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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended July 31, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from      to
 Commission File Number 001-15167
 BIOPURE CORPORATION
  Delaware
    
    04-2836871(State of Incorporation)
    
    (IRS Employer Identification Number)11 Hurley Street, Cambridge, Massachusetts
    
    02141(Address of principal executive offices)
    
    (Zip Code)
 (617) 234-6500
 þ o
  o o þ
 o þ
  Class A Common Stock, $.01 par value
    
    77,967,938Class B Common Stock, $1.00 par value
    
    117.7




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##### 



BIOPURE CORPORATION
 INDEX TO FORM 10-Q
 PagePart I  Financial Information:Item 1  Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at July 31, 2007 and October 31, 2006
    
    
    3Condensed Consolidated Statements of Operations for the three and nine months ended July
31, 2007 and July 31, 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended July 31, 2007
and July 31, 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3  Quantitative and Qualitative Disclosure of Market Risk
    
    
    20Item 4  Controls and Procedures
    
    
    20Part II  Other Information:Item 1  Legal Proceedings
    
    
    21Item 1A  Risk Factors
    
    
    21Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3  Defaults Upon Senior Securities
    
    
    31Item 4  Submission of Matters to a Vote of Security Holders
    
    
    31Item 5  Other Information
    
    
    31Item 6  Exhibits
    
    
    31Signatures
    
    
    32Exhibit Index
    
    
    33EX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO




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July 31, 2007
    
    
    October 31, 2006Assets:Current assets:Cash and cash equivalents
    
    $
    6,314
    
    
    $
    6,576Accounts receivable, net
    
    
    214
    
    
    
    80Inventories
    
    
    2,443
    
    
    
    2,850Other current assets
    
    
    1,406
    
    
    
    1,346Total current assets
    
    
    10,377
    
    
    
    10,852Property, plant and equipment, net
    
    
    19,924
    
    
    
    22,175Other assets
    
    
    763
    
    
    
    805Total assets
    
    $
    31,064
    
    
    $
    33,832Liabilities and stockholders equity:Current liabilities:Accounts payable
    
    $
    574
    
    
    $
    569Accrued expenses
    
    
    2,833
    
    
    
    3,250Current portion of deferred revenue
    
    
    108
    
    
    
    190Current portion of restructuring charges
    
    
    87
    
    
    
    207Total current liabilities
    
    
    3,602
    
    
    
    4,216Deferred revenue, net of current portion
    
    
    1,115
    
    
    
    987Restructuring charges, net of current portion
    
    
    
    
    
    
    46Other long-term liabilities
    
    
    41
    
    
    
    41Total long-term liabilities
    
    
    1,156
    
    
    
    1,074Commitments and contingencies, Notes 8 & 10Stockholders equity:Preferred stock, $0.01 par value,
30,000,000 shares authorized, no shares
outstanding
    
    
    
    
    
    
    Common stock:Class A, $0.01 par value,
200,000,000 shares authorized,
77,960,126 shares outstanding at
July 31, 2007 and 49,365,125 at
October 31, 2006
    
    
    780
    
    
    
    494Class B, $1.00 par value, 179
shares authorized, 117.7 shares
outstanding
    
    
    
    
    
    
    Capital in excess of par value
    
    
    546,011
    
    
    
    529,172Contributed capital
    
    
    24,574
    
    
    
    24,574Notes receivable, net of reserve
    
    
    
    
    
    
    (235
    )Accumulated deficit
    
    
    (545,059
    )
    
    
    (525,463
    )Total stockholders equity
    
    
    26,306
    
    
    
    28,542Total liabilities and stockholders equity
    
    $
    31,064
    
    
    $
    33,832
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Three Months Ended
    
    
    Nine Months EndedJuly 31, 2007
    
    
    July 31, 2006
    
    
    July 31, 2007
    
    
    July 31, 2006Revenues:Product revenue
    
    $
    528
    
    
    $
    313
    
    
    $
    1,494
    
    
    $
    988Research and development revenue
    
    
    22
    
    
    
    83
    
    
    
    269
    
    
    
    296Total revenues
    
    
    550
    
    
    
    396
    
    
    
    1,763
    
    
    
    1,284Cost of product revenues
    
    
    3,089
    
    
    
    2,939
    
    
    
    9,026
    
    
    
    9,351Gross loss
    
    
    (2,539
    )
    
    
    (2,543
    )
    
    
    (7,263
    )
    
    
    (8,067
    )Operating expenses:Research and development
    
    
    1,618
    
    
    
    1,772
    
    
    
    5,397
    
    
    
    5,112Sales and marketing
    
    
    341
    
    
    
    197
    
    
    
    1,099
    
    
    
    524General and administrative
    
    
    2,107
    
    
    
    2,239
    
    
    
    6,365
    
    
    
    6,826Total operating expenses
    
    
    4,066
    
    
    
    4,208
    
    
    
    12,861
    
    
    
    12,462Loss from operations
    
    
    (6,605
    )
    
    
    (6,751
    )
    
    
    (20,124
    )
    
    
    (20,529
    )Other income, net
    
    
    157
    
    
    
    127
    
    
    
    528
    
    
    
    356Net loss
    
    $
    (6,448
    )
    
    $
    (6,624
    )
    
    $
    (19,596
    )
    
    $
    (20,173
    )Per share data:Basic and diluted net loss per common
share
    
    $
    (0.08
    )
    
    $
    (0.16
    )
    
    $
    (0.27
    )
    
    $
    (0.55
    )Weighted-average shares used in
computing basic and diluted net loss
per
common share
    
    
    77,956
    
    
    
    41,616
    
    
    
    73,466
    
    
    
    36,695
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Nine Months EndedJuly 31, 2007
    
    
    July 31, 2006Operating activities:Net loss
    
    $
    (19,596
    )
    
    $
    (20,173
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    2,470
    
    
    
    2,836Stock-based compensation expense
    
    
    737
    
    
    
    810Note receivable reserve
    
    
    235
    
    
    
    Accretion of restructuring charge
    
    
    7
    
    
    
    26Inventory writedowns
    
    
    236
    
    
    
    962Changes in assets and liabilities:Accounts receivable
    
    
    (134
    )
    
    
    40Inventories
    
    
    171
    
    
    
    (350
    )Other current assets
    
    
    (66
    )
    
    
    105Accounts payable
    
    
    5
    
    
    
    424Accrued expenses
    
    
    (417
    )
    
    
    167Deferred revenue
    
    
    46
    
    
    
    Restructuring charges
    
    
    (172
    )
    
    
    (162
    )Net cash used in operating activities
    
    
    (16,478
    )
    
    
    (15,315
    )Investing activities:Purchases of property, plant and equipment
    
    
    (191
    )
    
    
    (121
    )Disposals of equipment
    
    
    20
    
    
    
    Net cash used in investing activities
    
    
    (171
    )
    
    
    (121
    )Financing activities:Net proceeds from sale of common stock and warrants
    
    
    16,386
    
    
    
    9,116Proceeds from the exercise of options and warrants
    
    
    2
    
    
    
    2,786Net cash provided by financing activities
    
    
    16,388
    
    
    
    11,902Net decrease in cash and cash equivalents
    
    
    (261
    )
    
    
    (3,534
    )Cash and cash equivalents at beginning of period
    
    
    6,576
    
    
    
    10,542Cash and cash equivalents at end of period
    
    $
    6,314
    
    
    $
    7,008Supplemental disclosure of cash flow information:Fair value of warrants issued in conjunction with sales of common
stock
    
    $
    7,264
    
    
    $
    8,263
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1.
    
    Basis of PresentationThe accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States for interim
financial information and pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included. Operating results
for the three and nine month periods ended July 31, 2007 are not necessarily indicative of the
results that may be expected for the year ending October 31, 2007; however, the Company expects
to incur a substantial loss for the year ending October 31, 2007.The accompanying consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries, Biopure Netherlands, BV, Biopure South Africa, Pty, Ltd., Reperfusion
Systems Incorporated, DeNovo Technologies Corporation and Biopure Overseas Holding Company, and
NeuroBlok Incorporated, a 60% owned subsidiary. All intercompany accounts and transactions have
been eliminated in consolidation.These financial statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Companys Annual Report on Form 10-K for the fiscal
year ended October 31, 2006, filed with the SEC on January 29, 2007.The Company has financed operations from inception primarily through sales of equity securities
and development and license agreement payments. The Company has not been profitable since
inception and had an accumulated deficit of $545.1 million at July 31, 2007. As of July 31,
2007, the Company had $6.3 million in cash and cash equivalents. The Company expects this
funding to be sufficient to fund operations into November 2007 under the current operating plan.
The Company will require significant additional funding to remain a going concern and to fund
operations until such time, if ever, as it becomes profitable. The Company intends to seek
additional capital through sales of equity securities and, if appropriate, to consider strategic
collaborations for sharing development and commercialization costs. However, there can be no
assurance that adequate additional financing will be available to the Company on terms that it
deems acceptable, if at all. Furthermore, the Company may not continue to qualify for continued
listing on the Nasdaq Capital Market. To maintain its listing, the
Company is required, among other
things, to maintain a daily closing bid price per share of $1.00. The
Company is out of compliance with
the $1.00 minimum bid price requirement for continued inclusion of its Class A common stock in
the Nasdaq Stock Market. Under Nasdaq rules, the Company has until October 15, 2007 to regain compliance
by having the bid price of our Class A common stock close at $1.00 per share or more for at
least 10 consecutive business days. If the Company does not regain compliance with the minimum bid price
rule by October 15, 2007, Nasdaq will provide written
notification that the Companys Class A common stock
will be delisted. If that occurs, the Companys ability to raise funds will be adversely
affected. These conditions raise substantial doubt about the Companys ability to continue as a
going concern. The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts and
classification of liabilities or any other adjustments that might be necessary should the
Company be unable to continue as a going concern.The Companys investments in property and equipment, such as new facility construction and the
asset related to the expenditures for a planned manufacturing facility in South Carolina, carried
at $11.1 million, net of depreciation, at the end of the current quarter and included in property,
plant and equipment in the accompanying condensed consolidated balance sheet, are the principal
long-lived assets that we review for impairment. Quarterly, the Company considers whether or not
there were indicators of impairment of its long-lived assets that arose during the quarter
subsequent to the last review. For the quarter ended July 31, 2007, the Company has determined that
no such impairment indicators have arisen. Evaluation of impairment of long-lived assets requires
estimates of future operating results and the expected future undiscounted cash flows used to
assess the recoverability of these assets. Circumstances with respect to the planned South Carolina manufacturing facility, or other
long-lived assets, actual future operating results and the remaining economic lives of our
long-lived assets could differ from these estimates. These differences, when they are identified,
could result in impairment charges, which may have a material adverse impact on our results of
operations.In the accompanying condensed consolidated balance sheet as of October 31, 2006, $231,000 has
been reclassified from property, plant and equipment, net, to other current assets to conform to
the current periods presentation. See Note 7 for additional information.Comprehensive loss approximated net loss for all periods presented.2.
    
    Net Loss per ShareBasic net loss per common share is computed based on the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is computed based upon
the weighted-average
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number of common shares outstanding during the period, adjusted for the dilutive effect of the
Companys common stock equivalents, including the maximum number of shares issuable upon the
conversion of class B common stock outstanding and the exercise of common stock options and
warrants. The dilutive effect of stock options and warrants is determined based on the treasury
stock method using the average market price of the class A common stock for the period. However,
basic and diluted net loss per common share are presented as the same for all periods presented,
as the Company had losses for all periods presented, so the effect of class B common stock,
options and warrants is anti-dilutive. Consequently, dilutive weighted average shares
outstanding do not include 60,093,689 potential common-equivalent shares for the three and nine
months ended July 31, 2007 and 19,462,944 potential common-equivalent shares for the three and
nine months ended July 31, 2006, as their effect would have been anti-dilutive.3.
    
    Stock Based CompensationAs of July 31, 2007, the Company had one share-based compensation plan, the Biopure Corporation
2002 Omnibus Securities and Incentive Plan (the Plan). The Plan is shareholder approved and
permits the grant of stock or stock options to the Companys employees, consultants and
directors. The Plan has 4.37 million shares of common stock authorized. Employee option awards
are generally granted with an exercise price equal to the market price of the Companys stock at
the date of grant. Options vest at the times specified in the option grants, generally over
periods of up to four years. Most options granted have a 10-year term and expire if not
exercised within ten years of the date of grant. Shares issued upon exercise of options are
generally issued from new shares of the Company.The Company adopted the provisions of Statement of Financial Accounting Standards 123(R),
Share-Based Payment (SFAS 123(R)), beginning November 1, 2005, using the modified prospective
transition method. Under the modified prospective transition method, financial statements for
periods prior to the adoption date are not retrospectively adjusted. However, compensation
expense is recognized, based on the requirements of SFAS 123(R), for (a) all share-based
payments granted after the effective date and (b) all awards granted to employees prior to the
effective date that remain unvested as of the effective date.Prior to adopting SFAS 123(R), the Company used the intrinsic value method to account for
stock-based compensation under Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. Historically the fair value of options granted was calculated using the
Black-Scholes option pricing model for disclosure purposes. The Company has elected to continue to use this model. SFAS
123(R) also requires companies to utilize an estimated forfeiture rate when calculating the
expense for the period, while SFAS 123, Accounting for Stock-Based Compensation, permitted
companies to record actual forfeitures as they occurred, which was the Companys historical
policy. In determining the expense recorded in the Companys consolidated statement of
operations, the Company has applied an estimated forfeiture rate to remaining unvested awards
based on historical experience. This estimate is evaluated quarterly and the forfeiture rate is
adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will
only be for those shares that vest. The Company has elected to recognize compensation cost for
awards with incremental vesting using the straight-line method.The fair value of each stock option is estimated on the date of grant using the Black-Scholes
option pricing model with the assumptions noted in the following table. The weighted average
risk-free interest rate is based on a treasury instrument, the term of which is consistent with
the expected life of the stock options. Expected volatility is based exclusively on historical
volatility data of the Companys common stock. The Company estimates stock option forfeitures
based on historical experience. The Company was unable to use historical information to estimate
the expected term due to a lack of historical exercise activity and therefore used the
simplified method as prescribed by the SEC Staff Accounting Bulletin No. 107.
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Three Months Ended
    
    Nine Months EndedJuly 31,
    
    July 31,
    
    July 31,
    
    July 31,2007
    
    2006
    
    2007
    
    2006Weighted average risk-free interest rate
    
    
    
    
    
    
    4.49
    %
    
    
    4.58
    %
    
    
    4.58
    %Expected volatility
    
    
    
    
    
    
    85
    %
    
    
    85
    %
    
    
    85
    %Expected lives (years)
    
    
    
    
    
    
    5.13
    
    
    
    5.42
    
    
    
    5.27Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 During the first nine months of fiscal 2007 and 2006, approximately 1.3 million and 312,000
options, respectively, were granted with a weighted average grant-date fair value of $0.39
and $0.87 per share, respectively. No options were granted during the third fiscal quarter
of 2007.As of July 31, 2007, there was $1.2 million of unrecognized compensation expense, net of
forfeitures, related to non-vested market-based share awards, which is expected to be recognized
over a weighted-average period of 2.42 years.During the first nine months of fiscal 2007 there were 5,000 options exercised at an exercise
price of $0.55. During the first nine months of fiscal 2006 there were 12,000 options exercised
at an exercise price of $0.92. The total fair value of shares vested during fiscal 2007 and 2006
were $434,000 and $786,000, respectively.4.
    
    InventoriesInventories are valued at the lower of cost (determined using the first-in, first-out method) or
market. Inventories were as follows at the following dates:
 In thousands
    
    July 31, 2007
    
    
    October 31, 2006Raw materials
    
    $
    752
    
    
    $
    535Work-in-process
    
    
    437
    
    
    
    343Finished goods-Oxyglobin
    
    
    891
    
    
    
    1,160Finished goods-Hemopure
    
    
    363
    
    
    
    812$
    2,443
    
    
    $
    2,850
 Hemopure [hemoglobin glutamer  250 (bovine)] finished goods represents those units the Company
expects to sell in South Africa or those units to be used in preclinical or clinical trials
conducted by or on behalf of the U.S. Naval Medical Research Center (NMRC), for which the
Company is reimbursed. Each quarter the Company reviews the inventory of Hemopure finished goods
and, if necessary, writes off any units beyond those forecast for these purposes. There was a
$241,000 write-down of inventory in the third fiscal quarter of 2006 and no such write off
during the third fiscal quarter of 2007. If the Company continues to experience a lack of or
extremely limited sales in South Africa or further delays in the use of Hemopure by the NMRC, it
expects to write off additional units in the future.
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5.
    
    Accrued ExpensesAccrued expenses were as follows at the following dates:
 In thousands
    
    July 31, 2007
    
    
    October 31, 2006Accrued payroll and related employee expenses
    
    $
    892
    
    
    $
    198Financing fees
    
    
    537
    
    
    
    537Accrued severance
    
    
    
    
    
    
    568Accrued legal and audit fees
    
    
    280
    
    
    
    1,054Accrued vacation
    
    
    268
    
    
    
    300Accrued utilities
    
    
    213
    
    
    
    72Other
    
    
    643
    
    
    
    521$
    2,833
    
    
    $
    3,250
 Accrued severance at October 31, 2006 included costs related to the resignation, in fiscal 2005,
of the Companys Chief Technology Officer. At October 31, 2006, the Company had an accrual of
$568,000, representing the amount owed to him in accordance with his employment agreement.
During the first nine months of fiscal 2007, the Company paid $175,000 of this amount. Because
the Company was no longer obligated to pay the remaining $393,000 due to a breach of the
employment agreement, it removed this amount from accrued expenses in the accompanying condensed
consolidated balance sheet during the quarter ended April 30, 2007.6.
    
    RestructuringDuring the first quarter of fiscal 2005, the Company vacated leased office space and sublet it
for a period of 38 months, ending in February 2008. The Company accounted for the transaction in
accordance with FAS 146, Accounting for Costs Associated with Exit or Disposal Activities.
These costs of $697,000 were included in general and administrative expense in the consolidated
statement of operations during fiscal 2005, and the remaining obligation, to be paid monthly
through February 2008, is accrued in the current portion of restructuring charges on the
condensed consolidated balance sheet at July 31, 2007.The following table shows the restructuring activity and liability balances (in thousands):
 Balance at October 31, 2006
    
    $
    253Payments
    
    
    (173
    )Accretion of liability
    
    
    7Balance at July 31, 2007
    
    $
    87
 7.
    
    Other Current AssetsDuring fiscal 2006, management identified certain manufacturing equipment that the Company was
not using and did not expect to be able to use in the future, resulting in a decision by
management to pursue selling this equipment. Early in fiscal 2007 the Company determined that
the plan of sale criteria in FASB Statement No. 144 Accounting for the Impairment or Disposal
of Long-Lived Assets, had been met and the Company believes that the equipment will be sold no
later than early fiscal 2008. Accordingly, the carrying value of the manufacturing equipment of
$225,000 has been recorded separately within other current assets on the Companys condensed
consolidated balance sheets as of July 31, 2007. The carrying amount was determined based on
quoted market prices for similar assets, less continuing depreciation expense through the date
that the plan of sale criteria were met. The Company reclassified the value of this equipment,
$231,000 as of October 31, 2006, to other current assets within the Companys condensed
consolidated balance sheets for comparative purposes in accordance with FAS 144. The Company did
not recognize any gains or losses during the quarter ended July 31, 2007 related to this asset.
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8.
    
    Commitments and ContingenciesResearch Agreement(1)In 2003, the Company entered into a Cooperative Research and Development Agreement (CRADA) with
the NMRC. Under the CRADA, as amended, the NMRC has primary responsibility for designing,
seeking U.S. Food and Drug Administration (FDA) acceptance of, and conducting a planned Phase
2/3 clinical trial of Hemopure in trauma patients with severe hemorrhagic shock (acute blood
loss) in the out-of-hospital setting. The clinical development plan is being changed to provide
for a separate Phase 2 trial. The Company believes that all or most of its costs for developing
a trauma indication in the United States could be covered by government funding. To date, the
U.S. Congress has appropriated a total of $22.5 million to the Department of Defense ($16
million to the Navy, $6.5 million to the Army) for the development of Hemopure in potential
civilian and military trauma applications,(2) of which approximately $1.6 million has
been reverted due to delays in initiating the RESUS clinical trial. The funding is being used
for the Navys proposed clinical trial and has supported preclinical studies of the product in
animal models of hemorrhagic shock (acute blood loss), including those that mimic military
trauma scenarios. If there are additional delays in the start of the proposed clinical trial,
additional funds could be reverted in the future. As part of the CRADA the NMRC paid
approximately $1.2 million for future inventory purchases, recorded in the accompanying
consolidated balance sheet as deferred revenue. If the NMRC were to decide not to continue to
pursue the RESUS project described in the CRADA, the Company could be required to return the
$1.2 million.9.
    
    Recently Issued Accounting StandardsIn February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of FASB Statement No. 115 (SFAS 159). SFAS 159
permits entities to choose to measure many financial assets and financial liabilities at fair
value. Unrealized gains and losses on items for which the fair value option has been elected are
reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007,
or fiscal 2009 for the Company. The Company is currently assessing the impact of SFAS 159 on its
consolidated financial statements.10.
    
    LitigationBiopure, two former outside directors, its former chief executive officer, former chief
technology officer, former chief financial officer and former senior vice president of
regulatory affairs were named as defendants in a number of purported class action
complaints, filed between December 30, 2003 and January 28, 2004, in the United States
District Court for the District of Massachusetts (the District Court) by alleged
purchasers of the Companys common stock. Those complaints were consolidated in a single
action, in regards
 
 (1)
    
    The content of this document does not necessarily reflect the position or the policy of
the U.S. Government or the Department of Defense, and no official endorsement should be
inferred of the Navy  Biopure collaborative clinical development program for Hemopure in
trauma is contingent upon funding.(2)
    
    $5,102,306 is from Grant DAMD17-02-1-0697. The U.S. Army Medical Research Acquisition
Activity, 820 Chandler Street, Fort Detrick MD 21702-5014 is the awarding and administering
acquisition office.
 10




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to Biopure Corporation Securities Litigation. The consolidated matter has since been settled and
the District Court entered an Order of Preliminary Approval of the settlement on May 23, 2007. A
fairness hearing is scheduled for September 24, 2007 for final approval. Under the terms of the
settlement, all claims are to be dismissed with prejudice and there is no financial effect on
the Company or any of the individual defendants.The seven members of the Companys Board of Directors during the period March through December
2003 and certain officers during that period were named as defendants in two stockholder
derivative actions filed on January 26, 2004 and January 29, 2004 in the District Court. A
consolidated, amended complaint was filed in regard to Biopure Corporation Derivative
Litigation. Biopure is named as a defendant, even though in a derivative action any award is for
the benefit of the Company, not individual stockholders. The consolidated, amended complaint
alleges that the individual directors and officers breached fiduciary
duties in connection with disclosures concerning regulatory and clinical events. The complaint does not specify an amount
of alleged damages. The Company appointed two disinterested directors as a special litigation
committee to determine whether or not the Company should pursue this action. The special
litigation committee conducted its investigation and determined the Company should not pursue
the action. The special litigation committee accordingly has filed a motion to dismiss the
action. No amounts have been accrued to date with regard to this litigation and a similar claim
in the Trial Court of Middlesex County in Massachusetts. The Company believes these cases are without merit.
 11




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Cautionary Statement Regarding Forward-Looking Information
    Overview
   12




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##### Table of Contents



Ischemia
  
    
    A 60-patient Phase 2 clinical trial in patients undergoing multi-vessel coronary artery bypass
graft (CABG) surgery continues to enroll patients in South Africa, Greece and the U.K. and
has enrolled 36 patients.
    
    A 100-patient Phase 2 clinical trial to assess the safety and feasibility of Hemopure in
increasing the incidence of complete wound healing and reducing the incidence of subsequent
amputations in patients with severe peripheral vascular disease who are undergoing limb
amputation below or through the knee joint.
    
    In the Netherlands, an 8-patient Phase 2 safety and feasibility study in patients with
multi-vessel coronary artery disease who are undergoing percutaneous coronary intervention
(PCI), has enrolled 4 patients.
 Trauma
  13




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##### Table of Contents



Compassionate Use
  Surgical Anemia Marketing Application
  Significant Estimates and Assumptions
   Critical Accounting Policies
  14




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##### Table of Contents



Inventories
  Stock-Based Compensation
  Long-Lived Assets
   Revenue Recognition
  15




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##### Table of Contents



Results of Operations
  Three Months Ended
    
    
    Nine Months EndedJuly 31, 2007
    
    
    July 31, 2006
    
    
    July 31, 2007
    
    
    July 31, 2006Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    Total Costs
    
    
    Amount
    
    
    Total Costs
    
    
    Amount
    
    
    Total Costs
    
    
    Amount
    
    
    Total CostsOxyglobin Product Sales
    
    $
    470
    
    
    
    
    
    
    $
    312
    
    
    
    
    
    
    $
    1,414
    
    
    
    
    
    
    $
    980Hemopure Product Sales
    
    
    58
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    8Research and
Development Revenues
    
    
    22
    
    
    
    
    
    
    
    83
    
    
    
    
    
    
    
    269
    
    
    
    
    
    
    
    296Other Revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Revenues
    
    
    550
    
    
    
    
    
    
    
    396
    
    
    
    
    
    
    
    1,763
    
    
    
    
    
    
    
    1,284Cost of Revenues
Oxyglobin
    
    
    636
    
    
    
    9
    %
    
    
    725
    
    
    
    10
    %
    
    
    2,098
    
    
    
    9
    %
    
    
    2,140
    
    
    
    10
    %Hemopure
    
    
    2,453
    
    
    
    34
    %
    
    
    2,214
    
    
    
    31
    %
    
    
    6,928
    
    
    
    32
    %
    
    
    7,211
    
    
    
    33
    %Total Cost of Revenues
    
    
    3,089
    
    
    
    43
    %
    
    
    2,939
    
    
    
    41
    %
    
    
    9,026
    
    
    
    41
    %
    
    
    9,351
    
    
    
    43
    %Research and
Development
    
    
    1,618
    
    
    
    23
    %
    
    
    1,772
    
    
    
    25
    %
    
    
    5,397
    
    
    
    25
    %
    
    
    5,112
    
    
    
    24
    %Sales and Marketing
Oxyglobin
    
    
    20
    
    
    
    0
    %
    
    
    16
    
    
    
    0
    %
    
    
    60
    
    
    
    0
    %
    
    
    57
    
    
    
    0
    %Hemopure
    
    
    321
    
    
    
    5
    %
    
    
    181
    
    
    
    3
    %
    
    
    1,039
    
    
    
    5
    %
    
    
    467
    
    
    
    2
    %Total Sales and
Marketing
    
    
    341
    
    
    
    5
    %
    
    
    197
    
    
    
    3
    %
    
    
    1,099
    
    
    
    5
    %
    
    
    524
    
    
    
    2
    %General and
Administrative
    
    
    2,107
    
    
    
    29
    %
    
    
    2,239
    
    
    
    31
    %
    
    
    6,365
    
    
    
    29
    %
    
    
    6,826
    
    
    
    31
    %Total Costs
    
    $
    7,155
    
    
    
    100
    %
    
    $
    7,147
    
    
    
    100
    %
    
    $
    21,887
    
    
    
    100
    %
    
    $
    21,813
    
    
    
    100
    %
 Three months ended July 31, 2007 compared to three months ended July 31, 2006
   16




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##### Table of Contents



Three Months EndedJuly 31, 2007
    
    
    July 31, 2006Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    Total R&D Costs
    
    
    Amount
    
    
    Total R&D CostsIschemia Program
    
    $
    509
    
    
    
    32
    %
    
    $
    360
    
    
    
    20
    %Trauma Program
    
    
    496
    
    
    
    31
    
    
    
    351
    
    
    
    20
        Nine months ended July 31, 2007 compared to nine months ended July 31, 2006
  17




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##### Table of Contents



Nine Months EndedJuly 31, 2007
    
    
    July 31, 2006Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    Total R&D Costs
    
    
    Amount
    
    
    Total R&D CostsIschemia Program
    
    $
    1,748
    
    
    
    32
    %
    
    $
    1,272
    
    
    
    25
    %Trauma Program
    
    
    1,640
    
    
    
    30
    
    
    
    772
    
    
    
    15
    Liquidity and Capital Resources
  18




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19




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosure About Market Risk
  
 Item 4. Controls and Procedures
     20




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##### Table of Contents



Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Company Risks
 We have a history of losses and expect future losses.
  We could fail to remain a going concern.
    We could fail in financing efforts if we fail to receive stockholder approval when needed.
  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.
 21




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##### Table of Contents



If we fail to obtain FDA approval to market Hemopure, we will be highly adversely affected.
      22




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##### Table of Contents



If we fail to obtain regulatory approvals in foreign jurisdictions, we will not be able to market
Hemopure abroad.
  Clinical trials are extremely costly and subject to numerous risks and uncertainties.
   If we do not have the financial resources to fund trials required to develop Hemopure for multiple
potential indications, our success will be adversely affected.
  If the Navy were to abandon its attempt to develop Hemopure for a trauma indication, it would have
a serious adverse effect on our prospects.
 23




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##### Table of Contents



If we cannot retain the personnel we need, our costs will rise significantly. If we cannot hire or
retain highly qualified people, our operations will suffer.
  If we cannot generate adequate, profitable sales of Hemopure, we will not be successful.
  If we cannot find appropriate marketing partners, we may not be able to market and distribute
Hemopure effectively.
  
    
    might not be successful in marketing Hemopure;
    
    might, at its discretion, limit the amount and timing of
resources it devotes to marketing Hemopure; and/or
    
    might terminate its agreement with us and abandon our
products at any time whether or not permitted by the
applicable agreement.
  If we cannot obtain market acceptance of Hemopure, we will not be able to generate adequate,
profitable sales.
  
    
    whether and how quickly physicians and third party payers accept Hemopure as a cost-effective
therapeutic;
    
    whether medical care providers or the public accept the use of a bovine-derived protein as a
therapeutic in ischemia or any other indication, particularly in light of public perceptions in
the U.S., Europe and elsewhere about the risk of mad cow disease; and
 24




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##### Table of Contents




    
    product price, which we believe has been an important factor in South Africa and may be elsewhere.
 If we fail to comply with good manufacturing practices, we may not be able to sell our
products.
  The manufacturing process for Hemopure is complicated and time-consuming, and we may experience
problems that would limit our ability to manufacture and sell Hemopure.
  If we were unable to use our manufacturing facilities in Massachusetts or Pennsylvania, we would
not be able to manufacture for an extended period of time.
  If Hemopure receives regulatory approval in a major market, we will be required to expand our
manufacturing capacity to develop our business, which will require substantial third-party
financing. Failure to increase our manufacturing capacity and to lower our manufacturing cost per
unit may impair market acceptance of Hemopure and prevent us from achieving profitability.
   25




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##### Table of Contents



Our lack of operating history makes evaluating our business difficult.
  If we are not able to protect our intellectual property, competition could force us to lower our
prices, which might reduce profitability.
   Failure to avoid infringement of others intellectual property rights could impair our ability to
manufacture and market our products.
   26




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##### Table of Contents



Our operating results will be adversely affected if we incur product liability claims in excess of
our insurance coverage.
  Replacing our sole- source suppliers for key materials could result in unexpected delays and
expenses.
   Changes in the securities laws and regulations are likely to increase our costs.
   Provisions of our restated certificate of incorporation and by-laws could impair or delay
stockholders ability to replace or remove our management and could discourage takeover
transactions that a stockholder might consider to be in its best interest.
 27




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##### Table of Contents




    
    Our restated certificate of incorporation does not permit
stockholders to take action by written consent and provides
for a classified board of directors, and our by-laws
provide that stockholders who wish to bring business before
an annual meeting of stockholders or to nominate candidates
for election of directors at an annual meeting of
stockholders must deliver advance notice of their proposals
to us before the meeting. These provisions could make it
more difficult for a party to replace our board of
directors by requiring two annual stockholder meetings to
replace a majority of the directors, making it impossible
to remove or elect directors by written consent in lieu of
a meeting and making it more difficult to introduce
business at meetings.
    
    Our stockholder rights plan may have the effect of
discouraging any person or group that wishes to acquire
more than 20% of our Class A common stock from doing so
without obtaining our agreement to redeem the rights. If
our agreement to redeem the rights is not obtained, the
acquiring person or group would suffer substantial
dilution. Consequently, the possible acquiror would likely
not complete a transaction that stockholders might consider
to be in their best interest.
 Industry Risks
 Intense competition could harm our financial performance.
   
    
    are conducting clinical trials of their products;
    
    have or may be able to access substantially greater resources than
we have and be better equipped to develop, manufacture and market
their products;
    
    may have their products approved for marketing prior to Hemopure; and
    
    may develop superior technologies or products rendering our
technology and products non-competitive or obsolete.
 Stringent, ongoing government regulation and inspection of our facilities could lead to delays in
the manufacture, marketing and sale of our products.
 28




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##### Table of Contents



Health care reform and controls on health care spending may limit the price we can charge for
Hemopure and the amount we can sell.
  Uncertainty of third-party reimbursement could affect our profitability.
  Investment Risks
 The Nasdaq Capital Market may cease to list our Class A common stock which may cause the value of
an investment in our Company to substantially decrease.
  29




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As we sell additional shares, our stock price may decline as a result of the dilution which will
occur to existing stockholders.
    Shares eligible for future sale may cause the market price for our common stock to drop
significantly, even if our business is doing well.
  Our stock price has been and may continue to be highly volatile, which may adversely affect holders
of our stock and our ability to raise capital.
  
    
    failure to identify and hire key personnel or the loss of key personnel;
    
    an inability to obtain or the perception that we will be unable to obtain adequate financing
to fund our operations;
    
    FDA action or delays in FDA action on Hemopure or competitors products;
 30




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##### Table of Contents




    
    publicity regarding actual, perceived or potential medical issues relating to products under
development by us or our competitors;
    
    actual or potential preclinical or clinical trial results relating to products under
development by us or our competitors;
    
    delays in our testing and development schedules;
    
    announcements of technological innovations or new products by our competitors;
    
    developments or disputes concerning patents or proprietary rights;
    
    regulatory developments in the U.S. and foreign countries;
    
    economic and other factors, as well as period-to-period fluctuations in our financial results;
    
    market conditions for pharmaceutical and biotechnology stocks; and
    
    additional, future communications from the Nasdaq Stock Market concerning delisting or
potential delisting.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information.
  
 Item 6. Exhibits
  31




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##### Table of Contents



SIGNATURES
  BIOPURE CORPORATIONDate: September 14, 2007
    By:
    /s/ Francis H MurphyFrancis H. MurphyChief Financial Officer 32




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##### Table of Contents



EXHIBIT INDEX
 Exhibits
    
    Description
    
    Location3 (i)
    
    Restated Certificate of Incorporation of Biopure, as amended
    
    
    (1
    )3 (ii)
    
    By-laws of Biopure, as amended
    
    
    (2
    )4.1
    
    Form of Selling Agent Warrants, dated April 23, 2002
    
    
    (3
    )4.2
    
    Form of Underwriter Warrant, dated March 2003
    
    
    (4
    )4.3
    
    Form of Investor Warrant, dated April 2003
    
    
    (4
    )4.4
    
    Form of Underwriter Warrant, dated April 2003
    
    
    (4
    )4.5
    
    Underwriter Warrant dated, April 16, 2003
    
    
    (5
    )4.6
    
    Form of Investor Warrant, dated May 2, 2003
    
    
    (4
    )4.7
    
    Form of Investor Warrant, dated May 6, 2003
    
    
    (4
    )4.8
    
    Form of Investor Warrant, dated October 17, 2003
    
    
    (5
    )4.9
    
    Form of Investor Warrant, dated February 19, 2004
    
    
    (5
    )4.10
    
    Form of Investor Warrant, dated September 2004
    
    
    (6
    )4.11
    
    Form of Underwriter Warrant, dated September 2004
    
    
    (6
    )4.12
    
    Form of Investor Warrant, dated December 14, 2004
    
    
    (7
    )4.13
    
    Form of Underwriter Warrant, dated December 14, 2004
    
    
    (7
    )4.14
    
    Form of Underwriter Warrants, dated January 10, 2005
    
    
    (8
    )4.15
    
    Form of Consultant Warrant, dated July 29, 2005
    
    
    (5
    )4.16
    
    Form of Underwriter Warrant, dated December 2005
    
    
    (9
    )4.17
    
    Amended Form of Investor Warrant, dated December 27, 2005
    
    
    (10
    )4.18
    
    Amended Form of Underwriter Investor Warrant, dated December 27, 2005
    
    
    (5
    )4.19
    
    Form of Investor Warrant, dated January 2006
    
    
    (5
    )4.20
    
    Form of Underwriter Warrant, dated January 2006
    
    
    (5
    )4.21
    
    Form of Underwriter Investor Warrant, dated January 17, 2006
    
    
    (10
    )4.22
    
    Form of Investor Warrant, dated August 23, 2006
    
    
    (11
    )4.23
    
    Form of Underwriter Warrant, dated August 23, 2006
    
    
    (11
    )4.24
    
    Form of Underwriter Investor Warrant, dated August 23, 2006
    
    
    (10
    )4.25
    
    Form of Investor Warrant, dated December 2006
    
    
    (12
    )
 33




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##### Table of Contents



Exhibits
    
    Description
    
    Location4.26
    
    Form of Underwriters Investor Warrant, dated December 13, 2006
    
    
    (12
    )4.27
    
    Form of Underwriters Warrant, dated December 13, 2006
    
    
    (12
    )31.1
    
    Certification of Zafiris G. Zafirelis pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Francis H. Murphy pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of Zafiris G. Zafirelis pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2
    
    Certification of Francis H. Murphy pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
 
 (1)
    
    Previously filed as an exhibit to the Companys report on Form 10-Q for the quarter ended
April 30, 2005, filed June 9, 2005 and incorporated herein by reference thereto.(2)
    
    Previously filed as an exhibit to the Companys registration statement on Form S-1/A (File
No. 333-78829) and incorporated herein by reference thereto.(3)
    
    Previously filed as an exhibit to the Companys report on Form 8-K dated April 26, 2002 and
incorporated herein by reference thereto.(4)
    
    Previously filed as an exhibit to the Companys quarterly report on Form 10-Q for the quarter
ended April 30, 2003, filed June 16, 2003 and incorporated herein by reference thereto.(5)
    
    Previously filed as an exhibit to the Companys report on Form 10-K for the year ended
October 31, 2005, filed January 17, 2006 and incorporated herein by reference thereto.(6)
    
    Previously filed as an exhibit to the Companys report on Form 8-K dated September 10, 2004
and incorporated herein by reference thereto.(7)
    
    Previously filed as an exhibit to the Companys report on Form 8-K dated December 9, 2004 and
incorporated herein by reference thereto.(8)
    
    Previously filed as an exhibit to the Companys report on Form 8-K dated January 5, 2005 and
incorporated herein by reference thereto.(9)
    
    Previously filed as an exhibit to the Companys report on Form 8-K filed December 21, 2005
and incorporated herein by reference thereto.(10)
    
    Previously filed as an exhibit to the Companys report on Form 10-Q for the quarter ended
July 31, 2006, filed September 11, 2006 and incorporated herein by reference thereto.(11)
    
    Previously filed as an exhibit to the Companys report on Form 8-K dated August 23, 2006 and
incorporated herein by reference thereto.(12)
    
    Previously filed as an exhibit to the Companys registration statement on Form S-1/A (File
No. 333-138049) and incorporated herein by reference thereto. 34