##### Table of Contents



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 April 30, 2006
 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
(State of Incorporation)
    
    04-2836871
(IRS Employer Identification Number)
 11 Hurley Street, Cambridge, Massachusetts
(Address of principal executive offices)
    
    02141
(Zip Code)
 (617) 234-6500
 þ o
  o o þ
 o þ
  Class A Common Stock, $.01 par value
    
    
    41,507,670Class 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 April 30, 2006 and October 31, 2005
    
    
    3Condensed Consolidated Statements of Operations for the three and six months ended April 30, 2006 and April 30, 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended April 30, 2006 and April 30, 2005
    
    
    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
    
    
    19Item 4 - Controls and Procedures
    
    
    19Part II  Other Information:Item 1 - Legal Proceedings
    
    
    20Item 1A  Risk Factors
    
    
    20Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3 - Defaults Upon Senior Securities
    
    
    30Item 4  Submission of Matters to a Vote of Security Holders
    
    
    30Item 5 - Other Information
    
    
    30Item 6  Exhibits
    
    
    30Signatures
    
    
    31Exhibit Index
    
    
    32EX-31.1 Section 302 Certification of CEOEX-32.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO
   2




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##### Table of Contents



April 30, 2006
    
    
    October 31, 2005Assets:Current assets:Cash and cash equivalents
    
    $
    11,441
    
    
    $
    10,542Accounts receivable, net
    
    
    146
    
    
    
    144Inventories
    
    
    2,970
    
    
    
    3,449Other current assets
    
    
    1,069
    
    
    
    1,440Total current assets
    
    
    15,626
    
    
    
    15,575Property, plant and equipment, net
    
    
    24,189
    
    
    
    26,000Other assets
    
    
    833
    
    
    
    860Total assets
    
    $
    40,648
    
    
    $
    42,435Liabilities and stockholders equity:Current liabilities:Accounts payable
    
    $
    416
    
    
    $
    547Accrued expenses
    
    
    3,328
    
    
    
    3,096Current portion of deferred revenue
    
    
    98
    
    
    
    190Current portion of restructuring charges
    
    
    218
    
    
    
    219Total current liabilities
    
    
    4,060
    
    
    
    4,052Deferred revenue, net of current portion
    
    
    1,079
    
    
    
    987Restructuring charges, net of current portion
    
    
    133
    
    
    
    221Other long-term liabilities
    
    
    41
    
    
    
    41Total long-term liabilities
    
    
    1,253
    
    
    
    1,249Stockholders 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, 41,048,770 shares
outstanding at April 30, 2006 and 24,359,170 at October 31, 2005
    
    
    410
    
    
    
    244Class B, $1.00 par value, 179 shares authorized, 117.7 shares outstanding
    
    
    
    
    
    
    Capital in excess of par value
    
    
    523,144
    
    
    
    511,560Contributed capital
    
    
    24,574
    
    
    
    24,574Notes receivable
    
    
    (235
    )
    
    
    (235
    )Accumulated deficit
    
    
    (512,558
    )
    
    
    (499,009
    )Total stockholders equity
    
    
    35,335
    
    
    
    37,134Total liabilities and stockholders equity
    
    $
    40,648
    
    
    $
    42,435
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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedApril 30, 2006
    
    
    April 30, 2005
    
    
    April 30, 2006
    
    
    April 30, 2005Revenues:Product revenue
    
    $
    330
    
    
    $
    305
    
    
    $
    675
    
    
    $
    597Research and development revenues
    
    
    81
    
    
    
    315
    
    
    
    213
    
    
    
    702Total revenues
    
    
    411
    
    
    
    620
    
    
    
    888
    
    
    
    1,299Cost of product revenues
    
    
    3,338
    
    
    
    2,891
    
    
    
    6,412
    
    
    
    5,973Gross loss
    
    
    (2,927
    )
    
    
    (2,271
    )
    
    
    (5,524
    )
    
    
    (4,674
    )Operating expenses:Research and development
    
    
    1,866
    
    
    
    1,391
    
    
    
    3,340
    
    
    
    2,910Sales and marketing
    
    
    155
    
    
    
    114
    
    
    
    327
    
    
    
    230General and administrative
    
    
    2,287
    
    
    
    2,867
    
    
    
    4,587
    
    
    
    6,481Total operating expenses
    
    
    4,308
    
    
    
    4,372
    
    
    
    8,254
    
    
    
    9,621Loss from operations
    
    
    (7,235
    )
    
    
    (6,643
    )
    
    
    (13,778
    )
    
    
    (14,295
    )Other income, net
    
    
    126
    
    
    
    79
    
    
    
    229
    
    
    
    184Net loss
    
    $
    (7,109
    )
    
    $
    (6,564
    )
    
    $
    (13,549
    )
    
    $
    (14,111
    )Per share dataBasic and diluted net loss per common share
    
    $
    (0.18
    )
    
    $
    (0.27
    )
    
    $
    (0.40
    )
    
    $
    (0.69
    )Weighted-average shares used in computing
basic and diluted net loss per common
share
    
    
    39,574
    
    
    
    24,293
    
    
    
    34,194
    
    
    
    20,372
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Six Months EndedApril 30, 2006
    
    
    April 30, 2005Operating activities:Net loss
    
    $
    (13,549
    )
    
    $
    (14,111
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    1,901
    
    
    
    2,079Stock compensation expense
    
    
    514
    
    
    
    Deferred compensation
    
    
    
    
    
    
    (121
    )Cancellation of note receivable and accrued interest
    
    
    
    
    
    
    24Non-cash charge related to issuance of stock
    
    
    
    
    
    
    808Accretion of restructuring charge
    
    
    18
    
    
    
    25Loss on disposal of fixed asset
    
    
    43
    
    
    
    Inventory writedowns
    
    
    721
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (2
    )
    
    
    (253
    )Inventories
    
    
    (242
    )
    
    
    688Other current assets
    
    
    371
    
    
    
    653Accounts payable
    
    
    (131
    )
    
    
    (157
    )Accrued expenses
    
    
    232
    
    
    
    (1,167
    )Restructuring charges
    
    
    (107
    )
    
    
    534Other liabilities
    
    
    
    
    
    
    41Net cash used in operating activities
    
    
    (10,231
    )
    
    
    (10,957
    )Investing activities:Purchases of property, plant and equipment
    
    
    (106
    )
    
    
    (27
    )Other assets
    
    
    
    
    
    
    4Net cash used in investing activities
    
    
    (106
    )
    
    
    (23
    )Financing activities:Net proceeds from sales of common stock
    
    
    9,116
    
    
    
    21,026Proceeds from the exercise of warrants
    
    
    2,120
    
    
    
    4,213Net cash provided by financing activities
    
    
    11,236
    
    
    
    25,239Net increase in cash and cash equivalents
    
    
    899
    
    
    
    14,259Cash and cash equivalents at beginning of period
    
    
    10,542
    
    
    
    6,448Cash and cash equivalents at end of period
    
    $
    11,441
    
    
    $
    20,707Supplemental disclosure of cash flow information:Fair value of warrants issued related to sales of common stock
    
    $
    8,263
    
    
    $
    4,857
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##### Table of Contents



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 six month periods ended April 30, 2006, are not necessarily indicative of the
results that may be expected for the year ending October 31, 2006; however, the Company expects
to incur a substantial loss for the year ending October 31, 2006.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. Comprehensive loss approximated net loss for all periods
presented.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, 2005, filed with the SEC on January 17, 2006.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 $512,558,000 at April 30, 2006. As of April 30, 2006,
the Company had $11,441,000 in cash and cash equivalents. The Company expects this funding to be
sufficient to fund operations through mid-October 2006 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.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 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 20,125,594 potential common-equivalent shares for the three and six months ended April
30, 2006 and 6,431,191 common-equivalent shares for the three and six months ended April 30,
2005, as their effect would have been anti-dilutive.3.
    
    Capital StockDuring the three months ended April 30, 2006, warrants were exercised to acquire an aggregate of
2,459,600 shares of the Companys class A common stock at a weighted average exercise price of
$0.862 per share. Total proceeds from these warrant exercises were approximately $2.1 million.
 6




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##### Table of Contents



4.
    
    Stock Based CompensationAs of April 30, 2006, the Company had one share-based compensation plan, the Biopure Corporation
Omnibus Securities and Incentive Plan (the Plan). The Plan as amended, which is
shareholder-approved, permits the grant of share options to the Companys employees, consultants
and directors for up to 4.37 million shares of common stock. 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 various periods of up to four years and may be exercised within ten years of the
date of grant.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 on 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. As a result of the adoption of SFAS 123(R), the Company is amortizing the
unamortized stock-based compensation expense related to unvested option grants issued prior to
the adoption of SFAS 123(R). Historically the fair value of options granted was calculated using
the Black-Scholes Option pricing model. 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 permitted companies to record forfeitures based on actual
forfeitures, which was the Companys historical policy. The Company has applied an estimated
forfeiture rate to remaining unvested awards based on historical experience in determining the
expense recorded in the Companys consolidated statement of operations. This estimate will be
evaluated quarterly and the forfeiture rate will be 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 pro-rata vesting using the
straight-line method.The breakdown of the stock-based compensation expense recorded under SFAS 123(R) is as follows:
 Three Months Ended
    
    
    Six Months EndedApril 30,
    
    
    April 30,
    
    
    April 30,
    
    
    April 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Cost of revenues
    
    $
    41
    
    
    
    
    
    
    $
    82
    
    
    
    Research and development
    
    
    37
    
    
    
    
    
    
    
    73
    
    
    
    Selling and marketing
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    General and administrative
    
    
    152
    
    
    
    
    
    
    
    349
    
    
    
    Total
    
    $
    231
    
    
    
    
    
    
    $
    506
    
    
    
    
 The compensation expense increased both basic and diluted net loss per share by $0.006 and $0.015
for the three and six months ended April 30, 2006, respectively. In accordance with the
modified-prospective transition method of SFAS 123(R), results for prior periods have not been
restated. As of April 30, 2006, there was $1.8 million of unrecognized compensation expense, net
of forfeitures, related to non-vested market-based share awards that is expected to be recognized
over a weighted-average period of 2.57 years.The following table illustrates the effect on net loss and net loss per share for the three and
six months ended April 30, 2005, if the Company had applied the fair value recognition provisions
of Statement 123(R) to options granted under the Companys stock option plan.
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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedApril 30,
    
    
    April 30,In thousands (except per share data)
    
    2005
    
    
    2005Net loss, as reported
    
    $
    (6,564
    )
    
    $
    (14,111
    )Deduct: Total stock-based compensation expense determined under fair value
based method for all employee awards
    
    
    (678
    )
    
    
    (1,570
    )Pro forma net loss
    
    $
    (7,242
    )
    
    $
    (15,681
    )Net loss per common equivalent share:Basic and diluted  as reported
    
    $
    (0.27
    )
    
    $
    (0.69
    )Basic and diluted  pro forma
    
    $
    (0.30
    )
    
    $
    (0.77
    )
  Three Months Ended
    
    Six Months EndedApril 30,
    
    April 30,
    
    April 30,
    
    April 30,2006
    
    2005
    
    2006
    
    2005Risk-free interest rate
    
    
    4.78
    %
    
    
    3.81
    %
    
    
    4.70
    %
    
    
    3.81
    %Expected volatility
    
    
    85
    %
    
    
    82
    %
    
    
    85
    %
    
    
    82
    %Expected lives (years)
    
    
    5.42
    
    
    
    5.0
    
    
    
    5.42
    
    
    
    5.0Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   Weighted-
    
    Weighted-Number
    
    Average
    
    Averageof Stock
    
    Exercise
    
    Remaining
    
    AggregateOptions
    
    Price
    
    Life in Years
    
    Intrinsic ValueOutstanding at October 31, 2005
    
    
    2,582
    
    
    $
    12.74Granted
    
    
    152
    
    
    
    1.24Exercised
    
    
    
    
    
    
    Forfeited/Cancelled/Expired
    
    
    (139
    )
    
    
    26.13Outstanding at April 30, 2006
    
    
    2,595
    
    
    
    11.35
    
    
    
    7.69
    
    
    $
    77Exercisable at April 30, 2006
    
    
    955
    
    
    $
    27.13
    
    
    
    5.15
    
    
    $
    44
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##### Table of Contents



A summary of the status of the Companys nonvested shares as of April 30, 2006 is presented below
(in thousands, except weighted average data):
 Weighted-Average grantShares
    
    
    date fair valueNonvested at October 31, 2005
    
    
    1,698
    
    
    $
    1.48Granted
    
    
    152
    
    
    
    0.93Vested
    
    
    (154
    )
    
    
    0.82Forfeited
    
    
    (56
    )
    
    
    1.14Nonvested at April 30, 2006
    
    
    1,640
    
    
    $
    1.44
 5.
    
    Inventories
 Inventories 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
    
    April 30, 2006
    
    
    October 31, 2005Raw materials
    
    $
    694
    
    
    $
    619Work-in-process
    
    
    493
    
    
    
    388Finished goods-Oxyglobin
    
    
    815
    
    
    
    792Finished goods-Hemopure
    
    
    968
    
    
    
    1,650$
    2,970
    
    
    $
    3,449
 The inventory of Hemopure [hemoglobin glutamer  250 (bovine)] finished goods represents those
units the Company expects to sell in South Africa or to be used in preclinical or clinical trials
to be conducted by or on behalf of the U.S. Naval Medical Research Center (NMRC), for which the
Company will be reimbursed. If the Company experiences a lack of or extremely limited sales in
South Africa or further delays in the use of Hemopure by the NMRC, it may write off additional
units in the future. Any additional write off would result in charges to operations through cost
of revenues.
 6.
    
    Accrued ExpensesAccrued expenses consisted of the following:
 In thousands
    
    April 30, 2006
    
    
    October 31, 2005Accrued severance
    
    $
    742
    
    
    $
    935Financing fees
    
    
    537
    
    
    
    537Bonus incentive plan
    
    
    357
    
    
    
    Accrued vacation
    
    
    329
    
    
    
    321Accrued legal and audit fees
    
    
    282
    
    
    
    277Accrued payroll and related employee expenses
    
    
    129
    
    
    
    318Other
    
    
    952
    
    
    
    708$
    3,328
    
    
    $
    3,096
 Included in accrued severance are costs relating to the resignation, in fiscal 2005, of the
Companys Chief Technology Officer. At October 31, 2005, the Company had an accrual of $917,000
representing the amount owed to him in accordance with his employment agreement. During the first
six months of fiscal 2006, the Company paid $175,000 for costs related to his resignation. The
remaining accrual of $742,000 at April 30, 2006 will be paid over the next 24 months in
accordance with his employment agreement.
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##### Table of Contents



7.
    
    RestructuringDuring the first quarter of fiscal 2005, the Company vacated leased office space and sublet it
for a period of 38 months. 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 during fiscal
2005, and the remaining obligation is accrued both in the current portion of restructuring
charges, and in restructuring charges, net of current portion on the condensed consolidated
balance sheet at April 30, 2006 and October 31, 2005.
 The following table displays the restructuring activity and liability balances (in thousands):
 Balance at October 31, 2005
    
    $
    440Accretion of liability
    
    
    18Payments
    
    
    (107
    )Balance at April 30, 2006
    
    $
    351
 8.
    
    CommitmentsResearch 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 two-stage Phase
2/3 clinical trial of Hemopure in trauma patients with severe hemorrhagic shock (acute blood
loss) in the out-of-hospital setting. Biopure and the NMRC are each 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 $22.5 million to
the U.S. Navy and Army for the development of Hemopure for potential use in military and civilian
trauma and to cover military administrative costs. Of this amount, approximately $5 million is
being administered by the Army.(2)9.
    
    LitigationSEC Civil Injunctive ProceedingOn September 14, 2005, the U.S. Securities and Exchange Commission (SEC) filed a civil injunctive
proceeding against Biopure, two former officers and one current officer in the U.S. District
Court for the District of Massachusetts (the District Court). The proceeding seeks a permanent
injunction restraining and enjoining the defendants from violating or aiding and abetting
violations of federal securities laws, a civil monetary penalty from each of the defendants, and
an order barring the former and current officer defendants from serving as officers or directors
of any publicly-traded company. A principal claim by the SEC is that the Company should have
disclosed in April 2003 that the FDA put on hold a proposed clinical trial of Hemopure in trauma
patients in the hospital setting.
 
 (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. 
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Private Class Action and Derivative Litigation
   11




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




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Significant Estimates and Assumptions
   Critical Accounting Policies
  Inventories
  Stock-based Compensation
  13




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Long-Lived Assets
   Revenue Recognition
   Research and Development
  14




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Results of Operations
  Three Months Ended
    
    
    Six Months EndedApril 30, 2006
    
    
    April 30, 2005
    
    
    April 30, 2006
    
    
    April 30, 2005Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    Total Costs
    
    
    Amount
    
    
    Total Costs
    
    
    Amount
    
    
    Total Costs
    
    
    Amount
    
    
    Total CostsOxyglobin Product Sales
    
    $
    327
    
    
    
    
    
    
    $
    305
    
    
    
    
    
    
    $
    668
    
    
    
    
    
    
    $
    597Hemopure Product Sales
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    Research and
Development Revenues
    
    
    81
    
    
    
    
    
    
    
    315
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    701Other Revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    1Total Revenues
    
    
    411
    
    
    
    
    
    
    
    620
    
    
    
    
    
    
    
    888
    
    
    
    
    
    
    
    1,299Cost of RevenuesOxyglobin
    
    
    717
    
    
    
    9
    %
    
    
    698
    
    
    
    10
    %
    
    
    1,415
    
    
    
    10
    %
    
    
    1,307
    
    
    
    8
    %Hemopure
    
    
    2,621
    
    
    
    35
    %
    
    
    2,193
    
    
    
    30
    %
    
    
    4,997
    
    
    
    34
    %
    
    
    4,666
    
    
    
    30
    %Total Cost of Revenues
    
    
    3,338
    
    
    
    44
    %
    
    
    2,891
    
    
    
    40
    %
    
    
    6,412
    
    
    
    44
    %
    
    
    5,973
    
    
    
    38
    %Research and Development
    
    
    1,866
    
    
    
    24
    %
    
    
    1,391
    
    
    
    19
    %
    
    
    3,340
    
    
    
    23
    %
    
    
    2,910
    
    
    
    19
    %Sales and MarketingOxyglobin
    
    
    23
    
    
    
    0
    %
    
    
    4
    
    
    
    0
    %
    
    
    41
    
    
    
    0
    %
    
    
    10
    
    
    
    0
    %Hemopure
    
    
    132
    
    
    
    2
    %
    
    
    110
    
    
    
    2
    %
    
    
    286
    
    
    
    2
    %
    
    
    220
    
    
    
    1
    %Total Sales and Marketing
    
    
    155
    
    
    
    2
    %
    
    
    114
    
    
    
    2
    %
    
    
    327
    
    
    
    2
    %
    
    
    230
    
    
    
    1
    %General and Administrative
    
    
    2,287
    
    
    
    30
    %
    
    
    2,867
    
    
    
    39
    %
    
    
    4,587
    
    
    
    31
    %
    
    
    6,481
    
    
    
    42
    %Total Costs
    
    $
    7,646
    
    
    
    100
    %
    
    $
    7,263
    
    
    
    100
    %
    
    $
    14,666
    
    
    
    100
    %
    
    $
    15,594
    
    
    
    100
    %
 15




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##### Table of Contents



Three months ended April 30, 2006 compared to three months ended April 30, 2005
   
  Three Months EndedApril 30, 2006
    
    
    April 30, 2005Percent of
    
    
    
    
    
    
    Percent ofIn thousands
    
    Amount
    
    
    Total R&D Costs
    
    
    Amount
    
    
    Total R&D CostsEuropean Surgical Anemia Application
    
    $
    555
    
    
    
    30
    %
    
    $
    
    
    
    
    Ischemia Program
    
    
    537
    
    
    
    29
    %
    
    
    509
    
    
    
    37
    %Trauma Program
    
    
    223
    
    
    
    12
    %
    
    
    230
    
    
    
    16
    %BLA-Derived FDA Review Process
    
    
    189
    
    
    
    10
    %
    
    
    585
    
    
    
    42
    %Other Projects
    
    
    362
    
    
    
    19
    %
    
    
    67
    
    
    
    5
    %Total
    
    $
    1,866
    
    
    
    100
    %
    
    $
    1,391
    
    
    
    100
    %
  European Surgical Anemia Application
  Ischemia and Trauma Projects
  16




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##### Table of Contents



BLA Derived FDA Review Process
     Six months ended April 30, 2006 compared to six months ended April 30, 2005
   17




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##### Table of Contents



Six Months EndedApril 30, 2006
    
    
    April 30, 2005Percent of
    
    
    
    
    
    
    Percent ofIn thousands
    
    Amount
    
    
    Total R&D Costs
    
    
    Amount
    
    
    Total R&D CostsEuropean Surgical Anemia Application
    
    
    788
    
    
    
    23
    %
    
    
    
    
    
    
    Ischemia Program
    
    
    912
    
    
    
    27
    %
    
    
    894
    
    
    
    31
    %Trauma Program
    
    
    421
    
    
    
    13
    %
    
    
    490
    
    
    
    17
    %BLA Derived FDA Review Process
    
    
    464
    
    
    
    14
    %
    
    
    1,410
    
    
    
    48
    %Other Projects
    
    
    755
    
    
    
    23
    %
    
    
    116
    
    
    
    4
    %Total
    
    $
    3,340
    
    
    
    100
    %
    
    $
    2,910
    
    
    
    100
    %
    Liquidity and Capital Resources
     18




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosure About Market Risk
  
 Item 4. Controls and Procedures
     19




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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 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.
  20




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##### Table of Contents



We may not be able to continue as a going concern, as our funds are only sufficient to fund operations into October 2006.
   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.
  If we fail to obtain FDA approval for Hemopure, we will not be able to market Hemopure in the
United States, and as a consequence will be highly adversely affected.
     21




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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 as a company will be adversely affected.
  We are subject to significant litigation risk.
  22




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##### Table of Contents



The litigation matters described above, and any other litigation matters with which we become
involved, may harm our business and financial condition if they result in substantial judgments or
settlements that exceed the amount of coverage under our insurance policies, or if such 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.
  
 
 
  If we cannot generate adequate, profitable sales of Hemopure, we will not be successful.
  23




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##### Table of Contents



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;
    
    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 United States, Europe and elsewhere about the risk of
mad cow disease;
    
    product price, which we believe is 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, 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.
  24




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##### Table of Contents



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.
   Failure to avoid infringement of others intellectual property rights could impair our ability to
manufacture and market our products.
   25




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##### Table of Contents



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.
   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
 26




---



##### Table of Contents



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.
 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.
  27




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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
 We may not continue to qualify for continued listing on the Nasdaq National Market, which may
cause the value of an 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.
    Shares eligible for future sale may cause the market price for our common stock to drop
significantly, even if our business is doing well.
  28




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##### Table of Contents



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;
    
    the outcome of 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;
    
    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;
    
    market conditions for pharmaceutical and biotechnology stocks; and
    
    additional, future communications from the Nasdaq Stock Market concerning delisting or potential delisting.
  29




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##### Table of Contents



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
 (a)
    
    The Company held its 2006 annual meeting of stockholders on March 22, 2006.(c)
    
    Each matter voted upon at the meeting and the votes, were as follows:(i)
    
    Zafiris G. Zafirelis and C. Everett Koop, M.D. were elected as directors at the meeting. The
other directors whose terms of office continued after the meeting are Daniel P. Harrington, Charles A. Sanders, M.D., David N.
Judelson, Jay B. Pieper, and Guido J. Neels.The shares voted for the election of directors were as follows:
 For
    
    WithheldZafiris G. Zafirelis
    
    
    31,483,370
    
    
    
    243,762C. Everett Koop, M.D.
    
    
    31,022,626
    
    
    
    704,506
 (ii)
    
    Ratification of the selection by the audit committee of Ernst & Young LLP as the Companys
independent registered public accounting firm was approved and the shares voted were as follows:
 For
    
    Against
    
    Abstain31,655,411
    
    48,633
    
    23,088
  
 Item 5. Other Information.
  
 Item 6. Exhibits
  30




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##### Table of Contents



SIGNATURES
  BIOPURE CORPORATIONDate: June 9, 2006By:
    
    /s/ Francis H MurphyFrancis H. MurphyChief Financial Officer
 31




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##### Table of Contents



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. 32