##### Table of Contents



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
1934For the quarterly period ended July 31, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934For 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
(Registrants telephone number)
 þ o
 þ o
 o þ
  Class A Common Stock, $.01 par value
    
    
    24,359,170Class 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, 2005 and October 31, 2004
    
    
    3Condensed Consolidated Statements of Operations for the three and nine months ended July 31, 2005 and July 31, 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended July 31, 2005 and July 31, 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2
 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3
 Quantitative and Qualitative Disclosure of Market Risk
    
    
    23Item 4
 Controls and Procedures
    
    
    23Part II  Other Information:Item 1
 Legal Proceedings
    
    
    24Item 2
 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3
 Defaults Upon Senior Securities
    
    
    24Item 4  Submission of Matters to a Vote of Security Holders
    
    
    24Item 5
 Other Information
    
    
    25Item 6
 Exhibits
    
    
    36Signatures
    
    
    37Exhibit IndexEx-3.(i) Restated Certificate of IncorporationEx-3.(ii) By-laws of Biopure, as amendedEx-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, 2005
    
    
    October 31, 2004Assets:Current assets:Cash and cash equivalents
    
    $
    16,454
    
    
    $
    6,448Accounts receivable, net
    
    
    198
    
    
    
    109Inventories
    
    
    3,454
    
    
    
    4,512Other current assets
    
    
    1,848
    
    
    
    1,597Total current assets
    
    
    21,954
    
    
    
    12,666Property, plant and equipment, net
    
    
    28,404
    
    
    
    31,400Other assets
    
    
    1,032
    
    
    
    1,060Total assets
    
    $
    51,390
    
    
    $
    45,126Liabilities and stockholders equity:Current liabilities:Accounts payable
    
    $
    1,886
    
    
    $
    542Accrued expenses
    
    
    2,483
    
    
    
    3,570Current portion of deferred revenue
    
    
    386
    
    
    
    Current portion of restructuring costs
    
    
    205
    
    
    
    Total current liabilities
    
    
    4,960
    
    
    
    4,112Deferred revenue, net of current portion
    
    
    791
    
    
    
    1,177Deferred compensation
    
    
    
    
    
    
    121Restructuring costs, net of current portion
    
    
    304
    
    
    
    Other long-term liabilities
    
    
    41
    
    
    
    Total long-term liabilities
    
    
    1,136
    
    
    
    1,298Stockholders 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, 24,359,170
shares outstanding at July 31, 2005 and 11,658,664 at October 31, 2004
    
    
    244
    
    
    
    117Class B, $1.00 par value, 179 shares authorized, 117.7 shares outstanding
    
    
    
    
    
    
    Capital in excess of par value
    
    
    511,541
    
    
    
    485,621Contributed capital
    
    
    24,574
    
    
    
    24,574Notes receivable
    
    
    (235
    )
    
    
    (258
    )Accumulated deficit
    
    
    (490,830
    )
    
    
    (470,338
    )Total stockholders equity
    
    
    45,294
    
    
    
    39,716Total liabilities and stockholders equity
    
    $
    51,390
    
    
    $
    45,126
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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedJuly 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004Revenues:Oxyglobin product sales
    
    $
    358
    
    
    $
    331
    
    
    $
    955
    
    
    $
    1,964Research and development revenues
    
    
    125
    
    
    
    2
    
    
    
    827
    
    
    
    12Total revenues
    
    
    483
    
    
    
    333
    
    
    
    1,782
    
    
    
    1,976Cost of product revenues
    
    
    3,166
    
    
    
    3,726
    
    
    
    9,139
    
    
    
    12,978Gross loss
    
    
    (2,683
    )
    
    
    (3,393
    )
    
    
    (7,357
    )
    
    
    (11,002
    )Operating expenses:Research and development
    
    
    1,268
    
    
    
    2,505
    
    
    
    4,178
    
    
    
    7,901Sales and marketing
    
    
    143
    
    
    
    321
    
    
    
    373
    
    
    
    2,113General and administrative
    
    
    2,412
    
    
    
    3,207
    
    
    
    8,896
    
    
    
    11,489Total operating expenses
    
    
    3,823
    
    
    
    6,033
    
    
    
    13,447
    
    
    
    21,503Loss from operations
    
    
    (6,506
    )
    
    
    (9,426
    )
    
    
    (20,804
    )
    
    
    (32,505
    )Other income, net
    
    
    128
    
    
    
    32
    
    
    
    312
    
    
    
    129Net loss
    
    $
    (6,378
    )
    
    $
    (9,394
    )
    
    $
    (20,492
    )
    
    $
    (32,376
    )Per share
data:Basic and diluted net loss per common share
    
    $
    (0.26
    )
    
    $
    (1.16
    )
    
    $
    (0.94
    )
    
    $
    (4.15
    )Weighted-average shares used in computing
basic and diluted net loss per common
share
    
    
    24,359
    
    
    
    8,090
    
    
    
    21,716
    
    
    
    7,798
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Nine Months EndedJuly 31, 2005
    
    
    July 31, 2004Operating activities:Net loss
    
    $
    (20,492
    )
    
    $
    (32,376
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    3,096
    
    
    
    4,191Deferred compensation
    
    
    (121
    )
    
    
    (21
    )Cancellation of note receivable and accrued interest
    
    
    23
    
    
    
    (1
    )Non-cash charge related to issuance of stock
    
    
    808
    
    
    
    967Equity compensation
    
    
    
    
    
    
    37Changes in assets and liabilities:Accounts receivable
    
    
    (89
    )
    
    
    558Inventories
    
    
    1,058
    
    
    
    1,721Other current assets
    
    
    (251
    )
    
    
    679Restructuring costs for vacated facility
    
    
    509
    
    
    
    Accounts payable
    
    
    1,344
    
    
    
    (900
    )Accrued expenses
    
    
    (1,087
    )
    
    
    (2,579
    )Net cash used in operating activities
    
    
    (15,202
    )
    
    
    (27,724
    )Investing activities:Purchases of property, plant and equipment
    
    
    (57
    )
    
    
    (204
    )Other assets
    
    
    26
    
    
    
    (22
    )Escrow on South Carolina facility
    
    
    
    
    
    
    153Net cash used in investing activities
    
    
    (31
    )
    
    
    (73
    )Financing activities:Net proceeds from sales of common stock
    
    
    21,042
    
    
    
    4,960Proceeds from the exercise of warrants
    
    
    4,197
    
    
    
    Net cash provided by financing activities
    
    
    25,239
    
    
    
    4,960Net increase (decrease) in cash and cash equivalents
    
    
    10,006
    
    
    
    (22,837
    )Cash and cash equivalents at beginning of period
    
    
    6,448
    
    
    
    26,862Cash and cash equivalents at end of period
    
    $
    16,454
    
    
    $
    4,025
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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, 2005 are not necessarily indicative of the
results that may be expected for the year ending October 31, 2005; however, the Company expects
to incur a substantial loss for the year ending October 31, 2005.Effective May 27, 2005, the Companys outstanding class A common shares, stock options and
warrants reverse split at a six to one ratio, with post split shares retaining a par value of
$.01 per share. The Company had 146,157,346 shares of class A common stock outstanding at the
end of trading on May 26, 2005, which converted into 24,359,558 shares. Biopure did not issue
fractional shares of common stock following the reverse split. Stockholders otherwise entitled
to fractional shares received a cash payment. All references to shares and options, in this
period and in prior periods, have been adjusted to reflect the post reverse split amounts.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, 2004, filed with the SEC on January 14, 2005.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 $490,830,000 at July 31, 2005. As of July 31, 2005,
the Company had $16,454,000 in cash and cash equivalents. The Company expects this funding to be
sufficient to fund operations into March 2006 under the Companys current operating plan.
Additional capital will be required to fund the Companys operations until the Company becomes
profitable. The Company does not expect to be profitable for at least the next several years
and may never become 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.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 number of common shares outstanding during the period, adjusted for the
dilutive effect of the Companys common stock equivalents, including the 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 common stock for
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the period. However, basic and diluted net loss per common share is computed the same for all
periods presented, as the Company had losses for all periods presented and, consequently, the
effect of Class B Common Stock, options and warrants is anti-dilutive. Dilutive weighted average
shares outstanding do not include 6,348,791 potential common-equivalent shares for the three and
nine months ended July 31, 2005 and 3,052,718 common-equivalent shares for the three and nine
months ended July 31, 2004, as their effect would have been anti-dilutive.3.
    
    Stock Based CompensationThe Company applies the intrinsic value method pursuant to Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees,and related interpretations, in accounting
for its stock-based compensation plans. Accordingly, no compensation expense has been recognized
for stock-based awards to employees. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure,an amendment of FASB Statement No. 123 (SFAS No. 148).
Had compensation expense for the Companys stock option plans been determined based on the fair
value at the grant date for awards under these plans, consistent with the methodology prescribed
under SFAS No. 148, the Companys net loss and net loss per share would have approximated the
pro forma amounts indicated below:
 Three Months Ended
    
    
    Nine Months EndedJuly 31,
    
    
    July 31,
    
    
    July 31,
    
    
    July 31,In thousands (except per share data)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss, as reported
    
    $
    (6,378
    )
    
    $
    (9,394
    )
    
    $
    (20,492
    )
    
    $
    (32,376
    )Deduct: Total stock-based
compensation expense determined
under fair value based method for
all employee awards
    
    
    (171
    )
    
    
    (308
    )
    
    
    (1,740
    )
    
    
    (899
    )Pro forma net loss
    
    $
    (6,549
    )
    
    $
    (9,702
    )
    
    $
    (22,232
    )
    
    $
    (33,275
    )Net loss per share:Basic and diluted  as reported
    
    $
    (0.26
    )
    
    $
    (1.16
    )
    
    $
    (0.94
    )
    
    $
    (4.15
    )Basic and diluted  pro forma
    
    $
    (0.27
    )
    
    $
    (1.20
    )
    
    $
    (1.02
    )
    
    $
    (4.27
    )
 The weighted average fair value of each stock option included in the preceding pro forma amounts
was estimated using the Black-Scholes option-pricing model and amortized over the vesting period
of the underlying options. The assumptions used to calculate the SFAS No. 148 pro forma
disclosure and the weighted average information are as follows:
 Three Months Ended
    
    
    Nine Months EndedJuly 31,
    
    
    July 31,
    
    
    July 31,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Risk-free interest rate
    
    
    4.03
    %
    
    
    3.12
    %
    
    
    3.81
    %
    
    
    3.18
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected lives
    
    7 years
    
    5 years
    
    5 years
    
    5 yearsExpected volatility
    
    
    83
    %
    
    
    82
    %
    
    
    82
    %
    
    
    82
    %
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4.
    
    InventoriesInventories are valued at the lower of cost (determined using the first-in, first-out method) or
market. Inventories were as follows:
 In thousands
    
    July 31, 2005
    
    
    October 31, 2004Raw materials
    
    $
    146
    
    
    $
    581Work-in-process
    
    
    511
    
    
    
    382Finished goods-Oxyglobin
    
    
    742
    
    
    
    1,223Finished goods-Hemopure
    
    
    2,055
    
    
    
    2,326$
    3,454
    
    
    $
    4,512
 5.
    
    Accrued ExpensesAccrued expenses consisted of the following:
 In thousands
    
    July 31, 2005
    
    
    October 31, 2004Accrued payroll and related employee expenses
    
    $
    405
    
    
    $
    452Accrued vacation
    
    
    456
    
    
    
    420Accrued legal and audit fees
    
    
    314
    
    
    
    641Accrued health and dental premiums
    
    
    
    
    
    
    154Financing fees
    
    
    537
    
    
    
    537Preclinical animal studies
    
    
    
    
    
    
    335Accrued severance
    
    
    79
    
    
    
    60Other
    
    
    692
    
    
    
    971$
    2,483
    
    
    $
    3,570
 6.
    
    RestructuringDuring the first fiscal quarter of 2005, the Company vacated leased
office space and sublet it. The Company accounted for the transaction
in accordance with FAS 146, Accounting for Costs Associated
with Exit or Disposal Activities. These costs were included
in general and administrative expense in the consolidated statement
of operations and current portion of restructuring costs and
restructuring costs, net of current portion on the balance sheet at
July 31, 2005.The following table displays the restructuring activity and
liability balances (in thousands):
 Balance at
October 31, 2004
    
    
    
    
    
    $
    Charges
    
    
    
    
    
    
    724Payments
    
    
    
    
    
    
    (215
    )Balance at
July 31, 2005
    
    
    
    
    
    $
    509
 7.
    
    CommitmentsResearch Agreement(1)In 2003, the Company entered into a Cooperative Research and Development Agreement (CRADA) with
the U. S. Naval Medical Research Center (NMRC). Under the CRADA, as amended, the NMRC has
primary
responsibility for designing, seeking FDA acceptance of and conducting a planned two-stage Phase
2/3 clinical trial of Hemopure® [hemoglobin glutamer  250 (bovine)] in trauma
patients with severe hemorrhagic shock (acute blood loss) in the out-of-hospital setting. Each of
Biopure and the NMRC is expected to fund the activities
for which it is responsible. The Company believes that all or most of its costs could be covered
by government funding. To date, Congress has appropriated a total of $18.5 million to the U.S.
Army and Navy for the development of Hemopure for potential use in military and civilian trauma
indications and to cover military administrative costs. Of this amount, approximately $5 million
is being administered by the Army to help fund the Companys obligations under the
CRADA.(2)
 
 (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.
Completion of the proposed RESUS clinical trial of Hemopure in trauma is contingent upon further
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. 8




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8.
    
    Recently Issued Accounting StandardsIn May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections, which replaces
APB Opinion No. 20, Accounting Changes, and supersedes FASB Statement No. 3, Reporting
Accounting Changes in Interim Financial Statementsan amendment of APB Opinion No. 28. SFAS 154
requires retrospective application to prior periods financial statements of changes in
accounting principle, unless it is impracticable to determine either the period-specific effects
or the cumulative effect of the change. When it is impracticable to determine the period-specific
effects of an accounting change on one or more individual prior periods presented, SFAS 154
requires that the new accounting principle be applied to the balances of assets and liabilities
as of the beginning of the earliest period for which retrospective application is practicable and
that a corresponding adjustment be made to the opening balance of retained earnings for that
period rather than being reported in an income statement.When it is impracticable to determine the cumulative effect of applying a change in accounting
principle to all prior periods, SFAS 154 requires that the new accounting principle be applied as
if it were adopted prospectively from the earliest date practicable. SFAS 154 will be effective
for accounting changes and corrections of errors made in fiscal years beginning after December
15, 2005. The Company does not expect the provisions of the SFAS 154 to have a significant impact
on its results of operations.The FASB has proposed amending SFAS 128, Earnings per Share, to make it consistent with
International Accounting Standard 33, Earnings per Share, and make earnings per share, or EPS,
computations comparable on a global basis. Under the proposed amendment, the year-to-date EPS
computation would be performed independently from the quarterly computations. Additionally, for
all contracts that may be settled in either cash or shares of stock, companies must assume that
settlement will occur by the issuance of shares for purposes of computing diluted EPS, even if
they intend to settle by paying cash or have a history of cash-only settlements, regardless of
who controls the means of settlement. Lastly, under the proposed amendment, shares that will be
issued upon conversion of a mandatorily convertible security must be included in the
weighted-average number of shares outstanding used in computing basic EPS from the date that
conversion becomes mandatory, using the if-converted method, regardless of whether the result is
anti-dilutive. The proposed amended standard was expected to be issued during the first quarter
of 2005. However, the FASB has not yet finalized the revised effective date of the proposed
amendment or its transition provisions. Retrospective application in all periods presented would
be required, and could require the restatement of previously reported EPS. The Company does not
expect the provisions of the amended SFAS 128 to have a significant impact on its earnings per
share.In July 2005, the FASB published an Exposure Draft of a proposed Interpretation, Accounting for
Uncertain Tax Positions. The Exposure Draft seeks to reduce the significant diversity in
practice associated with recognition and measurement in the accounting for income taxes. It would
apply to all tax positions accounted for in accordance with SFAS 109, Accounting for Income
Taxes. The Exposure Draft requires that a tax position meet a probable recognition threshold
for the benefit of the uncertain tax position to be recognized in the financial statements. This
threshold is to be met assuming that the tax authorities will examine the uncertain tax position.
The Exposure Draft contains guidance with respect to the measurement of the benefit that is
recognized for an uncertain tax position, when that benefit should be de-recognized and other
matters. This proposed Interpretation would clarify the accounting for uncertain tax positions in
accordance with SFAS 109. This Interpretation, once approved, is expected to be effective as of
the end of the first fiscal year ending after December 15, 2005. The Company does not expect the
provisions of the amended SFAS 109 to have a significant impact on its results of operations.
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9.
    
    LitigationSEC Investigation.During the fourth quarter of fiscal 2003, the Company was notified of a
confidential investigation by the Securities and Exchange Commission (SEC). On December 22, 2003,
the Company, its former Chief Executive Officer and its former Senior Vice President, Regulatory
and Operations, and on April 29, 2004 the Companys Chairman, a former director, its Chief
Technology Officer and its General Counsel each
received Wells Notices from the staff of the SEC stating the Staffs preliminary determination
to recommend that the SEC bring a civil injunctive proceeding against the Company and the
individuals. Biopure and the
individuals have each responded in writing to the notices and explained why the SEC ought not to
initiate a proceeding. To the Companys knowledge, no formal recommendation has been made to
date, but the Staff has indicated that it intends to make such a recommendation.Biopure believes the notices relate to Company disclosures concerning communications with the FDA
about a clinical hold imposed on a proposed clinical trial protocol the Company submitted to the
FDA in March 2003 and about the status of the Companys BLA to market Hemopure in the United
States for the treatment of acutely anemic patients undergoing orthopedic surgery. In March 2003,
the Company filed a proposed protocol for a Phase 2 clinical trial in trauma patients in a
hospital setting. The FDA put the protocol and its related investigational new drug (IND)
application on clinical hold, meaning the trial could not begin as proposed. The FDA cited
safety concerns based on, among other things, a preliminary review of data from the Companys
Phase 3 clinical trial in patients undergoing orthopedic surgery. After the Company responded in
two written submissions, the clinical hold was reasserted twice in writing. The Company did not
disclose the clinical hold because it did not consider, and does not consider, correspondence
with the FDA about data interpretation in the development of a proposed protocol to be material,
notwithstanding the references to data in the BLA. The Staffs investigation also concerns the
Companys disclosures concerning the FDAs review of the BLA, after the Companys receipt of the
FDAs letter regarding the BLA dated July 30, 2003. The Company has been cooperating throughout
the investigation with the SEC Staff. At this time, the Company cannot estimate the extent of the
impact this inquiry may have on its financial position or results of operations.Litigation.Biopure, its former Chief Executive Officer, its Chief Technology Officer and its
former Chief Financial Officer were named as defendants in a number of similar, purported class
action complaints, filed between December 30, 2003 and January 28, 2004 (the complaints), in
the U.S. District Court for the District of Massachusetts (the Court) by alleged purchasers of
Biopures common stock. Those complaints have since been consolidated in a single action and an
amended complaint has been filed against the Company, the
previously named individuals and several of the Companys current and former directors and
officers. The complaint claims that Biopure violated the federal securities laws by publicly
disseminating materially false and misleading statements regarding the status of its Hemopure BLA
with the FDA and of its trauma development program, resulting in the artificial inflation of
Biopures common stock price during the purported class period. The complaint does not specify
the amount of alleged damages plaintiffs seek to recover. The complaint sets forth a class period
of March 2003 through December 24, 2003. The defendants believe that the complaint is without
merit and intend to defend the actions vigorously. A motion to dismiss the amended complaint is
pending with oral argument expected to be scheduled. At this time, the Company cannot estimate
what impact these cases may have on its financial position or results of operations.The seven members of Biopures Board of Directors during the period March through December 2003,
were named as defendants in two shareholder derivative actions filed on January 26, 2004 and
January 29, 2004 in the same Court. A consolidated, amended complaint has now been filed. The
Company 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 an officer breached fiduciary duties in
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connection with the same
disclosures referenced in the purported securities class action. The complaint does not specify
the amount of the alleged damages plaintiffs seek to recover. A motion to dismiss the amended
complaint is pending. At this time, the Company cannot estimate what impact, if any, these cases
may have on its financial position or results of operations. A different shareholder also made
demand on the Companys directors on June 30, 2004 that they pursue similar claims on behalf of
the Company, which the Board is addressing.10.
    
    Subsequent EventsOn August 29, 2005, the Company announced the appointment of Guido J. Neels to the Companys
Board of Directors.On September 6, 2005, the Company announced that Carl W. Rausch resigned from its board of
directors and as chief technology officer, effective immediately.
The Company will recognize a one-time charge of approximately
$973,000 in its fourth quarter consolidated statement of operations
relating to this event. Amounts owed to Mr. Rausch will be paid over
the next 32 months in accordance with his employment agreement.
 11




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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




    
    The process of obtaining regulatory approval to market Hemopure in the U.S. or other
major markets has risks of delays that make the ultimate development cost unpredictable.
    
    As described in Note 9 to the financial statements, Biopure is a defendant in
litigation. It is also the subject of an investigation by the Securities and Exchange
Commission and has received a Wells Notice from the Commission staff. The outcomes and
financial effects of these matters cannot be determined at this time, nor can any adverse
effect they may have on the price of our common stock and our ability to raise capital from
sales of equity or otherwise.
 13




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Critical Accounting Policies
          14




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Results of Operations
  15




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Three Months Ended
    
    
    Nine Months EndedJuly 31, 2005
    
    
    July 31, 2004
    
    
    July 31, 2005
    
    
    July 31, 2004Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percentof
    
    
    
    
    
    
    of
    
    
    
    
    
    
    of
    
    
    
    
    
    
    ofTotal
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    TotalAmount
    
    
    Costs
    
    
    Amount
    
    
    Costs
    
    
    Amount
    
    
    Costs
    
    
    Amount
    
    
    CostsOxyglobin Product Sales
    
    $
    358
    
    
    
    
    
    
    $
    331
    
    
    
    
    
    
    $
    955
    
    
    
    
    
    
    $
    1,964Research and Development
Revenues
    
    
    125
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    827
    
    
    
    
    
    
    
    12Total Revenues
    
    
    483
    
    
    
    
    
    
    
    333
    
    
    
    
    
    
    
    1,782
    
    
    
    
    
    
    
    1,976Cost of RevenuesOxyglobin
    
    
    641
    
    
    
    9
    %
    
    
    710
    
    
    
    7
    %
    
    
    1,948
    
    
    
    9
    %
    
    
    3,455
    
    
    
    10
    %Hemopure
    
    
    2,525
    
    
    
    36
    %
    
    
    3,016
    
    
    
    31
    %
    
    
    7,191
    
    
    
    32
    %
    
    
    9,523
    
    
    
    28
    %Total Cost of Revenues
    
    
    3,166
    
    
    
    45
    %
    
    
    3,726
    
    
    
    38
    %
    
    
    9,139
    
    
    
    41
    %
    
    
    12,978
    
    
    
    38
    %Research and Development
    
    
    1,268
    
    
    
    18
    %
    
    
    2,505
    
    
    
    26
    %
    
    
    4,178
    
    
    
    18
    %
    
    
    7,901
    
    
    
    23
    %Sales and MarketingOxyglobin
    
    
    7
    
    
    
    0
    %
    
    
    53
    
    
    
    0
    %
    
    
    17
    
    
    
    0
    %
    
    
    777
    
    
    
    2
    %Hemopure
    
    
    136
    
    
    
    2
    %
    
    
    268
    
    
    
    3
    %
    
    
    356
    
    
    
    2
    %
    
    
    1,336
    
    
    
    4
    %Total Sales and Marketing
    
    
    143
    
    
    
    2
    %
    
    
    321
    
    
    
    3
    %
    
    
    373
    
    
    
    2
    %
    
    
    2,113
    
    
    
    6
    %General and Administrative
    
    
    2,412
    
    
    
    35
    %
    
    
    3,207
    
    
    
    33
    %
    
    
    8,896
    
    
    
    39
    %
    
    
    11,489
    
    
    
    33
    %Total Costs
    
    $
    6,989
    
    
    
    100
    %
    
    $
    9,759
    
    
    
    100
    %
    
    $
    22,586
    
    
    
    100
    %
    
    $
    34,481
    
    
    
    100
    %
 Three months ended July 31, 2005 compared to three months ended July 31, 2004
     16




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Three Months EndedJuly 31, 2005
    
    
    July 31, 2004Percent of
    
    
    
    
    
    
    Percent ofIn thousands
    
    Amount
    
    
    Total R&D Costs
    
    
    Amount
    
    
    Total R&D CostsBLA Preparation and Support of Review Process
    
    $
    682
    
    
    
    54
    %
    
    $
    1,775
    
    
    
    71
    %Cardiac Ischemia
    
    
    419
    
    
    
    33
    %
    
    
    341
    
    
    
    14
    %Trauma Program
    
    
    50
    
    
    
    4
    %
    
    
    250
    
    
    
    10
    %Other Projects
    
    
    117
    
    
    
    9
    %
    
    
    139
    
    
    
    5
    %Total
    
    $
    1,268
    
    
    
    100
    %
    
    $
    2,505
    
    
    
    100
    %
 Surgery/BLA Project
  Ischemia and Trauma Projects
      17




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Nine months ended July 31, 2005 compared to nine months ended July 31, 2004
      Nine Months EndedJuly 31, 2005
    
    
    July 31, 2004Percent of
    
    
    
    
    
    
    Percent ofIn thousands
    
    Amount
    
    
    Total R&D Costs
    
    
    Amount
    
    
    Total R&D CostsBLA Preparation and Support of Review Process
    
    $
    2,092
    
    
    
    50
    %
    
    $
    6,301
    
    
    
    80
    %Cardiac Ischemia
    
    
    1,313
    
    
    
    31
    %
    
    
    942
    
    
    
    12
    %Trauma Program
    
    
    526
    
    
    
    13
    %
    
    
    417
    
    
    
    5
    %Other Projects
    
    
    247
    
    
    
    6
    %
    
    
    241
    
    
    
    3
    %Total
    
    $
    4,178
    
    
    
    100
    %
    
    $
    7,901
    
    
    
    100
    %
 18




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Liquidity and Capital Resources
   19




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Recently Issued Accounting Standards
     20




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosure About Market Risk
  
 Item 4. Controls and Procedures
   21




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##### Table of Contents



Item 1. Legal Proceedings
  
 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
  22




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Item 5. Other Information
 RISK FACTORS
  Company Risks
 We have a history of losses and expect future losses.
  We require significant funding in order to continue to operate.
   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.
  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.
 23




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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.
     If we fail to obtain regulatory approvals in foreign jurisdictions, we will not be able to market
Hemopure abroad.
  24




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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 as a company will be adversely affected.
  The Securities and Exchange Commission staff has preliminarily determined to recommend a civil
injunctive proceeding against us and several of our former and current officers and directors. We
and several of our former and current directors and officers are subject to consolidated class
action lawsuits and we and seven of our former and current directors and officers are subject to
consolidated derivative actions.
 25




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##### Table of Contents



The SEC and litigation matters described above may harm our business and financial condition if
they result in substantial fines, judgments or settlements that exceed the amount of coverage
under our insurance policies, or if such fines, judgments or settlements are not covered by our
insurance policies.
  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
    
    might terminate its agreement with us and abandon our products at any time whether or
not permitted by the applicable agreement.
 26




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##### Table of Contents



If we cannot generate adequate, profitable sales of Hemopure, we will not be successful.
  If we cannot obtain market acceptance of Hemopure, we will not be able to generate adequate,
profitable sales.
  
    
    whether and how quickly physicians accept Hemopure as a cost-effective and therapeutic
alternative to other products; and
    
    whether medical care providers or the public accept the use of a bovine-derived protein
in transfusions or as a therapeutic in cardiovascular disease, particularly in light of
public perceptions in the United States, Europe and elsewhere about the risk of mad cow
disease.
 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.
   27




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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, we must expand our manufacturing capacity to develop our
business, which will require substantial third party financing. Failure to increase our
manufacturing capacity may impair Hemopures market acceptance and prevent us from achieving
profitability.
   If we are not able to finance additional manufacturing capacity, we will incur a substantial
write-off of assets.
  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.
  28




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Failure to avoid infringement of others intellectual property rights could impair our ability to
manufacture and market our products.
   Our profitability 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.
   29




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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.
  
    
    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 percent 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.
 30




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##### Table of Contents



Industry Risks
 Intense competition could harm our financial performance.
   
    
    are conducting clinical trials of their products;
    
    might have or 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 products could lead to delays in
the manufacture, marketing and sale of our products.
  Health care reform and controls on health care spending may limit the price we can charge for
Hemopure and the amount we can sell.
 31




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Uncertainty of third-party reimbursement could affect our profitability.
  Investment Risks
 We may not continue to qualify for listing on the Nasdaq National Market, which may cause the
value of your investment in our company to substantially decrease.
  As we sell additional shares, our stock price may decline as a result of the dilution which will
occur to existing stockholders.
    32




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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; 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;
    
    the outcome of SEC investigations, or any litigation or threatened litigation;
    
    publicity regarding actual or potential medical results 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;
    
    events or announcements relating to our relationships with others, including the status
of potential transactions with investors, licensees and other parties;
    
    announcements of technological innovations or new products by our competitors;
    
    developments or disputes concerning patents or proprietary rights;
    
    regulatory developments in the United States and foreign countries;
    
    economic and other factors, as well as period-to-period fluctuations in our financial results;
 33




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
    
    market conditions for pharmaceutical and biotechnology stocks; and
    
    additional, future communications from the Nasdaq Stock Market concerning delisting or
potential delisting.
  
 Item 6. Exhibits
  34




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SIGNATURES
  BIOPURE CORPORATIONDate: September 9, 2005
    
    By:
    
    /s/ Francis H MurphyFrancis H. MurphyChief Financial Officer
 35




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EXHIBIT INDEX
 Number
    
    Description3 (i)
    
    Restated Certificate of Incorporation and amendments through May 27, 2005*3 (ii)
    
    By-laws of Biopure, as amended**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
 
 *
    
    Previously filed as an exhibit to the Companys Quarterly Report on Form 10-Q for
the quarter ended April 30, 2005, and incorporated herein by reference thereto.**
    
    Previously filed as an exhibit to the Companys Registration Statement on Form
S-1 (File No. 333-78829) and incorporated herein by reference thereto. 36