Northfield Laboratories'

(NFLD)

new CEO, Dr. Steven Gould, says the biotech firm is still working with U.S. drug regulators to get its experimental blood substitute, PolyHeme, back on track. But he acknowledges that Food and Drug Administration concerns might force the company to conduct new clinical trials.

Gould was named Northfield's new CEO and chairman Wednesday, replacing the embattled Richard DeWoskin. Gould served previously as the company's president.

DeWoskin's decision to leave Northfield comes amid a

proxy fight with dissident shareholder Robert Coates, who is trying to win two seats on Northfield's board of directors, including one for himself. If successful, Coates had said his first item of business would have been to pressure the board to fire DeWoskin.

Northfield appears to be resisting Coates' efforts to grab board seats. In addition to announcing Gould's ascension to the CEO post Wednesday, the company said it was nominating two new independent directors to replace DeWoskin and to expand the board by one seat. The company holds its annual meeting on Sept. 13.

Silence Hasn't Been Golden

Last November, the Food and Drug Administration

issued a refuse-to-file letter to Northfield, rejecting the company's approval application for its blood substitute, PolyHeme. Since then, Northfield executives have said

almost nothing about the nature of the FDA's concerns, nor have they offered much insight into what's needed to get PolyHeme back on track.

The company's silence has not been sitting well with investors, who fear that Northfield is holding back bad news. (It's also the root cause for the animosity toward DeWoskin.) The biggest possible risk: FDA insistence on new clinical trials for PolyHeme, which could significantly delay the product's development. Northfield shares have lost about 60% of their value since the FDA rejected the PolyHeme application on Nov. 19.

In an interview with the

TheStreet.com

, Gould said he hopes to immediately improve the way the company communicates with shareholders. Front and center on their minds, of course, is just what is going on with PolyHeme.

"We've been engaged in a dialogue with the FDA

regarding PolyHeme, and I think we've made progress," he says. "Certainly, there is the possibility that we will need to do additional trials -- I can't sit here and tell you otherwise. But we don't know that definitively at this point. We hope, as soon as possible, to wrap up our FDA discussions and be in a position to make an announcement."

The negotiations with the FDA are centered on some key areas, says Gould. First, regulators want Northfield to be more specific about just how its blood substitute would be used. Northfield is seeking approval of PolyHeme for use in trauma situations where patients face life-threatening blood loss and do not have access to regular blood.

"The FDA is always concerned about off-label use of any approved product," says Gould. "We've been explaining to them in much greater detail exactly what kind of patient and in what setting PolyHeme would be used in. We want to be as precise as possible, and we don't want the FDA to think we're trying to use a back door to get PolyHeme used on a wider basis."

The Company's Trials

Of course, discussions about PolyHeme's use are moot if the blood substitute never makes it to market. This is where the risk of a new clinical trial enters. Northfield has not submitted a randomized, controlled study of PolyHeme to the FDA. Instead, all patients in Northfield's study were given PolyHeme, then their results were compared to published, historical reports of results of patients in similar situations.

Generally speaking, the FDA requires controlled studies before it will approve a drug. Northfield's blood substitute competitors --

Biopure

(BPUR)

,

Hemosol

(HMSL)

and

Alliance Pharmaceuticals

(ALLP)

-- are all conducting clinical trials designed with real human control groups.

In other words, some patients receive their products, others receive standard treatment, with the study powered to see if it can detect a statistically significant difference.

Gould acknowledges that the FDA is concerned about the company's trial design and the validity of its historical controls, but says discussions are still ongoing.

"Our trial tries to simulate blood unavailability in a hospital setting. I think the trial design is valid, so we've given the FDA other data that, we believe, validates the use of historical controls to assess our experience with PolyHeme in our indication," says Gould.

"Yes, our trial was uncontrolled," he adds, "but we believe that when you're addressing a critical, unmet medical need, the regulations allow for something less than the classic, controlled clinical trial."

Northfield's clinical trial enrolled just 171 patients, far fewer than the 600 to 700 patients enrolled by the company's blood substitute rivals. Gould, however, says this has not been a major issue with the FDA.

At this point, Northfield is ill equipped financially to conduct a new clinical study of PolyHeme, if necessary. The company has about $20 million of cash left, not enough to fund a large clinical study.

The Gould Standard

Gould, in his new role as CEO, says his priorities, in addition to dealing with the FDA, will be to raise additional capital and secure a partnership with a major pharmaceutical company. But these goals won't be met until the FDA situation is hammered out, he says.

"We need some more certainty. I have a sense of urgency, because when the market does allow it, I want to be in a position where we can raise some money," he says. "The same goes with partnerships. We always have interested, potential partners, but in order to move forward they need to know where we stand and what challenges we face. This has to be resolved before we move forward."

So, when will this happen?

"I really don't know when the FDA discussions will be completed, but trust me, no one wants that to happen faster than me," he says. "What I want to do is provide information whenever there is progress, or lack of progress."

At this point, investors seem to be shrugging off the risks of a lengthy delay in PolyHeme's development, and are instead happy with the management changes and promises of more openness about the company's operations. Northfield shares closed higher Wednesday, after the announcement was made, and Thursday, the stock continued to climb, closing up 64 cents, or 13%, to $5.43 per share.