement on Form S-8 (File No.
          333-30531) and incorporated herein by reference.
3.2       Form of Amended and Restated By-Laws of the Company. Filed as Exhibit
          4.2 to the Company's Registration Statement on Form S-8 (File No.
          333-30531) and incorporated herein by reference.
4.1       Specimen certificate for shares of Common Stock of the Company. Filed
          as Exhibit 4.1 to the Company's Registration Statement on Form S-1
          (File No. 333-17581) and incorporated herein by reference.
10.1+     Agency Agreement between the Company and Sumitomo Corporation dated
          March 13, 1992. Filed as Exhibit 10.1 to the Company's Registration
          Statement on Form S-1 (File No. 333-17581) and incorporated herein by
          reference.
10.2+     Amendment to the Agency Agreement between the Company and Sumitomo
          Corporation dated June 26, 1992. Filed as Exhibit 10.2 to the
          Company's Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
10.3      Short Form Lease from Trustees of the Cambridge East Trust to the
          Company dated July 1, 1992. Filed as Exhibit 10.3 to the Company's
          Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
10.4      Form of Warrant to Purchase Shares of Series A Convertible Preferred
          Stock dated December 21, 1992. Filed as Exhibit 10.4 to the Company's
          Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
10.5      Dominion Ventures Master Lease Agreement No. 8050 dated December 21,
          1992. Filed as Exhibit 10.5 to the Company's Registration Statement on
          Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.6      First Amendment to Master Lease Agreement No. 8050 dated May 14, 1993.
          Filed as Exhibit 10.6 to the Company's Registration Statement on Form
          S-1 (File No. 333-17581) and incorporated herein by reference.
10.7      Second Amendment to Master Lease Agreement No. 8050 dated August 5,
          1993. Filed as Exhibit 10.7 to the Company's Registration Statement on
          Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.8      First Amendment Lease From Trustees of the Cambridge Trust to the
          Company dated October 20, 1993. Filed as Exhibit 10.8 to the Company's
          Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
10.9      Warrant to Purchase Shares of Series B Convertible Preferred Stock
          dated June 6, 1994. Filed as Exhibit 10.9 to the Company's
          Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
10.10     Second Amendment to Master Lease Agreement No. 8050 dated June 6,
          1994. Filed as Exhibit 10.10 to the Company's Registration Statement
          on Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.11+    Amendment Agreement to the Agency Agreement between the Company and
          Sumitomo Corporation dated September 15, 1994. Filed as Exhibit 10.11
          to the Company's Registration Statement on Form S-1 (File No.
          333-17581) and incorporated herein by reference.
10.12     Second Amendment Lease From Trustees of the Cambridge East Trust to
          the Company dated September 17, 1994. Filed as Exhibit 10.12 to the
          Company's Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.

<PAGE>

10.13     Convertible Promissory Note Purchase Agreement by and among the
          Company and certain purchasers named therein dated May 26, 1995. Filed
          as Exhibit 10.13 to the Company's Registration Statement on Form S-1
          (File No. 333-17581) and incorporated herein by reference.
10.14+    Amended and Restated License Agreement between the Company and The
          General Hospital Corporation dated July 10, 1995. Filed as Exhibit
          10.14 to the Company's Registration Statement on Form S-1 (File No.
          333-17581) and incorporated herein by reference.
10.15     Warrant to Purchase Shares of Series C Convertible Preferred Stock
          dated August 2, 1995. Filed as Exhibit 10.15 to the Company's
          Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
10.16     Third Amendment to the Master Lease Agreement No. 8050 dated August 2,
          1995. Filed as Exhibit 10.16 to the Company's Registration Statement
          on Form S-1 (File No. 333-17581) and incorporated herein by reference.
10.17     Amendment No. 1 to Convertible Promissory Note Purchase Agreement by
          and among the Company and certain purchasers named therein dated
          January 19, 1996. Filed as Exhibit 10.17 to the Company's Registration
          Statement on Form S-1 (File No. 333-17581) and incorporated herein by
          reference.
10.18+    Extension Agreement to Agency Agreement between the Company and
          Sumitomo Corporation dated March 5, 1996. Filed as Exhibit 10.18 to
          the Company's Registration Statement on Form S-1 (File No. 333-17581)
          and incorporated herein by reference.
10.19+    Development and License Agreement dated March 29, 1996 by and among
          the Company and Daiichi Radioisotope Laboratories, Ltd. Filed as
          Exhibit 10.19 to the Company's Registration Statement on Form S-1
          (File No. 333-17581) and incorporated herein by reference.
10.20     Third Amendment Lease From Trustees of the Cambridge East Trust to the
          Company dated May 1, 1996. Filed as Exhibit 10.20 to the Company's
          Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
10.21     Series D Convertible Preferred Stock Purchase Agreement by and among
          the Company and certain purchasers named therein dated May 29, 1996.
          Filed as Exhibit 10.21 to the Company's Registration Statement on Form
          S-1 (File No. 333-17581) and incorporated herein by reference.
10.22     Third Amended and Restated Stockholders' Rights Agreement by and among
          the Company and certain of its stockholders named therein dated May
          29, 1996. Filed as Exhibit 10.22 to the Company's Registration
          Statement on Form S-1 (File No. 333-17581) and incorporated herein by
          reference.

<PAGE>



10.23     Form of Warrant to Purchase Shares of Series D Preferred Stock dated
          May 29, 1996. Filed as Exhibit 10.23 to the Company's Registration
          Statement on Form S-1 (File No. 333-17581) and incorporated herein by
          reference.
10.24     Amendment No. 1 to Third Amended and Restated Stockholders' Rights
          Agreement dated May 31, 1996. Filed as Exhibit 10.24 to the Company's
          Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
10.25     Series E Convertible Preferred Stock Purchase Agreement dated May 31,
          1996 between the Company and Daiichi Radioisotope Laboratories, Ltd.
          Filed as Exhibit 10.25 to the Company's Registration Statement on Form
          S-1 (File No. 333-17581) and incorporated herein by reference.
10.26+    Strategic Collaboration Agreement between the Company and Mallinckrodt
          Medical, Inc. and Mallinckrodt Group Inc. dated August 30, 1996. Filed
          as Exhibit 10.26 to the Company's Registration Statement on Form S-1
          (File No. 333-17581) and incorporated herein by reference.
10.27     Amendment No. 2 to Third Amended and Restated Stockholders' Rights
          Agreement dated December 6, 1996. Filed as Exhibit 10.27 to the
          Company's Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
10.28#    Amended and Restated 1992 Equity Incentive Plan. Filed as Exhibit 99.1
          to the Company's Registration Statement on Form S-8 (File No.
          333-30531) and incorporated herein by reference.
10.29#    Form of Incentive Stock Option Certificate. Filed as Exhibit 10.29 to
          the Company's Registration Statement on Form S-1 (File No. 333-17581)
          and incorporated herein by reference.
10.30     Form of Nonstatutory Stock Option Certificate. Filed as Exhibit 10.30
          to the Company's Registration Statement on Form S-1 (File No.
          333-17581) and incorporated herein by reference.
10.31#    1996 Director Stock Option Plan. Filed as Exhibit 10.31 to the
          Company's Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
10.32#    1996 Employee Stock Purchase Plan. Filed as Exhibit 10.32 to the
          Company's Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
10.33     Form of Consulting and Confidentiality Agreement between the Company
          and certain consultants of the Company. Filed as Exhibit 10.33 to the
          Company's Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
10.34     Form of Invention and Non-Disclosure Agreement between the Company and
          certain employees of the Company. Filed as Exhibit 10.34 to the
          Company's Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
10.35     Form of Non-Competition and Non-Solicitation Agreement between the
          Company and certain employees of the Company. Filed as Exhibit 10.35
          to the Company's Registration Statement on Form S-1 (File No.
          333-17581) and incorporated herein by reference.
10.36     Form of Common Stock Purchase Agreement. Filed as Exhibit 10.36 to the
          Company's Registration Statement on Form S-1 (File No. 333-17581) and
          incorporated herein by reference.
10.37     Form of Stock Purchase and Right of First Refusal Agreement. Filed as
          Exhibit 10.37 to the Company's Registration Statement on Form S-1
          (File No. 333-17581) and incorporated herein by reference.


<PAGE>

10.38     Collaboration Agreement effective as of June 20, 1997 between Dyax
          Corp. and the Company. Filed as Exhibit 10.1 to the Company's
          quarterly report on Form 10-Q for the period ended September 30, 1997
          (File No. 000-21863) and incorporated herein by reference.
10.39     Short Form Lease from Trustees of the Cambridge Trust to the Company
          with a commencement date of January 1, 1998. Filed as Exhibit 10.39 to
          the Company's Registration Statement on Form S-1 (File No. 333-38399)
          and incorporated herein by reference.
23.1      Consent of Ernst & Young LLP. Filed herewith.
24.1      Power of Attorney. Contained on signature page hereto.
27.1      Financial Data Schedule. Filed herewith.
99.1      Important Factors Regarding Forward-Looking Statements. Filed
          herewith.

---------------
+         Certain confidential material contained in the document has been
          omitted and filed separately with the Securities and Exchange
          Commission pursuant to Rule 406 of the Securities Act of 1933, as
          amended.

#         Identifies a management contract or compensatory plan or agreement in
          which an executive officer or director of the Company participates.