Longtime readers might remember that I have a bit of an obsession with blood substitutes.

Remember, I'm the guy who spent three years -- and almost 80 stories -- detailing the myriad ways Biopure ( BPUR) was misleading investors about its product Hemopure. I'm pretty proud of that work -- Biopure is now a penny stock, the Securities and Exchange Commission took successful action against the company, and the executives responsible for the wrongdoing were kicked out.

So, it's no surprise that I follow developments at Northfield Laboratories ( NFLD) with great interest. Last month, the company's stock cratered after results from a pivotal phase III study revealed that trauma patients given its blood substitute Polyheme had a higher death rate than patients given a combination of saline and donated blood.

Needless to say, these were not the results that Northfield management and its supporters were hoping for. The $14 stock fell to the $4 level on the announcement. (Short-sellers, obviously, were a bit more jubilant.)

End of story, right? Not a chance. Northfield is forging ahead with plans to seek Food and Drug Administration approval for Polyheme later this year. On the company's quarterly conference call with investors Wednesday, CEO Steven Gould said the company was actually encouraged by the Polyheme data and is optimistic about its chances of success at the FDA.

I disagree. I believe the chances of the FDA approving Polyheme -- based on the data available -- are infinitesimally slim.

I don't blame Northfield for trying. After all, Polyheme is all the company has on its plate. But I've received email from some investors asking me if taking a bet on beaten-down Northfield is a good one. It's a $4 stock, they write, so what is there to lose?

My response: You'll lose everything. Don't do it. Let me explain why.

A Look Back

First, however, some background. Northfield's ambitious phase III trial evaluated the efficacy and safety of Polyheme in patients suffering from trauma. The study randomized 712 badly bleeding patients into two groups -- 349 patients received Polyheme in an ambulance on the way to the hospital, while 363 patients received currently used therapy, which is saline in the ambulance and then blood, if needed, upon arrival at the hospital.

The study's primary endpoint was designed to determine whether Polyheme was better than or non-inferior to (not worse than), the standard treatment. This was measured by comparing the death rates in each arm of the study, measured 30 days after the accident.

According to Northfield, 46 patients in the Polyheme arm died -- a death rate of 13.2%. Thirty-five patients in the control arm died, for a death rate of 9.6%. Obviously, Polyheme wasn't superior to blood and saline, but was it non-inferior? When Northfield ran the statistical test on these death rates, it missed.

This is the point at which diehard Northfield bulls are yelling at me for not going into a detailed explanation of the non-inferior statistical test and so-called confidence intervals, which they believe ultimately will vindicate Polyheme and convince the FDA to approve it.

Nonsense. There was a 38% relative difference in the death rates of the two arms of this study, going against Polyheme. You can throw whatever statistical test you want to against that, but intuitively, there is no way that the FDA, or anyone else, would deem Polyheme non-inferior to saline and blood.

Think about it another way (and I apologize for the gruesome example): Your mother is bleeding to death and an EMT coming to her aid asks you a question: He can give your mother Polyheme or saline in the ambulance on the way to hospital. In a clinical trial, the former caused more deaths than the latter by a relative difference of 38%. Which would you pick?

Even Northfield isn't so irrational to make the case for Polyheme's approval based solely on this data. Instead, the company's parsing the results. Apparently, there were a lot of mistakes made while conducting the trial, to the point at which 126 patients, 18% of the total, were deemed to be "protocol violators," meaning they shouldn't have been enrolled in the study, or their data should have been kicked out for various reasons.

Subtracting those 126 patients leaves 586 patients in a "per protocol" subset in which there were no data errors. When these patients were analyzed, the death rate in the Polyheme arm was 10.8% compared with 9.1% in the control arm. Polyheme patients still died at higher rates than control patients on a numerical basis, but statistically, the blood substitute passed its non-inferiority test, according to Northfield.

Northfield is now re-examining all protocol violations to see if any adjustment would change the results of the larger 712-patient "intent to treat" population. Regardless, Gould says the company's plan is to also include the more positive per-protocol analysis in its FDA submission because he believes it is the cleanest and clearest picture of Polyheme's efficacy.

I have a few major problems with this plan. First, the FDA almost always uses "intent to treat" analyses as the basis for review; per-protocol or subgroup analyses -- whether they are prospectively defined or not -- take a back seat.

Second, the intent-to-treat population in the Polyheme study represents the real-world scenarios in which a blood substitute would be used. EMTs responding to the scene of an accident won't always have time to go down a checklist to determine if a patient should get Polyheme.

Also, within the 126-patient protocol violator group that Northfield seeks to exclude, the difference in death rate of patients getting Polyheme (17/70 or 23%) vs. those patients in the control arm (7/56 or 12.5%) was striking. Northfield says the patients in the protocol violator group were more severely injured, and that could have contributed to the sharply higher death rate.

But turn the issue around -- what if Polyheme exacerbates injury or contributes to death in patients who already are severely injured?

Northfield designed an ambulance trauma trial for Polyheme because it wanted to see how the blood substitute performed in the real world, where all kinds of patients are bleeding to death from all sorts of accidents. After the fact, when the results aren't to its liking, the company can't go back and argue that Polyheme works, but only when conditions are perfect.

Lastly, if Northfield reduces the number of patients being analyzed due to protocol violations, it also should have to raise the statistical hurdle by which non-inferiority is measured. The company didn't do that.

My bet is that when the FDA does its own statistical analysis of the study -- and guaranteed, the regulators will do their own -- the results will look different from those issued by Northfield.

I've thrown a lot of numbers out here to make the case for why I don't believe Polyheme has a chance of getting approved, based on this current slug of clinical data. There are potentially other reasons, such as the overall safety of the product, which can't yet be addressed until Northfield releases complete data on the Polyheme trial, hopefully later this year.

In the meantime, Northfield will file Polyheme with the FDA and make its case for approval. There's nothing wrong with that. As an investor, however, it's better to sit on the sideline than get involved.

Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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