| BIOPURE CORP Item 1A Risk Factors Our future operating results could differ materially from the results described in this report due to the risks and uncertainties related to our business, including those discussed below |
| Furthermore, these factors represent risks and uncertainties that could cause actual results to differ materially from those implied by forward-looking statements |
| These risks and uncertainties are not the only ones we face |
| Others that we do not know about now, or that we do not now think are important, may impair our business or the trading price of our securities |
| Company Risks We have a history of losses and expect future losses |
| We have had annual losses from operations since our inception in 1984 |
| In the fiscal years ended October 31, 2003, 2004 and 2005, we had losses from operations of dlra47cmam312cmam000, dlra41cmam832cmam000 and dlra29cmam143cmam000 |
| We had an accumulated deficit of dlra499cmam009cmam000 as of October 31, 2005 |
| We anticipate that we will continue to generate losses for the next several years |
| Even if Hemopure were to be approved by the FDA or analogous European regulatory authorities, we might not be able to achieve profitable operations |
| We require significant funding in order to continue to operate |
| We expect that our cash on hand at October 31, 2005 together with funds raised in December 2005 and January 2006 will fund operations through August 2006 |
| Sufficient funds may not be available to us thereafter or on terms that we deem acceptable, if they are available at all |
| Our auditors have modified their report for our fiscal year ended 17 _________________________________________________________________ [69]Table of Contents October 31, 2005 with respect to our ability to continue as a going concern |
| This modification may negatively impact our capital raising efforts |
| We are required under the Nasdaq Stock Market’s Marketplace Rules to obtain stockholder approval for any issuance of additional equity securities that would comprise more than 20 percent of our total shares of common stock outstanding before the issuance of the securities at a discount to the greater of book or market value in an offering that is not deemed to be a “public offering” by Nasdaq |
| Funding of our operations in the future may require stockholder approval for purposes of complying with the Nasdaq Marketplace Rules |
| We cannot assure you that we will not require such approval to raise additional funds or that we would be successful in obtaining any such required stockholder approval |
| Failure to raise sufficient additional funds will significantly impair or possibly cause us to cease the development, manufacture and sale of our products and our ability to operate |
| The development and regulatory processes for seeking and obtaining approval to market Hemopure in the United States and the European Union have been and will continue to be costly |
| We will require substantial working capital to develop, manufacture and sell Hemopure and to finance our operations until such time, if ever, as we can generate positive cash flow |
| If Hemopure is approved by the FDA or the analogous European regulatory authorities, we expect that we will need to increase our manufacturing capacity, for which we will require significant additional funding |
| If additional financing is not available when needed or is not available on acceptable terms, we may be unable to successfully develop or commercialize Hemopure or to continue to operate |
| A sustained period in which financing is not available could force us to go out of business |
| Our auditors have modified their report for our fiscal year ended October 31, 2005 with respect to our ability to continue as a going concern |
| Our funds on hand, amounts raised subsequent to year-end and forecasted sales for fiscal 2006 at October 31, 2005 are not sufficient to fund our planned operations through the first quarter of fiscal 2007 and, as a result, the audit report of Ernst & Young LLP, our independent auditor, on our fiscal 2005 consolidated financial statements includes a going concern modification |
| This type of modification typically would indicate that our recurring losses from operations and current lack of sufficient funds to sustain operations through the end of fiscal 2006 raise substantial doubt about our ability to continue as a going concern |
| To remain a going concern we require significant funding |
| We believe that our cash and cash equivalents on hand of approximately dlra10dtta5 million as of October 31, 2005, together with our other current assets as of October 31, 2005 and the proceeds from offering of securities in December 2005 and January 2006, are sufficient to fund our operations through August 2006 |
| The inclusion of a going concern modification in Ernst & Young LLP’s audit opinion may materially and adversely affect our stock price and our ability to raise new capital |
| Our consolidated financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business |
| If we became unable to continue as a going concern, we would have to liquidate our assets and we might receive significantly less than the values at which they are carried on our consolidated financial statements |
| Any shortfall in the proceeds from the liquidation of our assets would directly reduce the amounts, if any, that holders of our common stock could receive in liquidation |
| If we cannot retain the personnel we need, our costs will rise significantly |
| If we cannot hire or retain the best people, our operations will suffer |
| We may experience the loss of personnel, including executives and other employees, as a result of attrition, which we have previously experienced |
| We expect that in the future we will need to recruit and retain personnel for important positions |
| We may be unable to do so, in particular if we are unable to raise additional capital |
| 18 _________________________________________________________________ [70]Table of Contents We may fail to obtain FDA approval for Hemopure, in which event we cannot market Hemopure in the United States, which would have negative consequences for the Company |
| We will not be able to market Hemopure in the United States unless and until we receive FDA approval |
| In pursuing both the ischemia and trauma indications for Hemopure, as a prerequisite to further clinical trials for Hemopure in the United States, we must address the FDA’s safety and other relevant questions arising out of our previously-submitted BLA for an orthopedic surgery indication |
| Addressing these questions requires considerable data gathering and analysis |
| We must rely on contractors to complete some of the work |
| We have been delayed, and could be further delayed, in responding either by the contractors’ failure or inability to timely complete their tasks, or by other unanticipated delays or difficulties and lack of resources |
| The FDA may find that responses we may give do not adequately address its questions and that the results of preclinical animal studies the FDA has asked for do not adequately address its concerns |
| In turn, we would be indefinitely unable to pursue development of Hemopure in the United States, a very large, key market |
| Moreover, even if we adequately address the FDA’s questions, we will need to obtain FDA acceptance of the protocols for, and to complete, human clinical trials to obtain FDA approval for Hemopure for ischemia and trauma indications |
| We cannot predict when or whether we will submit an IND for an ischemia indication |
| Consequently, we do not know whether or when we will be able to commence a US clinical trial of Hemopure for an ischemia indication, or that we will be able to conduct or satisfactorily conclude additional clinical trials required to obtain FDA marketing authorization for this indication |
| In the case of the trauma indication, the NMRC has primary responsibility for designing and seeking FDA acceptance of a two-stage Phase 2/3 clinical protocol for trauma in the out-of-hospital setting and is expected to be principally responsible for conducting the trial |
| The NMRC has filed an IND, and the FDA has put the proposed trauma protocol on clinical hold |
| If the FDA ultimately grants acceptance and the trial is commenced and concluded, the results of the trial may not lead to authorization for marketing Hemopure for the proposed trauma indication |
| In addition, future or existing governmental action or changes in FDA policies or precedents may result in delays or rejection of an application for marketing approval |
| The FDA has considerable discretion in determining whether to grant marketing approval for a drug, and may delay or deny approval even in circumstances where the applicant’s clinical trials have proceeded in compliance with FDA procedures and regulations and have met the established end points of the trials |
| Despite all of our efforts, the FDA could refuse to grant marketing authorization for Hemopure |
| Challenges to FDA determinations are generally time consuming and costly, and rarely succeed |
| We can give no assurance that we will obtain FDA marketing authorization for Hemopure for any indication |
| The failure to obtain any approval would have severe negative consequences for our company |
| If we fail to obtain regulatory approvals in foreign jurisdictions, we will not be able to market Hemopure abroad |
| We also intend to seek to market Hemopure in international markets, including the European Union |
| Whether or not FDA marketing authorization has been obtained, we must obtain separate regulatory approvals in order to market our products in the European Union and many other foreign jurisdictions |
| The regulatory approval processes differ among these jurisdictions, and the time needed to secure marketing approvals may be even longer than that required for FDA approval |
| These applications may require the completion of additional preclinical and clinical studies |
| Approval in any one jurisdiction does not ensure approval in a different jurisdiction |
| As a result, obtaining foreign approvals will require additional expenditures and significant amounts of time |
| We can give no assurance that we will obtain marketing authorization for Hemopure in any foreign jurisdiction other than that already obtained in South Africa |
| Clinical trials are extremely costly and subject to numerous risks and uncertainties |
| To gain regulatory approval from the FDA and analogous European regulatory authorities for the commercial sale of any product, including Hemopure, we must demonstrate in clinical trials, and satisfy the FDA and foreign regulatory authorities as to, the safety and efficacy of the product |
| Clinical trials are expensive and time-consuming, as is the regulatory review process |
| Clinical trials are also subject to numerous risks and uncertainties not within our 19 _________________________________________________________________ [71]Table of Contents control |
| For example, data we obtain from preclinical and clinical studies are susceptible to varying interpretations that could impede regulatory approval |
| Further, some patients in our clinical trials may have a high risk of death, age-related disease or other adverse medical events that may not be related to our product |
| These events may affect the statistical analysis of the safety and efficacy of our product |
| If we obtain marketing authorization for a product, the authorization will be limited to the indication approved |
| In addition, many factors could delay or result in termination of ongoing or future clinical trials |
| Results from ongoing or completed preclinical or clinical studies or analyses could raise concerns over the safety or efficacy of a product candidate |
| For example, in April 2003 the FDA placed a proposed Phase 2 clinical trial of Hemopure for the treatment of trauma in the in-hospital setting on clinical hold citing safety concerns based on a review of data from our Phase 3 clinical trial in patients undergoing surgery |
| Recently it placed a clinical hold on a trauma trial proposed by the NMRC We cannot assure investors that the FDA will not place other clinical trials we sponsor or others may sponsor on hold in the future |
| A clinical trial may also experience slow patient enrollment |
| The rate of completion of our clinical trials is dependent in large part on the rate of patient enrollment |
| There may be limited availability of patients who meet the criteria for certain clinical trials |
| Delays in planned patient enrollment can result in increased development costs and delays in regulatory approvals |
| Further, we rely on investigating physicians and the hospital trial sites to enroll patients |
| At our recommendation, the South African hospital that is the sole site for our trauma trial interrupted enrollment in late 2004 to address site procedures, not product related issues |
| Enrollment at that site continues to be slow |
| In addition, patients may experience adverse medical events or side effects resulting in delays, whether or not the events or the side effects relate to the study material, and there may be a real or perceived lack of effectiveness of, or safety issues associated with, the product we are testing |
| We experienced one such delay in our now completed European coronary angioplasty trial |
| If we do not have the financial resources to fund trials required to develop Hemopure for multiple potential indications, our success as a company will be adversely affected |
| We cannot sell Hemopure for any indication unless we receive regulatory approval for that indication |
| Regulatory authorities generally require a separate marketing approval for each proposed indication for the use of Hemopure in the United States |
| In order to market Hemopure for more than one indication, we will have to design additional clinical trials, submit the trial designs to applicable regulatory authorities for review and complete those trials successfully |
| If any applicable regulatory authority approves Hemopure for an indication, it may require a label cautioning against Hemopure’s use for indications for which it has not been approved |
| We may not have funds available to try to exploit Hemopure for all of its potential indications |
| Our potential revenues will be impaired by limitations on Hemopure’s use |
| The Securities and Exchange Commission has filed a civil injunctive proceeding against us, two of our former officers and one of our current officers |
| We and several of our former and current officers and directors are subject to consolidated class action lawsuits, and we and several of our former and current directors and officers are subject to consolidated derivative actions |
| As discussed in detail above, in September 2005, the SEC filed a civil proceeding against us, two former officers, and one current officer, following an investigation that began in 2003 |
| The SEC is seeking a permanent injunction restraining and enjoining the defendants from violating or aiding and abetting violations of Federal securities laws, a civil monetary penalty from each of the defendants, and an order barring the former and current officer defendants from serving as officers or directors of any publicly-traded company |
| Following our first announcement of the SEC investigation, a number of lawsuits were filed against us and several of our former and current directors and officers |
| We can provide no assurance as to the outcome of any of these proceedings |
| Members of our board of directors and management may spend considerable time and effort defending against any class action lawsuits, the action brought by the SEC and derivative actions |
| This expenditure of time and effort may adversely affect our business, results of operations and financial condition |
| We may incur substantial costs in connection with these proceedings, lawsuits and derivative actions, including significant legal expenses, fines, judgments or settlements that exceed the amount of, or are not covered by, our insurance policies |
| In addition, the uncertainty about the possible effect of 20 _________________________________________________________________ [72]Table of Contents these matters on our financial position and results of operations may adversely affect our stock price and our ability to raise capital |