For a company that is apparently leading the latest race to market a blood substitute, Biopure ( BPUR) doesn't look like much of a winner to investors these days.

The Cambridge, Mass.-based company is the only one with a blood-substitute application pending before the Food and Drug Administration, yet its stock is down 85% since hitting a 52-week high Aug. 1.

The company's chief executive, Thomas A. Moore, resigned in late February, after less than two years on the job.

In late December, the Securities and Exchange Commission served Biopure with a Wells notice, revealing that the SEC staff had made a preliminary decision to recommend the agency bring a civil proceeding against the company.

Reversal of Fortune

Any optimism for a relatively quick approval of its blood substitute has been discarded in recent months as the FDA has raised more questions about Biopure's application. And the company is bleeding cash; right now, it has enough funds to operate into September.

That's a dramatic shift since last Aug. 1, when Biopure cheerfully announced that the FDA had reviewed its application for Hemopure, adding that although the agency had some questions, it was not requiring any more time-consuming clinical tests.

Biopure indicated it could answer the questions in 30 to 60 days -- a timetable that led investors to believe the FDA might approve the product by late 2003 or early 2004. Biopure's announcement came a week after the company raised just over $16 million in a private placement of stock.

But as the months wore on, investors' patience wore out. Biopure kept revising its guidance on when the information would be ready for the FDA, and on how much information it had to provide. And the stock kept falling.

Now, it's questionable if the FDA will respond this year. In recent months, Biopure has been a steady source of bad financial and regulatory news. At the core of the news is a series of slow-motion revelations that questions posed by the FDA about Hemopure will take a lot longer to answer and resolve.

The company's comments that a response could take 30 to 60 days evolved into comments that a response would be forthcoming in mid-June 2004. And now that projection is at risk.

Last year "was certainly not the kind of year that we expected for Biopure," said Dr. Charles A. Sanders, the company's chairman, in a Feb. 24 letter to shareholders. Sanders recapped an assortment of disclosures that have dribbled out between October and February.

Sanders said the FDA provided "an extensive list of questions," adding that Biopure is about halfway through a process in which 200,000 to 400,000 pages of data will be collected and tabulated for the FDA.

He noted that in a January meeting between the FDA and Biopure, the agency asked "additional questions" about Hemopure's safety and efficacy "beyond those cited" in the regulator's letter last summer.

"The FDA also indicated that new animal studies would need to be completed as part of our response," Sanders said. "Preparations to start three of these studies are under way, and a fourth study is under discussion."

Because of these agency requests "and other information-gathering activities," Sanders added, Biopure may not be able to submit a formal written response to the FDA in June 2004 "as previously planned."

A few weeks later, Biopure said it would conduct all four animal tests, adding that it may take the regulator six months to review the company's amended application for Hemopure.

"It is currently unclear" whether the additional animal tests and the company's formal response "will be sufficient" to secure FDA approval, Biopure said in the March 16 filing of its quarterly 10-Q statement with the SEC.

The agency might seek more information, or it might demand additional human clinical trials, Biopure said. "Therefore, the timetable for obtaining FDA approval for Hemopure remains uncertain."

Between the August announcement and the February stockholders' letter, investors also learned that the company in November withdrew a proposed clinical test plan for using Hemopure to treat hemorrhagic shock victims in a hospital setting. (Biopure's official application to the FDA is for Hemopure being used with acutely anemic patients undergoing elective orthopedic surgery.) Biopure had submitted the request in March 2003.

The company recently revealed that the FDA had put a "clinical hold" on the test design "due to safety concerns" arising from the agency's review of late-stage clinical trials for Hemopure's use among orthopedic patients.

Biopure said it responded to the FDA twice and that the agency reaffirmed its objections to the study design twice. But investors didn't find out about this issue until late December. Biopure didn't publicize the FDA's objections to the proposed study earlier "because the company does not consider correspondence with the agency about data interpretations in the development of a study design to be material," Biopure said in its recent 10-Q statement.

SEC Has Questions of Its Own

The dispute over this test proposal was one reason why the staff of the SEC sent Biopure a Wells notice. Biopure told the public about the Wells notice information on Christmas Eve after the markets had closed. It had received the notice Dec. 22. The SEC staff's review also covers the comments made by Biopure in midsummer about the FDA's review of Hemopure.

The company responded to the SEC on Jan. 9. "We continue to believe that the company has acted properly," said Sanders in his letter to shareholders. He said the SEC staff continues to gather information and has not informed the company if it will formally recommend that the SEC take action.

The revelations, the problems and the regulatory delays have made Biopure a magnet for lawsuits. Since Christmas, at least 17 suits have been filed, alleging, among other things, securities fraud. The main themes: Biopure's many positive statements about Hemopure's status with the FDA, revelations involving the clinical test design, the Wells notice and, to quote one suit, an allegation that "high-level Biopure insiders sold hundreds of thousands of Biopure common shares to the unsuspecting public at artificially inflated prices."

Bleeding Cash

Meanwhile, Biopure's financial condition continues to weaken. Its first-quarter press release issued Feb. 19 and its first-quarter 10-Q statement filed with the SEC on March 16 show that the company has enough cash to operate into September. It had $17.3 million in cash as of Jan. 31. (Founded 20 years ago, the company has an accumulated deficit of $428.7 million through the fiscal year ended Oct. 31.)

Biopure recently made a private placement of stock with an unnamed institutional investor for 3.33 million shares at $1.50 a share, producing about $5 million. On Feb. 19, the day the deal was announced, Biopure's market price was $1.95 a share. The investor group also received warrants to purchase another 833,333 shares at $2.50 a share.

That deal closed Feb. 20, four days before CEO Moore resigned. Two days after Moore left, Biopure said it was issuing 343,168 shares as a "purchase price adjustment," which was, in effect, a peace offering to the investor group. Biopure won't get any proceeds from this stock sale, and it will take a noncash charge of $467,000 in the second quarter.

Biopure is also cutting costs. It has delayed plans to build a new manufacturing plant in South Carolina and dismissed 72 employees in October. Last month, Biopure said it would cut 53 more jobs in April. Those two actions reduced total employment by 53%.

And while it continues to pursue Hemopure's application with the FDA, the company is finding that current potential revenue sources have been underachieving. Even though Hemopure was approved for commercial sale in South Africa in April 2001 for acutely anemic adult surgery patients, Biopure hasn't sold any of the product.

Biopure, which has provided some South African hospitals with free samples, is canceling an agreement with a distributor, saying it plans to sell the product through its own subsidiary. "We cannot predict when our first sales might occur," the company said in its 10-Q report.

The other revenue source is Oxyglobin, a form of Hemopure for anemic dogs, which is approved by the FDA and the European Commission. But recently, Oxyglobin sales have been outrun by its manufacturing and marketing costs.

The company recorded $750,000 in Oxyglobin sales for the three months ended Jan. 31, the first quarter of its current fiscal year. The cost of that revenue was $1.6 million. Biopure said that it expects the costs of making Oxyglobin to exceed its revenue "until the company more fully utilizes its manufacturing capability."

Even though the FDA approved Oxyglobin in January 1998, sales were hampered when Biopure shut down its manufacturing activities for part of 2002 to expand production facilities. Shipments resumed in February 2003.

Research Vacuum

Investors can look only at the latest string of events and cringe, because there isn't much research on Biopure to help provide long-term guidance.

Several Wall Street investment banking firms -- including Robert W. Baird, J.P. Morgan and Salomon Smith Barney -- provided and then dropped coverage of the company in recent years.

But no investment researcher came and went as fast as Halpern Capital of Aventura, Fla., which conducts equity research and is involved in leveraged buyouts, private stock placements and management restructurings.

According to Thomson First Call, Halpern initiated coverage of Biopure on Dec. 8, eschewing a buy-sell rating but noting that Biopure's blood substitute "could attain blockbuster status" assuming "the likely FDA approval" during the second half of 2004. Eighteen days later, Halpern Capital said it was suspending coverage of Biopure, after the company's receipt of the SEC's Wells notice. (Halpern's analyst owned shares in Biopure.)

The only investment banking firm tracking Biopure these days is ThinkEquity Partners, based in San Francisco. Its last report in late February described Thomas Moore's departure as CEO as "a negative development" because he had been part of a reorganization to improve the Hemopure program. (ThinkEquity Partners is a market-maker for Biopure's stock and has had an investment banking relationship with the company.)

Analyst Sapna Srivastava told clients that Moore -- who has been replaced on an interim basis by a Biopure senior vice president, Francis H. Murphy -- was unable to put the company "back on track," thus raising the risk to investors, because Biopure "lacks a definitive outline" as to what must be done to secure FDA approval for the company's blood substitute. Srivastava, who doesn't own shares, has an equal-weight rating on the stock -- the same rating she has had since initiating coverage in April 2003.

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