##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended July 31, 2008



| ̈ | 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

(Exact name of registrant as specified in its charter)







|                         |  |                                     
|------------------------ |  | ------------------------------------
|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)





Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    x  Yes     ̈  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ̈    Accelerated filer   ̈    Non-accelerated
filer   ̈    Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ̈  Yes    x  No

The number of shares outstanding of each of the issuers classes of common stock as of September 11, 2008 was:



|                                      |  |           
|------------------------------------- |  | ----------
|Class A Common Stock, $.01 par value  |  | 37,340,051
|Class B Common Stock, $1.00 par value |  | 117.7     









---

##### Table of Contents

BIOPURE CORPORATION

INDEX TO FORM 10-Q



|                              |  |                                                                                              |  |                                                                                                                      |  |     
|----------------------------- |  | -------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                              |  |                                                                                                                      |  | Page
|Part IFinancial Information: |  |                                                                                             
|                              |  | Item 1Financial Statements (Unaudited)                                                      |  |                                                                                                                     
|                              |  |                                                                                              |  | Condensed Consolidated Balance Sheets at July 31, 2008 and October 31, 2007                                          |  | 3   
|                              |  |                                                                                              |  | Condensed Consolidated Statements of Operations for the three and nine months ended July 31, 2008 and July 
31, 2007 |  | 4   
|                              |  |                                                                                              |  | Condensed Consolidated Statements of Cash Flows for the nine months ended July 31, 2008 and July 31,
2007            |  | 5   
|                              |  |                                                                                              |  | Notes to Condensed Consolidated Financial Statements                                                                 |  | 6   
|                              |  | Item 2Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 12                                                                                                                  
|                              |  | Item 3Quantitative and Qualitative Disclosure of Market Risk                                |  | 17                                                                                                                  
|                              |  | Item 4Controls and Procedures                                                               |  | 17                                                                                                                  
|Part IIOther Information:    |  |                                                                                             
|                              |  | Item 1Legal Proceedings                                                                     |  | 19                                                                                                                  
|                              |  | Item 1ARisk Factors                                                                         |  | 19                                                                                                                  
|                              |  | Item 2Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 27                                                                                                                  
|                              |  | Item 3Defaults Upon Senior Securities                                                       |  | 27                                                                                                                  
|                              |  | Item 4Submission of Matters to a Vote of Security Holders                                   |  | 27                                                                                                                  
|                              |  | Item 5Other Information                                                                     |  | 27                                                                                                                  
|                              |  | Item 6Exhibits                                                                              |  | 27                                                                                                                  
|Signatures                    |  | 28                                                                                          
|Exhibit Index                 |  | 29                                                                                          

Biopure®, Hemopure®, and Oxyglobin® are registered trademarks of Biopure Corporation.



2



---

##### Table of Contents

Part I

Item 1

BIOPURE CORPORATION

Condensed Consolidated Balance Sheets

(In
thousands, except share and per share data)

(Unaudited)



|                                                                                                                                           |  |              |          |   |                 |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | -------- | - | --------------- | - | -------- | -
|                                                                                                                                           |  | July 31,2008 |          |   | October 31,2007 |  
|Assets:                                                                                                                                    |  |              |          |   |                 |   |          |  
|Current assets:                                                                                                                            |  |              |          |   |                 |   |          |  
|Cash and cash equivalents                                                                                                                  |  | $            | 1,718    |   |                 | $ | 1,910    |  
|Accounts receivable, net                                                                                                                   |  |              | 375      |   |                 |   | 59       |  
|Inventories                                                                                                                                |  |              | 2,872    |   |                 |   | 2,119    |  
|Other current assets                                                                                                                       |  |              | 953      |   |                 |   | 1,165    |  
|                                                                                                                                           |  |              |          |   |                 |   |          |  
|Total current assets                                                                                                                       |  |              | 5,918    |   |                 |   | 5,253    |  
|Property, plant and equipment, net                                                                                                         |  |              | 7,199    |   |                 |   | 8,398    |  
|Other assets                                                                                                                               |  |              | 610      |   |                 |   | 599      |  
|                                                                                                                                           |  |              |          |   |                 |   |          |  
|Total assets                                                                                                                               |  | $            | 13,727   |   |                 | $ | 14,250   |  
|                                                                                                                                           |  |              |          |   |                 |   |          |  
|                                                                                                                                           |  |             
|Liabilities and stockholders equity:                                                                                                      |  |              |          |   |                 |   |          |  
|Current liabilities:                                                                                                                       |  |              |          |   |                 |   |          |  
|Accounts payable                                                                                                                           |  | $            | 495      |   |                 | $ | 777      |  
|Accrued expenses                                                                                                                           |  |              | 1,583    |   |                 |   | 2,512    |  
|Current portion of deferred revenue                                                                                                        |  |              | 35       |   |                 |   | 35       |  
|Accrued restructuring charges                                                                                                              |  |              |         |   |                 |   | 44       |  
|Other current liabilities                                                                                                                  |  |              | 57       |   |                 |   |         |  
|                                                                                                                                           |  |              |          |   |                 |   |          |  
|Total current liabilities                                                                                                                  |  |              | 2,170    |   |                 |   | 3,368    |  
|Deferred revenue, net of current portion                                                                                                   |  |              | 1,177    |   |                 |   | 1,177    |  
|Other long-term liabilities                                                                                                                |  |              |         |   |                 |   | 41       |  
|                                                                                                                                           |  |              |          |   |                 |   |          |  
|Total long-term liabilities                                                                                                                |  |              | 1,177    |   |                 |   | 1,218    |  
|Commitments and contingencies, Note 7                                                                                                      |  |              |          |   |                 |   |          |  
|Stockholders 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, 37,340,051 shares outstanding at July 31, 2008 and 15,593,587 at
October 31, 2007 |  |              | 373      |   |                 |   | 156      |  
|Class B, $1.00 par value, 179 shares authorized, 117.7 shares outstanding                                                                  |  |              |         |   |                 |   |         |  
|Capital in excess of par value                                                                                                             |  |              | 562,598  |   |                 |   | 546,800  |  
|Contributed capital                                                                                                                        |  |              | 24,574   |   |                 |   | 24,574   |  
|Unrealized loss on currency translation                                                                                                    |  |              | (168     | ) |                 |   | (121     | )
|Accumulated deficit                                                                                                                        |  |              | (576,997 | ) |                 |   | (561,745 | )
|                                                                                                                                           |  |              |          |   |                 |   |          |  
|Total stockholders equity                                                                                                                 |  |              | 10,380   |   |                 |   | 9,664    |  
|                                                                                                                                           |  |              |          |   |                 |   |          |  
|Total liabilities and stockholders equity                                                                                                 |  | $            | 13,727   |   |                 | $ | 14,250   |  
|                                                                                                                                           |  |              |          |   |                 |   |          |  

See accompanying notes



3



---

##### Table of Contents

BIOPURE CORPORATION

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)



|                                                                                      |  |                    |        |   |                   |   |        |               |  |   |               |   |  |   |         |  
|------------------------------------------------------------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------ | ------------- |  | - | ------------- | - |  | - | ------- | -
|                                                                                      |  | Three Months Ended |        |   | Nine Months Ended |  
|                                                                                      |  | July 31, 2008      |        |   | July 31, 2007     |   |        | July 31, 2008 |  |   | July 31, 2007 |  
|Revenues:                                                                             |  |                    |        |   |                   |   |        |               |  |   |               |   |  |   |         |  
|Product revenue                                                                       |  | $                  | 580    |   |                   | $ | 528    |               |  | $ | 1,923         |   |  | $ | 1,494   |  
|Research and development revenue                                                      |  |                    | 128    |   |                   |   | 22     |               |  |   | 260           |   |  |   | 269     |  
|                                                                                      |  |                    |        |   |                   |   |        |               |  |   |               |   |  |   |         |  
|Total revenues                                                                        |  |                    | 708    |   |                   |   | 550    |               |  |   | 2,183         |   |  |   | 1,763   |  
|Cost of product revenues                                                              |  |                    | 2,362  |   |                   |   | 3,089  |               |  |   | 6,963         |   |  |   | 9,026   |  
|                                                                                      |  |                    |        |   |                   |   |        |               |  |   |               |   |  |   |         |  
|Gross loss                                                                            |  |                    | (1,654 | ) |                   |   | (2,539 | )             |  |   | (4,780        | ) |  |   | (7,263  | )
|                                                                                      |  |                    |        |   |                   |   |        |               |  |   |               |   |  |   |         |  
|Operating expenses:                                                                   |  |                    |        |   |                   |   |        |               |  |   |               |   |  |   |         |  
|Research and development                                                              |  |                    | 914    |   |                   |   | 1,618  |               |  |   | 4,157         |   |  |   | 5,397   |  
|Sales and marketing                                                                   |  |                    | 232    |   |                   |   | 341    |               |  |   | 960           |   |  |   | 1,099   |  
|General and administrative                                                            |  |                    | 1,849  |   |                   |   | 2,107  |               |  |   | 5,795         |   |  |   | 6,365   |  
|                                                                                      |  |                    |        |   |                   |   |        |               |  |   |               |   |  |   |         |  
|Total operating expenses                                                              |  |                    | 2,995  |   |                   |   | 4,066  |               |  |   | 10,912        |   |  |   | 12,861  |  
|                                                                                      |  |                    |        |   |                   |   |        |               |  |   |               |   |  |   |         |  
|Loss from operations                                                                  |  |                    | (4,649 | ) |                   |   | (6,605 | )             |  |   | (15,692       | ) |  |   | (20,124 | )
|Other income, net                                                                     |  |                    | 53     |   |                   |   | 157    |               |  |   | 440           |   |  |   | 528     |  
|                                                                                      |  |                    |        |   |                   |   |        |               |  |   |               |   |  |   |         |  
|Net loss                                                                              |  | $                  | (4,596 | ) |                   | $ | (6,448 | )             |  | $ | (15,252       | ) |  | $ | (19,596 | )
|                                                                                      |  |                    |        |   |                   |   |        |               |  |   |               |   |  |   |         |  
|Per share data:                                                                       |  |                    |        |   |                   |   |        |               |  |   |               |   |  |   |         |  
|Basic and diluted net loss per common share                                           |  | $                  | (0.13  | ) |                   | $ | (0.41  | )             |  | $ | (0.44         | ) |  | $ | (1.33   | )
|                                                                                      |  |                    |        |   |                   |   |        |               |  |   |               |   |  |   |         |  
|Weighted-average shares used in computing basic and diluted net loss per common share |  |                    | 35,602 |   |                   |   | 15,591 |               |  |   | 34,829        |   |  |   | 14,693  |  
|                                                                                      |  |                    |        |   |                   |   |        |               |  |   |               |   |  |   |         |  

See accompanying notes



4



---

##### Table of Contents

BIOPURE CORPORATION

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



|                                                                            |  |                   |         |   |               |   |         |  
|--------------------------------------------------------------------------- |  | ----------------- | ------- | - | ------------- | - | ------- | -
|                                                                            |  | Nine Months Ended |        
|                                                                            |  | July 31, 2008     |         |   | July 31, 2007 |  
|Operating activities:                                                       |  |                   |         |   |               |   |         |  
|Net loss                                                                    |  | $                 | (15,252 | ) |               | $ | (19,596 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                   |         |   |               |   |         |  
|Depreciation and amortization                                               |  |                   | 1,330   |   |               |   | 2,470   |  
|Stock based compensation                                                    |  |                   | 448     |   |               |   | 737     |  
|Loss on disposal of assets held for sale                                    |  |                   | 114     |   |               |   |        |  
|Loss on disposal of equipment                                               |  |                   | 32      |   |               |   | 20      |  
|Note receivable reserve                                                     |  |                   |        |   |               |   | 235     |  
|Accretion of restructuring charge                                           |  |                   | 1       |   |               |   | 7       |  
|Inventory writedowns                                                        |  |                   |        |   |               |   | 236     |  
|Changes in assets and liabilities:                                          |  |                   |         |   |               |   |         |  
|Accounts receivable                                                         |  |                   | (316    | ) |               |   | (134    | )
|Inventories                                                                 |  |                   | (753    | ) |               |   | 171     |  
|Other current assets                                                        |  |                   | (52     | ) |               |   | (66     | )
|Other long term assets                                                      |  |                   | (53     | ) |               |   |        |  
|Accounts payable                                                            |  |                   | (282    | ) |               |   | 5       |  
|Accrued expenses                                                            |  |                   | (929    | ) |               |   | (417    | )
|Restructuring charges                                                       |  |                   | (45     | ) |               |   | (172    | )
|Other current liabilities                                                   |  |                   | 57      |   |               |   |        |  
|Deferred revenue                                                            |  |                   |        |   |               |   | 46      |  
|Other long term liabilities                                                 |  |                   | (41     | ) |               |   |        |  
|                                                                            |  |                   |         |   |               |   |         |  
|Net cash used in operating activities                                       |  |                   | (15,591 | ) |               |   | (16,478 | )
|                                                                            |  |                   |         |   |               |   |         |  
|Investing activities:                                                       |  |                   |         |   |               |   |         |  
|Purchases of property, plant and equipment                                  |  |                   | (121    | ) |               |   | (191    | )
|Proceeds from sale of assets held for sale                                  |  |                   | 150     |   |               |   |        |  
|                                                                            |  |                   |         |   |               |   |         |  
|Net cash provided by investing activities                                   |  |                   | 29      |   |               |   | (171    | )
|                                                                            |  |                   |         |   |               |   |         |  
|Financing activities:                                                       |  |                   |         |   |               |   |         |  
|Net proceeds from sale of common stock and warrants                         |  |                   | 15,567  |   |               |   | 16,386  |  
|Proceeds from the exercise of options and warrants                          |  |                   |        |   |               |   | 2       |  
|                                                                            |  |                   |         |   |               |   |         |  
|Net cash provided by financing activities                                   |  |                   | 15,567  |   |               |   | 16,388  |  
|                                                                            |  |                   |         |   |               |   |         |  
|Net decrease in cash and cash equivalents                                   |  |                   | (145    | ) |               |   | (261    | )
|Effect of exchange rate changes on cash and cash equivalents                |  |                   | (47     | ) |               |   |        |  
|Cash and cash equivalents at beginning of period                            |  |                   | 1,910   |   |               |   | 6,576   |  
|                                                                            |  |                   |         |   |               |   |         |  
|Cash and cash equivalents at end of period                                  |  | $                 | 1,718   |   |               | $ | 6,314   |  
|                                                                            |  |                   |         |   |               |   |         |  

See accompanying notes



5



---

##### Table of Contents

BIOPURE CORPORATION

Notes to Condensed Consolidated Financial Statements

July 31, 2008

(Unaudited)



|1. | Basis of Presentation
|-- | ---------------------

The 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, 2008 are not necessarily indicative of the results
that may be expected for any other period or for the year ending October 31, 2008; however, the Company expects to incur a substantial loss for the year ending October 31, 2008.

Effective October 2, 2007, the Companys outstanding and reserved class A common shares, including shares reserved for issuance on exercise of
stock options and warrants, reverse split at a one-for-five ratio, with post split shares retaining a par value of $.01 per share. All references to shares, options and warrants have been adjusted to reflect the reverse split for all periods
presented.

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, 2007, filed with the SEC on January 29, 2008.

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 $577.0 million at July 31, 2008. On November 6, 2007, the Company completed a public offering of its common stock and warrants that raised $16.5 million, for
net proceeds to the Company of $14.9 million. The Company sold 19,377,500 new shares of its Class A common stock at $0.85 per share to institutional and individual investors and issued to these investors warrants to purchase 19,377,500 shares
of its common stock at an exercise price of $1.0625 per share. In June 2008 the company signed an agreement with purchasers for a private placement of its Class A common stock and warrants for up to $2.3 million assuming no exercise of the
warrants. Under the terms of the agreement the Company is selling to accredited investors, in up to six monthly tranches, up to 6,810,772 shares of its common stock and warrants to acquire up to an additional 6,810,772 shares. The price for one
share and one warrant is $0.3377, and the exercise price of each warrant is $0.45. The warrants have a term of five years, become exercisable six months after the closing date, and are callable by Biopure after the initial exercise date provided
that the weighted average price of Biopures common stock for ten consecutive days is over $0.675. Under this agreement, the Company had raised $800,000 as of July 31, 2008 and raised $400,000 in August and $400,000 in September.

The Company expects current assets, commitments for investment and product sales to be sufficient to fund operations through November 2008
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. There can be no assurance that adequate additional
financing will be available to the Company on terms that it deems acceptable, if at all. In order to continue operations in the near term, the Company is actively seeking to raise additional capital. If the Company is unsuccessful in raising
additional capital before the end of November 2008, the Company may be required to cease operations.

Without sufficient capital to fund its
operations the Company will be unable to continue as a going concern. The accompanying financial statements do not include any adjustments that might result if such circumstances arise.

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. The Company was provided
with 180 calendar days, or until June 11, 2008, to regain compliance with the minimum bid price requirement. On June 12, 2008, the Company received notice from Nasdaq that, because it was not



6



---

##### Table of Contents

compliant with the minimum bid price requirement, but did meet all other listing criteria for the Nasdaq Capital Market, it had an additional 180 calendar
days, or until December 8, 2008, to regain compliance with the minimum bid price requirement. If the Company does not regain compliance with the minimum bid price requirement by December 8, 2008, Nasdaq will provide written notification
that the securities 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.

Comprehensive Loss

The Companys comprehensive loss includes accumulated foreign currency translation adjustments. The comprehensive loss was as follows (in thousands):



|                                                   |  |                           |         |   |               |   |         |  
|-------------------------------------------------- |  | ------------------------- | ------- | - | ------------- | - | ------- | -
|                                                   |  | Three Month Periods Ended |        
|                                                   |  | July 31, 2008             |         |   | July 31, 2007 |  
|Net Loss                                           |  | $                         | (4,596  | ) |               | $ | (6,448  | )
|Changes in foreign currency translation adjustment |  |                           | (29     | ) |               |   |        |  
|                                                   |  |                           |         |   |               |   |         |  
|Comprehensive loss                                 |  | $                         | (4,625  | ) |               | $ | (6,448  | )
|                                                   |  |                           |         |   |               |   |         |  
|                                                   | 
|                                                   |  | Nine Month Periods Ended  |        
|                                                   |  | July 31, 2008             |         |   | July 31, 2007 |  
|Net Loss                                           |  | $                         | (15,252 | ) |               | $ | (19,596 | )
|Changes in foreign currency translation adjustment |  |                           | (47     | ) |               |   |        |  
|                                                   |  |                           |         |   |               |   |         |  
|Comprehensive loss                                 |  | $                         | (15,299 | ) |               | $ | (19,596 | )
|                                                   |  |                           |         |   |               |   |         |  



|2. | Net Loss per Share
|-- | ------------------

Basic 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 on 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 maximum number of shares issuable upon the conversion of class B common stock outstanding and the exercise of class A 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 and options and warrants for class A common stock is anti-dilutive. Consequently, dilutive weighted average shares outstanding do not
include 34,584,967 common-equivalent shares for the three and nine months ended July 31, 2008 and 12,018,738 potential common-equivalent shares for the three and nine months ended July 31, 2007, as their effect would have been
anti-dilutive.



|3. | Stock Based Compensation
|-- | ------------------------

As of July 31, 2008, the
Company had two share-based compensation plans, the Biopure Corporation 2008 Incentive Plan (the 2008 Plan) and the 2002 Biopure Corporation Omnibus Securities and Incentive Plan (the 2002 Plan). The Plans, as amended, which
are both shareholder approved, permit the grant of options to the Companys employees, consultants and directors for up to 8,343,328 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. Typically, granted options vest in annual increments over four years and may be exercised within seven or ten years of the date of grant. Options to the non-employee members of the board of
directors vest monthly over one year. 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 remained 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 use 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



7



---

##### Table of Contents

Companys consolidated statement of operations. 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 pro-rata 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 (SAB) No. 107 for grants prior to December 31, 2007. On December 21, 2007 the SEC issued SAB No. 110, which states the staff will
continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. The Company is continuing to use the simplified method. The Company estimated the fair value of stock options using the Black-Scholes
option pricing model and the following assumptions:



|                                         |  |                    |  |                   |  |               |   |  |               |  
|---------------------------------------- |  | ------------------ |  | ----------------- |  | ------------- | - |  | ------------- | -
|                                         |  | Three Months Ended |  | Nine Months Ended | 
|                                         |  | July 31, 2008      |  | July 31, 2007     |  | July 31, 2008 |   |  | July 31, 2007 |  
|Weighted average risk-free interest rate |  |                   |  |                  |  | 2.76          | % |  | 4.58          | %
|Expected volatility                      |  |                   |  |                  |  | 85            | % |  | 85            | %
|Expected lives (years)                   |  |                   |  |                  |  | 5.42          |   |  | 5.42          |  
|Expected dividend yield                  |  |                   |  |                  |  | 0             | % |  | 0             | %

During the first nine months of fiscal 2008 and 2007, approximately 229,000 and 265,000 options,
respectively, were granted with a weighted average grant-date fair value of $0.30 and $1.95 per share, respectively. No options were granted during the three- month periods ended July 31, 2008 and 2007.

During the first nine months of fiscal 2008, approximately $448,000 of stock based compensation expense was recorded related to options granted compared
to $737,000 during the same period last year. As of July 31, 2008, there was approximately $917,000 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 1.74 years.

No options were exercised during the first nine months of fiscal 2008. During the first nine
months of fiscal 2007 an option for 1,000 shares was exercised at an exercise price of $2.75 per share. The total fair values of shares vested during the first nine months of fiscal 2008 and 2007 were $437,000 and $434,000, respectively.



|4. | 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             |  | July 31, 2008 |       | October 31, 2007
|Raw materials            |  | $             | 497   |                  | $ | 641  
|Work-in-process          |  |               | 154   |                  |   | 468  
|Finished goods-Oxyglobin |  |               | 1,254 |                  |   | 732  
|Finished goods-Hemopure  |  |               | 967   |                  |   | 278  
|                         |  |               |       |                  |   |      
|                         |  | $             | 2,872 |                  | $ | 2,119
|                         |  |               |       |                  |   |      

Hemopure [hemoglobin glutamer  250 (bovine)] finished goods represents units the Company
expects to sell for clinical use in South Africa and units for which the Company is reimbursed, to be used in preclinical or clinical trials expected to be conducted by or on behalf of the U.S. Naval Medical Research Center (NMRC). Each fiscal
quarter the Company reviews the inventory of all finished goods and, if necessary, writes off any units beyond those forecasted for these purposes. There was no write-off of inventory in the third fiscal quarter of 2008. If the Company continues to
experience extremely limited sales in South Africa or further delays in the use of Hemopure by the NMRC, it could expect to write off additional units in the future. Oxyglobin finished goods are held for sale to our marketing partners in the
European Union and the U.S.



|5. | Accrued Expenses and Cost Reduction Plan
|-- | ----------------------------------------

Accrued expenses
were as follows at the following dates:



|                                              |  |               |     |                  |   |    
|--------------------------------------------- |  | ------------- | --- | ---------------- | - | ---
|In thousands                                  |  | July 31, 2008 |     | October 31, 2007
|Accrued payroll and related employee expenses |  | $             | 68  |                  | $ | 373
|Financing fees                                |  |               | 537 |                  |   | 537
|Accrued legal and audit fees                  |  |               | 140 |                  |   | 347



8



---

##### Table of Contents

|                  |  |               |       |                  |   |      
|----------------- |  | ------------- | ----- | ---------------- | - | -----
|In thousands      |  | July 31, 2008 |       | October 31, 2007
|Accrued vacation  |  |               | 208   |                  |   | 291  
|Accrued utilities |  |               | 96    |                  |   | 164  
|Clinical trials   |  |               | 323   |                  |   | 199  
|Other             |  |               | 211   |                  |   | 601  
|                  |  |               |       |                  |   |      
|                  |  | $             | 1,583 |                  | $ | 2,512
|                  |  |               |       |                  |   |      

During the third fiscal quarter of 2008 the Company took measures to reduce its ongoing cash burn,
including the termination of 52 employees. During the third fiscal quarter ended July 31, 2008, in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities,the Company recorded
within General and Administrative expense charges totaling $252,000 representing severance costs for the terminated employees. As of July 31, 2008, the Company had paid $193,000 of these costs, resulting in an accrual of $59,000 at
July 31, 2008, included in Other in the table above.



|6. | Other Current Assets
|-- | --------------------

During fiscal 2006, management
identified certain manufacturing equipment that the Company was not using and did not expect to use in the future, resulting in a decision by management to sell this equipment. Early in fiscal 2007 the Company determined that the held for sale
criteria in FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, had been met. Accordingly, the carrying value of the manufacturing equipment of $225,000 was recorded separately within other
current assets on the Companys condensed consolidated balance sheets as of October 31, 2007. The carrying amount was determined based on quoted market prices for similar assets, less estimated selling costs. During the third fiscal
quarter of 2008 the Company sold this equipment and recorded a loss of approximately $114,000.



|7. | Commitments and Contingencies
|-- | -----------------------------

Research 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 took primary responsibility for designing, seeking U.S. Food and Drug Administration (FDA) acceptance of, and conducting a clinical trial
of Hemopure in trauma patients with severe hemorrhagic shock (acute blood loss) in the out-of-hospital setting. To date, the U.S. Congress has appropriated a total of $22.5 million to the Department of Defense for the development of Hemopure in
potential civilian and military trauma applications,(2)of which approximately $1.6 million was reverted due to delays in initiating the RESUS
clinical trial. If there are additional delays in the start of the proposed clinical trial, additional funds could be reverted in the future. The funding is to be 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. The funding has also been used to reimburse company expenses of supporting the trauma program. In addition, the NMRC paid
approximately $1.2 million for inventory purchases to be delivered in the future, 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.



|8. | Litigation
|-- | ----------

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 U.S. District Court for
the district of Massachusetts. 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 filed a motion to dismiss the action. No amounts have been accrued to date with regard to this litigation or a similar claim in the Trial Court of
Middlesex County in Massachusetts. The Company believes this case is without merit.



|(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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



9



---

##### Table of Contents

|9. | Income Taxes
|-- | ------------

On November 1, 2007, the Company
adopted Financial Accounting Standard Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109, which clarifies the accounting for
uncertainty in income taxes recognized in an enterprises financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement criteria for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition
and defines the criteria that must be met for the benefits of a tax position to be recognized.

As of the adoption of FIN 48
on November 1, 2007, the Companys total unrecognized tax benefit is $278,000. This unrecognized tax benefit primarily relates to research and development tax credits. Of this amount, $278,000 represents the amount of unrecognized tax
benefits that, if recognized, would affect the effective tax rate prior to the adjustment for the Companys valuation allowance. As a result of the implementation of FIN 48, the Company did not recognize an increase in tax liability for the
unrecognized tax benefits because the Company has recorded a tax net operating loss carryforward that would offset any liability. The use of net operating losses may be subject to limitations under IRC Section 382.

As of July 31, 2008, the balance of unrecognized tax benefits is $278,000. There were no significant changes to these amounts during the three- ,
six- or nine-month periods ended January 31, 2008, April 30, 2008 and July 31, 2008, respectively. The Company does not expect any significant changes in its unrecognized tax position over the next 12 months.

Utilization of the net operating loss and research and development credit carryforwards may be subject to a substantial annual limitation under
Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that may have occurred previously or that could occur in the future. These ownership changes may limit the amount of net operating loss and research and
development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively.

The Companys
policy is to recognize interest and penalties related to unrecognized tax benefits and income tax liabilities, when applicable, as part of income tax expense in its consolidated statement of operations. Since a full valuation allowance was recorded
against the Companys net deferred tax assets and the unrecognized tax benefits determined under FIN 48 would not result in a tax liability, the Company has not accrued for any interest and penalties relating to these unrecognized tax benefits
as of July 31, 2008.



|10. | Recently Issued Accounting Standards
|--- | ------------------------------------

In May 2008, the
FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial
statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. SFAS No. 162 is effective 60 days following the Securities and Exchange Commissions approval of the Public Company
Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company has not yet evaluated the impact that SFAS No. 162 will have on its
consolidated financial statements.

In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161), which requires enhanced disclosures about
(i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended
and its related interpretations, and (iii) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. SFAS No. 161 also requires that objectives for using
derivative instruments be disclosed in terms of underlying risk and accounting designation and requires cross-referencing within the footnotes. This statement also suggests disclosing the fair values of derivative instruments and their gains and
losses in a tabular format. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 and therefore is effective for our second quarter in fiscal 2009. The Company has not
evaluated the impact, if any, that the adoption of SFAS No. 161 will have on its consolidated financial statements.

In December 2007,
the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 160 establishes accounting and reporting standards that require the ownership interests in subsidiaries non-parent owners be
clearly presented in the equity section of the balance sheet; requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement
of income; requires that changes in a parents ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently; requires that when a subsidiary is deconsolidated, any retained
noncontrolling equity investment in



10



---

##### Table of Contents

the former subsidiary be initially measured at fair value and the gain or loss on the deconsolidation of the subsidiary be measured using the fair value of
any noncontrolling equity; requires that entities provide disclosures that clearly identify the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective as of the beginning of an entitys first
fiscal year that begins after December 15, 2008. The Company has not determined the impact, if any, SFAS No. 160 will have on its financial statements.

In August 2007, the FASB issued Proposed FASB Staff Position (FSP) APB Opinion No. 14-a, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement). This FSP applies to convertible debt instruments that, by their stated terms, may be settled in cash (or other assets) upon conversion, including partial cash settlement, unless the embedded conversion option is required to be
separately accounted for as a derivative under FASB Statement No. 133. The liability and equity components of convertible debt instruments within the scope of this FSP must be separately accounted for in a manner that will reflect the
entitys nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years (beginning with the Companys 2010 fiscal year). This FSP must be applied retrospectively to all periods presented. For convertible debt instruments that were modified after their original issuance date to provide for cash
settlement upon conversion in a modification transaction that was not accounted for as an extinguishment, this FSP must be applied retrospectively to the modification date. The Company has not evaluated the impact, if any, that the adoption of APB
Opinion No. 14-a will have on its consolidated financial statements.



11



---

##### Table of Contents

BIOPURE CORPORATION

Managements Discussion and Analysis of

Financial Condition and Results of Operations

July 31, 2008



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Cautionary Statement Regarding Forward-Looking Information

The following discussion of the Companys financial
condition and results of operations includes forward-looking statements. These forward-looking statements include, without limitation, statements about the clinical development program, other expected activities, and the adequacy of the
Companys available cash resources. Forward-looking statements include those that imply that the Company will be able to manage its expenses effectively and raise the funds needed to continue its business, that the Company will be able to
stabilize and enhance its financial position, that the Company will be able to commercially develop Hemopure, that in pursuing anemia, cardiovascular and trauma indications the Company will be able to address safety and efficacy questions of
regulatory agencies, that the U.S. Naval Medical Research Center (NMRC) may conduct a clinical trial in trauma patients, and that anticipated milestones will be met in the expected timetable or at all, that any preclinical or clinical trials
will be successful, that Hemopure, if it receives regulatory approval, will attain market acceptance and be manufactured and sold in amounts to attain profitability and that the Company will be able to successfully increase its manufacturing
capacity for Hemopure if it receives regulatory approval. Forward-looking statements are usually accompanied by words such as believe, anticipate, plan, seek, expect, intend and
similar expressions. The forward-looking information is based on various factors and was derived using numerous assumptions and judgments.

Actual results
may differ materially from those set forth in the forward-looking statements due to risks and uncertainties that exist in the Companys operations and business environment. These risks include the factors identified under Risk
Factors in this report. All forward-looking statements included or incorporated by reference in this report are based on information available to the Company on the date such statements were made. In light of the substantial risks and
uncertainties inherent in all future projections, the inclusion of forward-looking statements in this report should not be regarded as representations by us that the Companys objectives or plans will be achieved. The Company undertakes no
obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any additional disclosures the Company makes in its reports to the SEC on
Forms 10-Q, 8-K and 10-K.

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.

Overview

Since its founding in 1984, Biopure has been primarily a research and development company focused on developing Hemopure, the Companys oxygen therapeutic for human use, and obtaining regulatory approval in the
United States and other markets. The Companys research and development expenses have been devoted to basic research, product development, process development, preclinical studies, clinical trials and regulatory activity. In addition, the
Companys development expenses in the past included the design, construction, validation and maintenance of a large-scale pilot manufacturing plant in Cambridge, Massachusetts.

A manufacturing facility is a necessary part of developing a product like Hemopure. The FDA classifies Hemopure as a biologic because it is derived from animal-source material. Unlike drugs that are chemical
compounds, biologics are defined by their manufacturing process and composition. Under FDA regulations, any change in the manufacturing process could be considered to produce an altered, possibly different product. Therefore, it is necessary to
demonstrate manufacturing capability at greater than laboratory scale for an application for regulatory approval of a biologic to be accepted for review. This requirement has resulted in high manufacturing research and development costs in the
development of our products relative to other types of drugs and high costs in keeping the manufacturing facility operational.

Prior to 1998, the Company
manufactured products solely for use in preclinical and clinical trials, and production costs were charged wholly to research and development. As an offshoot of the research and development for Hemopure, Oxyglobin, a similar product, gained
marketing approval for veterinary use in the U.S. in 1998 and in the European Union in 1999. Following the U.S. approval, Oxyglobin was produced for sale in the same pilot manufacturing plant that was built and maintained primarily for the
development of Hemopure. Because of this marketing approval, costs of production of Oxyglobin for sale and an allocation of manufacturing overhead based on capacity used for Oxyglobin are charged to inventory and to cost of revenues. Since marketing
approval of Hemopure for human use was granted in South Africa in 2001, costs of production of Hemopure for sale and an allocation of manufacturing overhead based on capacity used for Hemopure have been charged to inventory and to cost of revenues.

Thus a substantial majority of our costs comprise research and development and cost of revenues. The revenues from products we now market defray some of
the manufacturing costs we have incurred to manufacture Hemopure. We suspended manufacturing operations during the fiscal quarter to reduce our burn rate.



12



---

##### Table of Contents

Our research and development activities in 2007 and 2008 are described below. We do not currently have any trials
enrolling patients.

Ischemia

Biopure conducted
Phase 2 clinical trials of Hemopure in Europe and South Africa to assess the products potential safety and feasibility in ischemia applications, such as cardiac surgery and acute coronary ischemia (e.g., heart attack). The primary goal of
these trials was to provide preliminary data to support advanced trials in heart attack patients. In contrast to trials where Hemopure was administered as a red blood cell replacement, in these ischemia trials, Hemopure was being administered as an
oxygen-carrying drug.

Trauma

The Company has
been working with the NMRC to develop Hemopure for use in trauma patients in out-of-hospital settings (for example, at accident scenes, in ambulances or on the battlefield). In June 2005, the NMRC submitted an IND application to the FDA for a
clinical trial called RESUS (Restore Effective Survival in Shock). The application, which has been on clinical hold at the FDA since July 2005, proposes a government-funded, NMRC sponsored clinical trial to assess the safety and efficacy of
out-of-hospital administration of Hemopure in reducing morbidity and mortality in severely injured patients experiencing hemorrhagic shock (acute blood loss). In order for RESUS to proceed, the FDA must lift the clinical hold, and the Department of
Defense and the internal review boards of participating hospitals in the communities where the study would take place must provide final authorization.

In
June 2008 the NMRC submitted and subsequently withdrew a new protocol for a Phase 2 clinical trial of Hemopure for resuscitation of operational casualties with severe traumatic hemorrhagic shock without availability of blood transfusions, pending
further discussion and a pre-IND meeting with the FDA. The proposed trial hypothesis is that for such casualties Hemopure will improve survival and other clinical parameters, and will be relatively safe and well tolerated, in comparison with
standard fluid. Subjects will sign an informed consent prospectively. The study is entitled Operational Restore Effective Survival in Shock (Op RESUS). The primary aim of the proposed study is to compare the 28-day relative
rate of death in patients receiving Hemopure versus the group of patients receiving the standard fluid for resuscitation (Hextend).

The
Company sponsored a separate Phase 2, 50-patient clinical trial at the Johannesburg Hospital Trauma unit in South Africa that was designed to assess the safety and tolerability of Hemopure in the hospital emergency room setting for treatment of
unstable trauma patients who have significant blood loss and low blood pressure. Of 50 planned patients, as of June 9, 2008, 33 patients had been enrolled. On that date the Company terminated the trial for several reasons, including cost and
slow enrollment. The Company had already reported interim data on 22 patients to regulatory agencies and intends to report the balance when final data are available.

Anemia in Acute Myelogenous Leukemia

The Company has had discussions with the FDA on identifying an
acceptable patient population for a new clinical trial of Hemopure. The Company has proposed to study the use of Hemopure in patients suffering from Acute Myelogenous Leukemia (AML) who refuse transfusion with blood components. Currently, AML
patients who do not accept blood transfusions are unable to undergo potentially life-saving induction chemotherapy because of the profound anemia the chemotherapy causes. Biopure is preparing to submit a protocol for such patients for consideration
by FDA. Patients would give informed consent before being enrolled in this study. An effective treatment for this patient population represents an unmet medical need because of an expected 100% mortality within 6 months in the absence of induction
chemotherapy. The purpose of the study would be to assess the efficacy of Hemopure in providing an oxygen carrier in lieu of transfusion with red blood cells, as an adjunct to other special procedures, following induction chemotherapy for AML. A
successful trial in this population could be pivotal to establish an intended use for Hemopure in this clinical setting. The protocol is currently in preparation.

Surgical Anemia Marketing Application

In July 2006, the Company submitted a marketing authorization application (MAA) to the United
Kingdoms Medicines and Healthcare products Regulatory Agency (MHRA). The application sought authorization to market Hemopure in the U.K. for the treatment of acutely anemic adult orthopedic surgery patients less than 80 years of age.

In December 2006, the Company received a provisional opinion letter from the United Kingdom Commission on Human Medicines containing comments and
questions. The Company met with the MHRA during 2007 and responded to its letter in early November 2007, requesting market authorization for the treatment of acutely anemic adult orthopedic surgery patients less than 80 years of age when blood
is not readily available or not an option. In April 2008 the Company received a comment letter from the U.K.s Commission on Human Medicines addressing the Companys application. The comment letter states that the Commission was reassured
on a number of the clinical questions raised in its initial opinion letter, but indicated that both major and other pharmacological and clinical issues either were not yet resolved by the Companys submission made in
November 2007 or were only resolved in part. In addition the comment letter poses several new questions. The Company met with the MHRA on May 29, 2008 to discuss manufacturing and quality issues. The Company postponed a meeting planned for July
2008 in order to apply the Companys limited resources, a result of the reductions in force described below, to the submission of the AML protocol and working with the FDA.



13



---

##### Table of Contents

Cost Cutting Measures

During the third fiscal quarter of 2008 the Company took measures to reduce its ongoing cash burn. Those measures included the termination of 52 employees, cutting facilities maintenance costs and suspension of manufacturing. The employees
terminated were primarily employees from the Companys manufacturing division. These cost cutting measures are expected to reduce the Companys ongoing cash burn by approximately $8.8 million annually. Notwithstanding the cost reductions,
significant additional capital will be required to fund the Companys operations until the Company becomes profitable. The Company is assessing opportunities to raise capital, and expects to continue financing operations until it is profitable
through sales of securities, strategic alliances and other financing vehicles, if any, that might become available.

Significant Estimates and
Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses
during the reporting periods. Significant estimates and assumptions by management affect accrued expenses, stock-based compensation, long-lived assets and inventory valuation.

Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they occur. The Company bases its
estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances.

Critical Accounting
Policies

The Companys significant accounting policies are described in the Notes to the Consolidated Financial Statements contained in its Annual
Report on Form 10-K for the fiscal year ended October 31, 2007. The application of the Companys critical accounting policies is particularly important to the accurate portrayal of its financial position and results of operations. These
critical accounting policies require the Company to make subjective judgments in determining estimates about the effect of matters that are inherently uncertain. The following critical accounting policies are considered most significant:

Inventories

Inventories are stated at the lower of cost
(determined using the first-in, first-out method) or market. Inventories consist of raw material, work-in-process and finished Hemopure and Oxyglobin. Inventories are reviewed periodically to identify expired units and units with a remaining life
too short to be commercially viable. Inventories are also subject to internal quality compliance investigations. Inventory that is not expected to be utilized based on projected demand or fails quality assessment is written off. The inventory of
Hemopure finished goods represents the units the Company expects to sell in South Africa or use in preclinical and clinical studies where payment is received for the trial material. The Company expects to be paid for the units to be used in a
proposed trauma trial to be conducted by or on behalf of the NMRC and in preclinical studies by or under the guidance of the NMRC. Any units expected to be consumed by the Company in its own preclinical or clinical trials are expensed to research
and development when manufactured.

Stock-Based Compensation

The Company adopted the provisions of Statement of Financial Accounting Standards 123R, Share-Based Payment (SFAS 123R), beginning November 1, 2005, using the modified prospective transition method. SFAS 123R
requires the Company to measure the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and to recognize cost over the requisite service period. Option valuation models require the
input of subjective assumptions, including stock price volatility and expected term of options.

Revenue Recognition

The Company recognizes revenue from sales of Hemopure and Oxyglobin in accordance with Staff Accounting Bulletin (SAB) No. 104, Revenue
Recognition, whereby sales are recorded upon shipment, provided that there is evidence of a final arrangement, there are no uncertainties surrounding acceptance, title has passed, collectability is probable and the price is fixed or
determinable. Through the second fiscal quarter of 2008 the Company sold Oxyglobin directly to veterinarians in the United States. In May 2008 the Company began selling Oxyglobin directly to a distributor for resale in the U.S. It has a similar
arrangement in Europe. Collectability with these distributors is reasonably assured as pricing arrangements are established, and these agreements establish the respective distributors intent to pay. The Company recognizes revenue from the U.S.
military upon invoicing for reimbursable expenses in connection with developing Hemopure for a trauma indication. Amounts received for prepaid inventory purchases, recorded as deferred revenue, will not be recognized as sales until shipment.



14



---

##### Table of Contents

The Companys foreign sales are generally through distributors. There is no right of return provided for
distributors. For sales of products made to distributors, the Company considers a number of factors in determining whether revenue is recognized upon transfer of title to the distributor, or when payment is received. These factors include, but are
not limited to, whether the payment terms offered to the distributor are considered to be non-standard, the distributor history of adhering to the terms of its contractual arrangements with the Company, the level of inventories maintained by the
distributor, whether the Company has a pattern of granting concessions for the benefit of the distributor, and whether there are other conditions that may indicate that the sale to the distributor is not substantive. The Company currently recognizes
revenue primarily on the sell-in method with its distributors.

Results of Operations

As the Company generates net losses, the key drivers of the losses are cost of revenues, research and development and general and administrative expenses. Inflation and
changing prices have not had a significant impact on the revenues or loss from operations in the periods presented below. For the three-month and nine-month periods ended July 31, 2008 and 2007, these items were as follows (dollars in
thousands):



|                                  |  |                    |       |                       |                   |   |        |               |                       |  |               |        |  |                       |        |  |        |   |                       |   |        |  |     |  
|--------------------------------- |  | ------------------ | ----- | --------------------- | ----------------- | - | ------ | ------------- | --------------------- |  | ------------- | ------ |  | --------------------- | ------ |  | ------ | - | --------------------- | - | ------ |  | --- | -
|                                  |  | Three Months Ended |       |                       | Nine Months Ended |  
|                                  |  | July 31, 2008      |       |                       | July 31, 2007     |   |        | July 31, 2008 |                       |  | July 31, 2007 |       
|                                  |  | Amount             |       | Percent ofTotal Costs |                   |   | Amount |               | Percent ofTotal Costs |  |               | Amount |  | Percent ofTotal Costs |        |  | Amount |   | Percent ofTotal Costs |  
|Oxyglobin Product Sales           |  | $                  | 534   |                       |                   |   |        | $             | 470                   |  |               |        |  | $                     | 1,730  |  |        |   |                       | $ | 1,414  |  |     |  
|Hemopure Product Sales            |  |                    | 46    |                       |                   |   |        |               | 58                    |  |               |        |  |                       | 193    |  |        |   |                       |   | 80     |  |     |  
|Research and Development Revenues |  |                    |      |                       |                   |   |        |               | 22                    |  |               |        |  |                       | 132    |  |        |   |                       |   | 269    |  |     |  
|Other Revenues                    |  |                    | 128   |                       |                   |   |        |               |                      |  |               |        |  |                       | 128    |  |        |   |                       |   |       |  |     |  
|                                  |  |                    |       |                       |                   |   |        |               |                       |  |               |        |  |                       |        |  |        |   |                       |   |        |  |     |  
|Total Revenues                    |  |                    | 708   |                       |                   |   |        |               | 550                   |  |               |        |  |                       | 2,183  |  |        |   |                       |   | 1,763  |  |     |  
|Cost of Revenues                  |  |                    |       |                       |                   |   |        |               |                       |  |               |        |  |                       |        |  |        |   |                       |   |        |  |     |  
|Oxyglobin                         |  |                    | 747   |                       | 14                | % |        |               | 636                   |  | 9             | %      |  |                       | 1,961  |  | 11     | % |                       |   | 2,098  |  | 10  | %
|Hemopure                          |  |                    | 1,615 |                       | 30                | % |        |               | 2,453                 |  | 34            | %      |  |                       | 5,002  |  | 28     | % |                       |   | 6,928  |  | 33  | %
|                                  |  |                    |       |                       |                   |   |        |               |                       |  |               |        |  |                       |        |  |        |   |                       |   |        |  |     |  
|Total Cost of Revenues            |  |                    | 2,362 |                       | 44                | % |        |               | 3,089                 |  | 43            | %      |  |                       | 6,963  |  | 39     | % |                       |   | 9,026  |  | 43  | %
|Research and Development          |  |                    | 914   |                       | 17                | % |        |               | 1,618                 |  | 23            | %      |  |                       | 4,157  |  | 23     | % |                       |   | 5,397  |  | 24  | %
|Sales and Marketing               |  |                    |       |                       |                   |   |        |               |                       |  |               |        |  |                       |        |  |        |   |                       |   |        |  |     |  
|Oxyglobin                         |  |                    | 80    |                       | 1                 | % |        |               | 20                    |  | 0             | %      |  |                       | 153    |  | 1      | % |                       |   | 60     |  | 0   | %
|Hemopure                          |  |                    | 152   |                       | 3                 | % |        |               | 321                   |  | 5             | %      |  |                       | 807    |  | 5      | % |                       |   | 1,039  |  | 2   | %
|                                  |  |                    |       |                       |                   |   |        |               |                       |  |               |        |  |                       |        |  |        |   |                       |   |        |  |     |  
|Total Sales and Marketing         |  |                    | 232   |                       | 4                 | % |        |               | 341                   |  | 5             | %      |  |                       | 960    |  | 6      | % |                       |   | 1,099  |  | 2   | %
|General and Administrative        |  |                    | 1,849 |                       | 35                | % |        |               | 2,107                 |  | 29            | %      |  |                       | 5,795  |  | 32     | % |                       |   | 6,365  |  | 31  | %
|                                  |  |                    |       |                       |                   |   |        |               |                       |  |               |        |  |                       |        |  |        |   |                       |   |        |  |     |  
|Total Costs                       |  | $                  | 5,357 |                       | 100               | % |        | $             | 7,155                 |  | 100           | %      |  | $                     | 17,875 |  | 100    | % |                       | $ | 21,813 |  | 100 | %

Three months ended July 31, 2008 compared to three months ended July 31, 2007

Total revenues for the third fiscal quarter of 2008 were $708,000, or 29% higher than revenues of $550,000 for
the same period in fiscal 2007. The increase is attributable to sales and royalties on sales of the Companys veterinary product, Oxyglobin, totaling $643,000 in revenue versus $470,000 in Oxyglobin revenues in the third fiscal quarter of 2007.
The increase in Oxyglobin revenues results from higher unit sales. As previously announced, in the third fiscal quarter of 2008 the Company appointed an exclusive distributor for Oxyglobin in the U.S. This distributor buys product for its inventory
upon shipment by the Company and pays royalties in negotiated amounts. Previously the Company sold directly to veterinarians.

Hemopure sales decreased to
$46,000 during the third fiscal quarter of 2008 from $58,000 in the third fiscal quarter of 2007. The clinical use of the product in South Africa has been without serious adverse effects caused by Hemopure. However, sales have declined because of a
meta-analysis published in the April 2008 Journal of the American Medical Association, which reached negative conclusions about hemoglobin-based oxygen carriers (HBOCs) as a class of products. Some of the articles authors also corresponded
with regulatory authorities disparaging Hemopure. Notwithstanding the absence in clinical use of the adverse effects for HBOCs noted by the authors, citing the article, one South African state recommended against using Hemopure and an insurer
suspended coverage of the product. The Company is in discussions with health agencies in South Africa and other countries to respond to their concerns.

Cost of revenues includes costs of both Oxyglobin and Hemopure. Cost of revenues was $2.4 million for the third quarter of fiscal 2008, compared to $3.1 million for the same period in 2007. Hemopure cost of revenues decreased $838,000
during the third fiscal quarter of 2008 because of the suspension of manufacturing and reduction of manufacturing personnel described above in Overview  Cost Cutting Measures. Oxyglobin cost of revenues increased primarily due to
the increased unit sales mentioned above partially offset by savings from cost cutting measures.



15



---

##### Table of Contents

Historically, virtually all research and development expenses were related to an anticipated surgical anemia indication
whereby Hemopure would be used to eliminate or reduce the need for red blood cell transfusion. Beginning in fiscal 2004, the Companys focus became the development of Hemopure for ischemia and trauma indications, discussed below. Currently the
Company is incurring the majority of its research and development expenses on the development of the product for anemia uses while continuing to support the Navy in its pursuit of a trauma indication and working to the extent feasible on gathering
and making final data from ischemia trials. Anemia expenditures are generally in two categories: Funds have been spent on an application for authorization to market Hemopure in the United Kingdom for use in orthopedic surgery where blood is not
available. The second category of anemia expenditures is the Companys newest initiative, preparing for a proposed clinical trial in the United States to treat anemia in patients with acute myelogenous leukemia. If the FDA permits the Company
to undertake a clinical trial in AML, that area is likely to be the Companys most active research and development program.

Both the ischemia and the
trauma projects are in early stages. Cumulative ischemia project expenditures from the inception of the projects consisted primarily of the costs of preparing and carrying out Phase 2 clinical trials in Europe. When the Companys personnel
resources permit, compiling the data from those trials and proceeding to other ischemia trials may again require significant research and development funding. Cumulative trauma expenditures have consisted of costs to conduct preclinical studies and
preparation costs primarily associated with protocol design and preparation of the IND application for the proposed NMRC sponsored out-of-hospital trauma trials. The majority of these trauma expenses to date, has been reimbursed by payments from
funds described in Note 7 to the condensed consolidated financial statements.

Regulatory agency requirements for additional clinical trials and any
further preclinical studies that might be necessary for either an ischemia indication, for use in trauma patients or for an anemia indication cannot be estimated at this time. The risks and uncertainties associated with the early stage of planning
and execution of the ischemia, trauma and AML clinical development programs include, among other things, uncertainties about results that at any time could require us to abandon or greatly modify either project. Accordingly, the Company cannot
estimate the period in which material net cash inflows for any indication might commence, if ever.

Research and development expenses were $914,000 for the
third quarter of fiscal 2008 compared to $1.6 million for the same period in 2007. The decrease compared to the same period in 2007 is due to a $313,000 reduction in spending on clinical and preclinical trials, a $178,000 reduction in consulting and
outside services and an $111,000 reduction in salaries expense.

Sales and marketing expenses decreased to $232,000 for the third quarter of fiscal 2008,
from $341,000 for the same period in 2007. During fiscal 2007 the Company spent $84,000 in market research for the U.K.

General and administrative
expenses were $1.8 million for the third fiscal quarter of 2008 compared to $2.1 million for the same period in 2007. Insurance premiums, travel expense and audit fees decreased during the third fiscal quarter of 2008 compared to the same period in
2007. Compensation expense, including salaries and equity compensation, decreased during the third fiscal quarter of 2008 compared to the same period in 2007 but were offset by a one-time severance charge of $252,000 related to the reduction in
force described above.

Nine months ended July 31, 2008 compared to nine months ended July 31, 2007

Total revenues for the first nine months of fiscal year 2008 were $2.2 million, including $1.8 million from sales and royalties on sales of Oxyglobin, $193,000 from sales
of Hemopure in South Africa and $151,000 from funds received from the U.S. Government. Total revenues for the same period in 2007 were $1.8 million, including $1.4 million from Oxyglobin sales, $80,000 from sales of Hemopure and $269,000 from the
U.S. Government. The increase in Hemopure sales reflects the Companys marketing efforts and increasing use of the product in South Africa during the early part of fiscal 2008. However, sales of Hemopure in South Africa have recently declined
due to the meta-analysis published in the April issue of JAMA, as previously discussed.

Oxyglobin revenues increased during the first nine months of
fiscal 2008 compared to the same period in 2007 primarily due to higher unit sales in the U.S. through efforts of a distributor appointed in May 2008, discussed above, coupled with a higher average selling price over the first nine months of fiscal
2008. Sales in Europe increased during the first nine months of fiscal 2008 compared to the same period last year because of a change in the selling arrangement with the Companys distributor in the U.K and a higher average selling price.
During fiscal 2007 the Company sold Oxyglobin in the U.K. on a consignment basis. The UK distributor now buys product for its inventory upon shipment.

Cost of revenues includes costs of both Oxyglobin and Hemopure. Cost of revenues was $7.0 million for the first nine months of fiscal 2008, compared to $9.0 million for the same period in 2007. Increased manufacturing during the early part
of 2008 compared to the same period in 2007 resulted in lower unabsorbed manufacturing costs charged to cost of revenues. The cost cutting measures taken by the Company to reduce its ongoing cash burn, which included a reduction in force, cutting
facilities maintenance costs and suspension of manufacturing, also contributed to the decrease in cost of revenues.

Research and development expenses were
$4.2 million for the first nine months of fiscal 2008 compared to $5.4 million for the same period in 2007. During the first nine months of fiscal 2007 the Company spent $737,000 on preclinical studies, which were completed during the same year; no
comparable studies were conducted in fiscal 2008. Also contributing to the decrease in fiscal 2008 were less spending on clinical trials and lower consulting expenses compared to 2007.



16



---

##### Table of Contents

Sales and marketing expenses decreased to $960,000 for the first nine months of fiscal 2008 compared to $1.1 million for
the same period fiscal 2007. The decrease is primarily attributable to a decrease in market research activities and to expenses related to a medical advisory board meeting concerning the U.K. market, held in fiscal 2007, for Hemopure.

General and administrative expenses were $5.8 million for the first nine months of fiscal 2008 compared to $6.4 million for the same period in fiscal 2007. This decrease
is primarily due to a $179,000 decrease in insurance premiums, a $110,000 decrease in consulting expenses, a $149,000 decrease in facilities costs and a $90,000 decrease in taxes and fees. Employee related expenses, including salaries, performance
incentives and equity compensation also decreased compared to the first nine months of fiscal 2007, but were offset by severance expense related to the Companys recent cost cutting measures.

Liquidity and Capital Resources

At July 31, 2008, the Company
had $1.7 million in cash and cash equivalents. During the third fiscal quarter the company signed an agreement with two purchasers for a private placement of its common stock and warrants. Under this agreement, the Company had raised $800,000 as of
July 31, 2008, raised $400,000 in August, $400,000 in September and could raise an additional $700,000 in October and November. There is no assurance that the remaining $700,000 will be invested by them. 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. In May and June 2008, the Company implemented cost reductions, including workforce reductions, cutting facilities maintenance
costs and curtailment of manufacturing. These measures represent overall anticipated future savings of approximately $8.8 million annually. There can be no assurance that any additional financing will be available to the Company on terms that it
deems acceptable, if at all. If additional financing or an alternative transaction is not available when needed or is not available on acceptable terms, we may be required to cease operations.

The Company expects current assets, commitments for investment and product sales to be sufficient to fund operations through November 2008 under the current operating
plan if the purchasers continue to fund under the agreement described above. 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. There can be no
assurance that adequate additional financing will be available to the Company on terms that it deems acceptable, if at all. In order to continue operations, the Company is actively seeking to raise additional capital, including the possible sale of
its interest in a partnership that owns the Companys headquarters building. If the Company is unsuccessful in raising additional capital, by then, it may be required to cease operations.

Net cash used in operating activities decreased $887,000 in the first nine months of fiscal 2008 compared to the corresponding period in fiscal 2007. Cash used in
operating activities was $15.6 million for the first nine months of fiscal 2008, which included a net loss of $15.3 million, decreased by non-cash charges for depreciation and amortization and by compensation expense related to the issuance of stock
options. Inventories consumed $753,000 during the first nine months of fiscal 2008 largely due to increased production.

Cash provided by financing
activities includes approximately $15.6 million in net proceeds raised during the first nine months of fiscal 2008 through sales of common stock and warrants.



|Item 3. | Quantitative and Qualitative Disclosure About Market Risk
|------- | ---------------------------------------------------------

The
Company has minimal foreign currency exchange risks, primarily associated with expenses for clinical trial, regulatory and sales and marketing activities outside of the United States and sales in South Africa. The Company sells Oxyglobin in Europe
in U.S. dollars. The distributor bears the risk of foreign currency exchange fluctuation. The Company sells Hemopure in South Africa in local currency. Fluctuations in revenues in South Africa are largely offset by fluctuations in the
Companys local expenses. Dramatic fluctuations in exchange rates could result in either increases or decreases in unit sales, as the effective unit price to the distributor and the customer would vary. The Company invests its cash and cash
equivalents in money market funds. These investments are subject to interest rate risk. However, due to the nature of our short-term investments, we believe that the interest rate risk exposure is not material.



|Item 4. | Controls and Procedures
|------- | -----------------------

(a) Evaluation of Disclosure Controls and
Procedures.

Under the supervision and with the participation of the Companys management, including its Chief Executive Officer and Chief Financial
Officer, the Company conducted an evaluation of the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the
end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective as of the end of the period covered
by this report to ensure that information required to be disclosed by the Company in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.



17



---

##### Table of Contents

(b) Changes in Internal Control Over Financial Reporting.

There have been no changes in the Companys internal control over financial reporting (as defined under Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during its most recently completed fiscal quarter that
have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.



18



---

##### Table of Contents

BIOPURE CORPORATION

Part IIOther Information

July 31, 2008



|Item 1. | Legal Proceedings
|------- | -----------------

The information in Note 8 to the Condensed
Consolidated Financial Statements is incorporated herein by reference.



|Item 1A. | Risk Factors
|-------- | ------------

Company Risks

We have a history of losses and expect future losses.

We have had annual losses from operations since our inception. In the fiscal years ended October 31, 2005, 2006 and 2007, we had losses from operations of $29.1 million, $26.9 million and
$36.9 million, respectively. We had an accumulated deficit of $577.0 million as of July 31, 2008. We anticipate that we will continue to generate additional losses. Even if Hemopure were to be approved by the FDA or we obtain
marketing authorization in another major market, we might not be able to achieve profitable operations.

We could fail to remain a
going concern.

We expect that our current assets, proceeds from the sale of securities and product sales will fund operations
through November 2008. In June 2008, we entered into an agreement with purchasers for a private placement of our common stock and warrants for up to $2.3 million, to be purchased in installments. Required additional funds may not be available to us,
on terms that we deem acceptable, if they are available at all. Our former independent registered public accounting firm modified their report for our fiscal year ended October 31, 2007 with respect to our ability to continue as a going
concern. We expect that our current independent registered public accounting firm will do likewise.

This type of modification typically
would indicate that our recurring losses from operations and current lack of sufficient funds to sustain operations through the end of the following fiscal year raise substantial doubt about our ability to continue as a going concern. Our
consolidated financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. If we became unable to continue as a going
concern, we would have to liquidate our assets and we might receive significantly less than the values at which they are carried on our consolidated financial statements. Any shortfall in the proceeds from the liquidation of our assets would
directly reduce the amounts, if any, that holders of our common stock could receive in liquidation.

The inclusion of a going concern
modification in our former independent registered public accounting firms audit opinion for fiscal 2007 may materially and adversely affect our stock price and our ability to raise new capital. If we fail to raise additional capital
before the end of November 2008, we may be required to cease operations.

We could fail in financing efforts if we fail to receive
stockholder approval when needed.

We are required under the Nasdaq Marketplace Rules to obtain stockholder approval for any
issuance of additional equity securities that would comprise more than 20% of our total shares of common stock outstanding before the issuance of the securities at a discount to the greater of book or market value in an offering that is not deemed
to be a public offering by Nasdaq. If we remain listed on Nasdaq, funding of our operations in the future may require stockholder approval for purposes of complying with the Nasdaq Marketplace Rules. We could require such approval to
raise additional funds, but might not be successful in obtaining any such required stockholder approval. If we remain listed on Nasdaq and we fail to obtain approval prior to a financing for which the Nasdaq believes we need stockholder approval, we
may be delisted.

Failure to raise sufficient additional funds will significantly impair or possibly cause us to cease the
development, manufacture and sale of our products and our ability to operate.

The development and regulatory processes for seeking
and obtaining regulatory approval to market Hemopure have been and will continue to be costly. We will require substantial working capital to develop, manufacture and sell Hemopure and to finance our operations until such time, if ever, as we can
generate positive cash flow. If Hemopure is approved for sale in the



19



---

##### Table of Contents

U.S. or the European Union, we could need to increase our manufacturing capacity, for which we will require significant additional funding. If
additional financing is not available when needed or is not available on acceptable terms, we may be unable to successfully develop or commercialize Hemopure or to continue to operate. A sustained period in which financing is not available could
force us to go out of business. If the U.S. Navy does not continue its development of Hemopure for a trauma indication, we will likely cease development of Hemopure for that indication because of limited resources. Without sufficient capital to
fund its operations and repay outstanding indebtedness, the Company will be unable to continue as a going concern. The accompanying financial statements do not include any adjustments that might result if such circumstances arise.

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

We will not be able to market Hemopure in the U.S. unless and until we receive FDA approval. As a prerequisite to further clinical trials for
Hemopure in the U.S., we must address ongoing FDA questions. We have been delayed, and could be further delayed, in responding to the FDA by outside contractors failure or inability to complete their tasks in a timely manner, our own staff
limitations and by other unanticipated delays or difficulties and lack of resources. The FDA to date has found inadequate the responses of the U.S. Naval Medical Research Center (NMRC) to questions raised in connection with its proposal to
conduct a trial of Hemopure in trauma patients in the out-of-hospital setting. If the FDA finds future responses made by us or the NMRC to be inadequate, we will be prevented indefinitely from pursuing the development of Hemopure in the U.S., a very
large, key market.

Furthermore, even if we adequately address the FDAs questions, we will need to obtain FDA acceptance of the
protocols for, and to complete, human clinical trials before applying for authorization to market Hemopure in the United States. We cannot predict whether or when we will be able to commence a U.S. clinical trial of Hemopure or that we will be
able to conduct or satisfactorily conclude additional clinical trials required to obtain U.S. marketing authorization.

In the case of the
trauma indication, the NMRC has taken primary responsibility for designing, seeking FDA acceptance of and conducting a clinical trial of Hemopure for out-of-hospital treatment of trauma patients in hemorrhagic shock. In 2005, it proposed a two-stage
Phase 2b/3 clinical trial called RESUS (Restore Effective SUrvival in Shock), which was placed on an FDA clinical hold. The FDAs Blood Products Advisory Committee in December 2006 recommended that the trial be redesigned as a Phase 2 trial.
The NMRC then submitted a Phase 2 protocol, which continues to be on clinical hold. Another version of RESUS, which would be conducted at military operations in the field, was also submitted and withdrawn pending further discussion and a pre-IND
meeting with the FDA. The FDA may not approve either version of the trial. If the FDA ultimately permits a RESUS trial to proceed, the trial results may not lead to FDA marketing approval for the proposed trauma indication because of poor outcome or
need for additional trials. Usually a Phase 2 trial is not adequate for market approval.

In addition, future or existing governmental
action or changes in FDA policies or precedents may result in delays or rejection of an application for marketing authorization. The FDA has considerable discretion in determining whether to grant marketing authorization for a drug and may delay or
deny authorization even in circumstances where the applicants clinical trials have proceeded in compliance with FDA procedures and regulations and have met the established end points of the trials. Despite all of our efforts, the FDA could
refuse to grant marketing authorization for Hemopure for any indication.

Challenges to FDA determinations are generally time consuming and
costly, and rarely succeed. We can give no assurance that we will obtain FDA marketing authorization for Hemopure for any indication. The failure to obtain any authorization would have severe adverse consequences.

Data generated or analyzed by third-parties may create additional regulatory hurdles and could decrease demand for Hemopure.

In April 2008, the Journal of the American Medical Association published an article entitledCell-Free Hemoglobin-Based Blood Substitutes and Risk of
Myocardial Infarction and Death  A Meta-Analysis. The studys authors reviewed information about five hemoglobin-based oxygen carriers, including Hemopure and two products no longer being developed. The study concluded that the use of
hemoglobin-based blood substitutes is associated with a significantly increased risk of death and myocardial infarction. We disagree with the methods employed in the study, and we are aware that the lead author has a conflict of interest that was
not disclosed along with the publication of the article. However, publication of analysis of our products, or products similar to our products, like this study, when negative, may undermine our efforts to obtain regulatory approvals for Hemopure and
may adversely affect sales of Hemopure in jurisdictions in which it receives marketing approval. Furthermore, the results of such studies may lead government agencies, professional societies, insurers, or practice management groups to adopt
guidelines or recommendations related to use of our products, recommended dosages of our products, or use of other therapies in lieu of our product. Such guidelines or recommendations may reduce the commercial prospects for Hemopure.



20



---

##### Table of Contents

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

We are seeking marketing authorization in the U.K. and we intend to seek to market Hemopure in other international
markets, including other European Union countries. Whether or not FDA marketing authorization has been obtained, we must obtain separate regulatory authorizations in order to market our products in the European Union and many other foreign
jurisdictions. The regulatory processes differ among these jurisdictions, and the time needed to secure marketing authorization may be even longer than that required for FDA authorization. Marketing authorization in any one jurisdiction does not
ensure authorization in a different jurisdiction. As a result, obtaining foreign authorizations will require additional expenditures and significant amounts of time. We can give no assurance that we will obtain marketing authorization for Hemopure
in any foreign jurisdiction other than that already obtained in South Africa.

Clinical trials are extremely costly and subject
to numerous risks and uncertainties.

To gain authorization from the FDA and European regulatory authorities for the commercial sale
of any product, including Hemopure, we must demonstrate in clinical trials, and thereby satisfy the regulatory authorities as to, the safety and efficacy of the product. Clinical trials are expensive and time-consuming. Clinical trials are also
subject to numerous risks and uncertainties not within our control. For example, data we obtain from preclinical and clinical studies are susceptible to varying interpretations that can impede regulatory approval.

In addition, many factors could delay or result in termination of ongoing or future clinical trials. Results from ongoing or completed preclinical or
clinical studies or analyses could raise concerns, real or perceived, over the safety or efficacy of an investigational pharmaceutical. We cannot assure investors that the FDA will not delay the development of Hemopure by further continuing its
current hold or placing protocols for other clinical trials we sponsor or others may sponsor on hold in the future. A clinical trial may also be delayed by slow patient enrollment. There may be limited availability of patients who meet the criteria
for certain clinical trials. Delays in planned patient enrollment can result in increased development costs and delays in regulatory approvals. Further, we rely on investigating physicians and the hospital trial sites to enroll patients. In
addition, patients may experience adverse medical events or side effects resulting in delays, whether or not the events or the side effects relate to our product.

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.

In general, we cannot sell Hemopure for any indication unless we receive regulatory approval for that indication. Regulatory authorities generally require
a separate marketing authorization for each proposed indication for the use of a drug. In order to market Hemopure for more than one indication, we will have to design clinical trials for each indication, submit the trial designs to applicable
regulatory authorities for review and complete those trials successfully. If any regulatory authority approves Hemopure for an indication, it may require a label cautioning against the products use for indications or classes of patients for
which it has not been approved. We may not have funds available to try to exploit Hemopure for all of its potential indications. Our potential revenues will be impaired by limitations on the marketing of Hemopure.

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.

Our current clinical development activities involve the pursuit of two indications: ischemia and trauma, and we are beginning to
develop a possible anemia indication in patients with acute myelogenous leukemia. We are pursuing trauma in the U.S. because the NMRC has agreed to be responsible for virtually all aspects of an advanced trauma trial. The FDA has prevented the
start of a proposed NMRC trial since June 2005. If the Navy were to decide not to continue to pursue this project, we would not have the benefit of this alliance and would be required to delay indefinitely work on a trauma indication. Additionally,
if the NMRC were to decide not to continue to pursue the advanced trauma trial, the Company could be required to return the $1.2 million paid in advance for product which has not been delivered.

If we cannot retain the personnel we need or if we cannot hire or retain highly qualified people, our operations will suffer.

We may experience the loss of personnel, including executives and other employees, as a result of attrition and reductions in force to conserve cash.
We have previously experienced such losses. We expect that in the future we will need to recruit and retain personnel for important positions. We may be unable to do so, in particular if we are unable to improve our financial position.

If we cannot generate adequate, profitable sales of Hemopure, we will not be successful.

To succeed, we must develop Hemopure commercially and sell adequate quantities of Hemopure at a profit. We may not accomplish either of these objectives.
To date, we have focused our efforts on developing Hemopure. Uncertainty exists regarding the potential size of any geographic market for Hemopure and the price that we can charge for it. In addition to population, the size of the market will be
affected by the indication(s) for which Hemopure is approved and will be greatly reduced if reimbursement for the cost of Hemopure is not available from health insurance companies or government programs.



21



---

##### Table of Contents

If we cannot find appropriate marketing partners, we may not be able to market and distribute
Hemopure effectively.

Our success will depend, in part, on our ability to market and distribute Hemopure effectively in major
markets. We have no experience in the sale or marketing of medical products for humans in a major market. In the event that we obtain FDA or European marketing authorization for Hemopure, we may choose initially to market Hemopure using an
independent distributor. Any such distributor:



| |  |  | 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------

We may instead seek an alternative arrangement, such as an alliance with a pharmaceutical company, or may be required to recruit, train and retain a
marketing staff and sales force of our own. We may not be successful in obtaining satisfactory distributorship agreements or establishing alternative arrangements.

If we cannot obtain market acceptance of Hemopure, we will not be able to generate adequate, profitable sales.

Even if we succeed in obtaining marketing authorization for Hemopure in one or more major markets, a number of factors may affect future sales of our product. These factors include:



| |  |  | 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, particularly in light of public perceptions in the U.S.,
Europe and elsewhere about the risk of mad cow disease and the risks of hemoglobin based oxygen carriers as a class; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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.

To obtain the authorization of the FDA and European regulatory authorities to sell Hemopure, we must demonstrate to them that we can manufacture Hemopure
in compliance with applicable good manufacturing practices, commonly known as GMPs. GMPs are stringent requirements that apply to all aspects of the manufacturing process. We are subject to inspections by the FDA and European regulatory authorities
at any time to determine whether we are in compliance with GMP requirements. If we fail to manufacture in compliance with GMPs, these regulatory authorities may refuse to authorize the marketing of Hemopure or revoke the authorizations to market
Oxyglobin or may take other enforcement actions with respect to Hemopure or Oxyglobin.

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.

Our
products are biologic drugs and require product manufacturing steps that are more complicated, time consuming and costly than those required for most chemical drugs. Minor deviations in our manufacturing processes or other problems could result in
unacceptable changes in the products that result in lot failures, increased production scrap, shipment delays, regulatory problems, product recalls or product liability, all of which could negatively affect our results of operations.

If we were unable to use our manufacturing facilities in Massachusetts or Pennsylvania, we would be unable to manufacture for an extended period of
time.

We manufacture at a single location in Massachusetts with raw material sourcing and initial processing in Pennsylvania.
Damage to either of these facilities due to fire, contamination, natural disaster, power loss or other events could cause us to cease manufacturing. For example, if our Massachusetts manufacturing facility were destroyed, it would take approximately
two years or more to rebuild and qualify it. In the reconstruction period, we would not be able to manufacture product and thus would have no supply of Hemopure for research and development, clinical trials or sales after we used up all finished
goods in our inventory. A new manufacturing facility would take longer to construct.



22



---

##### Table of Contents

If Hemopure receives marketing authorization 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.

If we are permitted to market Hemopure for indications with high demand in one or more markets, we
will need to construct new manufacturing capacity. Any increase in our manufacturing capacity would be dependent upon our obtaining substantial financing from third parties. Third parties can be expected to be unwilling to commit to finance a new
manufacturing facility so long as we do not have marketing authorization in a major market. We cannot assure that financing for new manufacturing capacity will be available when needed or, if available, will be on terms that are acceptable to us.
After the required financing was in place, it would take at least 30 to 36 months from groundbreaking to build a large Hemopure manufacturing facility and to qualify and obtain facility approval from the FDA or European regulatory authorities.

If Hemopure is approved for marketing in a major market and receives market acceptance, we could experience difficulty manufacturing
enough of the product to meet demand. The manufacturing processes we currently employ to produce small quantities of material for research and development activities and clinical trials may not be successfully scaled up for production of commercial
quantities at a reasonable cost or at all. We will face risks in the scale-up of our processes in the construction of any new manufacturing facility, and in turn could encounter delays, higher than usual rejects, additional reviews and tests of
units produced and other costs attendant to an inability to manufacture saleable product. Furthermore, scale-up might not succeed in lowering our product cost, which also could negatively affect our results of operations. If we cannot manufacture
sufficient quantities of Hemopure, we may not be able to build our business or operate profitably. In addition, if we cannot fill orders for Hemopure, customers might turn to alternative products and may choose not to use Hemopure even after we have
addressed any capacity shortage.

Our lack of operating history makes evaluating our business difficult.

Proceeds from the sales of equity securities, payments to fund our research and development activities, licensing fees, and interest income have provided
almost all of our funding to date. We have no adequate history of selling Hemopure upon which to base an evaluation of our business and prospects.

If we are not able to protect our intellectual property, competition could force us to lower our prices, which might reduce profitability.

We believe that our patents, trademarks and other intellectual property rights, including our proprietary knowledge, are important to our success. Accordingly, the success of our business will depend, in part, upon
our ability to defend our intellectual property against infringement by third parties. We cannot guarantee that our intellectual property rights will protect us adequately from competition from similar products. Some of our important patents have
relatively short remaining terms. Nor can we guarantee that additional products or processes we discover or seek to commercialize will receive adequate intellectual property protection.

In addition, third parties may successfully challenge our intellectual property. We have not filed patent applications in every country. In certain
countries, obtaining patents for our products, processes and uses may be difficult or impossible. Patents issued in regions other than the U.S. and Europe may be harder to enforce than, and may not provide the same protection as, patents
obtained in the U.S. and Europe.

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

We cannot guarantee that our products and manufacturing process will be free of
claims by third parties alleging that we have infringed their intellectual property rights. Several third parties hold patents with claims to compositions comprising polymerized hemoglobin and their methods of manufacture and use. One or more of
these third parties may assert that our activities infringe claims under an existing patent. Any such claim could be expensive and time-consuming to defend, and an adverse litigation result or a settlement of litigation could require us to pay
damages, obtain a license from the complaining party or a third party, develop non-infringing alternatives or cease using the challenged intellectual property. Any such result could be expensive or result in a protracted plant shutdown, in turn
adversely affecting our ability to operate profitably.

There can be no assurance that we would prevail in any intellectual property
infringement action, or be able to obtain a license to any third-party intellectual property on commercially reasonable terms, to successfully develop non-infringing alternatives on a timely basis, or to license alternative non-infringing
intellectual property, if any exists, on commercially reasonable terms. Any significant intellectual property impediment to our ability to develop and commercialize Hemopure would seriously harm our business and prospects.



23



---

##### Table of Contents

Our operating results will be adversely affected if we incur product liability claims in excess of
our insurance coverage.

The testing and marketing of medical products, even after regulatory approval, have an inherent risk of
product liability. We maintain limited product liability insurance coverage. Our profitability would be adversely affected by a successful product liability claim in excess of our insurance coverage. We cannot guarantee that product liability
insurance in adequate coverage amounts will be available in the future or be available on terms we could afford to pay.

Replacing
our sole-source suppliers for key materials could result in unexpected delays and expenses.

We obtain some key materials, including
filters and chemicals, and services from sole-source suppliers. All of these materials and services are commercially available elsewhere. If such materials were no longer available at a reasonable cost from our existing suppliers, we would need to
purchase substitute materials from new suppliers. If we needed to locate a new supplier, the substitute or replacement materials or facilities would need to be tested for equivalency. Such equivalency tests could significantly delay product
development, or delay or limit commercial sales of approved products and cause us to incur additional expense.

We obtain bovine hemoglobin
from one abattoir, from animals raised in several states of the U.S. We cannot predict the future effect, if any, on us of the spread of bovine spongiform encephalopathy (mad cow disease) in the U.S. Any quarantine affecting
herds that supply us or a shutdown of the abattoir that we use could have a material adverse effect on us, as we would have to find, validate and obtain regulatory approval of new sources of supply or new facilities.

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.

Provisions of
our restated certificate of incorporation and by-laws, as well as our stockholder rights plan, could impede attempts by stockholders to remove or replace our management or could discourage others from initiating a potential merger, takeover or other
change of control transaction, including a potential transaction at a premium over market price that a stockholder might consider to be in its best interest. In particular:



| |  |  | 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 acquirer 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.

The biotechnology and pharmaceutical industries are highly competitive. There are a number of companies, universities and research organizations actively engaged in research and development of products that may be
similar to, or alternatives to, Hemopure for trauma, ischemia or anemia indications. We are aware that one public company competitor, Northfield Laboratories Inc., has completed a pivotal trial of a hemoglobin-based oxygen carrier produced from
human blood that has passed its expiration date for human transfusion, and has stated its intention to file a biologic license application in 2008. We are also aware that other companies are conducting preclinical studies and clinical trials of
hemoglobin-based or perfluorocarbon oxygen carriers. The products being developed by these companies are intended for use in humans and as such could compete, if authorized for marketing by regulatory authorities, with Hemopure. We may also
encounter competition in ischemia indications from medical devices and drugs on the market or currently under development.

Competition could diminish our ability to become profitable or affect our profitability in the future. Our existing and potential competitors:



| |  |  | are conducting clinical trials of their products;
| | - |  | -------------------------------------------------



| |  |  | have been or may be able to access substantially greater resources than we have and be better equipped to develop, manufacture and market their products;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



24



---

##### Table of Contents

| |  |  | may have their products authorized 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.

The FDA and foreign regulatory authorities continue to regulate products even after they receive marketing authorization.
Even if Hemopure is being marketed, the manufacture and marketing of Hemopure will be subject to ongoing regulation, including compliance with current good manufacturing practices, adverse event reporting requirements and general prohibitions
against promoting products for unapproved or off-label uses. We would also be subject to inspection and market surveillance by the FDA and foreign regulatory authorities for compliance with these and other requirements. We are subject to
such regulation, inspection and surveillance in South Africa. Any enforcement action resulting from failure, even by inadvertence, to comply with these requirements could affect the manufacture and marketing of Hemopure. In addition, the FDA or
foreign regulatory authorities could withdraw a previously approved product from the applicable market(s) upon receipt of newly discovered information. Furthermore, the FDA or foreign regulatory authorities could require us to conduct additional,
and potentially expensive, studies in areas outside our approved indications. Moreover, unanticipated changes in existing regulations or the adoption of new regulations could affect and make more expensive the continued manufacturing and marketing
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.

The federal government and private insurers have considered ways to change, and have changed, the manner in
which health care services are provided in the U.S. Potential approaches and changes in recent years include controls on health care spending and the creation of large purchasing groups. In the future, it is possible that the government may
institute price controls and limits on Medicare and Medicaid spending. These controls and limits might affect the payments we collect from sales of our products. European governments generally control expenditures on medicines through price control
and other restrictive practices. If we succeed in bringing Hemopure to market, uncertainties regarding future health care reform and private market practices would affect our ability to sell Hemopure in large quantities at profitable pricing in the
U.S. and abroad.

Uncertainty of third-party reimbursement could affect our profitability.

Sales of medical products largely depend on the reimbursement of patients medical expenses by governmental health care programs and private health
insurers. Even if Hemopure marketing is authorized, there is no guarantee that governmental health care programs or private health insurers would reimburse for purchases of Hemopure, or reimburse a sufficient amount to permit us to sell Hemopure at
high enough prices to generate a profit. Hemopure sales in South Africa are being adversely affected by a lack of third-party reimbursement.

Investment
Risks

The Nasdaq Capital Market may cease to list our Class A common stock, and delisting may cause the value of an
investment in our Company to substantially decrease.

We may be unable to meet the listing requirements of the Nasdaq Capital Market
in the future. To maintain our listing, we are required, among other things, to maintain a daily closing bid price per share of $1.00. On December 14, 2007, we received notice from the Nasdaq Stock Market that the closing bid price of our
Class A common stock had fallen below and remained below $1.00 for 30 consecutive business days. As a result, we are out of compliance with the $1.00 minimum bid price requirement for continued inclusion of our Class A common stock in the
Nasdaq Capital Market. We were provided with 180 calendar days, or until June 11, 2008, to regain compliance with the minimum bid price requirement. On June 12, 2008, we received notice from Nasdaq that because we were not compliant with
the minimum bid price requirement, but did meet all other listing criteria for the Nasdaq Capital Market, we have an additional 180 calendar days, or until December 8, 2008, to regain compliance with the minimum bid price requirement 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 we do not regain compliance with the minimum bid price requirement by December 8, 2008, or fail to meet any of the
other listing criteria, Nasdaq will provide written notification that our Class A common stock will be delisted.

Delisting would
adversely affect the trading price and limit the liquidity of our common stock and therefore could cause the value of an investment in our Company to decrease.



25



---

##### Table of Contents

As we sell additional shares, our stock price may decline as a result of the dilution which will
occur to existing stockholders.

Until we are profitable, we will need significant additional funds to develop our business and
sustain our operations. Any additional sales of shares of our common stock are likely to have a dilutive effect on some or all of our then existing stockholders. Resales of newly issued shares in the open market could also have the effect of
lowering our stock price, thereby increasing the number of shares we may need to issue in the future to raise the same dollar amount and consequently further diluting our outstanding shares.

The perceived risk associated with the possible sale of a large number of shares could cause some of our stockholders to sell their stock, thus causing
the price of our stock to decline. In addition, actual or anticipated downward pressure on our stock price due to actual or anticipated sales of stock could cause some institutions or individuals to engage in short sales of our common stock, which
may itself cause the price of our stock to decline.

We may be unable to raise additional capital. A sustained inability to raise capital
could force us to go out of business. Significant declines in the price of our common stock could also impair our ability to attract and retain qualified employees, reduce the liquidity of our common stock and result in the delisting of our common
stock from the Nasdaq Stock Market.

Shares eligible for future sale may cause the market price for our common stock to drop
significantly, even if our business is doing well.

We cannot predict the effect, if any, that future sales of our common stock or
the availability of shares for future sale will have on the market price of our common stock from time to time. Shares of our common stock issued in the future, including shares issued upon exercise of outstanding options and warrants, may become
available for resale in the public market from time to time, and the market price of shares of our common stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them.

Our stock price has been and may continue to be highly volatile; volatility may adversely affect holders of our stock and our ability to raise
capital.

The trading price of our common stock has been and is likely to continue to be extremely volatile. During the period from
November 1, 2004 to July 31, 2008, the trading price of our stock ranged from a low of $0.31 per share (on April 7, 2008) to a high of $23.10 per share (on January 4, 2005). Our stock price and trading volume could be
subject to wide fluctuations in response to a variety of factors including, but not limited to, the following:



| |  |  | 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 or U.K. action or delays in FDA or U.K. action on Hemopure or competitors products;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | 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
| | - |  | ------------------------------------------------------------------



| |  |  | delisting from the Nasdaq Stock Market.
| | - |  | ---------------------------------------



26



---

##### Table of Contents

External factors may also adversely affect the market price for our common stock. The price and liquidity
of our common stock may be significantly affected by the overall trading activity and market factors affecting small capitalization biotechnology stocks generally.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds.
|------- | ------------------------------------------------------------

Included in the Companys current report on Form 8-K filed on July 3, 2008



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

None



|Item 5. | Other Information.
|------- | ------------------

None



|Item 6. | Exhibits
|------- | --------

The exhibits are listed in the accompanying Exhibit
Index.



27



---

##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                         |  |                     |  |                                      
|------------------------ |  | ------------------- |  | -------------------------------------
|                         |  | BIOPURE CORPORATION
|                         |  |                    
|Date: September 15, 2008 |  | By:                 |  | /s/ Zafiris G. Zafirelis             
|                         |  |                     |  | Zafiris G. Zafirelis                 
|                         |  |                     |  | President and Chief Executive Officer



28



---

##### Table of Contents

EXHIBIT INDEX



|         |  |                                                                                                                                                |  |         
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|Exhibits |  | Description                                                                                                                                    |  | Location
|3 (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)    
|         |  |                                                                                                                                               
|4.26     |  | Form of Underwriters Investor Warrant, dated December 13, 2006                                                                                |  | (12)    
|         |  |                                                                                                                                               
|4.27     |  | Form of Underwriters Warrant, dated December 13, 2006                                                                                         |  | (12)    
|         |  |                                                                                                                                               
|4.28     |  | Form of Investor Warrant, dated November 6, 2007                                                                                               |  | (13)    
|         |  |                                                                                                                                               
|4.29     |  | Form of Underwriters Investor Warrant, dated November 6, 2007                                                                                 |  | (13)    
|         |  |                                                                                                                                               
|4.30     |  | Form of Underwriters Warrant, dated November 6, 2007                                                                                          |  | (13)    
|         |  |                                                                                                                                               
|4.31     |  | Form of Common Stock Warrant, dated June 30, 2008                                                                                              |  | (14)    
|         |  |                                                                                                                                               
|31.1     |  | Certification of Zafiris G. Zafirelis pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                |  |         
|         |  |                                                                                                                                               
|31.2     |  | Certification of Zafiris G. Zafirelis pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                |  |         
|         |  |                                                                                                                                               
|32.1     |  | 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 2002 |  |         
|         |  |                                                                                                                                               
|32.2     |  | 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 2002 |  |         



29



---

##### Table of Contents



|(1) | Previously filed as an exhibit to the Companys report on Form 8-K dated October 2, 2007 and incorporated herein by reference thereto.
|--- | --------------------------------------------------------------------------------------------------------------------------------------

|(2) | Previously filed as an exhibit to the Companys report on Form 8-K dated June 17, 2008 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.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) | Previously filed as an exhibit to the Companys registration statement on Form S-1/A (File No. 333-146013) and incorporated herein by reference thereto.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) | Previously filed as an exhibit to the Companys report on Form 8-K dated July 3, 2008 and incorporated herein by reference thereto.
|---- | -----------------------------------------------------------------------------------------------------------------------------------

|. | 
|- | 



30