It isn't profitable. It doesn't have any revenue.

It doesn't have any Wall Street coverage, and, by its own account, hasn't said anything new in about four weeks.

Yet Northfield Laboratories ( NFLD) continues to attract investors' attention, illustrating how the dream of creating an artificial blood substitute whipsaws a stock.

On March 4, for example, Northfield didn't say anything or file anything with the Securities and Exchange Commission, yet the stock jumped 25.1% on trading volume four times higher than the previous day. On March 5, again, without any developments, shares jumped 13.3% on even higher volume.

And on March 8, as the news vacuum continued, investors drove shares up 22.7% in intraday trading -- then bailed so quickly and vehemently that the stock closed down 4.6%. For the next week, the stock fell 20%. In recent days, the stock is up nearly 20%.

It's enough to keep the Internet chat rooms busy, but this volatility is common for a company whose shares were trading in the low $30s just four years ago and were stumbling below $4 nearly two years ago. Other searchers for blood substitutes have suffered from similar paroxysms of share prices; in many cases, the shares haven't bounced back.

Momentum vs. Fundamentals

Despite its gyrations, Northfield appears to have a bit more momentum than its chief competitor, Biopure ( BPUR), even though Biopure has a blood-substitute application pending before the Food and Drug Administration and Northfield is just starting its phase III clinical trial, the last research step before seeking FDA approval.

But that last step can be tricky. Even though Biopure completed its phase III research, the FDA has asked for more information, records and tests on animals. That has caused a significant delay in Biopure's expectations of getting its blood substitute approved quickly. The SEC may file a civil action against the company, and Biopure's stock has lost 85% of its value since early August.

Meanwhile, Northfield has been conducting presentations at investor forums, describing the progress of enrolling patients in the crucial research trial that could lead to the company seeking FDA approval for its blood substitute called PolyHeme.

Northfield has finessed its presentations, declining to give precise estimates on when all of the research sites will be in force or when it will make its pitch to the FDA. The company started enrolling patients in December in its phase III clinical trial, an unusual test involving ambulances and trauma centers rather than operating rooms.

In recent presentations to investors, Northfield's chairman, Dr. Steven A. Gould, has said a best-case scenario would be for the clinical trials -- involving 720 patients at 20 sites -- to be completed in 12 months. The company's analysis of the data and the FDA's review of that data might take another 12 months, he said. Gould won't identify the handful of active sites (even though local media have written stories about the tests), won't comment on negotiations for new sites and upcoming tests, and won't discuss how patient enrollment is proceeding at the active research sites.

Northfield has enough money to keep running for another 12 months, Gould said recently, thanks primarily to a recent stock placement that produced $16.4 million in gross proceeds. Since its inception through Nov. 30, 2003, Northfield has recorded about $117 million in operating losses. Biopure, by contrast, may run out of money in September, having already posted an accumulated deficit of $428.7 million between its inception and Oct. 31, 2003.

But investors had better beware. Northfield has been searching for a blood substitute since 1985, one year less than Biopure, and the Evanston, Ill.-based company is not that far removed from several sources of financial stress. In early 2003, Northfield had difficulty raising money; in mid-2002, one of its founders quit as chairman and CEO amidst a proxy fight; and in late 2001, the FDA rejected its initial application for PolyHeme.

Industry Bloodletting

Needless to say, the history of commercial blood-substitute research is filled with an assortment of failed, defunct, near-dead, dormant and struggling companies. The pursuit of such a potentially dramatic medical advance has drained many investors and lured large companies into conducting their own research or forming alliances with small companies.

Baxter International ( BAX) tried to create a blood substitute called HemAssist, dropping the program six years ago when a late-stage clinical trial showed that a greater percentage of critically ill trauma patients receiving the product died compared to the percentage of patients receiving standard care. Baxter also bought Somatogen, a developer of an experimental blood substitute, but said last year that it was abandoning its efforts to create a blood substitute through genetic engineering.

Also in the 1990s, the old Pharmacia & Upjohn ended a blood-substitute research project with Biopure; Eli Lilly ( LLY) broke off its alliance with Somatogen; and Johnson & Johnson ( NYSE) canceled its relationship with Alliance Pharmaceutical of San Diego.

So it's hardly surprising that investment bankers have lost interest. Few companies now attract any investment research firm interest. Northfield Laboratories has no Wall Street coverage; Biopure is followed by one investment banking firm. Alliance Pharmaceutical, which was removed from the Nasdaq in October 2002 and now trades below $1 on the OTC bulletin board, has no investment banking firm coverage.

The suburban Toronto company Hemosol ( HMSL) lacks U.S.-based coverage, and one Canadian investment banking firm stopped covering the stock in November. Another firm placed the stock under review in December. The stock has been below $2 a share in Nasdaq trading since mid-2002.

The investment research community lost interest after the company's blood substitute, Hemolink, failed in a crucial test among patients undergoing heart bypass surgery. The company suspended the test 12 months ago after more "adverse cardiac events" were reported in patients taking the product than in patients receiving a placebo.

There are also several private companies engaged in blood-substitute research, as well as a few denizens of the OTC bulletin board and pink Sheets, a stock-quotation service for penny stocks.

Ancient Quest, Modern Miracle

Although the modern search for artificial blood covers about 25 years, the quest for a blood substitute spans centuries. Medical history is replete with accounts of attempts to create blood substitutes out of wine, starch, beer, milk, animal blood and a gum extracted from certain African trees that also serves in the preparation of candies, pills and emulsions.

You can't beat good old red blood cells, but they can be troublesome once outside your body or outside a controlled setting for a transfusion. They must be refrigerated; they can be stored only for six weeks before becoming useless; and they must be matched with recipients. Ambulances and rescue helicopters can't carry blood; neither can military medics. These storage and compatibility issues also mean that rural hospitals or urban hospitals receiving an onslaught of trauma patients may be ill-equipped to provide adequate blood supplies.

Those are the scientific as well as the marketing points for blood substitutes. Commercial researchers have been working on products that could have a shelf life of 12 months or more, be free from disease and contaminants, be stored at room temperature and require no need for matching with recipients. If these issues are solved, an artificial blood product could be in the field of combat, carried in ambulances and readily available in situations in which geography or catastrophe would deplete the available red blood-cell supply.

Two Veins of Science

The key to a blood substitute's success -- besides safety, of course -- is its ability to deliver oxygen to the body's organs. For developers of blood substitutes (some refer to themselves as oxygen therapeutics companies), the research is basically divided into two camps -- hemoglobin-based products and perfluorocarbons, or PFCs, which are chemically inert compounds that act as oxygen transporters.

Today, most companies are focusing on hemoglobin, the protein inside red blood cells that carries oxygen. Ironically, the only blood substitute ever approved by the FDA was a PFC called Fluosol, made by Japan's Green Cross Corp. The FDA approved Fluosol in 1989 for use in angioplasty, a procedure to unclog arteries. But Fluosol provided only small amounts of oxygen for a limited amount of time. The product was expensive, difficult to use and had a poor shelf life. Green Cross stopped making Fluosol in 1994.

Biopure and Northfield Laboratories belong to the hemoglobin camp.

Biopure uses hemoglobin from cows, which is chemically stabilized and formulated in a salt solution to provide the same amount of oxygen as human hemoglobin red blood cells. The company says its blood substitute's molecules are smaller than human red blood-cell molecules and more readily release oxygen than do red blood cells. Biopure says its product can carry oxygen through partially blocked arteries that red blood cells can't reach because of their size.

Northfield Laboratories uses stored human red blood cells that are too old to be transfused. The company chemically cracks open the cells to get the hemoglobin, which can last 12 months. Northfield purifies and chemically modifies the protein to negate the various kidney, stomach, liver and blood vessel problems that it says have plagued many other hemoglobin-based blood substitutes. The modified hemoglobin is placed in a solution creating PolyHeme, which has about the same amount of oxygen-carrying hemoglobin as does transfused blood.

It all sounds like fascinating science, but conservative investors would be forgiven if they waited a while. Then again, history shows there's no such thing as a conservative investor when it comes to the erratic financial heartbeats of blood-substitute companies.

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