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SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
 FORM 10-Q þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the quarterly period ended April 30, 2005 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the transition period from            to Commission File Number 001-15167 BIOPURE CORPORATION  Delaware
(State of Incorporation)
    
    04-2836871
(IRS Employer Identification Number)
 11 Hurley Street, Cambridge, Massachusetts
(Address of principal executive offices)
    
    02141
(Zip Code)
 (617) 234-6500
(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. þ Yes o No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). þ Yes o No The number of shares outstanding of each of the issuers classes of common stock as of June 7, 2005
was: Class A Common Stock, $.01 par value
    
    
    24,359,558Class B Common Stock, $1.00 par value
    
    
    117.7




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BIOPURE CORPORATION INDEX TO FORM 10-Q PagePart I  Financial Information:Item 1 - Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at April 30, 2005 and October 31, 2004
    
    
    3Condensed Consolidated Statements of Operations for the three and six months
ended April 30, 2005 and April 30, 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended April
30, 2005 and April 30, 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2 - Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3 - Quantitative and Qualitative Disclosure of Market Risk
    
    
    22Item 4 - Controls and Procedures
    
    
    22Part II  Other Information:Item 1 - Legal Proceedings
    
    
    23Item 2
- Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 3 - Defaults Upon Senior Securities
    
    
    23Item 4  Submission of Matters to a Vote of Security Holders
    
    
    23Item 5 - Other Information
    
    
    25Item 6 - Exhibits
    
    
    36Signatures
    
    
    37Exhibit IndexEx-3.(i) Restated Certificate of IncorporationEx-31.1 Section 302 Certification of CEOEx-31.2 Section 302 Certification of CFOEx-32.1 Section 906 Certification of CEOEx-32.2 Section 906 Certification of CFO
  Biopure®, Hemopure® and Oxyglobin®are registered trademarks of
Biopure Corporation. 2




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Part I 
  BIOPURE CORPORATION 
    April 30, 2005
    
    
    October 31, 2004Assets:Current assets:Cash and cash equivalents
    
    $
    20,707
    
    
    $
    6,448Accounts receivable, net
    
    
    362
    
    
    
    109Inventories
    
    
    3,824
    
    
    
    4,512Other current assets
    
    
    944
    
    
    
    1,597Total current assets
    
    
    25,837
    
    
    
    12,666Property, plant and equipment, net
    
    
    29,376
    
    
    
    31,400Other assets
    
    
    1,028
    
    
    
    1,060Total assets
    
    $
    56,241
    
    
    $
    45,126Liabilities and stockholders equity:Current liabilities:Accounts payable
    
    $
    385
    
    
    $
    542Accrued expenses
    
    
    2,403
    
    
    
    3,570Current portion of deferred revenue
    
    
    196
    
    
    
    Current portion of restructuring costs
    
    
    205
    
    
    
    Total current liabilities
    
    
    3,189
    
    
    
    4,112Deferred revenue, net of current portion
    
    
    981
    
    
    
    1,177Deferred compensation
    
    
    
    
    
    
    121Restructuring costs, net of current portion
    
    
    354
    
    
    
    Other long-term liabilities
    
    
    41
    
    
    
    Total long-term liabilities
    
    
    1,376
    
    
    
    1,298Stockholders equity:Preferred stock, $0.01 par value, 30,000,000 shares authorized, no shares outstanding
    
    
    
    
    
    
    Common stock:Class A, $0.01 par value, 200,000,000 shares authorized, 24,359,558 shares
outstanding at April 30, 2005 and 11,658,664 at October 31, 2004
    
    
    244
    
    
    
    117Class B, $1.00 par value, 179 shares authorized, 117.7 shares outstanding
    
    
    
    
    
    
    Capital in excess of par value
    
    
    511,541
    
    
    
    485,621Contributed capital
    
    
    24,574
    
    
    
    24,574Notes receivable
    
    
    (234
    )
    
    
    (258
    )Accumulated deficit
    
    
    (484,449
    )
    
    
    (470,338
    )Total stockholders equity
    
    
    51,676
    
    
    
    39,716Total liabilities and stockholders equity
    
    $
    56,241
    
    
    $
    45,126
 See accompanying notes. 3




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BIOPURE CORPORATION 
    Three Months Ended
    
    
    Six Months EndedApril 30, 2005
    
    
    April 30, 2004
    
    
    April 30, 2005
    
    
    April 30, 2004Revenues:Oxyglobin product sales
    
    $
    305
    
    
    $
    883
    
    
    $
    597
    
    
    $
    1,633Research and development revenues
    
    
    315
    
    
    
    10
    
    
    
    702
    
    
    
    10Total revenues
    
    
    620
    
    
    
    893
    
    
    
    1,299
    
    
    
    1,643Cost of product revenues
    
    
    2,891
    
    
    
    4,006
    
    
    
    5,973
    
    
    
    9,252Gross loss
    
    
    (2,271
    )
    
    
    (3,113
    )
    
    
    (4,674
    )
    
    
    (7,609
    )Operating expenses:Research and development
    
    
    1,391
    
    
    
    2,974
    
    
    
    2,910
    
    
    
    5,396Sales and marketing
    
    
    114
    
    
    
    949
    
    
    
    230
    
    
    
    1,792General and administrative
    
    
    2,867
    
    
    
    5,009
    
    
    
    6,481
    
    
    
    8,282Total operating expenses
    
    
    4,372
    
    
    
    8,932
    
    
    
    9,621
    
    
    
    15,470Loss from operations
    
    
    (6,643
    )
    
    
    (12,045
    )
    
    
    (14,295
    )
    
    
    (23,079
    )Other income, net
    
    
    79
    
    
    
    41
    
    
    
    184
    
    
    
    97Net loss
    
    $
    (6,564
    )
    
    $
    (12,004
    )
    
    $
    (14,111
    )
    
    $
    (22,982
    )Per share data:Basic and diluted net loss per common share
    
    $
    (0.27
    )
    
    $
    (1.52
    )
    
    $
    (0.69
    )
    
    $
    (3.00
    )Weighted-average shares used in computing basic and
diluted net loss per common share
    
    
    24,293
    
    
    
    7,889
    
    
    
    20,372
    
    
    
    7,650
 See accompanying notes. 4




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BIOPURE CORPORATION 
    Six Months EndedApril 30, 2005
    
    
    April 30, 2004Operating activities:Net loss
    
    $
    (14,111
    )
    
    $
    (22,982
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    2,079
    
    
    
    2,634Deferred compensation
    
    
    (121
    )
    
    
    (21
    )Cancellation of note receivable and accrued interest
    
    
    24
    
    
    
    (1
    )PA license amortization
    
    
    
    
    
    
    29Non-cash charge related to issuance of stock
    
    
    808
    
    
    
    969Changes in assets and liabilities:Accounts receivable
    
    
    (253
    )
    
    
    163Inventories
    
    
    688
    
    
    
    1,014Other current assets
    
    
    653
    
    
    
    264Restructuring costs for vacated facility
    
    
    559
    
    
    
    Accounts payable
    
    
    (157
    )
    
    
    (585
    )Accrued expenses
    
    
    (1,167
    )
    
    
    (1,303
    )Other liabilities
    
    
    41
    
    
    
    Net cash used in operating activities
    
    
    (10,957
    )
    
    
    (19,819
    )Investing activities:Purchases of property, plant and equipment
    
    
    (27
    )
    
    
    (179
    )Other assets
    
    
    4
    
    
    
    1Net cash used in investing activities
    
    
    (23
    )
    
    
    (178
    )Financing activities:Net proceeds from sales of common stock
    
    
    21,026
    
    
    
    5,000Proceeds from the exercise of warrants
    
    
    4,213
    
    
    
    Net cash provided by financing activities
    
    
    25,239
    
    
    
    5,000Net increase (decrease) in cash and cash equivalents
    
    
    14,259
    
    
    
    (14,997
    )Cash and cash equivalents at beginning of period
    
    
    6,448
    
    
    
    26,862Cash and cash equivalents at end of period
    
    $
    20,707
    
    
    $
    11,865
 See accompanying notes. 5




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BIOPURE CORPORATION 
     1.
    Basis of PresentationThe accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States for interim
financial information and pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included. Operating results
for the three and six month periods ended April 30, 2005 are not necessarily indicative of the
results that may be expected for the year ending October 31, 2005; however, the Company expects
to incur a substantial loss for the year ending October 31, 2005.During the Annual Meeting of the Stockholders of the Company held on April 6, 2005, the
stockholders voted in favor of amending the Companys restated Certificate of Incorporation to
effect a reverse stock split of the Companys class A common Stock for implementation in the
discretion of the Board of Directors. As such and effective May 27, 2005, the Companys
outstanding class A common shares, stock options and warrants reverse split at a six to one
ratio, with post split shares retaining a par value of $.01 per share. All references to shares
and options, in this period and in prior periods, have been adjusted to reflect the post reverse
split amounts.During the first and second quarters of fiscal 2004 expenses for certain departments were charged
to research and development. In connection with changes in the nature of the work being performed
by people in these departments, the Company decided to charge the costs of the departments to
cost of goods sold and general and administrative. Consequently, it reclassified the charges in
the first and second quarters of fiscal 2004. For the first and second fiscal quarters of 2004,
$577,000 and $517,000, respectively, have been reclassified from research and development. Of
these costs, $441,000 and $402,000 for the first and second quarters, respectively, are now shown
as cost of revenues and $136,000 and $115,000 for the first and second quarters, respectively, as
general and administrative. These reclassifications had no impact on the loss from operations.During the first fiscal quarter of 2005, the Company vacated leased office space and sublet
it. In accordance with FAS 146, Accounting for Costs Associated with Exit or Disposal
Activities,the Company must record, as a restructuring charge,
the net present value of the remaining lease payments reduced by the amount of sublease rent the
Company expects to collect. The charge would have been $630,000, or $0.03 per share, for the first fiscal quarter of 2005. The Company has
included this charge in general and administrative expense in the second fiscal quarter of 2005.
The Company does not believe that this charge is material to the
first or second quarter of
2005 nor will it be material to fiscal 2005 financial statements. Payments made
against the restructuring liability, net of sublease income, amounted
to approximately $165,000, resulting in a remaining accrual balance
of $559,000, of which $205,000 is current as of April 30, 2005.The accompanying consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries, Biopure Netherlands, BV, Biopure South Africa, Pty, Ltd., Reperfusion
Systems Incorporated, DeNovo Technologies Corporation and Biopure Overseas Holding Company, and
NeuroBlok Incorporated, a 60% owned subsidiary. All intercompany accounts and transactions have
been eliminated in consolidation.These financial statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Companys Annual Report on Form 10-K for the fiscal
year ended October 31, 2004, filed with the SEC on January 14, 2005.Certain prior period items have been reclassified to conform to the current periods
presentation.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 6




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BIOPURE CORPORATION
Notes to Condensed Consolidated Financial Statements
April 30, 2005
(Unaudited)
(continued)  accumulated deficit of $484,449,000 at April 30, 2005. As of April 30, 2005, the Company had
$20,707,000 in cash and cash equivalents. The Company expects this funding to be sufficient to
fund operations into March 2006 under the Companys current operating plan. Additional capital will be required to fund the
Companys operations until the Company becomes profitable. The Company does not expect to be
profitable for at least the next several years and may never become profitable. The Company
intends to seek additional capital through sales of equity securities and, if appropriate, to
consider strategic collaborations for sharing development and commercialization costs. However,
there can be no assurance that adequate additional financing will be available to the Company on
terms that it deems acceptable, if at all.2.
    Net Loss per ShareDuring the Annual Meeting of the Stockholders of the Company held on April 6, 2005, the
stockholders voted in favor of amending the Companys restated Certificate of Incorporation to
effect a reverse stock split of the Companys class A common Stock for implementation in the
discretion of the Board of Directors. As such and effective May 27, 2005, the Companys
outstanding class A common shares, stock options and warrants reverse split at a six to one
ratio, with post split shares retaining a par value of $.01 per share. All references to shares
and options, in this period and in prior periods, have been adjusted to reflect the post reverse
split amounts.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 upon
the weighted-average number of common shares outstanding during the period, adjusted for the
dilutive effect of the Companys common stock equivalents, including the shares issuable upon
the conversion of Class B Common Stock outstanding and the exercise of common stock options and
warrants. The dilutive effect of stock options and warrants is determined based on the treasury
stock method using the average market price of common stock for the period. However, basic and
diluted net loss per common share is computed the same for all periods presented as the Company
had losses for all periods presented and, consequently, the effect of Class B Common Stock,
options and warrants is anti-dilutive. Dilutive weighted average shares outstanding do not include
6,431,191 potential common-equivalent shares for the three and six months ended April 30, 2005
and 2,866,190 common-equivalent shares for the three and six months ended April 30, 2004, as
their effect would have been anti-dilutive.3.
    Capital StockDuring the three months ended April 30, 2005, warrants were exercised to acquire an aggregate of
371,650 shares of the Companys class A common stock at a weighted average exercise price of
$2.45 per share. Total proceeds from these warrant exercises were approximately $911,000.4.
    Stock Based CompensationThe Company applies the intrinsic value method pursuant to Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees,and related interpretations, in accounting
for its stock-based compensation plans. Accordingly, no compensation expense has been recognized
for stock-based awards to employees. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure,an amendment of FASB Statement No. 123 (SFAS No. 148).
Had compensation expense for the Companys stock option plans been determined based on the fair
value at the grant date for awards under these plans, consistent with the methodology prescribed
under SFAS No. 148, the Companys net loss and net loss per share would have 7




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BIOPURE CORPORATION
Notes to Condensed Consolidated Financial Statements
April 30, 2005
(Unaudited)
(continued)  approximated the pro forma amounts indicated below: Three Months Ended
    
    
    Six Months EndedApril 30,
    
    
    April 30,
    
    
    April 30,
    
    
    April 30,In thousands (except per share data)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss, as reported
    
    $
    (6,564
    )
    
    $
    (12,004
    )
    
    $
    (14,111
    )
    
    $
    (22,982
    )Deduct: Total stock-based
compensation expense determined
under fair value based method for
all employee awards
    
    
    (678
    )
    
    
    (885
    )
    
    
    (1,570
    )
    
    
    (1,613
    )Pro forma net loss
    
    $
    (7,242
    )
    
    $
    (12,889
    )
    
    $
    (15,681
    )
    
    $
    (24,595
    )Net loss per share:Basic and diluted  as reported
    
    $
    (0.27
    )
    
    $
    (1.52
    )
    
    $
    (0.69
    )
    
    $
    (3.00
    )Basic and diluted  pro forma
    
    $
    (0.30
    )
    
    $
    (1.63
    )
    
    $
    (0.77
    )
    
    $
    (3.22
    )
  The weighted average fair value of each stock option included in the preceding pro forma amounts
was estimated using the Black-Scholes option-pricing model and is amortized over the vesting
period of the underlying options. The assumptions used to calculate the SFAS No. 148 pro forma
disclosure and the weighted average information are as follows: Three Months Ended
    
    
    Six Months EndedApril 30,
    
    
    April 30,
    
    
    April 30,
    
    
    April 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Risk-free interest rate
    
    
    3.81
    %
    
    
    2.76
    %
    
    
    3.81
    %
    
    
    2.76
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected lives
    
    5 years
    
    7 years
    
    5 years
    
    7 yearsExpected volatility
    
    
    82
    %
    
    
    81
    %
    
    
    82
    %
    
    
    81
    %
  5.
    InventoriesInventories are valued at the lower of cost (determined using the first-in, first-out method) or
market. Inventories were as follows: In thousands
    
    April 30, 2005
    
    
    October 31, 2004Raw materials
    
    $
    325
    
    
    $
    581Work-in-process
    
    
    219
    
    
    
    382Finished goods-Oxyglobin
    
    
    995
    
    
    
    1,223Finished goods-Hemopure
    
    
    2,285
    
    
    
    2,326$
    3,824
    
    
    $
    4,512
  6.
    Accrued ExpensesAccrued expenses consisted of the following: In thousands
    
    April 30, 2005
    
    
    October 31, 2004Accrued payroll and related employee expenses
    
    $
    388
    
    
    $
    452Accrued vacation
    
    
    427
    
    
    
    420Accrued legal and audit fees
    
    
    269
    
    
    
    641Accrued health and dental premiums
    
    
    
    
    
    
    154Financing fees
    
    
    537
    
    
    
    537Preclinical animal studies
    
    
    
    
    
    
    335Accrued severance
    
    
    133
    
    
    
    60Other
    
    
    649
    
    
    
    971$
    2,403
    
    
    $
    3,570
 8




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BIOPURE CORPORATION
Notes to Condensed Consolidated Financial Statements
April 30, 2005
(Unaudited)
(continued)  7.
    CommitmentsResearch Agreement(1)In March 2003, the Company entered into a Cooperative Research and Development Agreement (CRADA)
with the U. S. Naval Medical Research Center (NMRC). Under the CRADA, as amended, the NMRC has
primary responsibility for designing, seeking FDA acceptance of and conducting a planned two-stage Phase
2/3 clinical trial of Hemopure® [hemoglobin glutamer  250 (bovine)] in trauma
patients with severe hemorrhagic shock (acute blood loss) in the out-of-hospital setting. Each of
Biopure and the NMRC is expected to fund the activities for which it is responsible. The Company
believes that all or most of its costs could be covered by government funding. To date,
Congress has appropriated a total of $18.5 million to the U.S. Army and Navy for the development
of Hemopure for potential use in military and civilian trauma indications and to cover military
administrative costs. Of this amount, approximately $5 million is being administered by the Army
to help fund the Companys obligations under the CRADA.(2) During 2004, the
NMRC worked to address FDA questions arising from a pre-investigational new drug (IND) meeting
held in April 2004 to discuss the trauma trial protocol, entitled Restore Effective Survival in
Shock (RESUS). The Company believes the NMRC is preparing to submit to the FDA an IND application for the proposed
RESUS trial. The Company understands this IND application is undergoing final review within the Department of Defense.8.
    Recently Issued Accounting StandardsOn December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No.
123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123,
Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash
Flows. Generally, the approach in Statement 123(R) is similar to the approach described in
Statement 123. However, Statement 123(R) requiresall share-based payments to employees,
including grants of employee stock options, to be recognized in the income statement based on
their fair values. Pro forma disclosure will no longer be an alternative. On April 15, 2005 the
Securities and Exchange Commission (SEC) adopted a rule that amended the compliance dates for
SFAS 123(R), which the Company will now be required to adopt in its first fiscal quarter of
2006. Early adoption is permitted in periods in which financial statements have not yet been
issued.Statement 123(R) permits public companies to adopt its requirements using one of two methods: a
modified prospective and a modified retrospective method. Under the modified prospective
method, compensation cost is recognized beginning with the effective date (a) based on the
requirements of Statement 123(R) for all share-based payments granted after the effective date
and (b) based on the requirements of Statement 123 for all awards granted to employees prior to
the effective date of Statement 123(R) that remain unvested on the   (1) The content of this document does not necessarily reflect the position or the policy of the
U.S. Government or the Department of Defense, and no official endorsement should be inferred.
Completion of the proposed RESUS clinical trial of Hemopure in trauma is contingent upon further
funding.(2) $5,102,306 is from Grant DAMD17-02-1-0697. The U.S. Army Medical Research Acquisition Activity,
820 Chandler Street, Fort Detrick MD 21702-5014 is the awarding and administering acquisition
office. 9




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BIOPURE CORPORATION
Notes to Condensed Consolidated Financial Statements
April 30, 2005
(Unaudited)
(continued)  effective date. The modified retrospective method includes the requirements of the modified
prospective method described above, but also permits entities to restate based on the amounts
previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all
prior periods presented or (b) prior interim periods of the year of adoption. The Company is
evaluating which method of adoption it will apply for Statement 123(R).As permitted by Statement 123, the Company currently accounts for share-based payments to
employees using Opinion 25s intrinsic value method and, as such, generally recognizes no
compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R) fair
value method will have a significant impact on the Company's result of operations, although it will have no
impact on its overall financial position. The impact of adoption of Statement 123(R) cannot be
predicted at this time because it will depend on levels of share-based payments granted in the
future. However, had the Company adopted Statement 123(R) in prior periods, the Company believes
that the impact of that standard would have approximated the impact of Statement 123 as described
in the disclosure of pro forma net loss per share in Note 4 to the Companys consolidated
financial statements.9.
    LitigationSEC Investigation.During the fourth quarter of fiscal 2003, the Company was notified of a
confidential investigation by the Securities and Exchange Commission (SEC). On December 22, 2003,
the Company, its former Chief Executive Officer and its former Senior Vice President, Regulatory
and Operations, and on April 29, 2004 the Companys Chairman, a former director, its Chief
Technology Officer and General Counsel each
received Wells Notices from the staff of the SEC stating the Staffs preliminary determination
to recommend that the SEC bring a civil injunctive proceeding against the Company and the
individuals. Biopure and the
individuals have each responded in writing to the notices and explained why the SEC ought not to
initiate a proceeding. To the Companys knowledge, no formal recommendation has been made to
date, but the Staff has indicated that it intends to make such a recommendation.Biopure believes the notices relate to Company disclosures concerning communications with the FDA
about a clinical hold imposed on a proposed clinical trial protocol the Company submitted to the
FDA in March 2003 and about the status of the Companys BLA to market Hemopure in the United
States for the treatment of acutely anemic patients undergoing orthopedic surgery. In March 2003,
the Company filed a proposed protocol for a Phase 2 clinical trial in trauma patients in a
hospital setting. The FDA put the protocol and its related investigational new drug (IND)
application on clinical hold, meaning the trial could not begin as proposed. The FDA cited
safety concerns based on, among other things, a preliminary review of data from the Companys
Phase 3 clinical trial in patients undergoing orthopedic surgery. After the Company responded in
two written submissions, the clinical hold was reasserted twice in writing. The Company did not
disclose the clinical hold because it did not consider, and does not consider, correspondence
with the FDA about data interpretation in the development of a proposed protocol to be
material, notwithstanding the references to data in the BLA. The Staffs investigation also
concerns the Companys disclosures concerning the FDAs review of the BLA, after the Companys
receipt of the FDAs letter regarding the BLA dated July 30, 2003. The Company has been
cooperating throughout the investigation with the SEC Staff. At this time, the Company cannot
estimate the extent of the impact this inquiry may have on its financial position or results of
operations.Litigation.Biopure, its former Chief Executive Officer, its Chief Technology Officer and its
former Chief Financial Officer were named as defendants in a number of similar, purported class
action complaints, filed between December 30, 2003 and January 28, 2004 (the complaints), in
the U.S. District Court for the District of Massachusetts (the Court) by alleged purchasers of
Biopures common stock. Those complaints have since been consolidated in a single action and an
amended complaint has been filed against the Company, the 10




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BIOPURE CORPORATION
Notes to Condensed Consolidated Financial Statements
April 30, 2005
(Unaudited)
(continued)  previously named individuals and several of the Companys current and former directors and
officers. The complaint claims that Biopure violated the federal securities laws by publicly
disseminating materially false and misleading statements regarding the status of its Hemopure BLA
with the FDA and of its trauma development program, resulting in the artificial inflation of
Biopures common stock price during the purported class period. The complaint does not specify
the amount of alleged damages plaintiffs seek to recover. The complaint sets forth a class period
of March 2003 through December 24, 2003. The defendants believe that the complaint is without
merit and intend to defend the actions vigorously. A motion to dismiss the amended complaint is
pending with oral argument expected to be scheduled. At this time, the Company cannot estimate
what impact these cases may have on its financial position or results of operations.The seven members of Biopures Board of Directors during the period March through December 2003,
were named as defendants in two shareholder derivative actions filed on January 26, 2004 and
January 29, 2004 in the same Court. A consolidated, amended complaint has now been filed. The
Company is named as a defendant, even though in a derivative action any award is for the benefit
of the Company, not individual stockholders. The consolidated, amended complaint alleges that the
individual directors and an officer breached fiduciary duties in connection with the same
disclosures referenced in the purported securities class action. The complaint does not specify
the amount of the alleged damages plaintiffs seek to recover. A motion to dismiss the amended
complaint is pending. At this time, the Company cannot estimate what impact, if any, these cases
may have on its financial position or results of operations. A different shareholder also made
demand on the Companys directors on June 30, 2004 that they pursue similar claims on behalf of
the Company, which the Board is addressing.10.
    Subsequent EventsOn May 19, 2005, the board of directors approved a one-for-six reverse split of outstanding
Biopure class A common stock to take effect on May 27, 2005. The reverse split was intended to
broaden Biopures investor base and help the Company regain compliance with the Nasdaq National
Markets $1.00 minimum bid price listing requirement by increasing the share price and decreasing
the number of shares, warrants and options outstanding.The Company had 146,157,346 shares of class A common stock outstanding at the end of trading on
May 26, 2005, which converted into 24,359,558 shares. The stock is expected to trade under the
ticker symbol BPURD until June 27, 2005, before reverting to BPUR on June 28, 2005.Biopure did not issue fractional shares of common stock following the reverse split.
Stockholders otherwise entitled to fractional shares will receive a cash payment equal to the
fraction multiplied by $1.73. 11




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BIOPURE CORPORATION  
 
 Management s Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward-Looking Information The following discussion of our financial condition and results of operations includes
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934. We intend
such forward-looking statements to be covered by the safe harbor provisions for forward-looking
statements in these statutes. These forward-looking statements include, without limitation,
statements about our clinical development program, market opportunity, strategies, competition,
expected activities, expected profitability and investments as we pursue our business plan, and the
adequacy of our available cash resources. These 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. These forward-looking statements involve risk and uncertainties. Forward-looking statements include
those that imply that we will be able to commercially develop Hemopure, that in pursuing
cardiovascular and trauma indications we will be able to address the safety and other questions of
the U.S. Food and Drug Administration arising out of our previously submitted biologics license
application (BLA) for an orthopedic surgery indication, that our expectations regarding the role of
the U.S. Naval Medical Research Center in assuming and carrying out primary responsibility for
conducting a two-stage Phase 2/3 clinical trial in the out-of-hospital setting will be met, that we
will be able to obtain regulatory approvals required for the marketing and sale of Hemopure in a
major market, that anticipated milestones will be met in the expected timetable, 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 the quantities anticipated,
that we will be able to successfully increase our manufacturing capacity for Hemopure if it
receives regulatory approval, that we will be able to manage our expenses effectively and raise the
funds needed to operate our business, or that we will be able to stabilize and enhance our
financial position. Actual results may differ materially from those set forth in the
forward-looking statements due to risks and uncertainties that exist in our 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 us 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 our objectives or
plans will be achieved. We undertake 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 we make in our Form 10-Q, 8-K and 10-K reports to
the SEC. 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 The Companys primary focus is on the development of Hemopure for an ischemia indication, primarily
in the cardiovascular area, while also supporting its cooperative research and development
agreement with the U.S. Naval Medical Research Center for a potential trauma indication. 12




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BIOPURE CORPORATION
Managements Discussion and Analysis of
Financial Condition and Results of Operations
April 30, 2005
(continued) Significant additional capital will be required to fund our operations until such time, if ever,
that the Company becomes profitable. We intend to seek additional capital through public or private
sales of equity securities and, if appropriate, consider corporate collaborations for sharing
development and commercialization costs. We also plan to continue to aggressively manage expenses.
Since September 2003, we have reduced our workforce by more than two-thirds, from 246 employees at
September 30, 2003 to 69 employees at April 30, 2005, significantly decreased marketing and
manufacturing-related expenditures and deferred capital expenditures. We expect that our activities and expenditures for the remainder of fiscal 2005 will be associated
with clinically developing Hemopure for potential ischemia and trauma indications, communicating
with the FDA, conducting preclinical animal studies and maintaining some manufacturing capability. Our clinical development strategy for ischemia is to conduct parallel pilot studies to assess the
potential of several ischemia indications before committing significant funding for a pivotal Phase
3 study. We are currently pursuing this development program in Europe and South Africa, and we
continue to respond to issues raised by the FDA to support the Navys trauma development program
and as a prerequisite to the Company filing an IND application to initiate an ischemia trial in the
United States. In Europe, a Phase 2 clinical trial was completed in late April 2005 and the process of verifying,
locking, unblinding and analyzing the data is underway. This pilot study enrolled 46 patients with
coronary artery disease, and was designed to assess the safety and feasibility of Hemopure when
administered to these patients intravenously prior to undergoing elective coronary angioplasty.
One of the differences in this trial versus others we have conducted to date is that Hemopure was
administered at low doses strictly as an intended oxygen therapeutic, or oxygen-carrying drug,
rather than as a replacement for red blood cells. As the next step in our cardiac ischemia development program, we are designing two Phase 2 trial
protocols. One trial is designed to capture preliminary efficacy data and additional safety
information in elective coronary angioplasty patients to support subsequent Phase 2/3 trials in
heart attack patients. The other trial is designed to assess the safety and efficacy of Hemopure
administered pre-operatively to improve outcomes in patients undergoing cardiopulmonary bypass
surgery. In South Africa, we have submitted a Phase 2 clinical trial protocol to the Medicines Control
Council for review. This proposed study is designed to assess the safety and efficacy of low doses
of Hemopure administered perioperatively to improve wound healing in patients with peripheral
vascular disease who are undergoing lower limb amputation. During the first fiscal quarter of 2005, the Company vacated leased office space and sublet it. In
accordance with FAS 146, Accounting for Costs Associated with Exit or Disposal Activitiesthe
Company must record, as a restructuring charge, the net present
value of the remaining lease payments reduced by the amount of sublease rent the Company expects to
collect. The charge would have been $630,000, or
$0.03 per share, for the first fiscal quarter of 2005. The Company has included this charge in
general and administrative expense in the second fiscal quarter of 2005. The Company does not
believe that this charge is material to the first or second quarter of 2005 nor will it be
material to fiscal 2005 financial statements. On May 19, 2005, the board of directors approved a one-for-six reverse split of outstanding Biopure
class A common stock to take effect on May 27, 2005. The reverse split was intended to broaden
Biopures investor base and help the Company regain compliance with the Nasdaq National Markets
$1.00 minimum bid price listing requirement by increasing the share price and decreasing the number
of shares, warrants and options outstanding. The Company had 146,157,346 shares of class A common
stock outstanding at the end of trading on May 26, 2005 which converted into 13




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BIOPURE CORPORATION
Managements Discussion and Analysis of
Financial Condition and Results of Operations
April 30, 2005
(continued) 24,359,558 shares when the market opened on May 27, 2005. The stock is expected to trade under the
ticker symbol BPURD until June 27, 2005, before reverting to BPUR On June 28, 2005. Biopure
did not issue fractional shares of common stock following the reverse split. Stockholders
otherwise entitled to fractional shares are entitled to receive a cash payment equal to the fractional share
multiplied by the average of the high and low trading prices of the Class A Common Stock as
reported on The Nasdaq National Market during each of the five (5) trading days immediately
preceding the date of the Effective Time and six (6), resulting in a cash payment of $1.73 per share. Additional information about
the reverse stock split is available in Biopures definitive proxy statement filed with the
Securities and Exchange Commission on February 28, 2005. A number of factors pose uncertainties in estimating the amount of funds we may need to sustain
operations, including:  
    The process of obtaining FDA marketing approval of Hemopure has risks of delays that
make the ultimate development cost unpredictable. We are hopeful that we can respond to all
issues the FDA has raised to date regarding our previously filed BLA for Hemopure for an
orthopedic surgery indication, but since it is likely that we will need to conduct one or
more additional human clinical trials, including a Phase 3 trial, before the FDA will
consider approving Hemopure for any indication, we are evaluating all of our clinical and
regulatory options. To that end, we are in the early stages of clinical development of
Hemopure for indications in both trauma and ischemia.
    As described in Note 9 to the financial statements, Biopure is a defendant in
litigation, the outcomes of which are unknown. It is also the subject of an investigation
by the Securities and Exchange Commission and has received a Wells Notice from the
Commission staff. The outcomes and financial effects of these matters cannot be determined
at this time, nor can any adverse effect they may have on the price of our common stock and
our ability to raise capital from sales of equity or otherwise. Critical Accounting Policies The Companys significant accounting policies are described in the Notes to the Consolidated
Financial Statements contained in our Form 10-K for the fiscal year ended October 31, 2004. The
application of our critical accounting policies is particularly important to the accurate portrayal
of the Companys 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 Hemopure and Oxyglobin finished
goods. Both Oxyglobin and Hemopure have a measured shelf life of 3 years from the date of
manufacture (Hemopures approved shelf life in South Africa is two years). Inventories are reviewed
periodically to identify expired units and units with a remaining life too short to be commercially
viable based on projected and historical sales activity. Inventories are also subject to quality
compliance investigations. Reserves are established for inventory that falls into these categories.
The inventory of Hemopure finished goods represents the units the Company expects to sell in South
Africa or use in preclinical and clinical studies. We have been and expect we will continue to be
reimbursed for the cost of units used in a proposed trauma trial to be conducted by or on behalf of
the U. S. Naval Medical Research Center (NMRC). If the Company experiences future delays in sales in South Africa or in the use of Hemopure
by the NMRC, we may have to reserve for additional units in the future. 14




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BIOPURE CORPORATION
Managements Discussion and Analysis of
Financial Condition and Results of Operations
April 30, 2005
(continued) Long-Lived Assets SFAS 144 requires that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Our investments
in property and equipment, such as construction in progress and new facility construction; real
property license rights related to the source,
supply and initial processing of our major raw material; and the asset related to the expenditures
for a planned manufacturing facility in South Carolina are the principal long-lived assets that
could be subject to such a review. At the end of fiscal 2004, the Company assessed its long-lived assets for impairment and determined
that no impairment existed at that time. The Company continually monitors business and market
conditions to assess whether an impairment indicator exists. If the Company were to determine that
an impairment indicator exists, it would be required to perform an impairment test, which might result in a material impairment charge
to the statement of operations. Revenue Recognition The Company recognizes revenue from sales of Oxyglobin upon shipment, provided that there is
evidence of a final arrangement, there are no uncertainties surrounding acceptance, collectibility
is probable and the price is fixed. The
Company sells Oxyglobin directly to veterinarians in the United States. The Company sells Oxyglobin
to a distributor in the United Kingdom that sells the product in selected European countries
through local veterinary distributors in Germany, France and the U.K. Collectibility is reasonably
assured once pricing arrangements are established, as these agreements establish the distributors
intent to pay. The Companys customers do not have a
right to return product. The Company monitors creditworthiness on a regular basis and believes
collectibility of product revenues is reasonably assured at the time of sale. The Company recognizes revenue from the U.S. military upon invoicing for reimbursable expenses
incurred in connection with developing Hemopure for a trauma indication. Amounts received for
future inventory purchases, recorded as deferred revenue, will be recognized upon shipment.
Although Hemopure is approved for commercial sale in South Africa for the treatment of acutely anemic surgery patients, the product has not yet
been offered for sale. Until transactions have occurred and circumstances of distribution, storage
and dispensing at medical facilities are experienced, revenues from Hemopure sold for clinical use
in South Africa or for use in third-party sponsored clinical trials will not be recognized until
the units are actually used. Research and Development Since its founding in 1984, Biopure has been primarily a research and development company focused
on developing Hemopure, our oxygen therapeutic for human use, and obtaining regulatory approval in
the United States. Our research and development expenses have been devoted to basic research,
product development, process development, preclinical studies, clinical trials and filing a
Hemopure BLA with the FDA. In addition, our development expenses historically have included the
design, construction, validation and maintenance of a large-scale pilot manufacturing plant in
Cambridge, Massachusetts. The existing plant was completed in 1995, expanded in 1998 and expanded
again in 2002. A facility is a necessary part of developing a product like Hemopure. The FDA classfies 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 15




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BIOPURE CORPORATION
Managements Discussion and Analysis of
Financial Condition and Results of Operations
April 30, 2005
(continued) 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 results in high
manufacturing research and development costs in the development of a biologic relative to other
types of drugs. Prior to 1998, the Company only manufactured product 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 approval for veterinary
use in 1998. Oxyglobin was then produced for sale in the 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. The remaining costs of the pilot plant
continued to be included in research and development expenses through May 2002. Results of Operations As the Company generates net losses, the key drivers of the losses are cost of revenues, research
and development and other expenses consisting of sales and marketing and general and administrative. For the three
and six month periods ended April 30, 2005 and 2004, these items were as follows: Three Months Ended
    
    
    Six Months EndedApril 30, 2005
    
    
    April 30, 2004
    
    
    April 30, 2005
    
    
    April 30, 2004Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percentof
    
    
    
    
    
    
    of
    
    
    
    
    
    
    of
    
    
    
    
    
    
    ofTotal
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    TotalAmount
    
    
    Costs
    
    
    Amount
    
    
    Costs
    
    
    Amount
    
    
    Costs
    
    
    Amount
    
    
    CostsRevenues
    
    $
    620
    
    
    
    
    
    
    $
    893
    
    
    
    
    
    
    $
    1,299
    
    
    
    
    
    
    $
    1,643Cost of RevenuesOxyglobin
    
    
    698
    
    
    
    10
    %
    
    
    1,175
    
    
    
    9
    %
    
    
    1,307
    
    
    
    8
    %
    
    
    2,745
    
    
    
    11
    %Hemopure
    
    
    2,193
    
    
    
    30
    %
    
    
    2,831
    
    
    
    22
    %
    
    
    4,666
    
    
    
    30
    %
    
    
    6,507
    
    
    
    26
    %Total Cost of Revenues
    
    
    2,891
    
    
    
    40
    %
    
    
    4,006
    
    
    
    31
    %
    
    
    5,973
    
    
    
    38
    %
    
    
    9,252
    
    
    
    37
    %Research and
Development
    
    
    1,391
    
    
    
    19
    %
    
    
    2,974
    
    
    
    23
    %
    
    
    2,910
    
    
    
    19
    %
    
    
    5,396
    
    
    
    22
    %Sales and MarketingOxyglobin
    
    
    4
    
    
    
    0
    %
    
    
    276
    
    
    
    2
    %
    
    
    10
    
    
    
    0
    %
    
    
    724
    
    
    
    3
    %Hemopure
    
    
    110
    
    
    
    2
    %
    
    
    673
    
    
    
    5
    %
    
    
    220
    
    
    
    1
    %
    
    
    1,068
    
    
    
    4
    %Total Sales and
Marketing
    
    
    114
    
    
    
    2
    %
    
    
    949
    
    
    
    7
    %
    
    
    230
    
    
    
    1
    %
    
    
    1,792
    
    
    
    7
    %General and
Administrative
    
    
    2,867
    
    
    
    39
    %
    
    
    5,009
    
    
    
    39
    %
    
    
    6,481
    
    
    
    42
    %
    
    
    8,282
    
    
    
    34
    %Total Costs
    
    $
    7,263
    
    
    
    100
    %
    
    $
    12,938
    
    
    
    100
    %
    
    $
    15,594
    
    
    
    100
    %
    
    $
    24,722
    
    
    
    100
    %
 Three months ended April 30, 2005 compared to three months ended April, 30, 2004 Total revenues for the second quarter of fiscal 2005 were $620,000, including $315,000 from past
congressional appropriations administered by the U.S. Army and
$305,000 from sales of Oxyglobin, the Companys
veterinary product. Revenues for the same period last year were 16




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BIOPURE CORPORATION
Managements Discussion and Analysis of
Financial Condition and Results of Operations
April 30, 2005
(continued) $893,000, almost entirely
from Oxyglobin sales. The Army payments represent reimbursement to Biopure for certain trauma
development expenses for Hemopure. To reduce losses, the Company implemented workforce and cost reductions that took effect in October
2003 and in April and June 2004, significantly reduced sales, marketing and manufacturing
expenditures, and is limiting Oxyglobin sales. Cost of revenues was $2.9 million for the second quarter of fiscal 2005, compared to $4.0 million
for the same period in 2004. Cost of revenues includes costs of both Oxyglobin and Hemopure,
although Hemopure has not been offered for sale to date. Fixed manufacturing costs cause Oxyglobin
production costs to exceed Oxyglobin revenues and are expected to continue to do so until the
Company is able to significantly increase its manufacturing operations by generating substantial
sales of Hemopure. Oxyglobin cost of revenues was $698,000 for the second quarter of fiscal 2005
compared to $1.2 million for the same period in 2004. The decrease for the quarter was primarily
due to a decreased production level and fewer Oxyglobin units sold in 2005, as the Company
continues to limit sales. Hemopure cost of revenues, consisting of the allocation of unabsorbed
fixed manufacturing costs, was $2.2 million for
the second quarter of fiscal 2005 compared to $2.8 million for the same period in 2004. This
decrease is primarily due to lower manufacturing costs resulting from workforce and cost
reductions. A breakdown of our research and development
expenses by major activity is as follows: Three Months EndedApril 30, 2005
    
    
    April 30, 2004Percent of
    
    
    
    
    
    
    Percent ofIn thousands
    
    Amount
    
    
    Total R&D Costs
    
    
    Amount
    
    
    Total R&D CostsBLA Preparation and Support of Review Process
    
    $
    585
    
    
    
    42
    %
    
    $
    2,438
    
    
    
    82
    %Cardiac Ischemia
    
    
    509
    
    
    
    37
    %
    
    
    429
    
    
    
    14
    %Trauma Program
    
    
    230
    
    
    
    16
    %
    
    
    58
    
    
    
    2
    %Other Projects
    
    
    67
    
    
    
    5
    %
    
    
    49
    
    
    
    2
    %Total
    
    $
    1,391
    
    
    
    100
    %
    
    $
    2,974
    
    
    
    100
    %
 Surgery/BLA Project The completed Phase 3 Hemopure orthopedic surgery trial cost approximately $37,000,000 over the
four years from protocol development to the final report on July 26, 2002. These trial costs
include costs incurred at 46 hospitals, trial site monitoring, data management, regulatory
consulting, statistical analysis, medical writing and clinical materials and supplies, as well as
Company personnel engaged in these activities. Costs incurred in submitting the Hemopure BLA for an
orthopedic surgery indication include Company personnel and payments to third parties for
manufacturing process documentation, medical consultants, regulatory consultants, integrating the
safety and efficacy databases for all clinical trials and preclinical studies. Research and
development expenses continue to include amounts for support of the BLA review process, including
responding to FDA inquiries. The FDA letter of July 30, 2003 consisted of questions and requests
for extensive additional information. In addition, during a meeting with the FDA on January 6, 2004
regarding the BLA, the FDA said that it would also require the results of three animal preclinical
studies previously requested for the trauma program to be submitted for its review of the BLA
and to allow the Company to conduct any additional human clinical trials in the United States. The
Company has submitted to the FDA the final reports on these studies
and continues to develop responses to the FDAs safety concerns and
answers to the questions contained in the July 2003 letter that we
believe relate to our current clinical development plans for Hemopure. As described above, our
primary strategic focus is now the 17




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BIOPURE CORPORATION
Managements Discussion and Analysis of
Financial Condition and Results of Operations
April 30, 2005
(continued) development of Hemopure for ischemia, primarily in the cardiovascular area, and trauma indications.
We cannot predict whether we ever will realize material cash inflows from a surgery indication. Cardiovascular Ischemia and Trauma Projects Both the cardiovascular ischemia and the trauma projects are in early stages (i.e., safety clinical
trials and preclinical animal studies). Total cardiovascular expenditures of $2.1 million as of
April 30, 2005 consist of the costs of preparing and carrying out a Phase 2 clinical trial in
Europe. In April 2005, the Company announced the completion of patient enrollment for this trial.
Generation of trial data concluded at the end of April after all enrolled patients
completed a 30-day follow-up period. Total trauma expenditures of $1.5 million as of April 30,
2005 consist of preparation costs primarily associated with protocol and study design. The costs
and times of completion of any
additional clinical trials and preclinical studies that might be necessary cannot be estimated at
the present time. The risks and uncertainties associated with the early stage of planning and
execution of the ischemia and trauma 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, we cannot estimate
the period in which material net cash inflows for either of these two projects might commence. The decrease in research and development expenses in the second fiscal quarter of 2005 as compared
to the same period last year was primarily due to lower expenses associated with the companys FDA response activities
and to lower salaries expense compared to the corresponding period last year. The decrease was
partially offset by increased expenses for activities associated with the development of a
potential trauma indication. Sales and marketing expenses decreased in the second quarter of fiscal 2005 compared to the same
period last year primarily due to the reduction of staff and activities consistent with the Companys cost-cutting
measures. Of the $835,000 decrease in sales and marketing expenses, Hemopure-related sales and
marketing expenses decreased $563,000 and Oxyglobin-related sales and marketing expenses decreased
$272,000. Hemopure expenses for the second quarter of fiscal 2005 primarily consist of ongoing
activities in South Africa compared to the corresponding period in 2004, when the expenses were
related primarily to market research and medical education activities in the U.S. The Company
expects Oxyglobin sales and marketing expenses to continue to be significantly lower in fiscal 2005
than in fiscal 2004 and 2003. Biopure is currently preparing to market and sell Hemopure in South
Africa but does not expect these activities or the resulting revenues to have a material effect on
fiscal 2005 results. General and administrative expenses decreased $2.1 million compared to the same period in 2004.
This decrease is primarily due to a reduction in severance, salaries
and other employee-related
expenses and a $1.1 million reduction in legal and settlement related costs. A significant portion
of legal fees and expenses incurred by the Company during the second fiscal quarter of 2005 in
connection with the SEC investigation and litigation was paid by our insurer. In the prior year the
Company paid comparable expenses that were deductible under its director and officer liability
policy. The decrease was partially offset by $724,000 in expenses related to vacated office space,
which has been sublet (see Note 1  Basis of Presentation). Six months ended April 30, 2005 compared to six months ended April, 30, 2004 Total revenues for the first six months of fiscal 2005 were $1.3 million including $702,000 from
past congressional appropriations administered by the U.S. Army and $597,000 from sales of Oxyglobin the
companys veterinary product. Revenues for the same period last year were
$1.6 million, almost entirely from Oxyglobin sales. The Army payments represent reimbursement to
Biopure for certain trauma development expenses for Hemopure. 18




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##### Table of Contents



BIOPURE CORPORATION
Managements Discussion and Analysis of
Financial Condition and Results of Operations
April 30, 2005
(continued) Consistent with the cost-cutting measures mentioned above, the Company began limiting its
manufacturing, marketing and sales of Oxyglobin in the second quarter of fiscal 2004. The Company
plans to have substantially lower Oxyglobin sales for fiscal year 2005 than it had in fiscal 2004. Cost of revenues decreased $3.3 million in the first six months of fiscal 2005 compared to the same
period in 2004. Cost of revenues includes costs of both Oxyglobin and Hemopure, although Hemopure
is not currently being offered for sale. Fixed manufacturing costs cause Oxyglobin production
costs to exceed Oxyglobin revenues and are expected to continue to do so until the Company is able
to significantly increase its manufacturing operations by generating
substantial sales of Hemopure. Oxyglobin cost of revenues decreased $1.4 million in the first six
months of fiscal 2005 compared to the same period in 2004 primarily due to a decreased production
level and fewer Oxyglobin units sold in 2005, as the Company continues to limit sales. Hemopure cost of revenues, consisting of
the allocation of unabsorbed fixed manufacturing costs, decreased $1.8 million for the first six
months of fiscal 2005 compared to the same period in 2004 due to lower manufacturing costs
resulting from workforce and cost reductions. A breakdown of the Companys research and
development expenses by major activity is as follows: Six Months EndedApril 30, 2005
    
    
    April 30, 2004Percent of
    
    
    
    
    
    
    Percent ofIn thousands
    
    Amount
    
    
    Total R&D Costs
    
    
    Amount
    
    
    Total R&D CostsBLA Preparation and Support of Review Process
    
    $
    1,410
    
    
    
    48
    %
    
    $
    4,525
    
    
    
    84
    %Cardiac Ischemia
    
    
    894
    
    
    
    31
    %
    
    
    601
    
    
    
    11
    %Trauma Program
    
    
    476
    
    
    
    16
    %
    
    
    167
    
    
    
    3
    %Other Projects
    
    
    130
    
    
    
    5
    %
    
    
    103
    
    
    
    2
    %Total
    
    $
    2,910
    
    
    
    100
    %
    
    $
    5,396
    
    
    
    100
    %
 Research and development
expenses decreased $2.5 million compared to the same period last year mostly due to lower
spending on BLA response activities including preclinical studies, salaries and consulting
expenses. These decreases were partially offset by $309,000 increase in spending on the trauma
program, all of which is reimbursable by the U.S. Army as explained above, and a $293,000 increase
in spending on the cardiac ischemia program, mostly due to a preclinical study the Company is conducting
to support this potential indication. Sales and marketing expenses decreased in the first six months of fiscal 2005 compared to the same
period last year primarily due to the reduction of staff and activities consistent with the
Companys cost-cutting measures. Of the $1.6 million decrease in sales and marketing expenses,
Hemopure-related sales and marketing expenses decreased $848,000 and Oxyglobin-related sales and
marketing expenses decreased $714,000. Hemopure expenses for the first six months of fiscal 2005
primarily consist of ongoing activities in South Africa compared to the corresponding period in
2004, when the expenses were related primarily to market research and medical education activities
in the U.S. The Company expects Oxyglobin sales and marketing expenses to continue to be
significantly lower in fiscal 2005 than in fiscal 2004 and 2003. Biopure is currently preparing to
market and sell Hemopure in South Africa but does not expect these activities or the resulting
revenues to have a material effect on fiscal 2005 results. General and administrative expenses decreased $1.8 million compared to the same period in 2004.
This decrease is primarily due to a reduction in severance, salaries and other employee related
expenses and a $622,000 reduction in legal and settlement related costs. A significant portion of
legal fees and expenses incurred by the Company during the first six months of 2005 in connection
with the SEC investigation and litigation was paid by its insurer. In the prior year the Company
paid comparable expenses that were deductible under its director and
officer liability policy. The decrease was partially offset by $724,000 in expenses related to vacated office space, which
has been sublet (see Note 1  Basis of Presentation). 19




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BIOPURE CORPORATION
Managements Discussion and Analysis of
Financial Condition and Results of Operations
April 30, 2005
(continued) Liquidity and Capital Resources At April 30, 2005, we had $20,707,000 in cash and cash equivalents, which we believe to be
sufficient to fund operations into March 2006, which is longer than previously estimated. Additional
capital will be required to fund the Companys operations until the Company becomes profitable.
The Company does not expect to be profitable for at least the next several years, if ever. The
Company intends to seek additional capital through sales of equity securities and, if appropriate,
to consider strategic collaborations for sharing development and
commercialization costs. However, there can be no assurance that adequate additional financing will be available to
the Company on terms that it deems acceptable, if at all. Net cash used in operating activities decreased $8.8 million in the first six months of 2005
compared to the corresponding period last year. Accrued expenses were $136,000 less during the first six months of
fiscal 2005 than the same period last year, mostly due to payments for severance and to consultants
who rendered services in 2004 but not in 2005. Accounts payable consumed $428,000 less cash during
the first six months of fiscal 2005 compared to last year, consistent with the Companys
cost-cutting measures. Cash provided by other current assets, consisting of prepaid expenses,
increased by $389,000 due to an increase in insurance premiums paid for in the prior fiscal year.
Cash provided by inventories decreased compared to last year due mostly to lower sales during the
first six months of fiscal 2005 compared to the same period last year. Cash outlays for property,
plant and equipment decreased by $152,000 during the first six months of fiscal 2005 as a result of
the Companys cost cutting. During the quarter the Company raised $911,000 in cash from investors exercising a total of 371,650
warrants at a weighted average exercise price of $2.45 per share. Recently Issued Accounting Standards On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123
(revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for
Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the
approach in Statement 123(R) is similar to the approach described in Statement 123. However,
Statement 123(R) requiresall share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values. Pro forma disclosure
is no longer an alternative. On April 15, 2005 the Securities and Exchange Commission (SEC) adopted
a rule that amended the compliance dates for SFAS 123(R), which the Company will now be required to
adopt in the first fiscal quarter of 2006. Early adoption will be permitted in periods in which
financial statements have not yet been issued. 20




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BIOPURE CORPORATION
Managements Discussion and Analysis of
Financial Condition and Results of Operations
April 30, 2005
(continued) Statement 123(R) permits public companies to adopt its requirements using one of two methods: a
modified prospective and a modified retrospective method. In the modified prospective method
compensation cost is recognized beginning with the effective date (a) based on the requirements
of Statement 123(R) for all share-based payments granted after the effective date and (b) based
on the requirements of Statement 123 for all awards granted to employees prior to the effective
date of Statement 123(R) that remain unvested on the effective date. The modified retrospective
method includes the requirements of the modified prospective method described above, but also
permits entities to restate based on the amounts previously recognized under Statement 123 for
purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim
periods of the year of adoption. The Company is evaluating which method of adoption it will
apply for Statement 123(R). As permitted by Statement 123, the Company currently accounts for share-based payments to employees
using Opinion 25s intrinsic value method and, as such, generally recognizes no compensation cost
for employee stock options. Accordingly, the adoption of Statement 123(R) fair value method will
have a significant impact on its result of operations, although it will have no impact on our
overall financial position. The impact of adoption of Statement 123(R) cannot be predicted at this
time because it will depend on levels of share-based payments granted in the future. However, had
the Company adopted Statement 123(R) in prior periods, the Company believes that the impact of that
standard would have approximated the impact of Statement 123 as described in the disclosure of pro
forma net loss per share in Note 4 to the Companys consolidated financial statements. 21




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BIOPURE CORPORATION April 30, 2005 
 Item 3. Quantitative and Qualitative Disclosure About Market Risk The Company currently does not have any foreign currency exchange risks, with the exception of
negligible exchange fluctuations associated with expenses for marketing and regulatory activities
outside of the United States. Biopure sells Oxyglobin to its European distributors in U.S. dollars
and therefore our customers bear the risk of foreign currency exchange fluctuation. The Company
anticipates sales of Hemopure in South Africa may begin in fiscal 2005. If sales occur customers
will be charged and will pay in South African Rand. The Company expects the foreign currency
exchange fluctuation to be negligible in fiscal 2005, as sales are not expected to be significant
and should be offset by local currency expenses. The Company intends to develop policies to
minimize any exchange fluctuation risk if and when sales volume increases. 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 the Companys short-term investments, it believes that the financial
market risk exposure is not material. 
 Item 4. Disclosure Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures. Under the supervision and with the
participation of our management, including our Chief Executive Officer and our Chief Financial
Officer, we conducted an evaluation of the effectiveness of our 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, our Chief Executive Officer and our Chief Financial Officer concluded that our
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 us in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. (b) Changes in Internal Control Over Financial Reporting. There have been no changes in our
internal control over financial reporting (as defined under Rules 13a-15(f) or 15d-15(f) of the
Exchange Act) during our most recently completed fiscal quarter that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting. 22




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BIOPURE CORPORATION 
 Part II  Other Information
April 30, 2005 
 Item 1. Legal Proceedings No material developments since the Companys quarterly report on Form 10-Q for the quarter ended
January 31, 2005. 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None 
 Item 3. Defaults Upon Senior Securities None 
 Item 4. Submission of Matters to a Vote of Security Holders  (a)
    The Company held its 2005 annual meeting of stockholders on April 6, 2005.(c)
    Each matter voted upon at the meeting and the votes, were as follows:(i)
    Charles A. Sanders, M.D., David N. Judelson and Carl W. Rausch were elected as directors at
the meeting. The other directors whose terms of office continued after the meeting are Daniel
P. Harrington, C. Everett Koop, M.D., Zafiris Zafirelis, and Jay Pieper.The shares voted for the election of directors were as follows: For
    
    
    WithholdCharles A. Sanders, M.D.
    
    
    19,824,297
    
    
    
    373,576David N. Judelson
    
    
    19,225,761
    
    
    
    972,112Carl W. Rausch
    
    
    19,865,069
    
    
    
    332,803
  (ii)
    A proposal to amend the Companys restated certificate of incorporation to effect a reverse
stock split of the Companys class A common stock, for implementation in the discretion of the
Board of Directors was approved, and the shares voted were as follows: For
    
    Against
    
    Abstain19,261,130
    
    896,305
    
    40,438
  (iii)
    A proposal to amend the Companys restated certificate of incorporation to increase the
number of authorized shares of the Companys class A common stock if the reverse stock split
described in (ii) above is not effected was approved, and the shares voted were as follows: For
    
    Against
    
    Abstain19,414,190
    
    742,254
    
    41,430
 23




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BIOPURE CORPORATION Part II  Other Information
April 30, 2005 (iv)A proposal to amend the 2002 Omnibus Securities and Incentive Plan to increase the number
of shares available under the plan was approved, and the shares voted were as follows: For
    
    Against
    
    Abstain3,568,462
    
    1,290,504
    
    213,810
  (v)
    Ratification of the selection by the audit committee of Ernst & Young LLP as the Companys
independent registered public accounting firm was approved and the shares voted were as
follows: For
    
    Against
    
    Abstain19,950,436
    
    165,128
    
    82,309
 There were no broker-held nonvoted shares represented at the meeting. 24




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BIOPURE CORPORATION Part II  Other Information
April 30, 2005  
 
 Item 5. Other Information RISK FACTORS These risks and uncertainties are not the only ones we face. Others that we do not know about
now, or that we do not now think are important, may impair our business or the trading price of our
securities. Company Risks We have a history of losses and expect future losses. We have had annual losses from operations since our inception in 1984. In the fiscal years
ended October 31, 2002, 2003 and 2004, we had losses from operations of $46,657,000, $47,312,000
and $41,832,000, respectively. We had a loss from operations of $6,643,000 in the second quarter of
fiscal 2005 and had an accumulated deficit of $484,449,000 as of April 30, 2005. We anticipate that
we will continue to generate losses for the next several years. Even if Hemopure were to be
approved by the FDA or analogous European regulatory authorities, we might not be able to achieve
profitable operations. We require significant funding in order to continue to operate. We expect that our cash on hand at April 30, 2005 will fund operations into March 2006.
Sufficient funds may not be available to us thereafter or on terms that we deem acceptable, if they
are available at all. We are required under the Nasdaq Stock Markets marketplace rules to obtain stockholder
approval for any issuance of additional equity securities that would comprise more than 20 percent
of Biopures total shares of common stock or voting power at a discount to the greater of book or
market value in an offering that is not deemed to be a public offering by Nasdaq. Funding of our
operations in the future may require stockholder approval for purposes of complying with the Nasdaq
marketplace rules. We cannot assure you that we will not require such approval to raise additional
funds or that we would be successful in obtaining any such required stockholder approval. Failure to raise sufficient additional funds will significantly impair or possibly cause us to
cease the development, manufacture and sale of our products and our ability to operate. The development and regulatory processes for seeking and obtaining approval to market Hemopure
in the United States and the European Union have been and will continue to be costly. We will
require substantial working capital to develop, manufacture and sell Hemopure and to finance our
operations until such time, if ever, as we can generate positive cash flow. We will also require
substantial additional funding to continue working on questions raised by the FDA arising out of
our previously-submitted BLA for an orthopedic surgery indication and to conduct additional human
clinical trials for Hemopure. If Hemopure is approved by the FDA or the analogous European
regulatory authorities, we expect that we will need to increase our manufacturing capacity, for
which we will require significant additional funding. If additional financing is not available when
needed or is not available on acceptable terms, we may be unable to successfully develop or
commercialize Hemopure or to continue to operate. A sustained period in which financing is not
available could force us to go out of business. 25




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BIOPURE CORPORATION Part II  Other Information
April 30, 2005 If we cannot retain the personnel we need, our costs will rise significantly. If we cannot hire or
retain the best people, our operations will suffer. We appointed a new president and chief executive officer in June 2004. We currently rely to a
significant extent on outside consultants for several key roles in the clinical and regulatory
functions which may be a less cost-effective alternative than hiring employees for these positions.
Furthermore, we may experience the loss of personnel, including executives and other employees, as
a result of attrition, which we have previously experienced, including attrition following
reductions in force. We expect that in the future we will need to recruit and retain personnel for
several important positions, primarily clinical and regulatory. We may be unable to do so, in
particular if we are unable to raise additional capital. We may fail to obtain FDA approval for Hemopure, in which event we cannot market Hemopure in the
United States, which would have negative consequences for the Company as a whole. We will not be able to market Hemopure in the United States unless and until we receive FDA
approval. In pursuing both the ischemia and trauma indications for Hemopure, as a prerequisite to
further clinical trials for Hemopure sponsored by us in the United States, we must address the
FDAs safety and other questions arising out of our previously-submitted BLA for an orthopedic
surgery indication. Addressing these questions requires considerable data gathering and analysis.
We must rely on contractors to complete some of the work. We have been delayed, and could be
further delayed, in responding either by the contractors failure or inability to timely complete
their tasks, or by other unanticipated delays or difficulties. The FDA may find that responses we
may give do not adequately address its questions and that the results of preclinical animal studies
the FDA has asked for do not adequately address its concerns. Moreover, even if we adequately address the FDAs questions, we will need to obtain FDA
acceptance of the protocols for, and to complete, human clinical trials to obtain FDA approval for
Hemopure for ischemia and trauma indications. We cannot predict when we will
submit an IND for an ischemia indication. Consequently, we do not know whether or when we will be
able to commence a U.S. clinical trial of Hemopure for an ischemia indication, or that we will be
able to conduct or satisfactorily conclude additional clinical trials required to obtain FDA
marketing authorization for this indication. In the case of the trauma indication, the NMRC is
taking primary responsibility for designing and seeking FDA acceptance of a two-stage Phase 2/3
clinical protocol for trauma in the out-of-hospital setting and is expected to be principally
responsible for conducting the trial. The FDA may delay or withhold acceptance of any IND filing
for trauma, or if it grants such acceptance and the trial is commenced and concluded, the results
of the trial may not support marketing authorization of Hemopure for the proposed trauma
indication. In addition, future or existing governmental action or changes in FDA policies or precedents
may result in delays or rejection of an application for marketing approval. The FDA has
considerable discretion in determining whether to grant marketing approval for a drug, and may
delay or deny approval even in circumstances where the applicants
clinical trials have proceeded in compliance with FDA procedures and regulations and have met the
established end points of the trials. Despite all of our efforts, the FDA could refuse to grant
marketing authorization for Hemopure. Challenges to FDA determinations are generally time consuming and costly, and rarely succeed.
We can give no assurance that we will obtain FDA marketing authorization for Hemopure for any
indication. The failure to obtain any approval would have severe negative consequences for our
company. If we fail to obtain regulatory approvals in foreign jurisdictions, we will not be able to market
Hemopure abroad. 26




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BIOPURE CORPORATION Part II  Other Information
April 30, 2005 We also intend to seek to market Hemopure in international markets, including the European
Union. Whether or not FDA marketing authorization has been obtained, we must obtain separate
regulatory approvals in order to market our products in the European Union and many other foreign
jurisdictions. The regulatory approval processes differ among these jurisdictions, and the time
needed to secure marketing approvals may be even longer than that required for FDA approval. These
applications may require the completion of additional preclinical and clinical studies. Approval
in any one jurisdiction does not ensure approval in a different jurisdiction. As a result,
obtaining foreign approvals will require additional expenditures and significant amounts of time.
We can give no assurance that we will obtain marketing authorization for Hemopure in any foreign
jurisdiction other than that already obtained in South Africa. Clinical trials are extremely costly and subject to numerous risks and uncertainties. To gain regulatory approval from the FDA and analogous European regulatory authorities for the
commercial sale of any product, including Hemopure, we must demonstrate in clinical trials, and
satisfy the FDA and foreign regulatory authorities as to, the safety and efficacy of the product.
Clinical trials are expensive and time-consuming, as is the regulatory review process. Clinical
trials are also subject to numerous risks and uncertainties not within our control. For example,
data we obtain from preclinical and clinical studies are susceptible to varying interpretations
that could impede regulatory approval. Further, some patients in our clinical trials may have a
high risk of death, age-related disease or other adverse medical events that may not be related to
our product. These events may affect the statistical analysis of the safety and efficacy of our
product. If we obtain marketing authorization for a product, the authorization will be limited to
the indication approved. In addition, many factors could delay or result in termination of ongoing or future clinical
trials. Results from ongoing or completed preclinical or clinical studies or analyses could raise
concerns over the safety or efficacy of a product candidate. For example, in April 2003 the FDA
placed a proposed Phase 2 clinical trial of Hemopure for the treatment of trauma in the in-hospital
setting on clinical hold citing safety concerns based on a review of data from our Phase 3 clinical
trial in patients undergoing surgery. We cannot assure investors that the FDA will not place other
clinical trials we sponsor or the NMRC sponsors (for trauma) on hold in the future. A clinical
trial may also experience slow patient enrollment. The rate of completion of our clinical trials is
dependent in large part on the rate of patient enrollment. There may be limited availability of
patients who meet the criteria for certain clinical trials. Delays in planned patient enrollment
can result in increased development costs and delays in regulatory approvals. Further, we rely on
investigating physicians and the hospital trial sites to enroll patients. At our recommendation,
the South African hospital that is the sole site for our trauma trial interrupted enrollment in
late 2004 to address site procedures, not product related issues. In addition, patients may
experience adverse medical events or side effects resulting in delays, whether or not the events or
the side effects relate to the study material, and there may be a real or perceived lack of
effectiveness of, or safety issues associated with, the product we are testing. We experienced one
such delay in our European coronary angioplasty trial. If we do not have the financial resources to fund trials required to exploit Hemopure for all of
its potential indications, our success as a company will be adversely affected. We cannot sell Hemopure for any indication unless we receive FDA approval for that indication. The
FDA requires a separate marketing approval for each proposed indication for the use of Hemopure in
the United States. In order to market Hemopure for more than one indication, we will have to design
additional clinical trials, submit the trial designs to the FDA for review and complete those
trials successfully. If the FDA approves Hemopure for an indication, it may require a label
cautioning against Hemopures use for indications for which it has not been
approved. We may not have funds available to try to exploit Hemopure for all of its potential
indications. Our potential revenues will be impaired by limitations on Hemopures use. 27




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BIOPURE CORPORATION Part II  Other Information
April 30, 2005 The Securities and Exchange Commission staff has preliminarily determined to recommend a civil
injunctive proceeding against us and several of our former and current officers and directors. We
and several of our former and current directors and officers are subject to consolidated class
action lawsuits and we and seven of our former and current directors and officers are subject to
consolidated derivative actions. During the fourth quarter of fiscal 2003, we were notified of a confidential investigation by
the Securities and Exchange Commission, or SEC. Subsequently, we and several of our officers and
directors (some of whom are no longer in those positions) each received a Wells Notice from the
SEC staff indicating the staffs preliminary determination to recommend that the SEC bring a civil
injunctive proceeding against the Company and such persons. We have responded in writing to the
Wells Notice received by the Company explaining why the SEC ought not to bring a proceeding. To
our knowledge, no formal recommendation has been made to date and we do not know what action, if
any, the SEC staff may finally recommend, although it has indicated that it will recommend further
action. Following our first announcement of the Wells Notices, a number of class action lawsuits,
subsequently consolidated, were filed against us and several of our former and current executive
officers in the U.S. District Court of Massachusetts, captioned IN RE: Biopure Corporation
Securities Litigation, Civil Action No. 03-12628-NG. In addition, all members of our board of
directors as of December 22, 2003, our general counsel and the Company are named as defendants in
two derivative actions filed in January of 2004 in the U.S. District Court of Massachusetts, and
subsequently consolidated, captioned IN RE: Biopure Corporation Derivative Litigation, Master
Docket No. 1:04-cv-10177 (NG), claiming breaches of fiduciary duties in connection with the same
disclosures that are the subject of the class action lawsuits. There can be no assurance as to the outcome of any of these proceedings. Members of our board
of directors and management may spend considerable time and effort cooperating with the SEC in its
investigation and defending against any class action lawsuits, any action that might be brought by
the SEC and derivative actions. This expenditure of time and effort may adversely affect our
business, results of operations and financial condition. We may incur substantial costs in
connection with these proceedings, lawsuits and derivative actions including significant legal
expenses, fines, judgments or settlements that exceed the amount of, or are not covered by, our
insurance policies. In addition, the uncertainty about the possible effect of these matters on our
financial position and results of operations may adversely affect our stock price and our ability
to raise capital. The SEC and litigation matters described above may harm our business and financial condition if
they result in substantial fines, judgments or settlements that exceed the amount of coverage
under our insurance policies, or if such fines, judgments or settlements are not covered by our
insurance policies. Our director and officer liability insurance policies provide limited liability protection
relating to the SEC investigation, the securities class actions and derivative lawsuits against us
and certain of our current and former officers and directors. If these policies do not adequately
cover expenses and liabilities relating to these proceedings, our financial condition could be
materially harmed. The lawsuits and SEC investigation may make renewal of our director and officer
liability insurance in July 2005 or thereafter expensive or unavailable. Increased premiums could
materially harm our financial results in future periods. The inability to obtain this coverage due
to its unavailability or prohibitively expensive premiums would make it more difficult to retain
and attract officers and directors and expose us to potentially self-funding potential future liabilities ordinarily mitigated by director
and officer liability insurance. 28




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BIOPURE CORPORATION Part II  Other Information
April 30, 2005 If we cannot find appropriate marketing partners, we may not be able to market and distribute
Hemopure effectively. Our success depends, in part, on our ability to market and distribute Hemopure effectively. We
have no experience in the sale or marketing of medical products for humans. In the event that we
obtain FDA approval of 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
    might terminate its agreement with us and abandon our products at any time whether or
not permitted by the applicable agreement. If we do not enter into a satisfactory distributorship agreement, we may be required to seek
an alternative arrangement such as an alliance with a pharmaceutical company, or recruiting,
training and retaining a marketing staff and sales force of our own. We may not be successful in
obtaining satisfactory distributorship agreements or entering into alternative arrangements. If we
fail to establish a revenue stream in South Africa, we might have to withdraw from that market. 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 high enough price to generate a profit. We may not accomplish either of these objectives. To
date, we have focused our efforts on developing Hemopure, establishing its safety and efficacy and
seeking marketing approval. Uncertainty exists regarding the potential size of the market for
Hemopure and the price that we can charge for it. Additionally, 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. 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 approval for Hemopure, a number of factors may
affect future sales of our product. These factors include:  
    whether and how quickly physicians accept Hemopure as a cost-effective and therapeutic
alternative to other products; and
    whether medical care providers or the public accept the use of a bovine-derived protein
in transfusions or as a therapeutic in cardiovascular disease, particularly in light of
public perceptions in the United States, Europe and elsewhere about the risk of mad cow
disease. If we fail to comply with good manufacturing practices, we may not be able to sell our products. To obtain the approval of the FDA and analogous European regulatory authorities to sell
Hemopure, we must demonstrate to them that we can manufacture Hemopure in compliance with the
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 of the FDA
and analogous European regulatory authorities at any time to determine whether we are in compliance
with GMP requirements. If we fail to manufacture in 29




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BIOPURE CORPORATION Part II  Other Information
April 30, 2005 compliance with GMPs, these regulatory authorities may refuse to approve Hemopure or may take
other enforcement actions with respect to Hemopure. 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 biologics and require product characterization steps that are more
complicated, time-consuming and costly than those required for most chemical pharmaceuticals.
Accordingly, we employ multiple steps to attempt to control the manufacturing processes. Minor
deviations in these manufacturing processes or other problems could result in unacceptable changes
in the products that result in lot failures, increased production scrap, shipment delays, product
recalls or product liability, all of which could negatively impact our results of operations. We will face risks, including the risk of scale-up of our processes, in the construction of
any new manufacturing capacity, 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. If we were unable to use our manufacturing facilities in Massachusetts or Pennsylvania, we would
not be able to manufacture for an extended period of time. We manufacture at a single location located in Massachusetts with ancillary facilities in
Pennsylvania and New Hampshire. Damage to any of these manufacturing facilities due to fire,
contamination, natural disaster, power loss, riots, unauthorized entry or other events could cause
us to cease manufacturing. For example, if our Massachusetts manufacturing facility were destroyed,
it could 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 following exhaustion of finished goods in
inventory. A new facility would take longer to construct. If Hemopure receives regulatory approval, we must expand our manufacturing capacity to develop our
business, which will require substantial third party financing. Failure to increase our
manufacturing capacity may impair Hemopures market acceptance and prevent us from achieving
profitability. If Hemopure is approved by the FDA or the analogous European regulatory authorities, we will
need to construct new manufacturing capacity to develop our business. The increase in our
manufacturing capacity is 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 approval of the FDA or the analogous European regulatory authorities to
market Hemopure. We cannot assure you that sufficient financing for new manufacturing
capacity will be available or, if available, will be on terms that are acceptable to us. We expect
that, once we have the required significant financing in place, it would take 30 to 36 months, or
more, to build a large Hemopure manufacturing facility and to qualify and obtain facility approval from the FDA and analogous
European regulatory authorities. If Hemopure is approved for marketing in a major market and receives market acceptance, we may
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. 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 our capacity shortage. 30




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BIOPURE CORPORATION Part II  Other Information
April 30, 2005 If we are not able to finance additional manufacturing capacity, we will incur a substantial
write-off of assets. We have made a substantial investment in a planned manufacturing facility. If we cannot
finance such a facility, we will be required to write-off that investment, and our financial
condition will be impaired, 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 operating history of selling Hemopure upon which to base an evaluation of our business and
our 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 know-how, will be 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 or 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. For example,
one of our European patents was the subject of an opposition proceeding. A competitor may seek to
employ arguments made during the opposition to challenge claims in other issued patents that are in
the same patent family, including United States patents. 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 United States and Europe may be
harder to enforce than, and may not provide the same protection as, patents obtained in the United
States 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. Such a claim could be asserted while we are still
developing or marketing Hemopure. 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
trademark, product or manufacturing process. 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, will be able to obtain a license to any third party intellectual property on commercially
reasonable terms, successfully develop non-infringing alternatives on a timely basis, or license
alternative non-infringing trademarks, products, or manufacturing processes, if any exist, on
commercially reasonable terms. Any significant intellectual property impediment to our ability to
develop and commercialize Hemopure would seriously harm our business and prospects. Our profitability will be adversely affected if we incur product liability claims in excess of our
insurance coverage. 31




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BIOPURE CORPORATION Part II  Other Information
April 30, 2005 The testing and marketing of medical products, even after FDA approval, have an inherent risk
of product liability. We maintain limited product liability insurance coverage in the total amount
of $20,000,000. However, our profitability will be adversely affected by a successful product
liability claim in excess of our insurance coverage. We cannot guarantee that product liability insurance will be available in the future or be
available on reasonable terms. Replacing our sole source suppliers for key materials could result in unexpected delays and
expenses. We obtain some key materials, including membranes and chemicals, and services from sole source
suppliers. All of these materials are commercially available elsewhere. If such materials or
services were no longer available at a reasonable cost from our existing suppliers, we would need
to purchase substitute materials from new suppliers. If we need to locate a new supplier, the
substitute or replacement materials or facilities will need to be tested for equivalency. Such
equivalency tests could significantly delay development of a product, delay or limit commercial
sales of FDA-approved products, if any, and cause us to incur additional expense. We obtain bovine hemoglobin from one abattoir and from herds that are located in two states of
the United States. We cannot predict the future effect, if any, on us of the recent discovery of
mad cow disease in the United States. Any quarantine affecting herds that supply us or a shut
down of the abattoir we source from could have a material adverse effect on us, as we would have to
find, validate and obtain FDA approval of new sources of supply or new facilities. Changes in the securities laws and regulations are likely to increase our costs. The Sarbanes-Oxley Act of 2002, which became law in July 2002, has required changes in some of
our corporate governance, securities disclosure and compliance practices. In response to the
requirements of that Act, the SEC and the Nasdaq have promulgated new rules and listing standards
covering a variety of subjects. Compliance with these new rules and listing standards has increased
our general and administrative costs, and we expect these increased costs to continue. These
developments may make it more difficult and more expensive for us to obtain director and officer
liability insurance. Likewise, these developments may make it more difficult for us to attract and
retain qualified members of our board of directors, particularly independent directors, or
qualified executive officers. As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring
public companies to include a report of management on the companys internal controls over
financial reporting in their annual reports on Form 10-K that contains an assessment by management
of the effectiveness of the companys internal controls over financial reporting. In addition, the
public accounting firm auditing the companys financial statements must attest to and report on
managements assessment of the effectiveness of the companys internal
controls over financial reporting. This requirement will first apply to our annual report on Form
10-K for our fiscal year ending October 31, 2005. If our independent registered public accounting
firm does not provide us with an unqualified report as to the effectiveness of our internal
controls over financial reporting as of October 31, 2005 and future year-ends as required by
Section 404 of the Sarbanes-Oxley Act of 2002, investors could lose confidence in the reliability
of our financial statements, which could result in a decrease in the value of your securities. 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 32




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BIOPURE CORPORATION Part II  Other Information
April 30, 2005 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 percent of our Class A common stock from doing so
without obtaining our agreement to redeem the rights. If our agreement to redeem the rights
is not obtained, the acquiring person or group would suffer substantial dilution. Industry Risks Intense competition could harm our financial performance. 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 orthopedic surgery, trauma or
cardiac ischemia indications. We are aware that at least one public company competitor, Northfield
Laboratories Inc., is in the advanced stages of developing a hemoglobin-based oxygen carrier
produced from human blood that has passed its expiration date for human transfusion. Northfields
product is in a Phase 3 clinical trial for a trauma indication. We are also aware that 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 approved by regulatory authorities, with Hemopure. We could also
encounter competition in
cardiovascular ischemia indications from medical devices and drugs on the market or currently under
development. Increased competition could diminish our ability to become profitable or affect our
profitability in the future. Our existing and potential competitors:  
    are conducting preclinical studies and clinical trials of their products;
    might have or be able to access substantially greater resources than we have and be
better equipped to develop, manufacture and market their products;
    may have their products approved for marketing prior to Hemopure; and
    may develop superior technologies or products rendering our technology and products
non-competitive or obsolete. Stringent, ongoing government regulation and inspection of our products could lead to delays in
the manufacture, marketing and sale of our products. The FDA and comparable foreign regulatory authorities continue to regulate products even after they
receive marketing authorization. If the FDA or comparable foreign regulatory authorities approve
Hemopure, its 33




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BIOPURE CORPORATION Part II  Other Information
April 30, 2005 manufacture and marketing will be subject to ongoing regulation, including compliance with current
good manufacturing practices, adverse event reporting requirements and the FDAs general
prohibitions against promoting products for unapproved or off-label uses. We are also subject to
inspection and market surveillance by the FDA and comparable foreign regulatory authorities for
compliance with these and other requirements. 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 comparable foreign regulatory authorities could withdraw a
previously approved product from the applicable market(s) upon receipt of newly discovered
information. Furthermore, the FDA or comparable foreign regulatory authorities could require us to
conduct additional, and potentially expensive, studies in areas outside our approved indications.
Also, 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 United States. 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. Assuming we succeed in bringing Hemopure to market,
uncertainties regarding future health care reform and private market practices could affect our
ability to sell Hemopure in large quantities at profitable pricing in the United States 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 is approved for
marketing, 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. Investment Risks We may not continue to qualify for listing on the Nasdaq National Market, which may cause the
value of your investment in our company to substantially decrease. We may be unable to meet the listing requirements of the Nasdaq National Market in the future.
To maintain our listing on the Nasdaq National Market, we are required, among other things, to
maintain a minimum bid price per share of at least $1.00. In June 2004, we received notice from the
Nasdaq National Market that we were out of compliance with the $1.00 minimum bid price for
continued inclusion of our Class A common stock in the Nasdaq National Market. On May 27, 2005, we
effected a reverse stock split to increase our share price. We may not be able to regain
compliance with the minimum bid price requirement. If we are unable to maintain a $1.00 minimum bid
price, our Class A common stock might be delisted from the Nasdaq National Market. Delisting from
the Nasdaq National Market would adversely affect the trading price and limit the liquidity of our
common stock and therefore cause the value of an investment in our company to substantially
decrease. If 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 our then 34




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BIOPURE CORPORATION Part II  Other Information
April 30, 2005 existing stockholders. Subsequent sales of these 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. These future sales could also have an adverse effect on the market price of our shares and
could result in additional dilution to the holders of our 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. If our stock price declines, 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
National 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. Substantially all of our outstanding shares of Class A common stock are freely tradeable
in the public market, unless acquired by our affiliates. Other 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, which 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, 2002 through
June 6, 2005, the trading price of our
stock has ranged from a low of $1.21 per share (on June 6, 2005) to a high of $54.18 per share (on
August 1, 2003). 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 permanent key personnel; loss of key personnel;
    an inability to obtain or the perception that we will be unable to obtain adequate
financing to fund our operations;
    FDA action or delays in FDA action on Hemopure or competitors products;
    the outcome of SEC investigations, or any litigation or threatened litigation;
    publicity regarding actual or potential medical results relating to products under
development by us or our competitors;
    actual or potential preclinical or clinical trial results relating to products under
development by us or our competitors;   35




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BIOPURE CORPORATION Part II  Other Information
April 30, 2005  
    delays in our testing and development schedules;
    events or announcements relating to our relationships with others, including the status
of potential transactions with investors, licensees and other parties;
    announcements of technological innovations or new products by our competitors;
    developments or disputes concerning patents or proprietary rights;
    regulatory developments in the United States and foreign countries;
    economic and other factors, as well as period-to-period fluctuations in our financial results;
    market conditions for pharmaceutical and biotechnology stocks; and
    additional, future communications from the Nasdaq National Market concerning delisting
or potential delisting. External factors may also adversely affect the market price for our common stock. Our common
stock is expected to trade on the Nasdaq National Market under the
symbol BPURD until June 27, 2005, before reverting
to BPUR on June 28, 2005. The price and
liquidity of our common stock may be significantly affected by the overall trading activity and
market factors on the Nasdaq NM. 
 Item 6. Exhibits  The exhibits are listed in the accompanying Exhibit Index. 36




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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 CORPORATIONDate: June 9, 2005
    
    By:
    
    /s/ Francis H MurphyFrancis H. Murphy
Duly authorized officer of the Registrant and
Chief Financial Officer
 37




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EXHIBIT INDEX Number
    
    Description3(i)
    
    Restated Certificate of Incorporation and amendments through May 27, 20053(ii)
    

By-laws
of Biopure, as amended*31.1
    
    
    Certification of Zafiris G. Zafirelis pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification of Francis H. Murphy pursuant to Section 302 of the Sarbanes-Oxley Act
of 200232.1
    
    
    Certification of Zafiris G. Zafirelis pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification of Francis H. Murphy pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002*
Previously
filed as an exhibit to the Companys Registration Statement on
Form S-1 (File No. 333-78829) and incorporated herein by
reference thereto.
 38